```

[Federal Register Volume 77, Number 170 (Friday, August 31, 2012)]
[Rules and Regulations]
[Pages 53257-53750]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-19079]

[[Page 53257]]

Vol. 77

Friday,

No. 170

August 31, 2012

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, 413, 424, et al.

Medicare Program; Hospital Inpatient Prospective Payment Systems for 
Acute Care Hospitals and the Long-Term Care Hospital Prospective 
Payment System and Fiscal Year 2013 Rates; Hospitals' Resident Caps for 
Graduate Medical Education Payment Purposes; Quality Reporting 
Requirements for Specific Providers and for Ambulatory Surgical 
Centers; Final Rule

Federal Register / Vol. 77 , No. 170 / Friday, August 31, 2012 / 
Rules and Regulations

[[Page 53258]]

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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

42 CFR Parts 412, 413, 424, and 476

[CMS-1588-F]
RIN 0938-AR12

Medicare Program; Hospital Inpatient Prospective Payment Systems 
for Acute Care Hospitals and the Long-Term Care Hospital Prospective 
Payment System and Fiscal Year 2013 Rates; Hospitals' Resident Caps for 
Graduate Medical Education Payment Purposes; Quality Reporting 
Requirements for Specific Providers and for Ambulatory Surgical Centers

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

ACTION: Final rule.

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SUMMARY: We are revising 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 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 changes will be applicable to discharges occurring on or after 
October 1, 2012, unless otherwise specified in this final rule. We also 
are updating 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 updated rate-of-increase limits will be effective for cost 
reporting periods beginning on or after October 1, 2012.
    We are updating 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 
implementing certain statutory changes made by the Affordable Care Act. 
Generally, these changes will be applicable to discharges occurring on 
or after October 1, 2012, unless otherwise specified in this final 
rule.
    In addition, we are implementing changes relating to determining a 
hospital's full-time equivalent (FTE) resident cap for the purpose of 
graduate medical education (GME) and indirect medical education (IME) 
payments. We are establishing 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 also are establishing 
new administrative, data completeness, and extraordinary circumstance 
waivers or extension requests requirements, as well as a 
reconsideration process, for quality reporting by ambulatory surgical 
centers (ASCs) that are participating in Medicare.
    We are establishing requirements for the Hospital Value-Based 
Purchasing (VBP) Program and the Hospital Readmissions Reduction 
Program.

DATES: Effective date: This final rule is effective on October 1, 2012.

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.
Bridget Dickensheets, (410) 786-8670, Market Basket for LTCHs Issues.
Siddhartha Mazumdar, (410) 786-6673, Rural Community Hospital 
Demonstration Program Issues.
James Poyer, (410) 786-2261, Hospital Inpatient Quality Reporting and 
Hospital Value-Based Purchasing--Program Administration, Validation, 
and Reconsideration Issues.
Shaheen Halim, (410) 786-0641, Hospital Inpatient Quality Reporting--
Measures Issues Except Hospital Consumer Assessment of Healthcare 
Providers and Systems Issues; and Readmission Measures for Hospitals 
Issues.
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, and Barbara Choo, (410) 786-4449, 
Inpatient Psychiatric Facility Quality Reporting Issues and PPS-Exempt 
Cancer Hospital Quality Reporting Issues.
Anita Bhatia, (410) 786-7236, Ambulatory Surgical Center Quality 
Reporting (ASCQR) Program Issues.

SUPPLEMENTARY INFORMATION: 

Electronic Access

    This Federal Register document is also available from the Federal 
Register online database through the U.S. Government Printing Office 
Web page at: http://www.gpo.gov/fdsys/browse/collection.action?collectionCode=FR. Free public access is available on 
a Wide Area Information Server (WAIS) through the Internet and via 
asynchronous dial-in. Internet users can access the database by using 
the World Wide Web (the Superintendent of Documents' home Web page 
address), by using local WAIS client software, or by telnet to 
swais.access.gpo.gov, then login as guest (no password required). Dial-
in users should use communications software and modem to call (202) 
512-1661; type swais, then login as guest (no password required).

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 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 final 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 2013 IPPS Final Rule Home Page'' or 
``Acute Inpatient--Files for Download''. The LTCH PPS tables for this 
FY 2013 final 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-1588-F. For complete details on the availability 
of the tables referenced in this final rule, we refer readers to 
section VI. of the Addendum to this final rule.
    Readers who experience any problems accessing any of the tables 
that are posted on the CMS Web sites identified above should contact 
Nisha Bhat at (410) 786-4487.

[[Page 53259]]

Acronyms

3M 3M Health Information System
AAMC Association of American Medical Colleges
ACGME Accreditation Council for Graduate Medical Education
AHA American Hospital Association
AHIC American Health Information Community
AHIMA American Health Information Management Association
AHRQ Agency for Healthcare Research and Quality
ALOS Average length of stay
ALTHA Acute Long Term Hospital Association
AMA American Medical Association
AMGA American Medical Group Association
AOA American Osteopathic Association
APR DRG All Patient Refined Diagnosis Related Group System
ARRA American Recovery and Reinvestment Act of 2009, Public Law 111-
5
ASC Ambulatory Surgical Center
ASCA Administrative Simplification Compliance Act of 2002, Public 
Law 107-105
ASCQR Ambulatory Surgical Center Quality Reporting
ASITN American Society of Interventional and Therapeutic 
Neuroradiology
BBA Balanced Budget Act of 1997, Public Law 105-33
BBRA Medicare, Medicaid, and SCHIP [State Children's Health 
Insurance Program] Balanced Budget Refinement Act of 1999, Public 
Law 106-113
BIPA Medicare, Medicaid, and SCHIP [State Children's Health 
Insurance Program] Benefits Improvement and Protection Act of 2000, 
Public Law 106-554
BLS Bureau of Labor Statistics
CAH Critical access hospital
CARE [Medicare] Continuity Assessment Record & Evaluation 
[Instrument]
CART CMS Abstraction & Reporting Tool
CBSAs Core-based statistical areas
CC Complication or comorbidity
CCR Cost-to-charge ratio
CDAC [Medicare] Clinical Data Abstraction Center
CDAD Clostridium difficile-associated disease
CDC Center for Disease Control and Prevention
CIPI Capital input price index
CMI Case-mix index
CMS Centers for Medicare & Medicaid Services
CMSA Consolidated Metropolitan Statistical Area
COBRA Consolidated Omnibus Reconciliation Act of 1985, Public Law 
99-272
COLA Cost-of-living adjustment
CoP [Hospital] condition of participation
CPI Consumer price index
CRNA Certified Registered Nurse Anesthetist
CY Calendar year
DPP Disproportionate patient percentage
DRA Deficit Reduction Act of 2005, Public Law 109-171
DRG Diagnosis-related group
DSH Disproportionate share hospital
ECI Employment cost index
EDB [Medicare] Enrollment Database
EHR Electronic health record
EMR Electronic medical record
FAH Federation of Hospitals
FDA Food and Drug Administration
FFY Federal fiscal year
FQHC Federally qualified health center
FTE Full-time equivalent
FY Fiscal year
GAAP Generally Accepted Accounting Principles
GAF Geographic Adjustment Factor
GME Graduate medical education
HACs Hospital-acquired conditions
HCAHPS Hospital Consumer Assessment of Healthcare Providers and 
Systems
HCFA Health Care Financing Administration
HCO High-cost outlier
HCRIS Hospital Cost Report Information System
HHA Home health agency
HHS Department of Health and Human Services
HICAN Health Insurance Claims Account Number
HIPAA Health Insurance Portability and Accountability Act of 1996, 
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
IPPS [Acute care hospital] inpatient prospective payment system
IRF Inpatient rehabilitation facility
IQR Inpatient Quality Reporting
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
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
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
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

[[Page 53260]]

ProPAC Prospective Payment Assessment Commission
PRRB Provider Reimbursement Review Board
PRTFs Psychiatric residential treatment facilities
PSF Provider-Specific File
PS&R Provider Statistical and Reimbursement (System)
QIG Quality Improvement Group, CMS
QIO Quality Improvement Organization
RCE Reasonable compensation equivalent
RHC Rural health clinic
RHQDAPU Reporting hospital quality data for annual payment update
RNHCI Religious nonmedical health care institution
RPL Rehabilitation psychiatric long-term care (hospital)
RRC Rural referral center
RTI Research Triangle Institute, International
RUCAs Rural-urban commuting area codes
RY Rate year
SAF Standard Analytic File
SCH Sole community hospital
SFY State fiscal year
SIC Standard Industrial Classification
SNF Skilled nursing facility
SOCs Standard occupational classifications
SOM State Operations Manual
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

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) and the Health Care and Education Reconciliation 
Act of 2010 (Pub. L. 111-152) Applicable to FY 2013
    D. Issuance of a Notice of Proposed Rulemaking
II. Changes to Medicare Severity Diagnosis-Related Group (MS-DRG) 
Classifications and Relative Weights
    A. Background
    B. MS-DRG Reclassifications
    C. Adoption of the MS-DRGs in FY 2008
    D. FY 2013 MS-DRG Documentation and Coding Adjustment, Including 
the Applicability to the Hospital-Specific Rates and the Puerto 
Rico-Specific Standardized Amount
    1. Background on the Prospective MS-DRG Documentation and Coding 
Adjustments for FY 2008 and FY 2009 Authorized by Public Law 110-90
    2. Prospective Adjustment to the Average Standardized Amounts 
Required by Section 7(b)(1)(A) of Public Law 110-90
    3. Recoupment or Repayment Adjustments in FYs 2010 through 2012 
Required by Public Law 110-90
    4. Retrospective Evaluation of FY 2008 and FY 2009 Claims Data
    5. Prospective Adjustment for FY 2008 and FY 2009 Authorized by 
Section 7(b)(1)(A) of Public Law 110-90 and Section 1886(d)(3)(vi) 
of the Act
    6. Recoupment or Repayment Adjustment Authorized by Section 
7(b)(1)(B) of Public Law 110-90
    7. Background on the Application of the Documentation and Coding 
Adjustment to the Hospital-Specific Rates
    8. Documentation and Coding Adjustment to the Hospital-Specific 
Rates for FY 2011 and Subsequent Fiscal Years
    9. Application of the Documentation and Coding Adjustment to the 
Puerto Rico-Specific Standardized Amount
    a. Background
    b. Documentation and Coding Adjustment to the Puerto Rico-
Specific Standard Amount
    10. Prospective Adjustments for FY 2010 Documentation and Coding 
Effect
    E. Refinement of the MS-DRG Relative Weight Calculation
    1. Background
    2. Summary of Policy Discussions in FY 2012
    3. Discussion for FY 2013
    F. 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. Changes to the HAC Policy for FY 2013
    a. Additional Diagnosis Codes to Existing HACs
    b. New Candidate HAC Condition: Surgical Site Infection (SSI) 
Following Cardiac Implantable Electronic Device (CIED) Procedures
    c. New Candidate HAC Condition: Iatrogenic Pneumothorax With 
Venous Catheterization
    6. RTI Program Evaluation Summary
    a. RTI Analysis of FY 2011 POA Indicator Reporting Across 
Medicare Discharges
    b. RTI Analysis of FY 2011 POA Indicator Reporting of Current 
HACs
    c. RTI Analysis of FY 2011 Frequency of Discharges and POA 
Indicator Reporting for Current HACs
    d. RTI Analysis of Circumstances When Application of HAC 
Provisions Would Not Result in MS-DRG Reassignment for Current HACs
    e. RTI Analysis of Coding Changes for HAC-Associated Secondary 
Diagnoses for Current HACs
    f. RTI Analysis of Estimated Net Savings for Current HACs
    g. Previously Considered Candidate HACs--RTI Analysis of 
Frequency of Discharges and POA Indicator Reporting
    h. Current and Previously Considered Candidate HACs--RTI Report 
on Evidence-Based Guidelines
    i. Proposals Regarding Current HACs and Previously Considered 
Candidate HACs
    G. Changes to Specific MS-DRG Classifications
    1. Pre-Major Diagnostic Categories (Pre-MDCs)
    a. Ventricular Assist Device
    b. Allogeneic Bone Marrow Transplant
    2. MDC 4 (Diseases and Disorders of the Ear, Nose, Mouth and 
Throat): Influenza With Pneumonia
    3. MDC 5 (Diseases and Disorders of the Circulatory System)
    a. Percutaneous Mitral Valve Repair With Implant
    b. Endovascular Implantation of Branching or Fenestrated Grafts 
in Aorta
    4. MDC 10 (Endocrine, Nutritional, and Metabolic Diseases and 
Disorders): Disorders of Porphyrin Metabolism
    5. Medicare Code Editor (MCE) Changes
    a. MCE New Length of Stay Edit for Continuous Invasive 
Mechanical Ventilation for 96 Consecutive Hours or More
    b. Sleeve Gastrectomy Procedure for Morbid Obesity
    6. Surgical Hierarchies
    7. Complications or Comorbidity (CC) Exclusions List
    a. Background
    b. CC Exclusions List for FY 2013
    (1) No Revisions Based on Changes to the ICD-9-CM Diagnosis 
Codes for FY 2013
    (2) Suggested Changes to MS-DRG Severity Levels for Diagnosis 
Codes for FY 2013
    (A) Protein-Calorie Malnutrition
    (B) Antineoplastic Chemotherapy Induced Anemia
    (C) Cardiomyopathy and Congestive Heart Failure, Unspecified
    (D) Chronic Total Occlusion of Artery of the Extremities
    (E) Acute Kidney Failure With Other Specified Pathological 
Lesion in Kidney
    (F) Pressure Ulcer, Unstageable
    8. 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
    9. 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
    10. Public Comments on Issues Not Addressed in the Proposed Rule

[[Page 53261]]

    H. Recalibration of MS-DRG Weights
    1. Data Sources for Developing the Proposed Weights
    2. Methodology for Calculation of the Proposed Relative Weights
    3. Development of National Average CCRs
    4. Bundled Payments for Care Improvement (BPCI) Initiative
    a. Background
    b. Treatment of Data from Hospitals Participating in the BPCI 
Initiative
    I. 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 2013 Status of Technology Approved for FY 2012 Add-On 
Payments: AutoLaser Interstitial Thermal Therapy 
(AutoLITTTM)
    4. FY 2013 Applications for New Technology Add-On Payments
    a. Glucarpidase (Trade Brand Voraxaze[supreg])
    b. DIFICIDTM (Fidaxomicin) Tablets
    c. Zilver[supreg] PTX[supreg] Drug-Eluting Stent
    d. Zenith[supreg] Fenestrated Abdominal Aortic Aneurysm (AAA) 
Endovascular Graft
III. 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 FY 2013 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 FY 2013 Unadjusted Wage Index
    F. Occupational Mix Adjustment to the FY 2013 Wage Index
    1. Development of Data for the FY 2013 Occupational Mix 
Adjustment Based on the 2010 Occupational Mix Survey
    2. Calculation of the Occupational Mix Adjustment for FY 2013
    G. Analysis and Implementation of the Occupational Mix 
Adjustment and the FY 2013 Occupational Mix Adjusted Wage Index
    1. Analysis of the Occupational Mix Adjustment and the 
Occupational Mix Adjusted Wage Index
    2. Application of the Rural, Imputed, and Frontier Floors
    a. Rural Floor
    b. Imputed Floor and Proposal for an Alternative, Temporary 
Methodology for Computing the Imputed Floor
    c. Frontier Floor
    3. FY 2013 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 2013 MGCRB Reclassifications
    a. FY 2013 Reclassification Requirements and Approvals
    b. Applications for Reclassifications for FY 2014
    3. Redesignations of Hospitals Under Section 1886(d)(8)(B) of 
the Act
    4. Reclassifications Under Section 1886(d)(8)(B) of the Act
    5. Reclassifications Under Section 508 of Public Law 108-173
    6. Waiving Lugar Redesignation for the Out-Migration Adjustment
    7. Cancellation of Acquired Rural Status Due to MDH Expiration
    I. FY 2013 Wage Index Adjustment Based on Commuting Patterns of 
Hospital Employees
    J. Process for Requests for Wage Index Data Corrections
    K. Labor-Related Share for the FY 2013 Wage Index
IV. Other Decisions and Changes to the IPPS for Operating Costs and 
Graduate Medical Education (GME) Costs
    A. Hospital Readmission Reduction Program
    1. Statutory Basis for the Hospital Readmissions Reduction 
Program
    2. Overview
    3. FY 2013 Proposed and Final Policies for the Hospital 
Readmissions Reduction Program
    a. Overview
    b. Base Operating DRG Payment Amount, Including Special Rules 
for SCHs and MDHs and Hospitals Paid Under Section 1814 of the Act
    c. Adjustment Factor (Both the Ratio and Floor Adjustment 
Factor)
    d. Aggregate Payments for Excess Readmissions and Aggregate 
Payment for All Discharges
    e. Applicable Hospital
    4. Limitations on Review
    5. Reporting Hospital-Specific Information, Including 
Opportunity To Review and Submit Corrections
    B. Sole Community Hospitals (SCHs) (Sec.  412.92)
    1. Background
    2. Reporting Requirement and Clarification of Duration of 
Classification for Hospitals Incorrectly Classified as Sole 
Community Hospitals
    3. Change to Effective Date of Classification for MDHs Applying 
for SCH Status Upon the Expiration of the MDH Program
    C. Rural Referral Centers (RRCs): Annual Update to Case-Mix 
Index (CMI) and Discharge Criteria (Sec.  412.96)
    1. Case-Mix Index (CMI)
    2. Discharges
    D. Payment Adjustment for Low-Volume Hospitals (Sec.  412.101)
    1. Expiration of the Affordable Care Act Provision for FYs 2011 
and 2012
    2. Background
    3. Affordable Care Act Provisions for FYs 2011 and 2012
    4. Payment Adjustment for FY 2013 and Subsequent Years
    E. Indirect Medical Education (IME) Adjustment (Sec.  412.105)
    1. IME Adjustment Factor for FY 2013
    2. Timely Filing Requirements under Fee-for-Service Medicare
    a. IME and Direct GME
    b. Nursing and Allied Health Education
    c. Disproportionate Share Hospital (DSH) Payments
    d. Summary of Public Comments, Our Responses, and Final Policies
    3. Other Related Policy Changes
    F. Payment Adjustment for Medicare Disproportionate Share 
Hospitals (DSHs) and Indirect Medical Education (IME) (Sec. Sec.  
412.105 and 412.106)
    1. Background
    2. Policy Change Relating to Treatment of Labor and Delivery 
Beds in the Calculation of the Medicare DSH Payment Adjustment and 
the IME Payment Adjustment
    G. Expiration of the Medicare-Dependent, Small Rural Hospital 
(MDH) Program (Sec.  412.108)
    H. Changes in the Inpatient Hospital Update
    1. FY 2013 Inpatient Hospital Update
    2. FY 2013 Puerto Rico Hospital Update
    I. Payment for Graduate Medical Education (GME) and Indirect 
Medical Education (IME) Costs (Sec. Sec.  412.105, 413.75 through 
413.83)
    1. Background
    2. Teaching Hospitals: Change in New Program Growth from 3 Years 
to 5 Years
    3. Policies and Clarifications Related to 5-Year Period 
Following Implementation of Reductions and Increases to Hospitals' 
FTE Resident Caps for GME Payment Purposes Under Section 5503 of the 
Affordable Care Act
    4. Preservation of Resident Cap Positions From Closed Hospitals 
(Section 5506 of the Affordable Care Act)
    a. Background
    b. Change in Amount of Time Provided for Submitting Applications 
Under Section 5506 of the Affordable Care Act
    c. Change to the Ranking Criteria Under Section 5506
    d. Effective Dates of Slots Awarded Under Section 5506
    e. Clarification of Relationship Between Ranking Criteria One, 
Two, and Three
    f. Modifications to the Section 5506 CMS Evaluation Form
    5. Notice of Closure of Teaching Hospitals and Opportunity to 
Apply for Available Slots
    a. Background
    b. Notice of Closure of Teaching Hospitals
    c. Application Process for Available Resident Slots
    J. Changes to the Reporting Requirements for Pension Costs for 
Medicare Cost-Finding Purposes
    K. Rural Community Hospital Demonstration Program
    1. Background
    2. Budget Neutrality Offset Amount for FY 2013
    L. Hospital Routine Services Furnished Under Arrangements
    M. Technical Change
V. 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. Prospective Adjustment for the FY 2010 Documentation and 
Coding Effect
    1. Background

[[Page 53262]]

    2. Prospective Adjustment for the Effect of Documentation and 
Coding in FY 2010
    3. Documentation and Coding Adjustment to the Puerto Rico-
Specific Capital Rate
    D. Changes for Annual Update for FY 2013
VI. Changes for Hospitals Excluded From the IPPS
    A. Excluded Hospitals
    B. Report of Adjustment (Exceptions) Payments
VII. Changes to the Long-Term Care Hospital Prospective Payment 
System (LTCH PPS) for FY 2013
    A. Background of the LTCH PPS
    1. Legislative and Regulatory Authority
    2. Criteria for Classification as a LTCH
    a. Classification as a LTCH
    b. Hospitals Excluded From the LTCH PPS
    3. Limitation on Charges to Beneficiaries
    4. Administrative Simplification Compliance Act (ASCA) and 
Health Insurance Portability and Accountability Act (HIPAA) 
Compliance
    B. Medicare Severity Long-Term Care Diagnosis-Related Group (MS-
LTC-DRG) Classifications and Relative Weights for FY 2013
    1. Background
    2. Patient Classifications into MS-LTC-DRGs
    a. Background
    b. Changes to the MS-LTC-DRGs for FY 2013
    3. Development of the FY 2013 MS-LTC-DRG Relative Weights
    a. General Overview of the Development of the MS-LTC-DRG 
Relative Weights
    b. Development of the MS-LTC-DRG Relative Weights for FY 2013
    c. Data
    d. Hospital-Specific Relative Value (HSRV) Methodology
    e. Treatment of Severity Levels in Developing the MS-LTC-DRG 
Relative Weights
    f. Low-Volume MS-LTC-DRGs
    g. Steps for Determining the FY 2013 MS-LTC-DRG Relative Weights
    C. Use of a LTCH-Specific Market Basket Under the LTCH PPS
    1. Background
    2. Overview of the FY 2009-Based LTCH-Specific Market Basket
    3. Development of a LTCH-Specific Market Basket
    a. Development of Cost Categories
    b. Cost Category Computation
    c. Selection of Price Proxies
    d. Methodology for the Capital Portion of the FY 2009-Based 
LTCH-Specific Market Basket
    e. FY 2013 Market Basket for LTCHs
    f. FY 2013 Labor-Related Share
    D. Changes to the LTCH Payment Rates for FY 2013 and Other 
Changes to the LTCH PPS for FY 2013
    1. Overview of Development of the LTCH Payment Rates
    2. FY 2013 LTCH PPS Annual Market Basket Update
    a. Overview
    b. Revision of Certain Market Basket Updates as Required by the 
Affordable Care Act
    c. Market Basket Under the LTCH PPS for FY 2013
    d. Annual Market Basket Update for LTCHs for FY 2013
    3. LTCH PPS Cost-of-Living Adjustment (COLA) for LTCHs Located 
in Alaska and Hawaii
    E. Expiration of Certain Payment Rules for LTCH Services and the 
Moratorium on the Establishment of Certain Hospitals and Facilities 
and the Increase in Number of Beds in LTCHs and LTCH Satellite 
Facilities
    1. Background
    2. The 25-Percent Payment Adjustment Threshold
    3. The ``IPPS Comparable Per Diem Amount'' Payment Option for 
Very Short Stays Under the Short-Stay Outlier (SSO) Policy
    4. One-Time Prospective Adjustment to the Standard Federal Rate 
Under Sec.  412.523(d)(3)
    a. Overview
    b. Data Used to Estimate Aggregate FY 2003 TEFRA Payments
    c. Data Used to Estimate Aggregate FY 2003 LTCH PPS Payments
    d. Methodology to Evaluate Whether a One-Time Prospective 
Adjustment Under Sec.  412.523(d)(3) is Warranted
    e. Methodology to Estimate FY 2003 LTCH Payments Under the TEFRA 
Payment System
    f. Methodology to Estimate FY 2003 LTCH PPS Payments
    g. Methodology for Calculating the One-Time Prospective 
Adjustment Under Sec.  412.523(d)(3)
    h. Public Comments and CMS' Responses
    i. Final Policy Regarding the One-Time Prospective Adjustment 
Under Sec.  412.523(d)(3)
VIII. 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. 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 
Rulemakings
    c. Removal of Hospital IQR Program Measures for the FY 2015 
Payment Determination and Subsequent Years
    (1) Removal of One Chart-Abstracted Measure
    (2) Removal of 16 Claims-Based Measures
    d. Suspension of Data Collection for the FY 2014 Payment 
Determination and Subsequent Years
    3. Measures for the FY 2015 and FY 2016 Hospital IQR Program 
Payment Determinations
    a. Additional Considerations in Expanding and Updating Quality 
Measures Under the Hospital IQR Program
    b. Hospital IQR Program Measures for the FY 2015 Payment 
Determination and Subsequent Years
    (1) Process for Retention of Hospital IQR Program Measures 
Adopted in Previous Payment Determinations
    (2) Additional Hospital IQR Program Measures for FY 2015 Payment 
Determination and Subsequent Years
    c. Hospital IQR Program Quality Measures for the FY 2016 Payment 
Determination and Subsequent Years
    4. Possible New Quality Measures and Measure Topics for Future 
Years
    5. Form, Manner, and Timing of Quality Data Submission
    a. Background
    b. Procedural Requirements for the FY 2015 Payment Determination 
and Subsequent Years
    c. Data Submission Requirements for Chart-Abstracted Measures
    d. Sampling and Case Thresholds Beginning With the FY 2015 
Payment Determination
    e. HCAHPS Requirements for the FY 2014, FY 2015, and FY 2016 
Payment Determinations
    f. Data Submission Requirements for Structural Measures
    g. Data Submission and Reporting Requirements for Healthcare-
Associated Infection (HAI) Measures Reported via NHSN
    6. Supplements to the Chart Validation Process for the Hospital 
IQR Program for the FY 2015 Payment Determination and Subsequent 
Years
    a. Separate Processes for Sampling and Scoring for Chart-
Abstracted Clinical Process of Care and HAI Measures
    (1) Background and Rationale
    (2) Selection and Sampling of Clinical Process of Care Measures 
for Validation
    (3) Selection and Sampling of HAI Measures for Validation
    (4) Validation Scoring for Chart-Abstract Clinical Process of 
Care and HAI Measures
    (5) Criteria to Evaluate Whether a Score Passes or Fails
    b. Number and Manner of Selection for Hospitals Included in the 
Base Annual Validation Random Sample
    c. Targeting Criteria for Selection of Supplemental Hospitals 
for Validation
    7. Data Accuracy and Completeness Acknowledgement Requirements 
for the FY 2015 Payment Determination and Subsequent Years
    8. Public Display Requirements for the FY 2015 Payment 
Determination and Subsequent Years
    9. Reconsideration and Appeal Procedures for the FY 2015 Payment 
Determination
    10. Hospital IQR Program Disaster Extensions or Waivers
    11. Electronic Health Records (EHRs)
    a. Background
    b. HITECH Act EHR Provisions
    B. PPS-Exempt Cancer Hospital Quality Reporting (PCHQR) Program
    1. Statutory Authority
    2. Covered Entities
    3. Quality Measures for PCHs for FY 2014 Program and Subsequent 
Program Years
    a. Considerations in the Selection of the Quality Measures

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    b. PCHQR Program Quality Measures for FY 2014 Program and 
Subsequent Program Years
    (1) CDC/NHSN-Based Healthcare-Associated Infection (HAI) 
Measures
    (2) Cancer-Specific Measures
    4. Possible New Quality Measure Topics for Future Years
    5. Maintenance of Technical Specifications for Quality Measures
    6. Public Display Requirements for the FY 2014 Program and 
Subsequent Program Years
    7. Form, Manner, and Timing of Data Submission for FY 2014 
Program and Subsequent Program Years
    a. Background
    b. Procedural Requirements for FY 2014 Program and Subsequent 
Program Years
    c. Reporting Mechanisms for FY 2014 Program and Subsequent 
Program Years
    (1) Reporting Mechanism for the HAI Measures
    (2) Reporting Mechanism for the Cancer-Specific Measures
    d. Data Submission Timelines for FY 2014 Program and Subsequent 
Program Years
    e. Data Accuracy and Completeness Acknowledgement (DACA) 
Requirements for the FY 2014 Program and Subsequent Program Years
    C. Hospital Value-Based Purchasing (VBP) Program
    1. Statutory Background
    2. Overview of the FY 2013 Hospital VBP Program
    3. FY 2014 Hospital VBP Program Measures
    4. Other Previously Finalized Requirements for the Hospital VBP 
Program
    5. Hospital VBP Payment Adjustment Calculation Methodology
    a. Definitions of the Term ``Base Operating DRG Payment Amount'' 
for Purposes of the Hospital VBP Program
    b. Calculating the Funding Amount for Value-Based Incentive 
Payments Each Year
    c. Methodology To Calculate the Value-Based Incentive Payment 
Adjustment Factor
    d. Timing of the Base Operating DRG Payment Amount Reduction and 
Value-Based Incentive Payment Adjustment for FY 2013 and Future 
Hospital VBP Program Years
    e. Process for Reducing the Base Operating DRG Payment Amount 
and Applying the Value-Based Incentive Payment Adjustment for FY 
2013
    6. Review and Corrections Processes
    a. Background
    b. Review and Corrections Process for Claims-Based Measure Rates
    c. Review and Corrections Process for Condition-Specific Scores, 
Domain-Specific Scores, and Total Performance Scores
    7. Appeal Process Under the Hospital VBP Program
    a. Background
    b. Appeal Process
    8. Measures for the FY 2015 Hospital VBP Program
    a. Relationship Between the National Strategy and the Hospital 
VBP Program
    b. FY 2015 Measures
    c. General Process for Hospital VBP Program Measure Adoption for 
Future Program Years
    9. Measures and Domains for the FY 2016 Hospital VBP Program
    a. FY 2016 Measures
    b. Quality Measure Domains for the FY 2016 Hospital VBP Program
    10. Performance Periods and Baseline Periods for the FY 2015 
Hospital VBP Program
    a. Clinical Process of Care Domain Performance Period and 
Baseline Periods for FY 2015
    b. Patient Experience of Care Domain Performance Period and 
Baseline Period for FY 2015
    c. Efficiency Domain Measure Performance Period and Baseline 
Period for FY 2015
    d. Outcome Domain Performance Periods for FY 2015
    (1) Mortality Measures
    (2) AHRQ PSI Composite Measure
    (3) CLABSI Measure
    e. Performance Periods for FY 2016 Measures
    11. Performance Standards for the Hospital VBP Program for FY 
2015 and FY 2016
    a. Background
    b. Performance Standards for the FY 2015 Hospital VBP Program 
Measures
    c. Performance Standards for FY 2016 Hospital VBP Program 
Measures
    d. Adopting Performance Periods and Standards for Future Program 
Years
    12. FY 2015 Hospital VBP Program Scoring Methodology
    a. General Hospital VBP Program Scoring Methodology
    b. Domain Weighting for the FY 2015 Hospital VBP Program for 
Hospitals That Receive a Score on all Four Proposed Domains
    c. Domain Weighting for Hospitals Receiving Scores on Fewer Than 
Four Domains
    13. Applicability of the Hospital VBP Program to Hospitals
    a. Background
    b. Exemption Request Process for Maryland Hospitals
    14. Minimum Numbers of Cases and Measures for the FY 2015 
Program
    a. Background
    b. Minimum Numbers of Cases and Measures for the FY 2015 Outcome 
Domain
    c. Medicare Spending Per Beneficiary Measure Case Minimum
    15. Immediate Jeopardy Citations
    D. Long-Term Care Hospital Quality Reporting (LTCHQR) Program
    1. Statutory History
    2. LTCH Program Measures for the FY 2014 Payment Determination 
and Subsequent Fiscal Years Payment Determinations
    a. Process for Retention of LTCHQR Program Measures Adopted in 
Previous Payment Determinations
    b. Process for Adopting Changes to LTCHQR Program Measures
    3. CLABSI, CAUTI, AND Pressure Ulcer Measures
    4. LTCHQR Program Quality Measures for the FY 2016 Payment 
Determinations and Subsequent Fiscal Years Payment Determinations
    a. Considerations in Updating and Expanding Quality Measures 
Under the LTCHQR Program for FY 2016 and Subsequent Payment Update 
Determinations
    b. New LTCHQR Program Quality Measures Beginning With the FY 
2016 Payment Determination
    (1) Quality Measure 1 for the FY 2016 Payment 
Determination and Subsequent Fiscal Years Payment Determinations: 
Percent of Nursing Home Residents who Were Assessed and 
Appropriately Given the Seasonal Influenza Vaccine (Short-Stay) (NQF 
0680)
    (2) LTCH Quality Measure 2 for the FY 2016 Payment 
Determination and Subsequent Fiscal Years Payment Determinations: 
Percentage of Residents or Patients who Were Assessed and 
Appropriately Given the Pneumococcal Vaccine (Short-Stay) (NQF 
0682)
    (3) LTCH Quality Measure 3 for the FY 2016 Payment 
Determination and Subsequent Fiscal Years Payment Determinations: 
Influenza Vaccination Coverage Among Healthcare Personnel (NQF 
0431)
    (4) LTCH Quality Measure 4 for the FY 2016 Payment 
Determination and Subsequent Fiscal Years Payment Determinations: 
Ventilator Bundle (Application of NQF 0302)
    (5) LTCH Quality Measure 5 for the FY 2016 Payment 
Determination and Subsequent Fiscal Years Payment Determinations: 
Restraint Rate per 1,000 Patient Days
    5. Timeline for Data Submission Under the LTCHQR Program for the 
FY 2015 Payment Determination
    6. Timeline for Data Submission Under the LTCHQR Program for the 
FY 2016 Payment Determination
    7. Public Display of Data Quality Measures
    E. Quality Reporting Requirements Under the Ambulatory Surgical 
Centers Quality Reporting (ASCQR) Program
    1. Background
    2. Requirements for Reporting Under the ASCQR Program
    a. Administrative Requirements
    (1) Requirements Regarding QualityNet Account and Administrator 
for the CYs 2014 and 2015 Payment Determinations
    (2) Requirements Regarding Participation Status for the CY 2014 
Payment Determination and Subsequent Payment Determination Years
    b. Requirements Regarding Form, Manner, and Timing for Claims-
Based Measures for CYs 2014 and 2015 Payment Determinations
    (1) Background
    (2) Minimum Threshold for Claims-Based Measures Using QDCs
    c. ASCQR Program Validation of Claims-Based and Structural 
Measures
    3. Extraordinary Circumstances Extension or Waiver for the CY 
2014 Payment Determination and Subsequent Payment Determination 
Years
    4. ASCQR Program Reconsideration Procedures for the CY 2014 
Payment

[[Page 53264]]

Determination and Subsequent Payment Determination Years
    F. Inpatient Psychiatric Facilities Quality Reporting (IPFQR) 
Program
    1. Statutory Authority
    2. Application of the Payment Update Reduction for Failure To 
Report for FY 2014 Payment Determination and Subsequent Years
    3. Covered Entities
    4. Quality Measures
    a. Considerations in Selecting Quality Measures
    b. Quality Measures Beginning With FY 2014 Payment Determination 
and Subsequent Years
    (1) HBIPS-2 (Hours of Physical Restraint Use)
    (2) HBIPS-3 (Hours of Seclusion Use)
    (3) HBIPS-4 (Patients Discharged on Multiple Antipsychotic 
Medications)
    (4) HBIPS-5 (Patients Discharged on Multiple Antipsychotic 
Medications With Appropriate Justification)
    (5) HBIPS-6 (Post Discharge Continuing Care Plan Created)
    (6) HBIPS-7 (Post Discharge Continuing Care Plan Transmitted to 
the Next Level of Care Provider Upon Discharge)
    c. Maintenance of Technical Specifications for Quality Measures
    5. Possible New Quality Measures for Future Years
    6. Public Display Requirements for the FY 2014 Payment 
Determination and Subsequent Years
    7. Form, Manner, and Timing of Quality Data Submission for the 
FY 2014 Payment Determination and Subsequent Years
    a. Background
    b. Procedural Requirements for the FY 2014 Payment Determination 
and Subsequent Years
    c. Reporting and Submission Requirements for the FY 2014 Payment 
Determination
    d. Reporting and Submission Requirements for the FY 2015 and FY 
2016 Payment Determinations
    e. Population, Sampling, and Minimum Case Threshold for FY 2014 
and Subsequent Years
    f. Data Accuracy and Completeness Acknowledgement Requirements 
for the FY 2014 Payment Determination and Subsequent Years
    8. Reconsideration and Appeals Procedure for the FY 2014 Payment 
Determination and Subsequent Years
    9. Waivers From Quality Reporting Requirements for the FY 2014 
Payment Determination and Subsequent Years
    10. Electronic Health Records (EHRs)
IX. MedPAC Recommendations and Other Related Reports and Studies for 
the IPPS and LTCH PPS
    A. MedPAC Recommendations for the IPPS for FY 2013
    B. Studies and Reports on Reforming the Hospital Wage Index
    1. Secretary's Report to Congress on Wage Index Reform
    2. Institute of Medicine (IOM) Study on Medicare's Approach to 
Measuring Geographic Variations in Hospitals' Wage Costs
X. Quality Improvement Organization (QIO) Regulation Changes 
Relating to Provider and Practitioner Medical Record Deadlines and 
Claim Denials
XI. 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 Occupational Mix Adjustment to the FY 2013 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 Ambulatory Surgical Center (ASC) Quality 
Reporting Program
    11. ICRs for the Inpatient Psychiatric Facilities Quality 
Reporting (IPFQR) Program
Regulation Text
Addendum--Schedule of Standardized Amounts, Update Factors, and 
Rate-of-Increase Percentages Effective With Cost Reporting Periods 
Beginning on or After October 1, 2012 and Payment Rates for LTCHs 
Effective With Discharges Occurring on or After October 1, 2012
I. Summary and Background
II. Changes to the Prospective Payment Rates for Hospital Inpatient 
Operating Costs for Acute Care Hospitals for FY 2013
    A. Calculation of the Adjusted Standardized Amount
    B. Adjustments for Area Wage Levels and Cost-of-Living
    C. Calculation of the Prospective Payment Rates
III. Changes to Payment Rates for Acute Care Hospital Inpatient 
Capital-Related Costs for FY 2013
    A. Determination of Federal Hospital Inpatient Capital-Related 
Prospective Payment Rate Update
    B. Calculation of the Inpatient Capital-Related Prospective 
Payments for FY 2013
    C. Capital Input Price Index
IV. Changes to Payment Rates for Excluded Hospitals: Rate-of-
Increase Percentages for FY 2013
V. Changes to the Payment Rates for the LTCH PPS for FY 2013
    A. LTCH PPS Standard Federal Rate for FY 2013
    B. Adjustment for Area Wage Levels Under the LTCH PPS for FY 
2013
    1. Background
    2. Geographic Classifications/Labor Market Area Definitions
    3. LTCH PPS Labor-Related Share
    4. LTCH PPS Wage Index for FY 2013
    5. Budget Neutrality Adjustment for Changes to the Area Wage 
Level Adjustment
    C. LTCH PPS Cost-of-Living Adjustment for LTCHs Located in 
Alaska and Hawaii
    D. Adjustment for LTCH PPS High-Cost Outlier (HCO) Cases
    E. Computing the Adjusted LTCH PPS Federal Prospective Payments 
for FY 2013
VI. Tables Referenced in this Final 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 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 Policy Changes
    1. Effects of Policy on HACs, Including Infections
    2. Effects of Policy Relating to New Medical Service and 
Technology Add-On Payments
    3. Effects of Policy Changes Relating to SCHs
    4. Effects of Payment Adjustment for Low-Volume Hospitals for FY 
2013
    5. Effects of Policy Changes Relating to Payment Adjustments for 
Medicare Disproportionate Share Hospitals (DSHs) and Indirect 
Medical Education (IME)
    6. Effects of the Policy Changes Relating to Direct GME and IME
    a. Effects of Clarification and Policy Regarding Timely Filing 
Requirements for Claims for Medicare Advantage Enrollees Under Fee-
for-Service Medicare
    b. Effects of Policy Changes Relating to New Teaching Hospitals: 
New Program Growth From 3 Years to 5 Years
    c. Effects of Changes Relating to 5-Year Period Following 
Implementation of Reductions and Increases to Hospitals' FTE 
Resident Caps for GME Payment Purposes Under Section 5503 of The 
Affordable Care Act
    d. Preservation of Resident Cap Positions From Closed Hospitals 
(Section 5506 of the Affordable Care Act)
    7. Effects of Changes Relating to the Reporting Requirements for 
Pension Costs for Medicare Cost-Finding Purposes
    8. Effects of Implementation of Rural Community Hospital 
Demonstration Program
    9. Effects of Change in Effective Date for Policies Relating to 
Hospital Services Furnished Under Arrangements
    I. Effects of Changes in the Capital IPPS
    1. General Considerations
    2. Results
    J. Effects of Payment Rate Changes and Policy Changes Under the 
LTCH PPS
    1. Introduction and General Considerations
    2. Impact on Rural Hospitals

[[Page 53265]]

    3. Anticipated Effects of LTCH PPS Payment Rate Change and 
Policy Changes
    4. Effect on the Medicare Program
    5. Effect on Medicare Beneficiaries
    K. Effects of Requirements for Hospital Inpatient Quality 
Reporting (IQR) Program
    L. Effects of PPS-Exempt Cancer Hospital Quality Reporting 
(PCHQR) Program
    M. Effects of Hospital Value-Based Purchasing (VBP) Program 
Requirements
    N. Effects of New Measures Added to the LTCH Quality Reporting 
(LTCHQR) Program
    O. Effects of Quality Reporting Requirements for Ambulatory 
Surgical Centers
    P. Effects of Requirements for the Inpatient Psychiatric 
Facilities Quality Reporting (IPFQR) Program
    Q. Effects of Requirements for Provider and Practitioner Medical 
Record Deadlines and Claims Denials
    R. Alternatives Considered
    S. Overall Conclusion
    1. Acute Care Hospitals
    2. LTCHs
II. Accounting Statements and Tables
    A. Acute Care Hospitals
    B. LTCHs
III. Regulatory Flexibility Act (RFA) Analysis
IV. Impact on Small Rural Hospitals
V. Unfunded Mandate Reform Act (UMRA) Analysis
VI. 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 2013
    A. FY 2013 Inpatient Hospital Update
    B. Update for SCHs for FY 2013
    C. FY 2013 Puerto Rico Hospital Update
    D. Update for Hospitals Excluded From the IPPS
    E. Update for LTCHs
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 final rule makes 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 makes 
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 makes policy changes to 
programs associated with Medicare IPPS hospitals and LTCHs.
    Under various statutory authorities, we are making changes to the 
Medicare IPPS, to the LTCH PPS, and to other related payment 
methodologies and programs for FY 2013. 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 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 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. 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 directs the Secretary to 
begin making value-based incentive payments under the Hospital 
Inpatient VBP Program to hospitals for discharges occurring on or after 
October 1, 2012.
     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.

[[Page 53266]]

2. Summary of the Major Provisions
a. MS-DRG Documentation and Coding Adjustment, Including the 
Applicability to the Hospital-Specific Rates and the Puerto Rico-
Specific Standardized Amount
    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 prospective adjustment under 
section 1886(d)(3)(A)(vi) of the Act.
    Section 7(b)(1)(B) of Public Law 110-90 requires the Secretary to 
make an additional one-time adjustment to the standardized amounts to 
offset the estimated increase or decrease in aggregate payments for FYs 
2008 and 2009 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.
    After accounting for adjustments made in FYs 2008 and 2009, we have 
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. Without making this adjustment, our actuaries 
estimated that annual aggregate payments would be increased by 
approximately $4 billion. Furthermore, an additional one-time 
adjustment of -5.8 percent would be required to fully recapture 
overpayments (estimated at approximately $6.9 billion) due to 
documentation and coding that occurred in FY 2008 and FY 2009, as 
required by section 7(b)(1)(B) of Public Law 110-90.
    CMS has thus far implemented a -2.0 percent (of a required -3.9 
percent) prospective adjustment, and completed the full one-time -5.8 
percent recoupment adjustment (-2.9 percent in both FYs 2011 and 2012). 
In FY 2013, we are completing the remaining -1.9 percent prospective 
adjustment, while also making a + 2.9 percent adjustment to remove the 
effect of the FY 2012 one-time recoupment adjustment. We have also 
determined that a cumulative adjustment of -5.4 percent is required to 
eliminate the full effect of documentation and coding changes on future 
payments to SCHs and MDHs. After accounting for adjustments made to the 
hospital-specific rate in FY 2011 and FY 2012, an additional 
prospective adjustment of -0.5 percent is necessary to complete the 
full -5.4 adjustment. For FY 2013, we are making a full -0.5 percent 
adjustment to the hospital-specific rate, in keeping with our policy of 
applying equivalent adjustments, when applicable, to other subsection 
(d) hospital payment systems.
    In the FY 2013 IPPS/LTCH PPS proposed rule, we proposed to make an 
additional adjustment to account for documentation and coding effects 
that occurred in FY 2010. After review of comments and recommendations 
from MedPAC, CMS analyzed FY 2010 claims using the same methodology as 
previously applied to FYs 2008 and 2009 claims. CMS estimated that 
there was a 0.8 percentage point effect due to documentation and coding 
that did not reflect an actual increase in patient severity. However, 
in light of public comments we received on the proposed rule, we are 
not making an adjustment to account for this effect at this time. 
Therefore, the total documentation and coding adjustment for FY 2013 is 
a + 1.0 percent adjustment (-1.9 plus + 2.9) to the standardized amount 
and a -0.5 percent adjustment to the hospital-specific rate.
b. Hospital-Acquired Conditions (HACs)
    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.
    In this final rule, we are adding two new conditions, Surgical Site 
Infection (SSI) Following Cardiac Implantable Electronic Device (CIED) 
Procedures and Pneumothorax with Venous Catheterization, for the HAC 
payment provisions for FY 2013 under section 1886(d)(4)(D) of the Act. 
We note that the SSI Following CEID Procedures condition will be a new 
subcategory of the SSI HAC category. We also are adding diagnosis codes 
999.32 (Bloodstream infection due to central venous catheter) and 
999.33 (Local infection due to central venous catheter) to the existing 
Vascular Catheter-Associated Infection HAC category for FY 2013.
c. Reduction of Hospital Payments for Excess Readmissions
    We are finalizing a number of 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 payments to account for excess readmissions of 
selected applicable conditions, which are acute myocardial infarction, 
heart failure, and pneumonia. We are finalizing provisions related to 
the applicable hospitals that are included in the Hospital Readmissions 
Reduction Program, the methodology to calculate the adjustment factor, 
the portion of the hospital's payment that is reduced by the adjustment 
factor, and the process under which the hospitals have the opportunity 
to review and submit corrections for their readmissions information 
prior to the information being posted on the Hospital Compare Web site.
d. Long-Term Care Hospital-Specific Market Basket
    We are updating LTCH payment rates with a separate market basket 
comprised of data from only LTCHs, which we refer to as a ``LTCH-
specific market basket.'' We are implementing a stand-alone LTCH market 
basket based on FY 2009 Medicare cost report data. The method used to 
calculate the cost weights and the price proxies used are generally 
similar to those used in the FY 2008-based RPL market basket that was 
finalized for the FY 2012 IPPS/LTCH PPS final rule. The primary 
difference is that we are using data from LTCH providers only.
e. Expiration of Certain Payment Rules for LTCH Services and the 
Moratorium on the Establishment of Certain Hospitals and Satellite 
Facilities and the Increase in the Number of Beds in LTCHs and LTCH 
Satellite Facilities
    Moratoria on the implementation of certain LTCH payment policies 
and on the development of new LTCHs and LTCH satellite facilities and 
on bed increases in existing LTCHs and LTCH satellite facilities 
established under sections 114(c) and (d) of the MMSEA (Pub. L. 110-
173) as amended by section 4302 of the ARRA (Pub. L. 111-5) and further 
amended by sections

[[Page 53267]]

3106 and 10312 of the Affordable Care Act are set to expire during CY 
2012, under current law.
    The moratoria established by these provisions delayed the full 
implementation of the following policies for 5 years beginning at 
various times in CY 2007:
     The full application of the ``25-percent payment 
adjustment threshold'' to certain LTCHs, including hospitals-within-
hospitals (HwHs) and LTCH satellite facilities for cost reporting 
periods beginning on or after July 1, 2007, and before July 1, 2012, or 
cost reporting periods beginning on or after October 1, 2007, and 
before October 1, 2012, as applicable under the regulations at 
Sec. Sec.  412.534 and 412.536.
     The inclusion of an ``IPPS comparable per diem amount'' 
option for payment determinations under the short stay outlier (SSO) 
adjustment at Sec.  412.529 of the regulations for LTCH discharges 
occurring on or after December 29, 2007, but prior to December 29, 
2012.
     The application of any one-time budget neutrality 
adjustment to the LTCH PPS standard Federal rate provided for in Sec.  
412.523(d)(3) of the regulations from December 29, 2007, through 
December 28, 2012.
     In general, the development of new LTCHs and LTCH 
satellite facilities, or increases in the number of beds in existing 
LTCHs and LTCH satellite facilities from December 29, 2007, through 
December 28, 2012, unless one of the specified exceptions to the 
particular moratorium was met.
    In this final rule, we are extending the existing delay of the full 
implementation of the 25-percent payment adjustment threshold for an 
additional year; that is, for cost reporting periods beginning on or 
after October 1, 2012, and before October 1, 2013, as applicable. We 
are providing a 1-year moratorium on the application of the ``25-
percent threshold'' payment adjustment for cost reporting periods 
beginning on or after October 1, 2012, and before October 1, 2013. 
However, the moratorium will expire for several types of LTCHs with 
cost reporting periods beginning before July 1, 2012 and September 30, 
2012, prior to the effective date of the moratorium finalized in this 
rule. This gap in the continued application of the moratorium is a 
result of the July 1, 2007 effective date of section 114(c)(1) of the 
MMSEA, as amended by section 4302(a)(1) of the ARRA, which was based on 
the former July 1 through June 30 regulatory cycle for the LTCH PPS. In 
order to address this situation for this group of LTCHs, we are 
finalizing a policy that applies a supplemental moratorium on a per 
discharge basis beginning with discharges occurring on or after October 
1, 2012, and continuing through the LTCH's cost reporting period.
    We are providing for an additional 1-year extension in the delay of 
the full application of the 25-percent payment adjustment threshold 
policy because we believe that, based on a recent research initiative, 
we could soon be in a position to propose revisions to our payment 
policies that could render the 25-percent payment adjustment threshold 
policy unnecessary. In light of this potential result, we believe it is 
prudent to avoid requiring LTCHs (or CMS systems) to implement the full 
reinstatement of the policy for what could be a relatively short period 
of time.
    We are not making any changes to the SSO policy as it currently 
exists in the regulations at Sec.  412.529. Accordingly, consistent 
with the existing regulations at Sec.  412.529(c)(3), for SSO 
discharges occurring on or after December 29, 2012, the ``IPPS 
comparable per diem amount'' option at Sec.  412.529(c)(3)(i)(D) will 
apply to payment determinations for cases with a covered length of stay 
that was equal to or less than one standard deviation from the 
geometric average length of stay for the same MS-DRG under the IPPS 
(that is, the ``IPPS comparable threshold'').
    The moratoria on the development of new LTCHs or LTCH satellite 
facilities and on an increase in the number of beds in existing LTCHs 
or LTCH satellite facilities are set to expire on December 29, 2012, 
under current law.
    We are making a one-time prospective adjustment under Sec.  
412.523(d)(3) of the regulations (which will not apply to payments for 
discharges occurring on or before December 28, 2012, consistent with 
the statute) and to transition the application of this adjustment over 
a 3-year period. Regulations at Sec.  412.523(d)(3) provide for the 
possibility of making a one-time prospective adjustment to the LTCH PPS 
rates 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.
f. 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 final rule, we are making programmatic changes to the 
Hospital IQR Program for the FY 2015 payment determination and 
subsequent years. These changes will streamline and simplify the 
process for hospitals and reduce burden. We are reducing the number of 
measures in the Hospital IQR Program from 72 to 59 for the FY 2015 
payment determination. We are removing 1 chart-abstracted measure and 
16 claims-based measures from the program for the FY 2015 payment 
determination and subsequent years. We are removing these measures for 
a number of reasons, including that these measures are losing NQF 
endorsement, are included in an existing composite measure, are 
duplicative of other measures in the Hospital IQR Program, or could 
otherwise be reported on Hospital Compare in the future under the 
authority of section 3008 of the Affordable Care Act. In addition, we 
are adopting three claims-based measures, one chart-abstracted measure 
and a survey-based measure regarding care transitions, which we will 
collect using the existing HCAHPS survey, to the measure set for the FY 
2015 payment determination and subsequent years. We are adopting a 
structural measure for the FY 2016 payment determination and subsequent 
years.
    In an effort to streamline the rulemaking process, we are retaining 
measures for all subsequent payment determinations, unless specifically 
stated otherwise, through rulemaking. We are adopting a policy under 
which we will use a subregulatory process to make nonsubstantive 
updates to the Hospital IQR Program measures. To ensure that hospitals 
that participate in the Hospital IQR Program are submitting data for a 
full year, we are providing that hospitals that would like to 
participate in the Hospital IQR Program for the first time, or that 
previously withdrew from the Program and would like to participate 
again, must submit a completed Notice of Participation by December 31 
of the calendar year preceding the first quarter of the calendar year 
in which chart-abstracted data submission is required for any given 
fiscal year. In addition, if a hospital wishes to withdraw from the 
program, it will have until May 15 prior to the start of the payment 
year affected to do so. In order to reduce the burden associated with 
validation, we are reducing the base annual validation sample from 800 
to 400, with an

[[Page 53268]]

additional targeted sample of up to 200 hospitals. All hospitals 
failing validation in a previous year will be included in the 200 
hospital supplement, with a random sample drawn from hospitals meeting 
one or more additional targeting criteria. We are calculating scores 
for both the chart-abstracted clinical process of care and HAC measure 
sets and then calculating a total score reflecting a weighted average 
of each of the two individual scores. Hospitals must achieve a total 
score of 75 percent to pass validation.
g. 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 Inpatient VBP 
Program to hospitals for discharges occurring on or after October 1, 
2012. These incentive payments will be funded for FY 2013 through a 
reduction to the FY 2013 base operating MS-DRG payment for each 
discharge of 1 percent, as required by section 1886(o)(7)(B)(i) 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 previously published the requirements and related measures to 
implement the Hospital Inpatient VBP Program in a final rule issued in 
the Federal Register on April 29, 2011 (76 FR 26490, May 6, 2011), in 
the FY 2012 IPPS/LTCH PPS final rule (76 FR 51653 through 51660), and 
in the CY 2012 OPPS/ASC final rule (76 FR 74527 through 74547). In this 
final rule, we are adding requirements for the Hospital VBP Program. 
Specifically, we are adding for the FY 2015 program two additional 
outcome measures--an AHRQ Patient Safety Indicators composite measure 
and CLABSI: Central Line-Associated Blood Stream Infection. We are 
adding a measure of Medicare Spending per Beneficiary in the Efficiency 
domain. We are also finalizing a number of other requirements for the 
program, including an appeals process, case minimums, a review and 
corrections process for claims-based measures, and the scoring 
methodology for FY 2015.
3. Summary of Costs and Benefits
     FY 2013 Documentation and Coding Adjustment: Section 
7(b)(1)(A) of Public Law 110-90 requires that, if the Secretary 
determines that implementation of the MS-DRG system resulted in changes 
in documentation and coding that did not reflect real changes in case-
mix for discharges occurring during FY 2008 or FY 2009 that are 
different than the prospective documentation and coding adjustments 
applied under section 7(a) of Public Law 110-90, the Secretary shall 
make an appropriate prospective adjustment under section 
1886(d)(3)(A)(vi) of the Act. Section 7(b)(1)(B) of Public Law 110-90 
requires the Secretary to make an additional one-time adjustment to the 
standardized amounts to offset the estimated increase or decrease in 
aggregate payments for FYs 2008 and 2009 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.
    After accounting for adjustments made in FYs 2008 and 2009, we have 
found a remaining documentation and coding effect of 3.9 percent. As we 
have discussed in prior rules, an additional cumulative adjustment of -
3.9 percent will be necessary to meet the requirements of section 
7(b)(1)(A) of Public Law 110-90. Without making this adjustment, our 
actuaries estimated that annual aggregate payments would be increased 
by approximately $4 billion. Furthermore, an additional one-time 
adjustment of -5.8 percent will be required to fully recapture 
overpayments (estimated at approximately $6.9 billion) due to 
documentation and coding that occurred in FY 2008 and FY 2009, as 
required by section 7(b)(1)(B) of Public Law 110-90.
    CMS has thus far implemented a -2.0 percent (of a required -3.9 
percent) prospective adjustment, and completed the full one-time -5.8 
percent recoupment adjustment (-2.9 percent in both FYs 2011 and 2012). 
In FY 2013, we are completing the remaining -1.9 percent prospective 
adjustment, while also making a +2.9 percent adjustment to remove the 
effect of the FY 2012 one-time recoupment adjustment. We have also 
determined that a cumulative adjustment of -5.4 percent is required to 
eliminate the full effect of documentation and coding changes on future 
payments to SCHs and MDHs. After accounting for adjustments made to the 
hospital-specific rate in FY 2011 and FY 2012, an additional 
prospective adjustment of -0.5 percent is necessary to complete the 
full -5.4 percent adjustment. We are making a full -0.5 percent 
adjustment to the hospital-specific rate, in keeping with our policy of 
applying equivalent adjustments, when applicable, to other subsection 
(d) hospital payment systems.
    In addition, in the FY 2013 IPPS/LTCH PPS proposed rule, we 
proposed to make an additional adjustment to account for documentation 
and coding effects that occurred in FY 2010. After review of comments 
and recommendations from MedPAC, CMS analyzed FY 2010 claims using the 
same methodology as previously applied to FYs 2008 and 2009 claims. CMS 
estimated that there was a 0.8 percentage point effect due to 
documentation and coding that did not reflect an actual increase in 
patient severity. However, in light of the public comments that we 
received on the proposed rule, we are not making an adjustment to 
account for this effect at this time. Therefore, the total IPPS 
documentation and coding adjustment of +1.0 percent (-1.9 plus +2.9) 
will increase total payments by approximately $1.069 billion. The total 
adjustment to the hospital-specific rate will be -0.5, and will 
decrease total payment by $22.7 million. The combined impact of the 
final FY 2013 documentation and coding adjustments will increase total 
payments by approximately $1.042 billion.
     Hospital-Acquired Conditions (HACs). For FY 2013, we are 
continuing to implement section 1886(d)(4)(D) of the Act that addresses 
certain hospital-acquired conditions (HACs), including infections. We 
are adding two additional conditions for FY 2013, Surgical Site 
Infection (SSI) Following Cardiac Implantable Electronic Device (CIED) 
Procedures and Iatrogenic Pneumothorax with Venous Catheterization. The 
projected savings estimate for these two conditions is less than $1 
million, with the total estimated savings from HACs for FY 2013 
projected at $24 million dollars.
     Reduction to Hospital Payments for Excess Readmissions. We 
are making a number of 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 amount to account for excess readmissions of 
selected applicable conditions, which are acute myocardial infarction, 
heart failure, and pneumonia. This provision is not budget neutral. A 
hospital's readmission payment adjustment is the higher of a ratio of a 
hospital's aggregate dollars for excess readmissions to their aggregate 
dollars for all discharges, or 0.99 (that is, or a 1-percent reduction) 
for FY 2013. In this final rule, we estimate that the Hospital 
Readmissions Reduction Program will result in a 0.3 percent decrease, 
or approximately $280 million, in payments to hospitals.

[[Page 53269]]

     Long-Term Care Hospital-Specific Market Basket. 
The FY 2009-based LTCH-specific market basket update (as measured by 
percentage increase) for FY 2013 is currently estimated to be 2.6 
percent, which is slightly lower than the market basket update based on 
the FY 2008-based RPL market basket at 2.7 percent (currently used 
under the LTCH PPS). Therefore, we project that there will be no 
significant fiscal impact on the LTCH PPS payment rates in FY 2013 as a 
result of this policy. In addition, we are updating the labor-related 
share under the LTCH PPS for FY 2013 based on the relative importance 
of each labor-related cost category in the FY 2009-based LTCH-specific 
market basket. Although this policy will result in a decrease in the 
LTCH PPS labor-related share for FY 2013, we are projecting that there 
will be no effect on aggregate LTCH PPS payments due to the regulatory 
requirement that any changes to the LTCH area wage adjustment 
(including the labor-related share) are adopted in a budget neutral 
manner.
    Update to the LTCH PPS Standard Federal Rate, 
including the Expiration of Certain Payment Rules for LTCH Services and 
the Moratorium on the Establishment of Certain Hospitals and Satellite 
Facilities and the Increase in the Number of Beds in LTCHs and LTCH 
Satellite Facilities. Based on the best available data for the 428 
LTCHs in our database, we estimate that the changes we are presenting 
in the preamble and Addendum of this final rule, including the update 
to the standard Federal rate for FY 2013, the changes to the area wage 
adjustment for FY 2013, and changes to short-stay outliers and high-
cost outliers will result in an increase in estimated payments from FY 
2012 of approximately $92 million (or approximately 1.7 percent). 
Although we generally project an increase in payments for all LTCHs in 
FY 2013 as compared to FY 2012, we expect rural LTCHs to experience a 
larger than average increase in payments (3.3 percent) primarily due to 
the changes to the area wage level adjustment. Rural hospitals 
generally have a wage index of less than 1; therefore, the decrease to 
the labor-related share results in their wage index reducing a smaller 
portion of the standard Federal rate, resulting in an estimated 
increase in payments in FY 2013 as compared to FY 2012. In addition, 
the effect of the 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, that is 
generally effective for cost reporting periods beginning on or after 
October 1, 2012, and before October 1, 2013, is estimated to result in 
a payment impact of approximately $170 million to LTCHs. (We note that, 
for certain LTCHs and LTCH satellite facilities with cost reporting 
periods beginning or after July 1, 2012, and before October 1, 2012, we 
are providing a supplemental moratorium for discharges beginning on or 
after October 1, 2012, and through the end of the cost reporting 
period. Overall, we estimate that the increase in aggregate LTCH PPS 
payments in FY 2013 will be $262 million.
     Hospital Inpatient Quality Reporting (IQR) Program. In 
this final rule, we discuss our requirements for hospitals to report 
quality data under the Hospital IQR Program in order to receive the 
full annual percentage increase for FY 2015. We estimate that 
approximately 95 hospitals may not receive the full annual percentage 
increase in any fiscal year. However, at this time, information is not 
available to determine the precise number of hospitals that will not 
meet the requirements to receive the full annual percentage increase 
for FY 2015.
    We are adding supplements to the chart validation process for the 
Hospital IQR Program. Starting with the FY 2015 payment determination, 
we are finalizing a modest increase to the current Hospital IQR Program 
validation sample of 18 cases per quarter to 27 cases per quarter in 
order to capture data on CLABSI, CAUTI, and SSI measures. However, in 
order not to increase the Hospital IQR validation program's overall 
burden to hospitals, we are reducing the total sample size of hospitals 
included in the annual validation sample from 800 eligible hospitals to 
up to 600 eligible hospitals.
    We provide payment to hospitals for the cost of sending charts to 
the CDAC contractor at the rate of 12 cents per page for copying and 
approximately $4.00 per chart for postage. Our experience shows that 
the average chart received by the CDAC contractor is approximately 275 
pages. The requirement of an additional 9 charts per hospital submitted 
for validation, combined with the decreased sample size, will result in 
approximately 1,800 additional charts per quarter being submitted to 
CMS by all selected hospitals. Thus, we estimate that we would expend 
approximately $66,600 per quarter to collect the additional charts we 
need to validate all measures.
     Hospital VBP Program. The Hospital VBP Program is 
statutorily mandated to be budget neutral. We believe that the 
program's benefits will be seen in improved patient outcomes, safety, 
and experience of care. We cannot estimate these benefits in actual 
dollars and improved quality of care because the payment adjustments 
based on hospital performance will not begin to be made until FY 2013.

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.

[[Page 53270]]

To qualify, a new technology or medical service must demonstrate that 
it is a substantial clinical improvement over technologies or services 
otherwise available, and that, absent an add-on payment, it would be 
inadequately paid under the regular DRG payment.
    The costs incurred by the hospital for a case are evaluated to 
determine whether the hospital is eligible for an additional payment as 
an outlier case. This additional payment is designed to protect the 
hospital from large financial losses due to unusually expensive cases. 
Any eligible outlier payment is added to the DRG-adjusted base payment 
rate, plus any DSH, IME, and new technology or medical service add-on 
adjustments.
    Although payments to most hospitals under the IPPS are made on the 
basis of the standardized amounts, some categories of hospitals are 
paid in whole or in part based on their 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, 2012, an MDH will 
receive the higher of the Federal rate or the Federal rate plus 75 
percent of the amount by which the Federal rate is exceeded by the 
highest of its FY 1982, FY 1987, or FY 2002 hospital-specific rate. (We 
note that the statutory provision for payments to MDHs expires at the 
end of FY 2012, that is, after September 30, 2012.) 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(a) and (c) 
of Public Law 106-113 and section 307(b)(1) of Public Law 106-554 (as 
codified under section 1886(m)(1) of the Act). During the 5-year 
(optional) transition period, a LTCH's payment under the PPS was based 
on an increasing proportion of the LTCH Federal rate with a 
corresponding decreasing proportion based on reasonable cost 
principles. Effective for cost reporting periods beginning on or after 
October 1, 2006, all LTCHs are paid 100 percent of the Federal rate. 
The existing regulations governing payment under the LTCH PPS are 
located in 42 CFR Part 412, Subpart O. Beginning October 1, 2009, we 
issue the annual updates to the LTCH PPS in the same documents that 
update the IPPS (73 FR 26797 through 26798).
4. Critical Access Hospitals (CAHs)
    Under sections 1814(l), 1820, and 1834(g) of the Act, payments are 
made to critical access hospitals (CAHs) (that is, rural hospitals or 
facilities that meet certain statutory requirements) for inpatient and 
outpatient services are generally based on 101 percent of reasonable 
cost. Reasonable cost is determined under the provisions of section 
1861(v)(1)(A) of the Act and existing regulations under 42 CFR Parts 
413 and 415.
5. Payments for Graduate Medical Education (GME)
    Under section 1886(a)(4) of the Act, costs of approved educational 
activities are excluded from the operating costs of inpatient hospital 
services. Hospitals with approved graduate medical education (GME) 
programs are paid for the direct costs of GME in accordance with 
section 1886(h) of the Act. The amount of payment for direct GME costs 
for a cost reporting period is based on the hospital's number of 
residents in that period and the hospital's costs per resident in a 
base year. The existing regulations governing payments to the

[[Page 53271]]

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) and the Health Care and Education Reconciliation Act of 
2010 (Pub. L. 111-152) Applicable to FY 2013

    The Patient Protection and Affordable Care Act (Pub. L. 111-148), 
enacted on March 23, 2010, and the Health Care and Education 
Reconciliation Act of 2010 (Pub. L. 111-152), enacted on March 30, 
2010, made a number of changes that affect the IPPS and the LTCH PPS. 
(Pub. L. 111-148 and Pub. L. 111-152 are collectively referred to as 
the ``Affordable Care Act.'') A number of the provisions of the 
Affordable Care Act affect the updates to the IPPS and the LTCH PPS and 
providers and suppliers. The provisions of the Affordable Care Act that 
were applicable to the IPPS and the LTCH PPS for FYs 2010, 2011, and 
2012 were implemented in the June 2, 2010 Federal Register notice (75 
FR 31118), the FY 2011 IPPS/LTCH PPS final rule (75 FR 50042) and the 
FY 2012 IPPS/LTCH PPS final rule (76 FR 51476).
    In this final rule, we are implementing, or continuing in FY 2013 
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 of Public Law 111-148, which provides for 
establishment of a hospital inpatient value-based purchasing program 
under which value-based incentive payments will be 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 for LTCHs in order 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 with respect to FY 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 3125 and 10314 of Public Law 111-148, which 
modified the definition of a low-volume hospital and the methodology 
for calculating the payment adjustment for low-volume hospitals, 
effective only for discharges occurring during FYs 2011 and 2012. 
Beginning with FY 2013, the preexisting low-volume hospital qualifying 
criteria and payment adjustment, as implemented in FY 2005, will 
resume.
     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 2013.
     Section 3137 of Public Law 111-148, which requires the 
Secretary to submit to Congress a report that includes a plan to 
comprehensively reform the Medicare wage index under the IPPS. In 
developing the plan, the Secretary was directed to take into 
consideration the goals for reforming the wage index that were set 
forth by MedPAC in its June 2007 Report to Congress and to consult with 
relevant affected parties.
     Section 5503 of Public Law 111-148, as amended by Public 
Law 111-152 and section 203 of Public Law 111-309, which provides for 
the reduction in FTE resident caps for direct GME under Medicare for 
certain hospitals, and the ``redistribution'' of the estimated number 
of FTE resident slots to other qualified hospitals. In addition, 
section 5503 requires the application of these provisions to IME in the 
same manner as the FTE resident caps for direct GME.
     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.

D. Issuance of a Notice of Proposed Rulemaking

    On May 11, 2012, we published in the Federal Register (77 FR 
27870), a proposed rule that set forth proposed changes to the Medicare 
IPPS for operating costs and for capital-related costs of acute care 
hospitals in FY 2013. We also set 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 the proposed rule, we set forth proposed changes to the 
payment rates, factors, and other payment rate policies under the LTCH 
PPS for FY 2013.
    Below is a summary of the major changes that we proposed to make:
1. Changes to MS-DRG Classifications and Recalibrations of Relative 
Weights
    In section II. of the preamble of the 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 2013 resulting from implementation of the MS-DRG 
system.
     A discussion of the Research Triangle Institute, 
International (RTI) reports and recommendations relating to charge 
compression.
     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 2013.
     A discussion of the FY 2013 status of new technologies 
approved for add-on payments for FY 2012 and a presentation of our 
evaluation and analysis of the FY 2013 applicants for add-on payments 
for high-cost new medical services and technologies (including public 
input, as directed by Pub. L. 108-173, obtained in a town hall 
meeting).
2. Changes to the Hospital Wage Index for Acute Care Hospitals
    In section III. of the preamble to the 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 2013 wage index update using wage data 
from cost reporting periods beginning in FY 2009.
     Analysis and implementation of the proposed FY 2013 
occupational mix adjustment to the wage index for acute care hospitals.
     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

[[Page 53272]]

FY 2013 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 2013 hospital wage index.
     Determination of the labor-related share for the proposed 
FY 2013 wage index.
3. Other Decisions and Proposed Changes to the IPPS for Operating Costs 
and GME Costs
    In section IV. of the preamble of the proposed rule, we discussed 
proposed changes or clarifications of a number of the provisions of the 
regulations in 42 CFR Parts 412, 413, and 476, including the following:
     The proposed 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 clarification regarding the duration of the 
classification status of SCHs.
     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 2013.
     The statutorily required IME adjustment factor for FY 
2013, a clarification of the requirements of timely filing of claims 
for Medicare Advantage enrollees for IME, direct GME, and nursing and 
allied health education payment purposes, and a proposal to apply the 
timely filing requirements to the submission of no-pay bills for 
purposes of calculating the DSH payment adjustment.
     Proposal for counting labor and delivery beds in the 
formula for determining the payment adjustment for disproportionate 
share hospitals and IME payments.
     Discussion of the expiration of the MDH program in FY 
2012.
     Proposed changes to the inpatient hospital update for FY 
2013, including incorporation of a productivity adjustment.
     Proposed changes relating to GME and IME payments, 
including proposed changes in new growth period for new residency 
programs from 3 years to 5 years for new teaching hospitals; proposals 
and clarifications related to the 5-year period following 
implementation of reductions and increases to hospitals' FTE resident 
caps; and proposals and clarifications related to the preservation of 
resident cap positions from closed hospitals.
     Proposed conforming changes to regulations relating to 
reporting requirements for pension costs for Medicare cost-finding 
purposes.
     Discussion of the Rural Community Hospital Demonstration 
Program and a proposal for making a budget neutrality adjustment for 
the demonstration program.
     Proposed delay in the effective date of policies relating 
to hospital routine services furnished under arrangements.
4. FY 2013 Policy Governing the IPPS for Capital-Related Costs
    In section V. of the preamble to the proposed rule, we discussed 
the proposed payment policy requirements for capital-related costs and 
capital payments to hospitals for FY 2013 and the proposed MS-DRG 
documentation and coding adjustment for FY 2013.
5. Changes to the Payment Rates for Certain Excluded Hospitals: Rate-
of-Increase Percentages
    In section VI. of the preamble of the proposed rule, we discuss 
proposed changes to payments to certain excluded hospitals.
6. Changes to the LTCH PPS
    In section VII. of the preamble of the proposed rule, we set forth 
proposed changes to the payment rates, factors, and other payment rate 
policies under the LTCH PPS for FY 2013. Specifically, we proposed the 
following major changes: A 1-year extension of the moratorium on the 
full implementation of the ``25-percent threshold'' payment adjustment 
at 42 CFR 412.534 and 412.536; a ``one-time prospective adjustment'' to 
the standard Federal rate phased in over a 3-year period (which would 
not be applicable to payments for discharges occurring on or before 
December 28, 2012, consistent with the statute); an LTCH-specific 
market basket; and annual updates to the LTCH PPS standard Federal rate 
and to other payment factors.
7. Changes Relating to Quality Data Reporting for Specific Providers 
and Suppliers
    In section VIII. of the preamble of the proposed rule, we address--
     Proposed requirements for the Hospital Inpatient Quality 
Reporting (IQR) Program as a condition for receiving the full 
applicable percentage increase.
     The proposed establishment of a quality reporting program 
for PPS-exempt cancer hospitals.
     Proposed requirements for the Hospital Value-Based 
Purchasing Program.
     Proposed requirements for the quality reporting measures 
under the LTCH Quality Reporting (LTCHQR) Program.
     Proposed quality data reporting and other requirements for 
the Ambulatory Surgical Center Quality Reporting (ASCQR) Program.
     The establishment of the Inpatient Psychiatric Facility 
Quality Reporting Program (IPFQRP).
8. Determining Prospective Payment Operating and Capital Rates and 
Rate-of-Increase Limits for Acute Care Hospitals
    In the Addendum to the proposed rule, we set forth proposed changes 
to the amounts and factors for determining the proposed FY 2013 
prospective payment rates for operating costs and capital-related costs 
for acute care hospitals. We proposed to establish the threshold 
amounts for outlier cases. In addition, we addressed the proposed 
update factors for determining the rate-of-increase limits for cost 
reporting periods beginning in FY 2013 for certain hospitals excluded 
from the IPPS.
9. Determining Prospective Payment Rates for LTCHs
    In the Addendum to the proposed rule, we set forth proposed changes 
to the amounts and factors for determining the proposed FY 2013 
prospective standard Federal rate. We proposed 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.
10. Impact Analysis
    In Appendix A of the proposed rule, we set forth an analysis of the 
impact that the proposed changes would have on affected acute care 
hospitals, LTCHs, ASCs, and IPFs.
11. Recommendation of Update Factors for Operating Cost Rates of 
Payment for Hospital Inpatient Services
    In Appendix B of the proposed rule, as required by sections 
1886(e)(4) and (e)(5) of the Act, we provided our recommendations of 
the appropriate percentage changes for FY 2013 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.

[[Page 53273]]

     The standard Federal rate for hospital inpatient services 
furnished by LTCHs.
12. 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 2012 recommendations concerning hospital inpatient 
payment policies address the update factor for hospital inpatient 
operating costs and capital-related costs under the IPPS, for hospitals 
and distinct part hospital units excluded from the IPPS. We addressed 
these recommendations in Appendix B of the proposed rule. For further 
information relating specifically to the MedPAC March 2012 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.
    We received approximately 436 timely pieces of correspondence from 
the public in response to the FY 2013 IPPS/LTCH PPS proposed rule. We 
summarize these public comments and present our responses under the 
specific subject areas of this final rule.

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

A. Background

    Section 1886(d) of the Act specifies that the Secretary shall 
establish a classification system (referred to as DRGs) for inpatient 
discharges and adjust payments under the IPPS based on appropriate 
weighting factors assigned to each DRG. Therefore, under the IPPS, 
Medicare pays for inpatient hospital services on a rate per discharge 
basis that varies according to the DRG to which a beneficiary's stay is 
assigned. The formula used to calculate payment for a specific case 
multiplies an individual hospital's payment rate per case by the weight 
of the DRG to which the case is assigned. Each DRG weight represents 
the average resources required to care for cases in that particular 
DRG, relative to the average resources used to treat cases in all DRGs.
    Congress recognized that it would be necessary to recalculate the 
DRG relative weights periodically to account for changes in resource 
consumption. Accordingly, section 1886(d)(4)(C) of the Act requires 
that the Secretary adjust the DRG classifications and relative weights 
at least annually. These adjustments are made to reflect changes in 
treatment patterns, technology, and any other factors that may change 
the relative use of hospital resources.

B. MS-DRG Reclassifications

    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), and the FY 2012 IPPS/LTCH PPS final rule (76 FR 51485 
through 51487).

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. FY 2013 MS-DRG Documentation and Coding Adjustment, Including the 
Applicability to the Hospital-Specific Rates and the Puerto Rico-
Specific Standardized Amount

1. Background on the Prospective MS-DRG Documentation and Coding 
Adjustments for FY 2008 and FY 2009 Authorized by Public Law 110-90
    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).
    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. Prospective Adjustment to the Average Standardized Amounts Required 
by Section 7(b)(1)(A) of Public Law 110-90
    Section 7(b)(1)(A) of Public Law 110-90 requires that, if the 
Secretary determines that implementation of the MS-DRG system resulted 
in changes in documentation and coding that did not reflect real 
changes in case-mix for discharges occurring during FY 2008 or FY 2009 
that are different than the prospective documentation and coding 
adjustments applied under section 7(a) of Public Law 110-90, the 
Secretary shall make an appropriate adjustment under section 
1886(d)(3)(A)(vi) of the Act. Section 1886(d)(3)(A)(vi) of the Act 
authorizes adjustments to the average standardized amounts for 
subsequent fiscal years in order to eliminate the effect of such coding 
or classification changes. These adjustments are intended to ensure 
that future annual

[[Page 53274]]

aggregate IPPS payments are the same as the payments that otherwise 
would have been made had the prospective adjustments for documentation 
and coding applied in FY 2008 and FY 2009 reflected the change that 
occurred in those years.
3. Recoupment or Repayment Adjustments in FYs 2010 Through 2012 
Required by Public Law 110-90
    If, based on a retroactive evaluation of claims data, the Secretary 
determines that implementation of the MS-DRG system resulted in changes 
in documentation and coding that did not reflect real changes in case-
mix for discharges occurring during FY 2008 or FY 2009 that are 
different from the prospective documentation and coding adjustments 
applied under section 7(a) of Public Law 110-90, section 7(b)(1)(B) of 
Public Law 110-90 requires the Secretary to make an additional 
adjustment to the standardized amounts under section 1886(d) of the 
Act. This adjustment must offset the estimated increase or decrease in 
aggregate payments for FYs 2008 and 2009 (including interest) resulting 
from the difference between the estimated actual documentation and 
coding effect and the documentation and coding adjustment applied under 
section 7(a) of Public Law 110-90. This adjustment is in addition to 
making an appropriate adjustment to the standardized amounts under 
section 1886(d)(3)(A)(vi) of the Act as required by section 7(b)(1)(A) 
of Public Law 110-90. That is, these adjustments are intended to recoup 
(or repay, 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.
4. 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.
5. Prospective Adjustments for FY 2008 and FY 2009 Authorized by 
Section 7(b)(1)(A) of Public Law 110-90 and Section 1886(d)(3)(A)(vi) 
of the Act
    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 we have some discretion as to the manner in which we apply the 
prospective adjustment of -3.9 percent. We indicated that applying the 
full prospective adjustment of -3.9 percent for FY 2011, in combination 
with the proposed recoupment adjustment of -2.9 percent in FY 2011 
(discussed below) would require an aggregate adjustment of -6.8 
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 implement the requisite 
adjustment) would be 3.9 percent higher than they would have been if we 
had implemented an adjustment under section 7(b)(1)(A) of Public Law 
110-90. Our actuaries estimate that this 3.9 percentage point increase 
will result in an aggregate payment of approximately $4 billion. We 
also noted that payments in FY 2010 were also expected to be 3.9 
percent higher than they would have been if we had implemented an 
adjustment under section 7(b)(1)(A) of Public Law 110-90, which our 
actuaries estimated increased aggregate payments by approximately $4 
billion in FY 2010.
    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 (a reduction of a 
proposed -3.15 percent 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 proposed rule (77 FR 27887), for FY 
2013, we proposed to complete the prospective portion of the adjustment 
required under section 7(b)(1)(B) of Public Law 110-90. We proposed 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.

[[Page 53275]]

We indicated we believe it is 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 believe that the offsetting nature of the 
FY 2012 recoupment adjustment (described in section II.D.6. of the 
proposed rule (77 FR 27887 through 27888) and the preamble of this 
final rule) will mitigate any negative financial impacts of this 
prospective adjustment.
    Comment: MedPAC submitted a comment fully supporting the proposed 
documentation and coding adjustments, citing its 2011 comment letter 
regarding the FY 2012 IPPS/LTCH PPS proposed rule for its support of 
the CMS methodology and the calculation of documentation and coding 
effect estimates. MedPAC reiterated its recommendation that Congress 
grant the Secretary the authority to recapture overpayments due to 
documentation and coding effects that occurred after FY 2009.
    Response: We appreciate MedPAC's analysis and continued support of 
the methodology to calculate the impact of documentation and coding on 
hospital payments. As stated in the proposed rule, at this point, we 
only have the authority to prospectively adjust the standardized amount 
to prevent future overpayments due to the effects of documentation and 
coding. We believe that any overpayments made in FY 2008 and FY 2009 
have already been recaptured, and any additional past overpayments 
cannot be recovered without additional statutory authority.
    Comment: Many commenters, including national hospital associations, 
continue to argue that the methodology employed by CMS significantly 
overstated the impact of documentation and coding changes. Commenters 
believed that the CMS methodology assumes that case-mix index has held 
constant over several fiscal years, and they view this as a flawed 
assumption. Commenters submitted a case-mix trend analysis, noting that 
this analysis was updated for new claims data and revised relative to 
similar analyses submitted as public comment on documentation and 
coding in prior IPPS rulemaking. According to the commenters, their 
case-mix trend analysis indicated only a 3.5 percent documentation and 
coding increase, which equals the total adjustment already implemented 
by CMS. These commenters argued that no further cuts are necessary to 
the standardized amount, and that the proposed adjustments are 
excessive.
    Response: We disagree that the presented trend analysis provides a 
more accurate estimate of the documentation and coding effect. We 
continue to believe that the proposed methodology, which removes real-
case mix growth from the calculation, yields a more straightforward and 
direct estimate. We also believe that the estimates obtained using our 
methodology are consistent with real case-mix growth as demonstrated by 
MedPAC in its 2011 public comment submitted on the FY 2012 IPPS/LTCH 
PPS proposed rule. We refer readers to our response in the FY 2012 
IPPS/LTCH PPS final rule (76 FR 51494-51496) for a more detailed 
response.
    Comment: One commenter, a national hospital association, disagreed 
with CMS' response from prior year rulemaking that ``changes in case-
mix do not necessarily follow a consistent pattern over time.'' The 
commenter indicated that the simple linear regression of case-mix 
growth it submitted was the most conservative estimate of potential 
documentation and coding effect, and that more advanced, nonlinear 
statistical methods were better statistical fits, and suggested an even 
smaller impact due to documentation and coding.
    Response: We are not convinced that further statistical testing of 
a case-mix trend based analysis would yield more accurate results, nor 
did we intend to suggest that nonlinear regression of case-mix growth 
would be a more appropriate measure of documentation and coding 
effects. The estimates submitted by the commenter presented a 
theoretical documentation and coding effect ranging from +3.5 percent 
to -1.9 percent. As discussed in prior year rulemaking, the inclusion 
of additional years in the suggested CMI trend based analysis caused 
documentation and coding effect estimates to vary significantly, and 
now the commenter argues that different statistical interpretations 
also may cause large fluctuations. With respect to the trend analysis, 
we continue to believe that the determination of an appropriate 
historical trend is less straightforward than our proposed methodology, 
which removes real case-mix growth from the calculation. Again, we 
refer readers to our more detailed response to public comments in the 
FY 2012 IPPS/LTCH PPS final rule (76 FR 51494 through 51496).
    Comment: One commenter stated that coding offsets exceeding total 
case-mix growth duplicate the productivity adjustment mandated by the 
Affordable Care Act and should not be implemented. The commenter stated 
that decreases in real case-mix represent an improvement in 
productivity already adjusted for in the productivity adjustment.
    Response: Section 3401(a) of the Affordable Care Act requires that 
the IPPS operating market basket update be adjusted by changes in 
economy-wide productivity for FY 2012 (and each subsequent fiscal 
year). The statute defines the productivity adjustment to be 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, cost reporting period, or other annual period). We disagree with 
the commenter that this statutory provision somehow interacts with our 
documentation and coding adjustment authority. This statutory provision 
does not in any way reference our statutory documentation and coding 
adjustment authority, nor does our documentation and coding authority 
in any way reference the market basket adjustment for economy-wide 
productivity. The methodology used for determining the IPPS rates, and 
specifically our methodology for estimating documentation and coding 
effects was made available to the general public (through notice and 
comment rulemaking) prior to the enactment of the Affordable Care Act. 
However the law did not reference nor change our authority in light of 
the productivity adjustment.
    In addition, as we have previously indicated, our methodology for 
estimating documentation and coding removes changes in real case-mix 
from the calculation. Although we disagree that decreases in real case-
mix represent an improvement in productivity in the context of section 
3401(a), even if for purposes of discussion one were to accept this 
assertion, this is not a documentation and coding adjustment issue. The 
proper place for any offset would be to the productivity adjustment. 
Section 3401(a) of the Affordable Care Act provides no authority for 
such an adjustment for decreases in real case-mix.
    After consideration of the public comments we received, we do not 
believe that any alternative methodologies would produce more accurate 
estimates of documentation and coding effects. We are finalizing, as 
proposed, a -1.9 percent documentation and coding adjustment to the 
standardized amount. This adjustment will complete our statutory 
obligation to account for remainder of documentation and coding that 
did not reflect real changes in case-mix for

[[Page 53276]]

discharges occurring during FY 2008 or FY 2009.
6. 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).
    As we stated in prior rulemaking, a major advantage of making the -
2.9 percent adjustment to the standardized amount in FY 2011 was that, 
because the required recoupment adjustment is not cumulative, we 
anticipated removing the FY 2011 -2.9 percent adjustment from the rates 
(in other words, making a positive 2.9 percent adjustment to the rates) 
in FY 2012, at the same time that the law required us to apply the 
remaining approximately -2.9 percent adjustment required by section 
7(b)(1)(B) of Public Law 110-90.
    Therefore, 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.
    The -2.9 percent adjustment in each of the two previous fiscal 
years completed the required recoupment for overpayments due to 
documentation and coding effects on discharges occurring in FYs 2008 
and 2009. In the FY 2013 IPPS/LTCH PPS proposed rule (77 FR 27888), we 
proposed to make a final +2.9 percent adjustment to the standardized 
amount. This adjustment would remove the effect of the one-time -2.9 
percent adjustment implemented in FY 2012. As stated in the proposed 
rule, we continue to believe that this is a reasonable and fair 
approach that satisfies the requirements of the statute while 
substantially moderating the financial impact on hospitals.
    We did not receive any specific public comments regarding this 
adjustment. We did receive public comments requesting an additional 
+0.72 percent adjustment to account for cumulative overestimates of 
documentation and coding effects. We will address these comments in a 
later section. We are finalizing a +2.9 percent adjustment, as 
proposed, 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.
7. Background on the Application of the Documentation and Coding 
Adjustment to the Hospital-Specific Rates
    Under section 1886(d)(5)(D)(i) of the Act, SCHs are paid based on 
whichever of the following rates yields the greatest aggregate payment: 
the Federal rate; the updated hospital-specific rate based on FY 1982 
costs per discharge; the updated hospital-specific rate based on FY 
1987 costs per discharge; the updated hospital-specific rate based on 
FY 1996 costs per discharge; or the updated hospital-specific rate 
based on FY 2006 costs per discharge. Under section 1886(d)(5)(G) of 
the Act, MDHs are paid based on the Federal national rate or, if 
higher, the Federal national rate plus 75 percent of the difference 
between the Federal national rate and the updated hospital-specific 
rate based on the greatest of the FY 1982, FY 1987, or FY 2002 costs 
per discharge. (We note that, under current law, the MDH program 
expires at the end of FY 2012, as discussed in section IV.G. of this 
final rule.) In the FY 2008 IPPS final rule with comment period (72 FR 
47152 through 47188), we established a policy of applying the 
documentation and coding adjustment to the hospital-specific rates. In 
that final rule with comment period, we indicated that because SCHs and 
MDHs use the same DRG system as all other hospitals, we believe they 
should be equally subject to the budget neutrality adjustment that we 
are applying for adoption of the MS-DRGs to all other hospitals. In 
establishing this policy, we relied on section 1886(d)(3)(A)(vi) of the 
Act, which provides us with the authority to adjust ``the standardized 
amount'' to eliminate the effect of changes in documentation and coding 
that do not reflect real changes in case-mix.
    However, in the final rule that appeared in the Federal Register on 
November 27, 2007 (72 FR 66887 through 67888), we rescinded the 
application of the documentation and coding adjustment to the hospital-
specific rates effective October 1, 2007. In that final rule, we 
indicated that, while we still believe it would be appropriate to apply 
the documentation and coding adjustment to the hospital-specific rates, 
upon further review, we decided that the application of the 
documentation and coding adjustment to the hospital-specific rates is 
not consistent with the plain meaning of section 1886(d)(3)(A)(vi) of 
the Act, which only mentions adjusting ``the standardized amount'' 
under section 1886(d) of the Act and does not mention adjusting the 
hospital-specific rates.
    In the FY 2009 IPPS proposed rule (73 FR 23540), we indicated that 
we continued to have concerns about this issue. Because hospitals paid 
based on the hospital-specific rate have their Medicare claims grouped 
using the same MS-DRG system as other IPPS hospitals, we believe they 
have the potential to realize increased payments from documentation and 
coding changes that do not reflect real increases in patient severity 
of illness. In section 1886(d)(3)(A)(vi) of the Act, Congress 
stipulated that hospitals paid based on the standardized amount should 
not

[[Page 53277]]

receive additional payments based on the effect of documentation and 
coding changes that do not reflect real changes in case-mix. Similarly, 
we believe that hospitals paid based on the hospital-specific rates 
should not have the potential to realize increased payments due to 
documentation and coding changes that do not reflect real increases in 
patient severity of illness. While we continue to believe that section 
1886(d)(3)(A)(vi) of the Act does not provide explicit authority for 
application of the documentation and coding adjustment to the hospital-
specific rates, we believe that we have the authority to apply the 
documentation and coding adjustment to the hospital-specific rates 
using our special exceptions and adjustment authority under section 
1886(d)(5)(I)(i) of the Act. The special exceptions and adjustment 
provision authorizes us to provide ``for such other exceptions and 
adjustments to [IPPS] payment amounts * * * as the Secretary deems 
appropriate.'' In the FY 2009 IPPS final rule (73 FR 48448 through 
48449), we indicated that, for the FY 2010 rulemaking, we planned to 
examine our FY 2008 claims data for hospitals paid based on the 
hospital-specific rate. We further indicated that if we found evidence 
of significant increases in case-mix for patients treated in these 
hospitals that do not reflect real changes in case-mix, we would 
consider proposing application of the documentation and coding 
adjustments to the FY 2010 hospital-specific rates under our authority 
in section 1886(d)(5)(I)(i) of the Act.
    In response to public comments received on the FY 2009 IPPS 
proposed rule, we stated in the FY 2009 IPPS final rule that we would 
consider whether such a proposal was warranted for FY 2010. To gather 
information to evaluate these considerations, we indicated that we 
planned to perform analyses on FY 2008 claims data to examine whether 
there has been a significant increase in case-mix for hospitals paid 
based on the hospital-specific rate. If we found that application of 
the documentation and coding adjustment to the hospital-specific rates 
for FY 2010 was warranted, we indicated that we would propose to make 
such an adjustment in the FY 2010 IPPS/RY 2010 LTCH PPS proposed rule.
8. Documentation and Coding Adjustment to the Hospital-Specific Rates 
for FY 2011 and Subsequent Fiscal Years
    In the FY 2010 IPPS/RY 2010 LTCH PPS proposed rule and final rule, 
we discussed our retrospective evaluation of the FY 2008 claims data 
for SCHs and MDHs using the same methodology described earlier for 
other IPPS hospitals. We found that, independently for both SCHs and 
MDHs, the change due to documentation and coding that did not reflect 
real changes in case-mix for discharges occurring during FY 2008 
slightly exceeded the proposed 2.5 percent result discussed earlier for 
other IPPS hospitals, but did not significantly differ from that 
result. We refer readers to those FY 2010 proposed and final rules for 
a more complete discussion (74 FR 24098 through 24100 and 74 FR 43775 
through 43776, respectively).
    As we have noted previously, because hospitals paid on the basis of 
their hospital-specific rate, including SCHs (and MDHs until the end of 
FY 2012), use the same MS-DRG system as all other IPPS hospitals, we 
believe they have the potential to realize increased payments from 
documentation and coding changes that do not reflect real increases in 
patient severity of illness. Therefore, we believe they should be 
equally subject to a prospective budget neutrality adjustment that we 
are applying for adoption of the MS-DRGs to all other hospitals. We 
believe the documentation and coding estimates for all subsection (d) 
hospitals should be the same. While the findings for the documentation 
and coding effect for all IPPS hospitals are similar to the effect for 
SCHs (and were slightly different to the effect for MDHs), we continue 
to believe that this is the appropriate policy so as to neither 
advantage or disadvantage different types of providers. Our best 
estimate, based on the most recently available data, is that a 
cumulative adjustment of -5.4 percent is required to eliminate the full 
effect of the documentation and coding changes on future payments to 
hospitals paid on the basis of their hospital-specific rate. We note 
that, for FY 2013, this adjustment would only apply to the SCHs because 
the MDH program expires in FY 2012 (as discussed in section IV.G. of 
this preamble). Unlike the case of standardized amounts paid to IPPS 
hospitals, prior to FY 2011, we had not made any previous adjustments 
to the hospital-specific rates paid to SCHs (and MDHs) to account for 
documentation and coding changes. Therefore, the entire -5.4 percent 
adjustment needed to be made, as opposed to a -3.9 percent remaining 
adjustment for IPPS hospitals.
    After finalizing a -2.9 percent prospective adjustment in FY 2011 
(75 FR 50067 through 50071), we finalized a prospective adjustment to 
the hospital-specific rate of -2.0 percent for FY 2012 (76 FR 51499) 
instead of our proposed adjustment of -2.5 percent. Making this level 
of adjustment allowed CMS to maintain, for FY 2012, consistency in 
payment rates for different IPPS hospitals paid using the MS-DRG. We 
indicated in the final rule that because this -2.0 percent adjustment 
no longer reflects the entire remaining required adjustment amount of -
2.5 percent, an additional -0.5 percent adjustment to the hospital-
specific payment rates would be required in future rulemaking.
    In the FY 2013 IPPS/LTCH PPS proposed rule (77 FR 27889), we 
proposed to complete the remaining prospective adjustment to account 
for the documentation and coding effect that occurred in FY 2008 and FY 
2009 by applying a -0.5 percent adjustment to the hospital-specific 
rate. We continue to believe that SCHs had the same opportunity to 
benefit from improvements in documentation and coding that did not 
reflect an increase in patient severity, and we continue to believe 
that any resulting adjustments should be applied similarly to all 
subsection (d) hospitals, when possible. For FY 2013, we proposed a 
prospective adjustment of -1.9 percent to the standardized amount. 
Therefore, we stated in the proposed rule (77 FR 27889) that we 
believed it was also appropriate to propose a -0.5 percent adjustment 
to the hospital-specific rate for FY 2013.
    Comment: Commenters questioned CMS' statutory authority to apply 
documentation and coding adjustments to hospitals receiving the 
hospital-specific rate. The commenters stated that section 
1886(d)(3)(A)(vi) of the Act specifically required the Secretary to 
determine if overpayments were made, and make appropriate adjustments 
to the standardized amount. The commenters contended that the broad 
authority granted under section 1886(d)(5)(I)(i) of the Act is not so 
broad as to permit CMS to extend the scope of a legislative directive 
that was specifically limited to hospitals paid under a prospective 
payment system.
    Response: We continue to disagree that we do not have the authority 
to make prospective documentation and coding adjustments to the 
hospital-specific rate. We refer readers to the FY 2012 IPPS/LTCH PPS 
final rule (76 FR 51499) for further discussion on our authority 
granted under section 1886(d)(5)(I)(i) of the Act. We do not believe 
that specific discretionary authority under section 1886(d)(3)(A)(iv) 
of the Act creates a limit on the broad authority granted under section 
1886(d)(5)(I) of the Act. In this final rule, we are finalizing a

[[Page 53278]]

prospective -0.5 percent adjustment to the hospital-specific rate to 
account for documentation and coding effects for discharges occurring 
in FY 2008 and FY 2009.
9. Application of the Documentation and Coding Adjustment to the Puerto 
Rico-Specific Standardized Amount
a. Background
    Puerto Rico hospitals are paid based on 75 percent of the national 
standardized amount and 25 percent of the Puerto Rico-specific 
standardized amount. As noted previously, the documentation and coding 
adjustment we adopted in the FY 2008 IPPS final rule with comment 
period relied upon our authority under section 1886(d)(3)(A)(vi) of the 
Act, which provides the Secretary the authority to adjust ``the 
standardized amounts computed under this paragraph'' to eliminate the 
effect of changes in documentation and coding that do not reflect real 
changes in case-mix. Section 1886(d)(3)(A)(vi) of the Act applies to 
the national standardized amounts computed under section 1886(d)(3) of 
the Act, but does not apply to the Puerto Rico-specific standardized 
amount computed under section 1886(d)(9)(C) of the Act.
    While section 1886(d)(3)(A)(vi) of the Act is not applicable to the 
Puerto Rico-specific standardized amount, we believe that we have the 
authority to apply the documentation and coding adjustment to the 
Puerto Rico-specific standardized amount using our special exceptions 
and adjustment authority under section 1886(d)(5)(I)(i) of the Act. 
Similar to SCHs that are paid based on the hospital-specific rate, we 
believe that Puerto Rico hospitals that are paid based on the Puerto 
Rico-specific standardized amount should not have the potential to 
realize increased payments due to documentation and coding changes that 
do not reflect real increases in patient severity of illness. 
Consistent with the approach described for SCHs and MDHs in the FY 2009 
IPPS final rule (73 FR 48449), we indicated that we planned to examine 
our FY 2008 claims data for hospitals in Puerto Rico. We indicated in 
the FY 2009 IPPS proposed rule (73 FR 23541) that if we found evidence 
of significant increases in case-mix for patients treated in these 
hospitals, we would consider proposing to apply documentation and 
coding adjustments to the FY 2010 Puerto Rico-specific standardized 
amount under our authority in section 1886(d)(5)(I)(i) of the Act.
b. Documentation and Coding Adjustment to the Puerto Rico-Specific 
Standardized Amount
    As discussed in the FY 2011 IPPS/LTCH PPS final rule (75 FR 50071 
through 50073), using the same methodology we applied to estimate 
documentation and coding changes under IPPS for non-Puerto Rico 
hospitals, our best estimate was that, for documentation and coding 
that occurred over FY 2008 and FY 2009, a cumulative adjustment of -2.6 
percent was required to eliminate the full effect of the documentation 
and coding changes that do not reflect real changes in case-mix on 
future payments from the Puerto Rico-specific rate. As we stated above, 
we believe it is important to maintain both consistency and equity 
among all hospitals paid on the basis of the same MS-DRG system. At the 
same time, however, we recognize that the estimated cumulative impact 
on aggregate payment rates resulting from implementation of the MS-DRG 
system was smaller for Puerto Rico hospitals as compared to IPPS 
hospitals and SCHs. In the FY 2011 IPPS/LTCH PPS final rule (75 FR 
50072 through 50073), we stated that we believed that a full 
prospective adjustment was the most appropriate means to take into full 
account the effect of documentation and coding changes on payments, 
while maintaining equity as much as possible between hospitals paid on 
the basis of different prospective rates.
    Because the Puerto Rico-specific rate received a full prospective 
adjustment of -2.6 percent in FY 2011, we proposed no further 
adjustment in the proposed rule for FY 2012. For FY 2013, in the FY 
2013 IPPS/LTCH PPS proposed rule (77 FR 27889), we also did not propose 
any adjustment to the Puerto Rico-specific rate.
10. Prospective Adjustments for FY 2010 Documentation and Coding Effect
    Section 7(b)(1)(A) of Public Law 110-90 required CMS to make 
prospective documentation and coding adjustments under section 
1886(d)(3)(A)(iv) of the Act if, based upon a review of FY 2008 and FY 
2009 discharges, we determined that implementation of the MS-DRG system 
resulted in changes in documentation and coding that did not reflect 
real changes in case-mix during FY 2008 or FY 2009 and that were 
different than the prospective documentation and coding adjustments 
applied under section 7(a) of Public Law 110-90. However, 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 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 required to ensure that the 
introduction of MS-DRGs was implemented in a budget neutral manner. 
While we expect that the impacts of documentation and coding behavior 
in response to the introduction of MS-DRGs in FY 2008 will eventually 
decline to insignificant levels, 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 prospective documentation and coding effect of 1.008 for FY 
2010. Our actuaries have estimated that this 0.8 percentage point 
increase resulted in an increase in aggregate payments of approximately 
$1.19 billion in FY 2010. Therefore, in the FY 2013 IPPS/LTCH PPS 
proposed rule (77 FR 27890), we proposed an additional -0.8 percent 
adjustment to account for the effects of documentation and coding 
changes that did not reflect real changes in case-mix in FY 2010.
    In the FY 2013 IPPS/LTCH PPS proposed rule (77 FR 27890), we stated 
that the combined total prospective adjustment to the standardized 
amount proposed for FY 2013 under Public Law 110-90 to account for 
documentation and coding effects in FY 2008 and FY 2009 and under 
section 1886(d)(3)(A)(vi) of the Act to account for documentation and 
coding effect in FY 2010 was -2.7 percent (-1.9 percent plus -0.8 
percent). We indicated that the proposed adjustment would eliminate the 
effect of documentation and coding that did not reflect real changes in 
case-mix for discharges occurring during FYs 2008, 2009, and 2010. 
While we did not make proposals regarding future fiscal years in the 
proposed rule, we plan to continue to monitor and analyze additional 
claims data and make adjustments, when necessary, as authorized under 
section 1886(d)(3)(A)(vi) of the Act. We noted that the proposed total 
adjustment to the proposed FY 2013 standardized amount would be +0.2 
percent because these prospective adjustments will be offset by the 
completion of the recoupment

[[Page 53279]]

adjustment under section 7(b)(1)(B) of Public Law 110-90, as discussed 
below.
    In the FY 2013 IPPS/LTCH PPS proposed rule (77 FR 27890), we noted 
that while we have decided to review FY 2010 claims data to determine 
whether additional prospective adjustments are necessary (as discussed 
earlier), section 7(b)(1)(B) of Public Law 110-90 does not authorize 
CMS to calculate any retrospective adjustment for overpayments made in 
FY 2010, nor to recover any related overpayments beyond FY 2012. The 
Secretary's authority under section 1886(d)(3)(A)(vi) of the Act is 
limited to prospective adjustments.
    Consistent with our proposal for IPPS hospitals paid on the basis 
of the standardized amount, our special exceptions and adjustment 
authority under section 1886(d)(5)(I)(i) of the Act, and based upon our 
review of FY 2010 claims data, in the FY 2013 IPPS/LTCH PPS proposed 
rule (77 FR 27890), we also proposed an additional -0.8 percent 
adjustment to the hospital-specific rate to account for documentation 
and coding changes in FY 2010 that did not reflect real changes in 
case-mix. We indicated that we believed that a full prospective 
adjustment for hospitals paid based on the hospital-specific rate is 
the most appropriate means to take into account the effect of 
documentation and coding changes on payments, while maintaining equity 
as much as possible between hospitals paid on the basis of different 
prospective rates. Therefore, we proposed a combined adjustment of -1.3 
percent (-0.5 percent + -0.8 percent) to the hospital-specific rate, 
accounting for all documentation and coding effects observed between FY 
2008 though FY 2010.
    Based upon our analysis of FY 2010 claims data, we found no 
significant additional effect of documentation and coding in FY 2010 
that would warrant any additional adjustment to the Puerto Rico-
specific rate.
    Comment: Numerous comments objected to the CMS proposal to make an 
adjustment under section 1886(d)(3)(A)(vi) of the Act to account for 
payment increases due to documentation and coding that did not reflect 
real changes in case-mix for discharges occurring during FY 2010. 
Commenters pointed to MedPAC's analysis in its public comment letter in 
response to the FY 2011 IPPS/LTCH PPS proposed rule that suggested that 
``negative documentation and coding'' may have occurred under the CMS-
DRGs, creating an overestimation of documentation and coding due to the 
introduction of MS-DRGs. MedPAC estimated that the magnitude of this 
effect could reach 0.36 percent in FY 2008, 0.36 percent in FY 2009, 
and 0.25 percent in FY 2010. CMS responded to these findings in the FY 
2011 IPPS/LTCH PPS final rule by stating that MedPAC characterized this 
impact of any potential overestimate as ``small'' and could not be 
corroborated with any specific examples or analysis. Commenters 
indicated that they did not consider the potential impacts to be 
``small'' and pointed out that if such estimates are true, hospitals 
would be due an additional +0.72 percent adjustment to account for 
overestimated recoupments (as well as similar positive adjustments to 
the hospital-specific and Puerto Rico-specific rate). Some commenters 
asserted that there are numerous examples of changes in documentation 
and coding that may have decreased the CMI under the CMS-DRGs, and 
provided five specific examples.
    One commenter, compared the FY 2007 CC list to the FY 2008 CC list, 
identifying examples of chronic conditions that were CCs under the CMS-
DRGs, but are no longer considered CCs or MCCs under the MS-DRGs, and 
that would also necessarily result in a lower MS-DRG assignment because 
more specific codes related to that condition were not developed. The 
commenter expressed surprise that CMS' medical coding experts were 
unable to do the same. The commenter identified the following common, 
chronic conditions which were CCs under the CMS-DRGs, but are not a CC 
or MCC under the MS-DRGs: atrial fibrillation; chronic blood loss 
anemia; mitral valve disorder; and aortic valve disorder. The commenter 
stated that removing these chronic conditions from the CC list under 
the MS-DRGs led to a substantial decrease in the reporting of these 
conditions as a secondary diagnosis when the MS-DRGs were implemented 
in FY 2008.
    Specifically, after 10 years in which the proportion of IPPS cases 
that included atrial fibrillation as a secondary diagnosis increased 
each year, the proportion decreased by 20 percent immediately upon 
implementation of the MS-DRGs in FY 2008. This decrease in coding of 
atrial fibrillation would cause the CMI as measured by the FY 2007 DRG 
GROUPER to go down, while having no effect on the CMI as measured by 
the MS-DRG GROUPER. The commenter stated that if this negative 
documentation and coding effect is not taken into account in CMS' 
analysis, it will inappropriately increase CMS' estimate of 
documentation and coding change. The commenter also found that the 
secondary diagnoses of chronic blood loss anemia, mitral valve disorder 
and aortic valve disorder decreased in proportion immediately upon 
implementation of the MS-DRGs in FY 2008.
    In addition, the commenter stated that hyperpotassemia was a CC 
under the CMS-DRGs, but is not a CC or MCC under the MS-DRGs. Because 
of this, there was a substantial decrease in the reporting of 
hyperpotassemia as a secondary diagnosis when the MS-DRGs were 
implemented in FY 2008. Specifically, after 9 consecutive years in 
which the proportion of IPPS cases that included hyperpotassemia as a 
secondary diagnosis increased, the proportion decreased by 37 percent 
immediately upon implementation of the MS-DRGs in FY 2008.
    In responding to MedPAC's analysis, the commenter stated that CMS 
concluded that it did not believe it would be appropriate to revise its 
estimates based solely on MedPAC's analysis without knowing of any 
specific examples. Given that the commenter is now providing such 
specific examples, the commenter urged the agency to revise its 
analysis to account for what the commenter believed to be 
overestimation of documentation and coding as identified by MedPAC and 
the AHA. Specifically, the commenter recommended that CMS subtract 0.25 
percentage points from its estimate of a 6.2 percent cumulative 
documentation and coding effect; which yields a revised cumulative 
effect of 5.95 percent. Under this methodology, because CMS has already 
implemented documentation and coding cuts of 3.5 percent, the commenter 
stated that the cut remaining is actually only 2.45 percent, instead of 
the 2.7 percent the agency proposed.
    Response: We disagree with the commenter's suggestion that the 
removal of the codes for the chronic conditions of atrial fibrillation, 
chronic blood loss anemia, mitral valve disorder and aortic valve 
disorder from the CC list upon the implementation of MS-DRGs and the 
subsequent decrease in hospital reporting are examples of a 
``negative'' documentation and coding effect. We note that what the 
commenter provided are examples of an immediate change in coding and 
reporting practices based on incentives under the MS-DRGs. It did not 
suggest that patients had fewer occurrences of the chronic conditions 
identified. They do suggest that hospitals were immediately aware of 
the incentives provided by the CC and MCC lists under MS-DRGs and began 
focusing on identifying and

[[Page 53280]]

reporting codes on the MS-DRG CC and MCC lists.
    We believe the commenters' suggestions of immediate changes in 
coding and reporting based on incentives provided by the MS-DRGs CC and 
MCC lists support our view that coding practices have changed in 
response to incentives, which we have shown lead to increases in the 
case-mix index that were not based on actual changes in patient 
severity.
    We further believe that while the MedPAC analysis suggested that a 
potential overestimate could have, in theory, occurred in the 
methodology, the estimates are theoretical maximums. It is not clear at 
this time, based on the information submitted, to what extent the five 
examples provided by commenters substantiate these theoretical maximums 
or any change in adjustments.
    Nonetheless, we recognize that the methodological issues that 
surround this question are complex, and may merit further 
consideration. Therefore, we are not finalizing the proposed -0.8 
percent adjustment to the standardized amount and the hospital-specific 
rate at this time until more analysis can be completed.

--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                        Removal of          Combined
                                                               Remaining         Prospective        Prospective          onetime        documentation  &
                                                              prospective       adjustment for     adjustment for       recoupment           coding
                                                             adjustment for        FY 2010            FY 2013       adjustment in  FY   adjustment  for
                                                             FYs 2008-2009                                                 2013             FY 2013
--------------------------------------------------------------------------------------------------------------------------------------------------------
Level of Adjustments.....................................             -1.9%              -0.0%              -1.9%              +2.9%              +1.0%
--------------------------------------------------------------------------------------------------------------------------------------------------------

    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.

E. 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 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 
55.30 for ``Implantable Devices Charged to Patients'' was created in 
July 2009 as part of CMS' Transmittal 20 update to the cost report Form 
CMS-2552-96. 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, MRI, 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

[[Page 53281]]

our proposal to create standard cost centers for CT scans, MRI, 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, MRI, and cardiac catheterization.) The new standard cost 
centers for CT scans, MRI, 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.
2. Summary of Policy Discussion in FY 2012
    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 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, MRI, 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).
    Accordingly, during the FY 2012 IPPS rulemaking (76 FR 51502), we 
assessed the availability of data in the ``Implantable Devices Charged 
to Patients'' cost center. In order to develop a robust analysis 
regarding the use of cost data from the ``Implantable Devices Charged 
to Patients'' cost center, it was necessary to have a critical mass of 
cost reports filed with data in this cost center. 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.
3. Discussion for FY 2013
    To calculate the MS-DRG relative weights, we use two data sources: 
the MedPAR file as the claims data source and the HCRIS as the cost 
data source. We adjust the charges from the claims to costs by applying 
the 15 national average CCRs developed from the cost reports. In the 
past several years, we have made progress in changing the cost report 
to add the ``Implantable Devices Charged to Patients'' cost center. At 
the time of development of the FY 2013 IPPS/LTCH PPS proposed rule, 
there was a sizeable number of hospitals in the FY 2010 HCRIS that had 
reported data for ``Implantable Devices Charged to Patients'' on their 
cost reports beginning during FY 2010. However, during the development 
of the proposed rule, 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. This is because cost reports with fiscal 
year begin dates of May 1, 2010, through September 30, 2010, were filed 
on the new cost report Form 2552-10, and cost reports filed on the Form 
2552-10 were not accessible in the HCRIS. Normally, we pull the HCRIS 
dataset that is 3 years prior to the IPPS fiscal year (that is, for the 
FY 2013 relative weights, we would use the FY 2010 HCRIS, which 
includes data from cost reports that begin on or after October 1, 2009, 
and before October 1, 2010). However, because data from the Form 2552-
10 cost reports were not available, to ensure that the relative weights 
are calculated with a data set that is as comprehensive and accurate as 
possible, in the proposed rule, we proposed to calculate the FY 2013 
relative weights with data from FY 2010 cost reports for providers with 
fiscal year begin dates of on or after October 1, 2009, and before May 
1, 2010, and to back fill with data from FY 2009 cost reports for those 
providers that have fiscal year begin dates on or after May 1, 2010 
through September 30, 2010. Further complicating matters was that, due 
to additional unforeseen technical difficulties, the corresponding 
information regarding charges for implantable devices on hospital 
claims was not yet available to us in the MedPAR file. Without the 
breakout in the MedPAR file of charges associated with implantable 
devices to correspond to the costs of implantable devices on the cost 
report, we believed that we had no choice but to propose 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 proposed rule (77 FR 27892) that when we do 
have the necessary supplies and implantable device data on the claims 
in the MedPAR file to create distinct CCRs for supplies and implantable 
devices, perhaps for FY 2014, we also hoped that we would have data for 
an analysis of creating distinct CCRs for MRI, CT scans, and cardiac 
catheterization. Prior to proposing to create these CCRs, we would 
first thoroughly analyze and determine the impacts of the data. 
Distinct CCRs for implantable devices, MRIs, and CT scans would be used 
in the calculation of the relative weights only if they were first 
finalized through rulemaking.
    Comment: Commenters expressed concern that CMS had proposed not to 
use the data available from the new ``Implantable Devices Charged to 
Patients'' cost center for FY 2013. The commenters were concerned about 
the continued delays in the utilization of the new cost center data, 
and stated that such delays only prolong the payment inaccuracies 
associated with charge compression. Two commenters suggested a short-
term fix to account for the lack of data and to create a CCR for 
implantable devices. The commenters suggested that CMS calculate a DRG-
by-DRG estimate of the split of standardized supplies charges into 
implantable devices and routine supplies. They stated that once 
supplies charges are apportioned in each DRG, separate national average 
CCRs for implantable devices and other supplies could be applied, based 
on the existing cost reports. The commenters recommended using the CY 
2010 Inpatient Standard Analytic File (SAF) to calculate the DRG-level 
factors for apportioning the supplies charges, as the file has 
information on charges by revenue center, allowing implantable devices 
to be split from routine supplies. They further suggested that CMS 
could calculate the CY 2010 ratios of routine supply charges to 
implantable device charges by DRG, apply those ratios to the FY 2011 
MedPAR supplies charges, and then utilize the separate CCRs for 
supplies and implantable devices to estimate costs within each DRG. The 
commenters added that the remainder of the DRG weight

[[Page 53282]]

calculation would proceed at this point, now with 16 CCRs, including 
the implantable devices CCR. The commenters stated that CMS has 
information required for DRG assignment, and could run the data through 
the latest MS-DRG GROUPER if MS-DRG definition changes are an issue.
    Several commenters requested that CMS adopt a regression-based CCR 
for implantable devices due to the delay in using the cost report and 
claims data to calculate an implantable device CCR. The commenters 
suggested that CMS implement this approach, which was a recommendation 
made by RTI and MedPAC, to the statistical disaggregation of CCRs in 
the ``Medical Supplies Charged to Patients'' cost center, as it would 
immediately address charge compression until data from the new cost 
centers become available.
    One commenter requested that CMS use the data from the hospitals 
that are compliant in using the ``Implantable Devices Charged to 
Patients'' cost center data to establish an implantable device CCR for 
establishing FY 2013 relative weights. The commenter suggested that, 
despite data limitations of the current data, CMS continue to revise 
this CCR in subsequent years, as the agency does for all cost centers 
as more robust data are available, without further delaying needed 
improvements in the interim period.
    Response: We acknowledge the commenters' concern that we did not 
propose a distinct CCR for implantable devices charged to patients for 
FY 2013. Nevertheless, we believe it would be inappropriate to finalize 
a specific CCR for implantable devices charged to patients for FY 2013 
(using SAF data, a regression-based methodology, or the limited 
implantable devices cost report data that we do have), without an 
opportunity for the public to review and comment on our analysis. 
Rather, we believe that it is appropriate to wait until FY 2014, when 
we hope to be able to provide a proper impact analysis of the addition 
of a CCR for implantable devices charged to patients in the relative 
weights calculation. Accordingly, we are not implementing a regression-
based CCR for implantable devices at this time, nor are we implementing 
any new CCRs for use in the relative weights calculation for FY 2013.
    Comment: Several commenters expressed concern that CMS may not have 
sufficient data to establish an implantable device cost center to use 
in the calculation of the relative weights for FY 2014. Two commenters 
requested that CMS develop and discuss in this FY 2013 IPPS final rule 
an action plan for ensuring that FY 2011 HCRIS and MedPAR data will be 
available for allowing the ``Implantable Devices Charged to Patients'' 
cost center to be used for calculating MS-DRG relative weights for FY 
2014. Another commenter requested that, rather than waiting for the 
next rulemaking cycle, CMS should determine if it will have the 
necessary data available prior to the FY 2014 proposed rule and inform 
stakeholders if there continues to be administrative issues with the 
data. The commenter believed that this will allow stakeholders to weigh 
in on potential solutions to avoid another year of delay in 
establishing the implantable device CCR.
    Response: We understand the commenters' desire for reassurance that 
the FY 2014 rulemaking cycle will not present further unanticipated 
delays in the availability of both HCRIS and MedPAR data required to 
create distinct CCRs for implantable devices charged to patients and 
supplies charged to patients, respectively. We expect to have the 
necessary data available to begin modeling the additional CCRs before 
the end of calendar year 2012. Therefore, we are optimistic that, for 
the FY 2014 proposed rule, we will be able to provide a detailed impact 
analysis of the relative weights using distinct CCRs for implantable 
devices, MRIs, CT scans, and cardiac catheterization. If, for some 
reason, additional delays are encountered toward the end of calendar 
year 2012, we will consider informing stakeholders of this delay, if 
appropriate, and hosting a national conference call, so that 
alternative solutions to establishing additional CCRs can be considered 
in a timely fashion.
    Comment: Some commenters supported our proposal of not making major 
refinements in the MS-DRG relative weight methodology.
    Response: We appreciate the commenters' support for our proposal of 
not making major refinements to the MS-DRG relative weights.
    Comment: One commenter recommended that, despite the delay in the 
implementation of the ``Implantable Devices Charged to Patients'' cost 
center for the IPPS relative weights, CMS should proceed with the 
implementation of the implantable devices cost center in the 
calculation of OPPS rates for CY 2013. The commenter requested that CMS 
work toward a solution to combine data from the two different cost 
reporting forms in the HCRIS data so that OPPS rates can be calculated 
using the cost difference reported in the ``Implantable Devices Charged 
to Patients'' cost center.
    Response: We note that the CY 2013 OPPS/ASC proposed rule, which 
went on public display at the Office of the Federal Register on July 6, 
2012 (available at: http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/HospitalOutpatientPPS/Hospital-Outpatient-Regulations-and-Notices-Items/CMS-1589-P.html), in fact, includes a proposal to use 
data from the ``Implantable Devices Charged to Patients'' cost center 
to create a distinct CCR for use in calculating the OPPS relative 
weights for CY 2013.
    Comment: Two commenters expressed continued concern about the 
accuracy of establishing new CT and MRI cost centers using cost report 
and claims data. The commenters were concerned that the data reported 
in the CT and MRI cost centers will not represent hospitals' full cost 
of providing CT and MRI for some time. The commenters stated that a 
large portion of the capital costs for CT and MRI equipment may have 
been allocated across the entire hospital, rather than to the radiology 
cost center, which would result in the understatement of costs of CT 
and MRI reported in the radiology cost center.
    Response: We received similar comments regarding the allocation of 
capital costs for radiology equipment on the FY 2011 IPPS/LTCH PPS 
proposed rule. In the FY 2011 IPPS/LTCH PPS final rule (75 FR 50078), 
we provided a detailed response for CMS' longstanding policy on the 
proper reporting of such capital costs. Specifically, we stated that 
``section 104 of the PRM-I contains definitions of buildings (section 
104.2), building equipment (section 104.3), major moveable equipment 
(section 104.4), and minor equipment (section 104.5) that apply for 
purposes of cost report completion. We believe that it is clear that CT 
and MRI equipment are `major moveable equipment' and are neither a 
building cost nor a building equipment cost. Specifically, section 
104.4 of the PRM-I defines `major moveable equipment' as follows: `The 
general characteristics of this equipment are: (a) a relatively fixed 
location in the building; (b) capable of being moved, as distinguished 
from building equipment; (c) a unit cost sufficient to justify ledger 
control; (d) sufficient size and identity to make control feasible by 
means of identification tags; and (e) a minimum life of approximately 
three years. Major moveable equipment includes such items as accounting 
machines, beds, wheelchairs, desks, vehicles, x-ray machines, etc.' In 
addition to this longstanding instruction, we believe

[[Page 53283]]

that our view that CT scanning and MRI equipment are major moveable 
equipment is supported by the 2008 edition of `Estimated Useful Lives 
of Depreciable Hospital Assets,' which states that the estimated useful 
life of a CT scanner is 5 years, an MRI is 5 years, and an X-ray unit 
is 7 years. Therefore, we believe that our longstanding policy makes it 
clear that CT scanning and MRI equipment [are] major moveable equipment 
and should be reported as such on the cost report. As major moveable 
equipment, the costs should be reported together with the rest of the 
hospital's major moveable equipment cost in the `Capital Related Costs-
Moveable Equipment' cost center(s) on Worksheet A (lines 2 and 4 [on 
the CMS Form 2552-96 and line 2 on the CMS Form 2552-10]). The costs in 
this cost center are allocated to all the hospital's cost centers that 
use major moveable equipment (including CT and MRI) using `dollar 
value' or `square feet' if the provider obtained the contractor's 
approval under Provider Reimbursement Manual Part II (PRM-II), Section 
3617, to use the simplified cost allocation methodology. However, a 
hospital that is concerned that this method of allocation may result in 
inaccurate CCRs (on Worksheet C, Part I) for the CT scan, MRI, and 
other ancillary cost centers may request contractor approval under 
Section 2307 of the PRM-I to directly assign the cost of moveable 
equipment to all of the hospital's cost centers that use moveable 
equipment, including CT scans and MRIs. If the hospital meets all of 
the criteria in Section 2307 of the PRM-I, the contractor may approve 
the direct assignment method. This would ensure that the high cost of 
the CT scanning and MRI equipment would be reflected in the CCR that 
would be calculated for those departments and that would be used to 
estimate the cost of CT scanning and MRI services. In any case, 
hospitals with accounting systems that include the cost of CT scanning 
and MRI equipment in the `Capital Related Costs--Building and Fixtures' 
cost center should correct their cost reporting practices to come into 
compliance with CMS' longstanding policy in this regard. Reporting of 
costs and charges on the Medicare cost report must be compliant with 
Medicare cost reporting principles, regardless of differing payment 
structures and incentives of other payers or State reporting 
requirements'' (75 FR 50078). Hospitals that still need to correct 
their cost reporting practices in this regard should do so soon, so 
that when we propose distinct CCRs for MRI and CT scans, hopefully for 
FY 2014, these CCRs will represent fairly accurately the costs of these 
radiology services.
    In summary, in this final rule, we are finalizing our proposal to 
continue to use the existing 15 CCRs to calculate the MS-DRG relative 
weights for FY 2013. For this final rule, as we did for the proposed 
rule, because data from the CMS Form 2552-10 continue to be 
unavailable, we are using data from FY 2010 cost reports for providers 
with fiscal year begin dates of on or after October 1, 2009, and before 
May 1, 2010, and we are backfilling with data from FY 2009 cost reports 
for those providers that have fiscal year begin dates on or after May 
1, 2010 through September 30, 2010. Depending on the availability of 
necessary data, we hope to be able to propose, if appropriate, for FY 
2014 to use distinct CCRs for implantable devices charged to patients 
and supplies charged to patients, and possibly distinct CCRs for MRI, 
CT scans, and cardiac catheterization as well.

F. 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 
effected in a manner shown in the diagram below.

[[Page 53284]]

[GRAPHIC] [TIFF OMITTED] TR31AU12.000

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); 
and the FY 2012 IPPS/LTCH PPS proposed rule (76 FR 25810 through 25816) 
and final rule (76 FR 51504 through 51522). A complete list of the 10 
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.
    In the FY 2012 IPPS/LTCH PPS proposed rule (76 FR 25813 through 
25814) and FY 2012 IPPS/LTCH PPS final rule (76 FR 51507 through 
50509), we proposed but did not finalize the candidate condition 
Contrast-Induced Acute Kidney Injury. Instead, we deferred the decision 
making on this condition as a selected HAC until future rulemaking and 
such a time when improved coding for the condition is available.
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).
    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 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); 
and the FY 2012 IPPS/LTCH PPS proposed rule (76 FR 25812 through 25813) 
and final rule (76 FR 51506 through 51507).

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

[[Page 53285]]

    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/Regulations-and-Guidance/Guidance/Transmittals/downloads/R756OTN.pdf. However, for 
claims that continue to be submitted using the 4010 electronic 
transmittal standards format, the POA indicator of ``1'' is still 
necessary because of reporting restrictions from the use of the 4010 
electronic transmittal standards format.
    In addition, as discussed in section II.G.9. of the preamble of 
this final 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) and in the FY 2013 IPPS/LTCH PPS proposed rule (77 FR 
27894), 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 meeting 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. The translation list is available on the 
CMS Web page 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/Medicare/Coding/ICD10/index.html. 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.html.
    Comment: Commenters expressed appreciation for CMS' decision to 
make this crosswalk available. Commenters noted that they would 
continue to review the crosswalk and provide additional comments, as 
warranted.
    Response: We appreciate the commenters' support and continued 
feedback.
5. Changes to the HAC Policy for FY 2013
a. Additional Diagnosis Codes to Existing HACs
    As discussed in the FY 2013 IPPS/LTCH PPS proposed rule (77 FR 
27894), as changes to diagnosis codes and new diagnosis codes have been 
proposed and finalized for the list of CCs and MCCs, we have modified 
the list of selected HACs to reflect these changes. While there were 
not any new diagnosis codes proposed for FY 2013, there were new and 
revised diagnosis codes effective October 1, 2011 (FY 2012) that were 
not finalized in time for inclusion in the FY 2012 IPPS rulemaking. 
Therefore, in the proposed rule (77 FR 27894), we proposed to add two 
of these codes to an existing HAC category. We proposed to add 
diagnosis codes 999.32 (Bloodstream infection due to central venous 
catheter) and 999.33 (Local infection due to central venous catheter) 
to the Vascular Catheter-Associated Infection HAC category for FY 2013. 
These codes were created in response to a request discussed at the 
March 9-10, 2011 ICD-9-CM Coordination and Maintenance Committee 
meeting to better identify specific types of infections (systemic 
versus local) that occur as a result of central venous catheter 
placement.
    Previously, there was only one existing HAC code (999.31 (Infection 
due to central venous catheter)) in the Vascular Catheter-Associated 
Infection HAC category. With the creation of codes 999.32 and 999.33, 
effective October 1, 2011, the title for code 999.31 was revised to 
``Other and unspecified infection due to central venous catheter.'' 
Therefore, codes 999.32 and 999.33 provide further specificity as to 
the type of infection due to a central venous catheter. We refer 
readers to page 45 of the topic packet found at the following link on 
the CDC ICD-9-CM Web page at http://www.cdc.gov/nchs/data/icd9/TopicpacketforMarch2011_HA1.pdf for further information.
    Shown in the table below are the two diagnosis codes that we 
proposed with their corresponding descriptions and their CC/MCC 
designations.

------------------------------------------------------------------------
                                                             CC/MCC
        ICD-9-CM  Code             Code descriptor        Designation
------------------------------------------------------------------------
999.32........................  Bloodstream infection  CC
                                 due to central
                                 venous catheter.
999.33........................  Local infection due    CC
                                 to central venous
                                 catheter.
------------------------------------------------------------------------

    We invited public comments on the proposed adoption of these two 
ICD-9-CM diagnosis codes designated as CC/MCCs that are listed above, 
to be added to the Vascular Catheter-Associated Infection HAC category 
as indicated for FY 2013.
    Comment: Several commenters supported the addition of these two 
codes. One commenter, a State program, indicated that it uses these 
codes in a statewide HAC payment incentive program.
    Response: We appreciate the commenters' support.
    Comment: Some commenters opposed the addition of these two 
diagnosis codes. Commenters also urged CMS to remove the one existing 
HAC code (999.31) in the Vascular Catheter-Associated Infection HAC 
category. They stated that CMS is proposing to add a quality measure on 
central line associated bloodstream infection (CLABSI), which would 
capture vascular catheter-associated infections

[[Page 53286]]

and asserted that ``this could penalize hospitals twice for the same 
event.'' (We note that the commenters may be referring to two different 
CMS programs, the Hospital IQR Program and the Hospital VBP Program.) 
Commenters stated that their opposition to the proposed inclusion of 
the two codes is not specific to the particular codes that were 
proposed, but that their opposition is predicated on the ``expansion of 
this HAC [Vascular Catheter-Associated Infection].'' Commenters also 
stated that they supported reducing the incidence of CLABSI as a 
patient safety goal and urged CMS to ``select only one program in which 
to measure hospital performance for vascular catheter-associated 
infection.''
    Response: The HAC-POA Program is part of an array of tools used by 
the Medicare program to promote increased quality and efficiency of 
care. These tools include quality measurement as well as payment 
adjustments. Because of their importance, HACs have been included in 
multiple tools used by the Medicare program to measure quality of 
services provided and performance, and to determine payment 
adjustments. 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, such as when any nonselected CC/MCC appears on the claim, 
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 and would not generally ``penalize hospitals twice.''
    Because of their importance, measures of HACs have historically 
been included in the Hospital IQR Program and are simultaneously 
monitored by different CMS programs. The HAC/POA policy authorized 
under section 1886(D)(4)(d) of the Act is a claims-based payment 
policy, and in many cases, even if a HAC manifests during a hospital 
stay, if any nonselected CC/MCC appears on the claim, the claim will be 
paid at the higher MS-DRG rate.
    Comment: One commenter supported the addition of diagnosis code 
999.32, Bloodstream infection due to central venous catheter, to the 
Vascular Catheter-Associated Infection HAC category, however, the 
commenter expressed concern with the inclusion of diagnosis code 
999.33, Local infection due to central venous catheter, as a condition 
under this same HAC category to be subject to the HAC payment policy. 
According to the commenter, diagnosis code 999.33 identifies and 
describes local infections related to the soft tissues versus 
infections in the central bloodstream. As such, the commenter asserted 
that the Vascular Catheter-Associated Infection HAC category should 
only include central bloodstream infections. Therefore, the commenter 
did not support the addition of code 999.33 to the Vascular Catheter-
Associated Infection HAC category.
    In addition, this same commenter recommended that CMS publish data 
analyses for the Vascular Catheter-Associated Infection HAC category. 
Specifically, the commenter requested that volume and cost data be made 
publicly available for diagnosis codes 999.31, Other and unspecified 
infection due to central venous catheter; 999.32, Bloodstream infection 
due to central venous catheter; and 999.33, Local infection due to 
central venous catheter. The commenter reiterated that they do not 
support the inclusion of code 999.33 as a condition under the Vascular 
Catheter-Associated Infection HAC category, however, the commenter 
stated the additional information would assist in identifying potential 
shifts in volume among the newer, more specific codes of 999.32 and 
999.33.
    Response: We appreciate the commenter's support for the addition of 
diagnosis code 999.32, Bloodstream infection due to central venous 
catheter, to the Vascular Catheter-Associated Infection HAC category. 
With respect to the concern expressed regarding diagnosis code 999.33, 
Local infection due to central venous catheter, we believe the 
commenter may be confused. The title of the HAC category is Vascular 
Catheter-Associated Infection; therefore, the emphasis is on the fact 
that the patient had a central venous catheter placed and subsequently 
developed an infection due to the presence of that catheter. We 
acknowledge there is widespread interest particularly in bloodstream 
infections due to central venous catheters, as several initiatives have 
been undertaken focusing on surveillance and prevention. However, for 
this HAC payment provision, it is our belief that local infections 
resulting from a central venous catheter are also of importance and 
deserve similar efforts among the provider community and healthcare 
industry with regard to surveillance and prevention, as do the other 
selected HAC conditions. While the condition being described by 
diagnosis code 999.33, Local infection due to central venous catheter 
is a local infection, it identifies the fact that a patient acquired 
the infection as a result of a central venous catheter. Therefore, we 
continue to believe it is appropriate to finalize this code for 
inclusion in this HAC category.
    In response to the recommendation that CMS conduct and publish data 
analyses to provide further detailed information related to volume and 
cost for codes 999.31, 999.32 and 999.33, we note that we have provided 
the results for each selected condition within each HAC category 
beginning with FY 2009 data analysis presented in FY 2011. We refer the 
commenter and readers to the RTI evaluation of the HAC-POA program for 
years FY 2009 through FY 2011 on the following Web site: http://www.rti.org/reports/cms/. As codes 999.32 and 999.33 became effective 
October 1, 2011 (FY 2012), results of the FY 2012 data analysis are not 
currently available.
    After consideration of the public comments we received, we are 
finalizing our proposal to add diagnosis codes 999.32 (Bloodstream 
infection due to central venous catheter) and 999.33 (Local infection 
due to central venous catheter) to the Vascular Catheter-Associated 
Infection HAC category for discharges occurring on or after October 1, 
2012.
b. New Candidate HAC Condition: Surgical Site Infection (SSI) Following 
Cardiac Implantable Electronic Device (CIED) Procedures
    In the FY 2013 IPPS/LTCH PPS proposed rule (77 FR 27894 through 
27896), we discussed our rationale for proposing a new condition, 
Surgical Site Infection (SSI) Following Cardiac Implantable Electronic 
Device (CIED) Procedures, for selection for FY 2013 as a HAC under 
section 1886(d)(4)(D) of the Act. As described in more detail in 
section II.F.1. of this preamble, each HAC must be: (1) High cost, high 
volume, or both; (2) 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 (3) could reasonably have been prevented through 
the application of evidence-based guidelines. We also discuss other 
considerations relating to the selection of a HAC, including any 
administrative or operational issues associated with a proposed 
condition. For example, the condition may only be able to be identified 
by multiple codes, thereby requiring the development of special GROUPER 
logic to also exclude similar or related ICD-9-CM codes from being 
classified as a CC or an MCC. Similarly, a condition acquired during a 
hospital stay may arise from another condition that the patient had 
prior to

[[Page 53287]]

admission, making it difficult to determine whether the condition was 
reasonably preventable. In the proposed rule, we invited public comment 
on the degree to which these conditions fulfill these statutory 
requirements, as well as clinical, coding, and prevention issues on our 
proposal to add SSI Following CIED Procedures as a condition subject to 
the HAC payment provision for discharges occurring on or after October 
1, 2012.
    CIED therapy reduces morbidity and mortality in selected patients 
with cardiac rhythm disturbances.\1\ More than 500,000 CIEDs are 
implanted each year in the United States and 70 percent of CIED 
recipients are age 65 or older.\2\ However, this benefit with regard to 
the treatment of cardiac rhythm disturbances is somewhat reduced by 
complications following device placement, including infections. 
Patients can present with early or late infections because of CIED 
placement.\3\ Two-thirds of these infections are caused by 
Staphylococcus aureus and coagulase-negative Staphylococcus species. 
Treatment of these infections usually entails surgical explantation of 
the device, sometimes under general anesthesia and a prolonged course 
of intravenous antibiotics, along with external electrical support in a 
monitored intensive care setting. The rate of CIED infection is 
increasing faster than the rate of CIED implantation,\4\ and there are 
published data on the mortality and cost associated with CIED infection 
or the relationship of these outcomes to different CIED types.
---------------------------------------------------------------------------

    \1\ Epstein, A. E., J. P. DiMarco, et al. (2008). ``ACC/AHA/HRS 
2008 Guidelines for Device-Based Therapy of Cardiac Rhythm 
Abnormalities: a report of the American College of Cardiology/
American Heart Association Task Force on Practice Guidelines 
(Writing Committee to Revise the ACC/AHA/NASPE 2002 Guideline Update 
for Implantation of Cardiac Pacemakers and Antiarrhythmia Devices): 
developed in collaboration with the American Association for 
Thoracic Surgery and Society of Thoracic Surgeons.'' Circulation 
117(21): e350-408.
    \2\ Zhan, C., W. B. Baine, et al. (2007). ``Cardiac device 
implantation in the United States from 1997 through 2004: a 
population-based analysis.'' J Gen Intern Med, 23 Suppl 1: 13-19.
    \3\ Baddour, L. M., A. E. Epstein, et al. (2010). ``Update on 
cardiovascular implantable electronic device infections and their 
management: a scientific statement from the American Heart 
Association.'' Circulation, 121(20048212): 458-477.
     Baddour, L. M., A. E. Epstein, et al. (2010). ``Update on 
Cardiovascular Implantable Electronic Device Infections and Their 
Management: A Scientific Statement From the American Heart 
Association.'' Circulation, 121(3): 458-477.
    \4\ Greenspon, A. J., J. D. Patel, et al. (2011). ``16-Year 
Trends in the Infection Burden for Pacemakers and Implantable 
Cardioverter-Defibrillators in the United States 1993 to 2008.'' 
Journal of the American College of Cardiology 58(10): 1001-1006.
---------------------------------------------------------------------------

    There is not a unique code that identifies SSI Following CIED 
Procedures. However, the condition can be identified as a subset of 
discharges with ICD-9-CM diagnosis code 996.61 (Infection and 
inflammatory reaction due to cardiac device, implant and graft) or 
998.59 (Other postoperative infection). Our clinical advisors believe 
that diagnosis code 996.61 or 998.59, in combination with the 
associated procedure codes below, can accurately identify SSI Following 
CIED Procedures. The procedure codes are:
     00.50 (Implantation of cardiac resynchronization pacemaker 
without mention of defibrillation, total system [CRT-P]);
     00.51 (Implantation of cardiac resynchronization 
defibrillator, total system [CRT-D]);
     00.52 (Implantation or replacement of transvenous lead 
[electrode] into left ventricular coronary venous system);
     00.53 (Implantation or replacement of cardiac 
resynchronization pacemaker pulse generator only [CRT-P]);
     00.54 (Implantation or replacement of cardiac 
resynchronization defibrillator pulse generator device only [CRT-D]);
     37.80 (Insertion of permanent pacemaker, initial or 
replacement, type of device not specified);
     37.81 (Initial insertion of single-chamber device, not 
specified as rate responsive);
     37.82 (Initial insertion of single-chamber device, rate 
responsive);
     37.83 (Initial insertion of dual-chamber device);
     37.85 (Replacement of any type pacemaker device with 
single-chamber device, not specified as rate responsive);
     37.86 (Replacement of any type of pacemaker device with 
single-chamber device, rate responsive);
     37.87 (Replacement of any type pacemaker device with dual-
chamber device);
     37.94 (Implantation or replacement of automatic 
cardioverter/defibrillator, total system [AICD]);
     37.96 (Implantation of automatic cardioverter/
defibrillator pulse generator only);
     37.98 (Replacement of automatic cardioverter/defibrillator 
pulse generator only);
     37.74 (Insertion or replacement of epicardial lead 
[electrode] into epicardium);
     37.75 (Revision of lead [electrode]);
     37.76 (Replacement of transvenous atrial and/or 
ventricular lead(s) [electrode]);
     37.77 (Removal of lead(s) [electrode] without 
replacement);
     37.79 (Revision or relocation of cardiac device pocket); 
and
     37.89 (Revision or removal of pacemaker device).
    In the FY 2013 IPPS/LTCH PPS proposed rule (77 FR 27894 through 
27896), we proposed to identify SSI Following CIED Procedures with 
diagnosis code 996.61 or 998.59 in combination with one or more of the 
above associated procedure codes. We believe the condition meets the 
three criteria for inclusion on the HAC list, as discussed in greater 
detail below.
    First, the condition is one that is high cost and high volume. We 
reviewed Medicare claims data in the FY 2011 MedPAR file. For FY 2011, 
we found that there were 859 inpatient discharges coded with SSI 
Following CIED Procedures as specified by diagnosis code 996.61 or 
998.59 when reported with one or more of the above cited associated 
procedure codes submitted through Medicare claims. The cases had an 
average cost of $51,795 for the entire hospital stay. We found that 
there were 583 inpatient discharges coded with SSI Following CIED 
Procedures as specified by diagnosis code 996.61 or 998.59 when 
reported with one or more of the above cited associated procedure codes 
submitted through Medicare claims reported as POA. These POA cases had 
an average cost of $41,999. We also found that there were 276 inpatient 
discharges coded with SSI Following CIED Procedures as specified by 
diagnosis code 996.61 or 998.59 when reported with one or more of the 
above cited associated procedure codes submitted through Medicare 
claims reported as NPOA. These NPOA cases had an average cost of 
$72,485. We note that these data are consistent with other data 
presented for current HACs. Therefore, we believe this condition is 
high cost and high volume.
    In addition, we reviewed the literature regarding this condition. 
Infection associated with CIED procedures resulted in a substantial 
incremental increase in admission mortality and long-term mortality and 
varies with the type of CIED. For the purposes of the proposal, we 
considered CIED procedures in the aggregate. Several large studies 
showed CIED infection associated with an approximately 5 percent to 8 
percent inhospital mortality as well as a 17.5 percent to 35.1 percent 
one year mortality.\5\ Additionally, there is a significant cost impact 
for patients who

[[Page 53288]]

suffer infections after CIED implantation. A recent large analysis of 
2007 data on over 200,000 Medicare beneficiaries demonstrated the mean 
hospital cost of CIED infections ranges from $28,676 to $53,349, 
compared with a mean hospital cost ranging from $12,468 to $36,851 for 
beneficiaries without infection.\6\ This additional information 
supports our conclusion from our analysis of data in the MedPAR file 
that this condition is high cost.
---------------------------------------------------------------------------

    \5\ Tarakji, K. G., E. J. Chan, et al. (2010). ``Cardiac 
implantable electronic device infections: Presentation, management, 
and patient outcomes.'' Heart Rhythm 7(8): 1043-1047.
    \6\ Sohail, M. R., C. A. Henrikson, et al. (2011). ``Mortality 
and cost associated with cardiovascular implantable electronic 
device infections.'' Arch Intern Med 171(20): 1821-1828.
---------------------------------------------------------------------------

    Second, the condition of SSI Following CIED Procedures, as 
specified in our proposal, is a CC under the MS-DRG system. We did not 
identify any additional administrative or operational difficulties 
associated with proposing this condition as a HAC.
    Third, because there are widely recognized guidelines for the 
prevention of SSI Following CIED Procedures, we believe the condition 
is reasonably preventable through application of evidence-based 
guidelines. A large randomized controlled trial demonstrated that 
prophylactic preoperative antibiotics reduced CIED infection by 81 
percent in patients who received them.\7\ Well-accepted guidelines for 
the prevention and prophylaxis of CIED infection now exist supporting 
the use of prophylactic antibiotics.
---------------------------------------------------------------------------

    \7\ de Oliveira, J. C., M. Martinelli, et al. (2009). ``Efficacy 
of Antibiotic Prophylaxis Before the Implantation of Pacemakers and 
Cardioverter-Defibrillators: Results of a Large, Prospective, 
Randomized, Double-Blinded, Placebo-Controlled Trial.'' Circ 
Arrhythm Electrophysiol, 2(1): 29-34.
---------------------------------------------------------------------------

    In the proposed rule, we invited public comment on whether SSI 
Following CIED Procedures meets the requirements set forth under 
section 1886(d)(4)(D) of the Act, as well as other coding and 
prevention issues associated with our proposal to add this condition as 
a proposed condition subject to the HAC payment provision for FY 2013 
(for discharges occurring on or after October 1, 2012). We indicated 
that we were particularly interested in receiving comments on the 
degree to which SSI Following CIED Procedures is reasonably preventable 
through the application of evidence-based guidelines.
    Comment: The majority of commenters supported SSI Following CIED 
Procedures as a new addition to the HAC/POA condition list, citing its 
clinical relevance to the Medicare beneficiary population and concerns 
about the increasing incidence of these infections in conjunction with 
increased morbidity and mortality, and the associated costs with these 
infections. One commenter, a State program, indicated that it uses 
these codes in a statewide HAC payment incentive program.
    Response: We appreciate the commenters' support.
    Comment: Some commenters raised concerns that the inclusion of SSI 
Following CIED Procedures as a HAC candidate does not meet the 
statutory conditions of section 1886(d)(4)(D) of the Act because ``CMS 
points out that there were only 859 cases of SSI Following CIED 
Procedures during FY 2011. This constitutes only 0.25 percent of all 
CIED cases.'' These commenters asserted that the HAC candidate 
condition does not meet the high-volume criterion and, therefore, 
should not be included as a HAC.
    Response: We appreciate the commenters' concern regarding whether 
this candidate condition meets the standards of the statutory criteria. 
We note that we consider all cases where HAC codes are on the claim as 
a secondary diagnosis, regardless of their POA indicator, in evaluating 
conditions based on cost and volume and also use external data sources 
when available. With regard to cost, the proposed rule included data 
analyses that showed that the average cost per case of SSI Following 
CIED Procedures is $51,795 and also included literature that describes 
the increase in the mean cost of admissions with CIED infection to 
those CIED placements without infection. Therefore, we reiterate our 
belief that this condition meets the high-cost criterion. As discussed 
previously, section 1886(d)(4)(D) of the Act specifies that a condition 
on the HAC list may be high-volume or high-cost or both. It does not 
require the condition to be both, and a condition that is only high-
cost would meet this statutory criterion. Therefore, we believe that 
the statutory criterion has been met.
    In the proposed rule, we characterized this condition as ``high-
cost and high-volume'' and described an analysis that showed 859 cases. 
While 859 cases may seem like a small number of cases as the commenters 
pointed out, we note that, in past rules, we have had similar numbers 
for HACs, such as in FY 2008, where we stated that there were ``764 
cases reported of Medicare patients who had an object left in during 
surgery reported as a secondary diagnosis'' (72 FR 24720). Therefore, a 
volume of 859 cases is not as high as the volume for some other HACs 
and is higher than the volume for some HACs.
    Comment: Some commenters were opposed to the SSI Following CIED 
Procedures becoming a HAC because they believed that this HAC selection 
``will result in hospitals dedicating time and effort to avoiding this 
extremely low-incidence adverse event (when resources could have been 
devoted to more highly prevalent safety concerns).''
    Response: We appreciate and understand the concern of the 
commenters. We note that SSIs are an established HAC category and that 
a similar condition has been identified by public commenters in prior 
rulemaking. In the FY 2008 IPPS final rule with comment period (72 FR 
47213), SSIs were identified as a broad category for consideration. 
However, at the time, we determined that coding of SSI with only ICD-9-
CM code 998.59 (Other postoperative infection) did not meet the 
statutory criteria for being subject to the provision because it does 
not uniquely identify SSIs. We stated that we would explore ways to 
identify SSIs and would reevaluate the condition in FY 2009. In 
response to public comment in the FY 2008 final rule with comment 
period, we finalized one SSI, mediastinitis after coronary artery 
bypass graft (CABG) surgery, and continued to ask for public input so 
that further specific SSIs could be identified.
    In FY 2009, we expanded our selection of the SSI for elective 
procedures as HACs. In the FY 2009 IPPS final rule (73 FR 48477 through 
48479), we discussed how, in response to commenters' suggestions, we 
selected certain orthopedic procedures in the HAC SSI category using 
ICD-9-CM diagnosis code 996.67 (Infection and inflammatory reaction due 
to other orthopedic device and implant graft) or 998.59 (Other 
postoperative infection) and selected 81.XX orthopedic ICD-9-CM 
procedure codes. Another SSI condition that was proposed and finalized 
during FY 2009 based on public comment was ``Surgical Site Infection 
Following Bariatric Surgery for Obesity.'' The ICD-9-CM codes that are 
used to describe ``Surgical Site Infection Following Bariatric Surgery 
for Obesity'' are: 278.01 (Morbid Obesity) and 998.59 (Other 
postoperative infection), and procedure code 44.38 (Laparoscopic 
gastroenterostomy) or 44.39 (Other gastroenterostomy), or 44.95 
(Laparoscopic gastri restrictive procedure).
    As discussed in that same final rule for FY 2009 (73 FR 48478 
through 48479), a commenter recommended adding Surgical Site Infection 
following Implantation of Cardiac Devices as a HAC. The commenter 
provided the

[[Page 53289]]

following information regarding this recommended HAC:
     A recent estimate that approximately 300,000 pacemaker 
implants had been performed in 2007.
     A reference stating that the estimated rate of infection 
following cardiac device implantation is 4 percent and that the cost to 
treat each pacemaker infection is approximately $25,000.
     Evidence-based guidelines for preventing these infections.
    Our response in that FY 2009 final rule was that ``surgical site 
infection following certain cardiac device procedures is a strong 
candidate HAC.'' We stated the condition is high-cost, high-volume, 
triggers a higher-paying MS-DRG, and may be considered reasonably 
preventable through the application of evidence-based guidelines. We 
further explained that we did not propose this specific condition in 
the FY 2009 IPPS proposed rule; however, we expect to propose surgical 
site infection following certain cardiac device procedures, as well as 
surgical site infection following other types of device procedures, as 
future candidates. We also stated that we looked forward to working 
with stakeholders to identify additional procedures, such as device 
procedures, in which SSIs could be considered reasonably preventable 
through the application of evidence-based guidelines. We continue to 
agree with public commenters from FY 2009 that SSI Following 
Implantation of Cardiac Device Procedures is a strong candidate and 
made this specific proposal for FY 2013 for that reason.
    In light of the public comments we received, and given our prior 
establishment of a broad HAC category for SSIs in relation to HACs and 
historical discussion of SSI following certain cardiac device 
procedures as a strong candidate, in this final rule, we are modifying 
our proposal so that, rather than this procedure being a new HAC 
category, we are finalizing SSI Following CIED Procedures as a new 
subcategory under SSIs (for example, HAC 9D Surgical Site Infection 
Following Cardiac Implantation).
    Comment: Some commenters opposed the use of administrative/claims 
data to identify HAIs in the HAC/POA Program and noted that the 
proposed rule stated that there is no unique code that identifies SSI 
Following CIED procedures, and thus CMS proposed to use a combination 
of codes to capture these data. The commenters believed the use of 
claims data for the determination of HAIs/HACs has limited value in 
improving patient care because claims data do not provide precise 
identification of HAIs, nor do they provide information in a timely 
manner to provide effective treatment.
    Response: We appreciate the commenters' concern that administrative 
data may not provide the most precise identification of HAIs and their 
comments about the codes used to identify the conditions proposed for 
addition to the HAC list. However, we point out that the statute 
establishes this policy as a payment policy, which is implemented on a 
per claim basis by adjusting the MS-DRG assignment. The statute further 
requires that the conditions on the HAC list must be identifiable 
through ICD-9-CM codes. The conditions identified on the HAC list and 
the corresponding codes or combinations of codes used to make a payment 
adjustment are not intended to provide information in a timely manner 
to provide treatment to any particular individual. The statute 
establishes a payment adjustment that can encourage hospitals to make 
improvements with regard to a limited number of conditions that, if 
they did not occur, could have otherwise resulted in an increased 
payment for a reasonably avoidable complication.
    Comment: One commenter did not believe that punitive payment 
mechanisms coupled with the lack of risk adjustment for the conditions 
on the HACs list is the most appropriate or effective method to reduce 
complications. Commenters also asserted that CMS is expanding the HAC 
program ``without fully understanding the impact of appropriate risk 
adjustment.''
    Response: We appreciate the commenters' response, but disagree with 
their assumptions. We received similar comments regarding the addition 
of two new codes to another existing HAC category. We note that our 
response is similar. The HAC/POA Program is part of an array of tools 
used by the Medicare program to promote increased quality and 
efficiency of care. These tools include quality measurement, as well as 
payment adjustments. Because of their importance, HACs have been 
included in multiple tools used by Medicare to measure quality of 
services provided and performance, and to determine payment 
adjustments. 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, such as when a nonselected CC/MCC appears on a claim, 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.
    With regard to risk adjustment, risk adjustment is not a 
requirement under section 1886(d)(4)(D) of the Act for inclusion of a 
condition on the HAC list for payment adjustment. We believe the 
commenters may be confusing the HAC payment adjustment policy with 
quality measurement policies, where risk adjustment is sometimes used. 
We believe meeting the statutory criteria as specified encourages 
hospitals to promote measures to protect all patients from reasonably 
preventable HACs.
    Comment: One commenter stated: ``It is inappropriate for CMS to 
deny payment for HAC related complications without taking into 
consideration whether a patient did, in fact, receive optimal evidence-
based care given that the rates of many of the HACs cannot reach 
zero.''
    Response: We appreciate the commenter's response. We believe that, 
although it may be difficult to reduce the incidence of conditions on 
the HAC list to zero, the incidence of conditions can be significantly 
reduced in cases where evidence-based guidelines for the prevention of 
the condition exist and are used. Additionally, we point out that 
payment is not denied, but could be made at a lower paying MS-DRG rate. 
If any nonselected CC/MCC appears on the claim when a HAC is not 
present on admission, the claim will be paid at the higher MS-DRG rate, 
so the hospital would not receive a lower payment. Finally, in 
accordance with 42 CFR 412.60(d), hospitals may appeal the DRG 
assignment on a claim within 60 days of the initial notice of the DRG 
assignment. This may be of interest to the public, as the commenter 
expressed concern about those cases where a HAC occurs and a lower 
paying MS-DRG assignment is made.
    After consideration of the public comments we received, in this 
final rule, we are modifying our proposal to add SSI Following CIED 
Procedures as a HAC condition. Our final policy makes SSI following 
CIED Procedures a sub-HAC condition within the SSI HAC category subject 
to the HAC payment provision for discharges occurring on or after 
October 1, 2012.
c. New Candidate HAC Condition: Iatrogenic Pneumothorax With Venous 
Catheterization
    In the FY 2013 IPPS/LTCH PPS proposed rule (77 FR 27896 through

[[Page 53290]]

27897), we discussed our rationale for proposing a new condition, 
Iatrogenic Pneumothorax with Venous Catheterization, for selection as a 
HAC for FY 2013 under section 1886(d)(4)(D) of the Act. We previously 
proposed Iatrogenic Pneumothorax more generally as a HAC in the FY 2009 
IPPS rulemaking (73 FR 48485).
    In the FY 2009 IPPS final rule (73 FR 48485), we considered 
Iatrogenic Pneumothorax as a condition but did not finalize it due to 
commenters' concerns about the preventability of the condition when 
following the evidence-based guidelines. Most commenters opposed the 
selection of Iatrogenic Pneumothorax as a HAC and indicated that the 
evidence-based guidelines often acknowledge that Iatrogenic 
Pneumothorax is a known relatively common risk for certain procedures. 
Further, with regard to evidence-based guidelines, many commenters 
opposed designation of this condition as a HAC due to a lack of 
consensus within the medical community regarding its preventability.\8\ 
Some commenters offered suggestions to exclude certain procedures or 
situations, including central line placement, thoracotomy, and the use 
of a ventilator, if Iatrogenic Pneumothorax were to be selected as a 
HAC. In that rule, we noted that we would continue to review the 
development of evidence-based guidelines for the prevention of 
Iatrogenic Pneumothorax if evidence warranted and consider Iatrogenic 
Pneumothorax as a HAC in the future. We refer readers to that final 
rule for a more detailed discussion (73 FR 48485). To address concerns 
raised by commenters in FY 2009, we reviewed changes in the standard of 
care and evidence-based guidelines to identify specific situations 
where Iatrogenic Pneumothorax would be considered reasonably 
preventable and identified venous catheterization as one such instance.
---------------------------------------------------------------------------

    \8\ Ahan, et al.: Accidental Iatrogenic Pneumothorax in 
Hospitalized Patients, Medical Care, 44(2):182-6, Feb. 2006.
---------------------------------------------------------------------------

    Pneumothorax is defined as the presence of air or gas in the 
pleural cavity, which is the space between the covering of the tissue 
of the lung and parietal pleura, or the part of the pleura that lines 
the chest wall. The presence of air in this space partially or 
completely collapses the lung and is life threatening. Air can enter 
the intrapleural space through a passage through the chest wall. 
Iatrogenic Pneumothorax is a type of traumatic pneumothorax that 
results from incursion into the pleural space secondary to diagnostic 
or therapeutic medical intervention, such as needle placement for 
central line catheter guidance.
    There is no unique code that identifies Iatrogenic Pneumothorax 
with Venous Catheterization. However, Iatrogenic Pneumothorax with 
Venous Catheterization can be identified as a subset of discharges with 
ICD-9-CM diagnosis code 512.1 (Iatrogenic pneumothorax). Our clinical 
advisors believe that diagnosis code 512.1, in combination with the 
associated procedure code 38.93 (Venous catheterization NEC), can 
accurately identify Iatrogenic Pneumothorax with Venous 
Catheterization. In the FY 2013 IPPS/LTCH PPS proposed rule (77 FR 
27896 through 27897), we proposed to identify Iatrogenic Pneumothorax 
with Venous Catheterization reported in combination with diagnosis code 
512.1 (Iatrogenic pneumothorax) and procedure code 38.93 (Venous 
catheterization NEC). We recognize that, in quality measurement such as 
with the Agency for Healthcare Research and Quality (AHRQ) Patient 
Safety Indicator (PSI) Number 6 (Iatrogenic Pneumothorax Rate), 
exclusion criteria are used to increase the accuracy of identifying 
these cases. We believe that, by limiting our proposal to include 
Iatrogenic Pneumothorax as a HAC only in the context of venous 
catheterization, we have improved our ability to accurately identify 
these cases. While we did not propose exclusion criteria, we welcomed 
public comment in this regard. In addition, we believe this more 
narrowly tailored condition meets the three criteria for inclusion on 
the HAC list, as discussed in greater detail below.
    First, the condition is one that is high cost and high volume. We 
reviewed Medicare claims data in the FY 2011 MedPAR file. We found that 
there were 4,467 inpatient discharge cases coded for Iatrogenic 
Pneumothorax with Venous Catheterization as specified by diagnosis code 
512.1 reported with procedure code 38.93. The cases had an average cost 
of $39,128 for the entire hospital stay. We found that there were 612 
inpatient discharge cases coded for Iatrogenic Pneumothorax with Venous 
Catheterization as specified by diagnosis code 512.1 reported with 
procedure code 38.93 submitted through Medicare claims reported as POA. 
These POA cases had an average cost of $26,693. We also found that 
there were 3,855 inpatient discharge cases coded for Iatrogenic 
Pneumothorax with Venous Catheterization as specified by diagnosis code 
512.1 reported with procedure code 38.93 submitted through Medicare 
claims reported as NPOA. These NPOA cases had an average cost of 
$41,102. We note that these data are consistent with other data 
presented for current HACs. Therefore, we believe this condition is 
high cost and high volume.
    In addition, we reviewed the literature regarding this condition. 
The cannulation of veins (that is, insertion of a catheter) with 
central venous catheterization is an important aspect of patient care 
for the administration of fluids and medications and for monitoring 
purposes. Eight percent of hospitalized patients receive a central 
venous catheter, and more than 5 million central venous catheters are 
inserted in the United States each year. Indwelling catheters have 
several known complications and side effects associated with their use, 
such as infections or vessel damage. Additionally, there are risks 
associated with the placement of central venous catheters including the 
risk of pneumothorax for central catheters placed in the upper area of 
the patient's neck or chest when placed in the internal jugular or 
subclavian veins. Mechanical complications associated with Iatrogenic 
Pneumothorax are reported to occur in 5 to 19 percent of patients.\9\
---------------------------------------------------------------------------

    \9\ McGee, D. C. and M. K. Gould (2003). ``Preventing 
Complications of Central Venous Catheterization.'' New England 
Journal of Medicine, 348(12): 1123-1133.
---------------------------------------------------------------------------

    Second, the condition of Iatrogenic Pneumothorax with Venous 
Catheterization as specified in our proposal is a CC under the MS-DRGs.
    Third, there are widely recognized guidelines that address the 
prevention of Iatrogenic Pneumothorax with Venous Catheterization, and 
we believe that Iatrogenic Pneumothorax in the context of venous 
catheterization is reasonably preventable through application of these 
evidence-based guidelines.
    In terms of guidelines, the AHRQ, in a 2001 report ``Making Health 
Care Safer: A Critical Analysis of Patient Safety Practices'' (AHRQ 
Publication No. 01-EO58) recommended the use of ultrasound for the 
placement of all central venous catheters as one of its 11 practices 
aimed at improving patient care. Current standard placement techniques 
for these venous catheters rely on the knowledge of anatomic landmarks 
and other indicators to guide the initial cannulation of the vein. The 
increase in the number of small, advanced, and portable 2D ultrasound 
devices has inspired the use of these newer ultrasound devices in 
central venous line placement, as now direct visualization of the 
target vessel can be

[[Page 53291]]

achieved, making it easier to avoid these complications. 
Recommendations for the use of ultrasound as an adjunct to central 
venous line placement now exist and are based on supportive literature 
Category A (Randomized controlled trials report statistically 
significant (P > .01) differences between clinical interventions for a 
specified clinical outcome) with a Level 1 weight of scientific 
evidence (multiple randomized controlled trials with the aggregated 
findings supported by meta-analysis).\10\ Several studies have shown a 
decrease in the mechanical complication rate with the use of ultrasound 
during line placement.\11\ Guidelines for performing ultrasound guided 
vascular cannulation have been recently published.\12\
---------------------------------------------------------------------------

    \10\ Echoc, A. U. R. b. t. A. S. o. A. a. t. S. o. C. A. T. F. 
o. T. (2010). ``Practice Guidelines for Perioperative 
Transesophageal Echocardiography.'' Anesthesiology, 112(5): 1084-
1096 1010.1097/ALN.1080b1013e3181c1051e1090.
    \11\ Hind, D.: ``Ultrasonic device for central venous 
cannulation: Meta-analysis.'' BJM, 2003, vol. 327, 7411:361-364; and 
Troianos, C. A., G. S. Hartman, et al. (2012). ``Guidelines for 
Performing Ultrasound Guided Vascular Cannulation: Recommendations 
of the American Society of Echocardiography and the Society of 
Cardiovascular Anesthesiologists.'' Anesthesia and Analgesia, 
114(1): 46-72.
    \12\ Troianos, C. A., G. S. Hartman, et al. (2012). ``Guidelines 
for Performing Ultrasound Guided Vascular Cannulation: 
Recommendations of the American Society of Echocardiography and the 
Society of Cardiovascular Anesthesiologists.'' Anesthesia and 
Analgesia, 114(1): 46-72.
---------------------------------------------------------------------------

    We believe new evidence-based guidelines provide substantial 
clinical guidance for reasonable prevention when this condition occurs 
in the context of venous catheterization. In the proposed rule, we 
invited public comment on whether Iatrogenic Pneumothorax with Venous 
Catheterization meets the requirements set forth under section 
1886(d)(4)(D) of the Act, as well as other coding and prevention issues 
associated with our proposal to add this proposed condition, as a 
condition subject to the HAC payment provision for discharges occurring 
on or after October 1, 2012. We stated that we were particularly 
interested in public comment on how limiting the condition to 
situations in which it occurs in conjunction with venous 
catheterization influences preventability, and whether additional 
limits should be considered in the context of venous catheterization.
    Comment: Some commenters supported CMS' proposal to include 
Iatrogenic Pneumothorax with Venous Catheterization as a candidate 
condition for the HAC list. Some commenters noted that this proposal 
aligns with and encourages use of ``widely recognized'' guidelines 
based in research evidence, including AHRQ's 2001 published report, 
``Making Healthcare Safer: A Critical Analysis of Patient Safety 
Practices'' (AHRQ Publication No. 01-E058), that shows iatrogenic 
pneumothorax can be a reasonably preventable complication when 
performing the venous catheterization using an ultrasound. One 
commenter stated, ``Recent studies have highlighted the cost savings 
and increased quality of care that ultrasound guided catheterization 
can provide * * * [and that] fewer complications from needle placement 
result in improved patient outcomes and greater clinician 
efficiency.''Another commenter listed additional guidelines, such as 
the 2002 guidance from CDC regarding the use of ultrasound and the 
prevention of intravascular catheter-related complications, the 2002 
guidance from the National Institute for Health and Clinical Excellence 
(NICE) on the use of ultrasound for placing central venous catheters, 
the 2001 (revised in 2008) guidance from the American College of 
Emergency Physicians which represents the first specialty specific 
comprehensive guidelines for the use of ultrasound in emergency 
medicine, and the 2012 practice guideline from the American Society of 
Anesthesiologists (ASA) Taskforce on Central Venous Access for central 
venous access defined as placement of a catheter such that the catheter 
is inserted into a venous great vessel.
    Another commenter noted that ``Since 2001, controlled trials have 
been published evaluating ultrasound guided central venous 
catheterization in various types of patient populations * * * and found 
significantly higher success rates and reduced complication rates in 
all studies.''
    Response: We agree with commenters' input and appreciate the 
commenters' support.
    Comment: One commenter encouraged CMS to add exclusion criteria 
``to prevent reporting errors'' of the Iatrogenic Pneumothorax with 
Venous Catheterization HAC. Another commenter recommended that CMS add 
the following exclusion codes to distinguish iatrogenic and spontaneous 
pneumothorax; pneumothorax and air leaks: ICD-9-CM codes 512.2 
(Postoperative air leak), 512.81 (Primary Spontaneous Pneumothorax), 
512.82 (Secondary spontaneous pneumothorax), 512.83 Chronic 
pneumothorax), 512.84 (Other air leak), and 512.89 (Other 
Pneumothorax). One of the commenters noted that Iatrogenic Pneumothorax 
does not have an ICD-9-CM code.
    Response: We thank the commenters for their response. At this time, 
we continue to believe that, by limiting our proposal to include 
Iatrogenic Pneumothorax as a HAC only in the context of venous 
catheterization, we have improved our ability to accurately identify 
these cases and that no further exclusion criteria are needed. We 
believe that the commenter may have misunderstood our proposed policy 
in offering the specific suggestions for exclusion codes. First, the 
commenter is mistaken about there not being a code for Iatrogenic 
Pneumothorax in ICD-9-CM. The condition is indexed clearly to diagnosis 
code 512.1 (Iatrogenic pneumothorax). Also, as specified, this HAC 
would not include the codes for spontaneous pneumothorax because it is 
not a complication as a result of a medical intervention and, 
therefore, is not iatrogenic. ICD-9-CM diagnosis code 512.1 is specific 
enough to capture those complications that have been caused through 
medical intervention in the context of venous catheterization.
    Comment: Some commenters opposed the addition of the Iatrogenic 
Pneumothorax with Venous Catheterization condition ``because it puts 
hospitals at risk of being penalized twice for the same event.'' 
Commenters pointed out that CMS proposed to add a patient safety 
composite measure that includes Iatrogenic Pneumothorax with Venous 
Catheterization to the Hospital VBP Program. In the commenters' view, 
this penalizes hospitals twice for the same event. The commenters noted 
that they supported reducing iatrogenic pneumothorax as a patient 
safety goal for CMS, and urged CMS to ``select only one program in 
which to measure hospitals' performance on IPs with venous 
catheterization.'' In addition, the commenters stated that ``CMS has 
continued to add additional components to the HAC list without fully 
understanding the impact of appropriate risk adjustment.''
    Response: We received similar public comments regarding our 
proposal to include SSI Following CIED Procedures in the existing HAC 
category, and, similarly, we appreciate the commenters' response but 
disagree with their assumptions. As we responded above with regard to 
the SSI Following CIED Procedures condition, the HAC/POA program is 
part of an array of tools used by the Medicare program to promote 
increased quality and efficiency of care. These tools include quality 
measurement, as well as payment adjustments. Because of their 
importance, HACs have been included in multiple tools used by the 
Medicare program to measure quality of services

[[Page 53292]]

provided and performance, and to determine payment adjustments. 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, such as 
when a nonselected CC/MCC appears on a claim, 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 and would not 
generally ``penalize hospitals twice.''
    With regard to risk adjustment, risk adjustment is not a 
requirement under section 1886(d)(4)(D) of the Act for inclusion of a 
condition on the HAC list for payment adjustment. We believe the 
commenters may be confusing the HAC payment adjustment policy with 
quality measurement policies, where risk adjustment is sometimes used. 
We believe meeting the statutory criteria as specified encourages 
hospitals to promote measures to protect all patients from reasonably 
preventable hospital-acquired conditions.
    Comment: Some commenters opposed the inclusion of Iatrogenic 
Pneumothorax with Venous Catheterization as a HAC candidate condition 
because they did not believe that this proposed HAC condition is high-
volume.
    Response: We received similar comments with regard to our proposal 
to include SSI Following CIED Procedures as a HAC candidate condition. 
We similarly point out that our proposal characterized this condition 
as ``high-cost and high-volume'' and described analysis that showed 
4,467 cases and an average cost of $39,128. Furthermore, as discussed 
previously, section 1886(d)(4)(D) of the Act specifies that a condition 
on the HAC list may be high-volume or high-cost or both. It does not 
require the condition to be both and a condition that was only high-
cost would still meet this statutory criterion.
    Comment: Other commenters ``recommended that CMS work with CDC and 
other quality organizations to identify more robust measures for HAC[s] 
prior to implementing these two proposed conditions, as their inclusion 
is not currently endorsed by national quality organizations.''
    Response: In establishing the HAC payment policy under section 
1886(d)(4)(D) of the Act, our experts have worked closely with the 
public health and infectious disease professionals from across the 
Department of Health and Human Services to identify the candidate 
preventable HACs. New HAC proposals are made in consultation with the 
CDC to ensure the clinical soundness of the proposal.
    Comment: A few commenters stated that ``For many conditions on the 
HAC list, occurrence rates cannot be reduced to zero or near zero even 
when the evidence-based guidelines are followed.'' In addition, one 
commenter stated ``We believe that effective preventive measures make 
Iatrogenic Pneumothorax reducible but not 100 percent preventable. 
However, the same report states that these prevention strategies may 
reduce the incidence but not necessarily eliminate it. CMS should 
recognize the reality that a target rate of zero (``never event'') is 
perhaps not attainable with this condition at this time.''
    Response: We appreciate the commenters' response. We believe that, 
although it may be difficult to reduce the incidence of conditions on 
the HAC list to zero, the incidence of conditions can be significantly 
reduced in cases where evidence-based guidelines for the prevention of 
the condition exist and are used. For Iatrogenic Pneumothorax with 
Venous Catheterization, the use of the improved newly published 
evidence-based guidelines has shown the complication rate can be 
markedly reduced in the placement of the venous catheter into the 
internal jugular vein.
    Comment: A few commenters expressed that the inclusion of the 
Iatrogenic Pneumothorax with Venous Catheterization condition may have 
unintended and deleterious consequences, which may lead providers 
toward using alternative sites for central line placement that are less 
prone to pneumothorax, but carry increased risk of mechanical and 
infectious complications. They indicated that alternative sites could 
be the internal jugular or femoral veins. Because of these 
consequences, these commenters did not support the addition of 
Iatrogenic Pneumothorax with Venous Catheterization to the HAC list.
    Response: We believe the commenters may have misunderstood our 
proposal. The new HAC condition will apply to a population of patients 
who have iatrogenic pneumothorax as a complication of central venous 
placement of a catheter in the internal jugular vein. We do not believe 
hospitals will be led to consider alternative, suboptimal sites for 
central venous access because of this new addition to the HAC list.
    Comment: Some commenters expressed concerns regarding the use of 
ultrasound in academic medical centers and Level 1 Trauma Centers for 
venous catheter placement versus the use of ultrasound for venous 
catheter placement in small community hospitals. They stated that 
``there is little to no data on how often ultrasound guidance is used 
in small community medical centers.'' Furthermore, they stated that 
``ultrasound guidance is less commonly used in procedures involving 
central venous access via the subclavian vein, and is often impossible 
to use in trauma cases.''
    Response: We believe that, in applying evidence-based guidelines, 
hospitals will have appropriately trained hospital personnel. Also, we 
point out that the lesser paying MS-DRG is not assigned when additional 
nonselected CC/MCCs appear on a claim, and that trauma cases may likely 
involve additional nonselected CC/MCCs.
    As we indicated in the FY 2013 IPPS/LTCH PPS proposed rule (77 FR 
27897), with the exception of the condition of Iatrogenic Pneumothorax 
with Venous Catheterization, at this time, we do not believe that 
additional analysis exists that would require us to change our previous 
determinations regarding the previously considered candidate HACs in 
the FY 2008 IPPS final rule with comment period (72 FR 47200 through 
47218), the FY 2009 IPPS final rule (73 FR 48471 through 48491), the FY 
2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 43782 through 43785), and 
the FY 2012 IPPS/LTCH PPS final rule (76 FR 51510 through 51511). We 
refer readers to these rules for a detailed discussion that supports 
our determination regarding each of the previously considered candidate 
HACs and continue to encourage public dialogue about refinements to the 
HAC list.
    After consideration of the public comments we received, we are 
finalizing our proposal to add Iatrogenic Pneumothorax with Venous 
Catheterization with the codes specified above as a condition subject 
to the HAC payment provision for discharges occurring on or after 
October 1, 2012.
6. RTI Program Evaluation Summary
    On September 30, 2009, a contract was awarded to Research Triangle 
Institute, International (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

[[Page 53293]]

rates. This is an intra-agency project with funding and technical 
support coming from CMS, the Office of Public Health and Science 
(OPHS), AHRQ, and CDC. The evaluation will also examine the 
implementation of the program and evaluate additional conditions for 
future selection.
    RTI's evaluation of the HAC-POA provisions is divided into several 
parts. The evaluation includes conditions that are currently treated as 
HACs and also previously considered candidate conditions. We refer 
readers to the FY 2011 IPPS/LTCH PPS final rule (75 FR 50085 through 
50101) and the FY 2012 IPPS/LTCH PPS final rule (76 FR 51512 through 
51522) for a fuller description of this evaluation and findings to date 
regarding analysis of FY 2009 and FY 2010 data, respectively. Summary 
and detailed data were made publicly available on the CMS Web site at: 
http://www.cms.gov/HospitalAcqCond/01_Overview.asp and the RTI Web 
site at: http://www.rti.org/reports/cms/.
    RTI's analysis of the FY 2011 MedPAR data file for the HAC-POA 
program evaluation is included as follows in this FY 2013 IPPS/LTCH PPS 
final rule. These summary and detailed data are available on the CMS 
Web site at: http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/HospitalAcqCond/Hospital-Acquired_Conditions.html and the RTI 
Web site at: http://www.rti.org/reports/cms/.
a. RTI Analysis of FY 2011 POA Indicator Reporting Across Medicare 
Discharges
    To better understand the impact of HACs on the Medicare program, it 
is necessary to first examine the incidence of POA indicator reporting 
across all eligible Medicare discharges. As mentioned previously, only 
IPPS hospitals are required to submit POA indicator data for all 
diagnosis codes on Medicare claims. Therefore, all non-IPPS hospitals 
were excluded, as well as providers in waiver States (Maryland) and 
territories other than Puerto Rico.
    Using MedPAR claims data from October 2010 through September 2011, 
RTI found a total of approximately 89.3 million secondary diagnoses 
across approximately 8.94 million discharges. As shown in Chart A 
below, the majority of all secondary diagnoses (77.57 percent) were 
reported with a POA indicator of ``Y,'' meaning the condition was POA.

      Chart A--POA Code Distribution Across All Secondary Diagnoses
------------------------------------------------------------------------
 
------------------------------------------------------------------------
                                                  Number      Percentage
------------------------------------------------------------------------
Total Discharges in Final File                 8,941,507  ..............
------------------------------------------------------------------------
Total Number of Secondary Diagnoses           89,252,194          100.00
 Across Total Discharges
------------------------------------------------------------------------
       POA         Indicator Description  ..............  ..............
Y................  Condition present on       69,231,189           77.57
                    admission.
W................  Status cannot be               21,796            0.02
                    clinically
                    determined.
N................  Condition not present       5,748,769            6.44
                    on admission.
U................  Documentation not             207,258            0.23
                    adequate to
                    determine if
                    condition was
                    present on admission.
1................  Exempted ICD-9-CM          14,043,182           15.73
                    code.
------------------------------------------------------------------------
Source: RTI Analysis of MedPAR IPPS Claims, October 2010 through
  September 2011.

b. RTI Analysis of FY 2011 POA Indicator Reporting of Current HACs
    Following the initial analysis of POA indicator reporting for all 
secondary diagnoses, RTI evaluated POA indicator reporting for specific 
HAC-associated secondary diagnoses. The term ``HAC-associated secondary 
diagnosis'' refers to those diagnoses that are on the selected HAC list 
and were reported as a secondary diagnosis. Chart B below shows a 
summary of the HAC categories with the frequency in which each HAC was 
reported as a secondary diagnosis and the corresponding POA indicators 
assigned on the claims. It is important to note that, because more than 
one HAC-associated diagnosis code can be reported per discharge (that 
is, on a single claim), the frequency of HAC-associated diagnosis codes 
may be more than the actual number of discharges that have a HAC-
associated diagnosis code reported as a secondary diagnosis. Below we 
discuss the frequency of each HAC-associated diagnosis code and the POA 
indicators assigned to those claims.
    RTI analyzed the frequency of each reported HAC-associated 
secondary diagnosis (across all 8.94 million discharges) and the POA 
indicator assigned to the claim. Chart B below shows that the most 
frequently reported conditions were in the Falls and Trauma HAC 
category, with a total of 181,157 HAC-associated diagnosis codes being 
reported for that HAC category. Of these 181,157 diagnoses, 4,738 
reported a POA indicator of ``N'' for not POA and 175,831 diagnoses 
reported a POA indicator of ``Y'' for POA. The lowest frequency appears 
in the Blood Incompatibility HAC category with only 22 HAC-associated 
secondary diagnosis codes reported.

                                        Chart B--POA Status of Current HACS: October 2010 Through September 2011
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                           Not present on admission                      Present on admission
                                                      Frequency  ---------------------------------------------------------------------------------------
                    Selected HAC                         as a            POA = N               POA = U               POA = Y               POA = W
                                                      secondary  ---------------------------------------------------------------------------------------
                                                      diagnosis     Number    Percent     Number    Percent     Number    Percent     Number    Percent
--------------------------------------------------------------------------------------------------------------------------------------------------------
1. Foreign Object Retained After Surgery (CC)......          606        283       46.7          1        0.2        321       53.0          1        0.2
2. Air Embolism (MCC)..............................           45         34       75.6          0        0.0         11       24.4          0        0.0
3. Blood Incompatibility (CC)......................           22         10       45.5          1        4.5         11       50.0          0        0.0
4. Pressure Ulcer Stages III & IV (MCC)............      102,172      1,742        1.7         75        0.1    100,328       98.2         27        0.0

[[Page 53294]]

 
5. Falls and Trauma (MCC & CC).....................      181,157      4,738        2.6        510        0.3    175,831       97.1         78        0.0
6. Catheter-Associated UTI (CC)....................       16,807      3,906       23.2         32        0.2     12,835       76.4         34        0.2
7. Vascular Catheter-Associated Infection (CC).....       11,324      5,910       52.2         25        0.2      5,366       47.4         23        0.2
8. Poor Glycemic Control (MCC).....................       15,360        612        4.0          7        0.0     14,734       95.9          7        0.0
9A. Surgical Site Infection Mediastinitis CABG (CC)           58         50       86.2          0        0.0          8       13.8          0        0.0
9B. Surgical Site Infection Following Certain                356        247       69.4          0        0.0        109       30.6          0        0.0
 Orthopedic Procedures (CC)........................
9C. Surgical Site Infection Following Bariatric               25         24       96.0          0        0.0          1        4.0          0        0.0
 Surgery for Obesity (CC)..........................
10. Pulmonary Embolism & DVT Orthopedic (MCC)......        3,368      2,715       80.6         20        0.6        611       18.1         22        0.7
                                                    ----------------------------------------------------------------------------------------------------
    Total *........................................      331,300     20,271        6.1        671        0.2    310,166       93.6        192        0.1
--------------------------------------------------------------------------------------------------------------------------------------------------------
* More than one HAC-associated diagnosis code can be reported per discharge; therefore, frequency of HAC-associated diagnosis codes may be more than the
  actual number of discharges that have a HAC-associated diagnosis code reported as a secondary diagnosis.

    In the FY 2009 IPPS final rule (73 FR 48486 through 48487), we 
adopted as final our proposal to: (1) pay the CC/MCC MS-DRGs for those 
HACs coded with ``Y'' and ``W'' indicators; and (2) not pay the CC/MCC 
MS-DRGs for those HACs coded with ``N'' and ``U'' indicators. We also 
discussed the comments we received urging CMS to strongly consider 
changing the policy and to pay for those HACs assigned a POA indicator 
of ``U'' (documentation is insufficient to determine if the condition 
was present at the time of admission). We stated we would monitor the 
extent to which and under what circumstances the ``U'' POA reporting 
option is used. In the FY 2010 IPPS/RY 2010 LTCH PPS final rule, we 
also discussed and responded to comments regarding HACs coded with the 
``U'' indicator (74 FR 43784 and 43785). As shown in Chart B above, 
RTI's analysis provides data on a total of 671 HAC-associated secondary 
diagnoses reported with a POA indicator of ``U.'' Of those diagnoses, 
510 (0.3 percent) were assigned to the Falls and Trauma HAC category.
    We continue to believe that better documentation will result in 
more accurate public health data. We did not propose to change our 
policy under which CMS does not pay at the higher CC/MCC amount when a 
selected HAC diagnosis code is reported with a POA indicator of ``U.''
    We encourage readers to further review the RTI detailed report 
which demonstrates the frequency of each individual HAC-associated 
diagnosis code within the HAC categories. For example, in the Foreign 
Object Retained After Surgery HAC category, there are two unique ICD-9-
CM diagnosis codes to identify that condition: Code 998.4 (Foreign body 
accidentally left during a procedure) and code 998.7 (Acute reaction to 
foreign substance accidentally left during a procedure). In the 
detailed RTI report, readers can view that code 998.4 was reported 591 
times and code 998.7 was reported 15 times, across all MS-DRGs, for a 
total of 606 times. The RTI detailed report is available at the 
following Web site: http://www.rti.org/reports/cms/.
c. RTI Analysis of FY 2011 Frequency of Discharges and POA Indicator 
Reporting for Current HACs
    RTI further analyzed the effect of the HAC provision by studying 
the frequency in which a HAC-associated diagnosis was reported as a 
secondary diagnosis with a POA indicator of ``N'' or ``U'' and, of that 
number, how many resulted in MS-DRG reassignment. In Chart C below, 
Column A shows the number of discharges for each HAC category where the 
HAC-associated diagnosis was reported as a secondary diagnosis. For 
example, there were 45 discharges that reported Air Embolism as a 
secondary diagnosis. Column C shows the number of discharges for each 
HAC reported with a POA indicator of ``N'' or ``U.'' Continuing with 
the example of Air Embolism, the chart shows that, of the 45 reported 
discharges, 34 discharges (75.56 percent) had a POA indicator of ``N'' 
or ``U'' and were identified as a HAC discharge. There were a total of 
34 discharges to which the HAC policy applied and that could, 
therefore, have had an MS-DRG reassignment. Column E shows the number 
of discharges where an actual MS-DRG reassignment occurred. As shown in 
Column E, the number of discharges with an Air Embolism that resulted 
in actual MS-DRG reassignments was 14 (41.18 percent of the 34 
discharges with a POA indicator of ``N'' or ``U''). Thus, while there 
were 34 discharges (75.56 percent of the original 45) with an Air 
Embolism reported with a POA indicator of ``N'' or ``U'' identified as 
a HAC discharge that could have caused MS-DRG reassignment, the end 
result was 14 (41.18 percent) actual MS-DRG reassignments. There are a 
number of reasons why a selected HAC reported with a POA indicator of 
``N'' or ``U'' will not result in MS-DRG reassignment. These reasons 
were illustrated with the diagram in section II.F.1. of the preamble of 
this final rule and will be discussed in further detail in section 
II.F.3.e. of this preamble.
    Chart C below also shows that, of the 287,993 discharges with a 
HAC-associated diagnosis as a secondary diagnosis, 3,006 discharges 
ultimately resulted in MS-DRG reassignment. As will be discussed below, 
there were 15

[[Page 53295]]

claims that resulted in MS-DRG reassignment where 2 HACs were reported 
on the same admission. The four HAC categories that had the most 
discharges resulting in MS-DRG reassignment were: (1) Falls and Trauma; 
(2) Pulmonary Embolism and DVT Orthopedic (Orthopedic PE/DVT); (3) 
Pressure Ulcer Stages III & IV; and (4) Catheter-Associated Urinary 
Tract Infection (CAUTI). Codes falling under the Falls and Trauma HAC 
category were the most frequently reported secondary diagnoses with 
143,920 discharges. Of these 143,920 discharges, 4,555 (3.16 percent) 
were coded as not POA and identified as HAC discharges. This category 
also contained the greatest number of discharges that resulted in an 
MS-DRG reassignment. Of the 4,555 discharges within this HAC category 
that were not POA, 1,241 (27.24 percent) resulted in an MS-DRG 
reassignment.
    Of the 287,993 total discharges reporting HAC-associated diagnoses 
as a secondary diagnosis, 3,044 discharges were coded with a secondary 
diagnosis of Orthopedic PE/DVT. Of these 3,044 discharges, 2,473 (81.24 
percent) were coded as not POA and identified as HAC discharges. This 
category contained the second greatest number of discharges resulting 
in an MS-DRG reassignment. Of the 2,473 discharges in this HAC category 
that were not POA, 1,082 discharges (43.75 percent) resulted in an MS-
DRG reassignment.
    The Pressure Ulcer Stages III & IV category had the second most 
frequently coded secondary diagnoses, with 96,646 discharges. Of these 
discharges, 1,770 (1.83 percent) were coded as not POA and identified 
as HAC discharges. This category contained the third greatest number of 
discharges resulting in an MS-DRG reassignment. Of the 1,770 discharges 
in this HAC category that were not POA, 286 discharges (16.16 percent) 
resulted in an MS-DRG reassignment.
    The Catheter-Associated UTI category had the third most frequently 
coded secondary diagnoses, with 16,807 discharges. Of these discharges, 
3,918 (23.31 percent) were coded as not POA and identified as HAC 
discharges. This category contained the fourth greatest number of 
discharges resulting in an MS-DRG reassignment. Of the 3,918 discharges 
in this HAC category that were not POA, 160 discharges (4.08 percent) 
resulted in an MS-DRG reassignment.
    The remaining 6 HAC categories only had 237 discharges that 
ultimately resulted in MS-DRG reassignment. We note that, even in cases 
where a large number of HAC-associated secondary diagnoses were coded 
as not POA, this finding did not necessarily translate into a large 
number of discharges that resulted in MS-DRG reassignment. For example, 
only 20 of the 5,921 Vascular Catheter-Associated Infection secondary 
diagnoses that were coded as not POA and identified as HAC discharges 
resulted in an MS-DRG reassignment.
    There were a total of 431 discharges with a HAC-associated 
secondary diagnosis reporting a POA indicator of ``N'' or ``U'' that 
were excluded from acting as a HAC discharge (subject to MS-DRG 
reassignment) due to the CC Exclusion List logic within the GROUPER. 
The CC Exclusion List identifies secondary diagnosis codes designated 
as a CC or an MCC that are disregarded by the GROUPER logic when 
reported with certain principal diagnoses. For example, a claim with a 
principal diagnosis code of 250.83 (Diabetes with other specified 
manifestations, type 1 [juvenile type], uncontrolled) and a secondary 
diagnosis code of 250.13 (Diabetes with ketoacidosis, type 1, [juvenile 
type], uncontrolled) with a POA indicator of ``N'' would result in the 
HAC-associated secondary diagnosis code 250.13 being ignored as a CC. 
According to the CC Exclusion List, code 250.13 is excluded from acting 
as a CC when code 250.83 is the principal diagnosis. As a result, the 
HAC logic would not be applicable to that case. For a detailed 
discussion on the CC Exclusion List, we refer readers to section 
II.G.9. of this preamble.
    Discharges where the HAC logic was not applicable due to the CC 
Exclusion List occurred among the following 5 HAC categories: Pressure 
Ulcer Stages III and IV (30 cases), Falls and Trauma (303 cases), 
Catheter-Associated UTI (20 cases), Vascular Catheter-Associated 
Infection (14 cases), and Manifestations of Poor Glycemic Control (64 
cases). Further information regarding the specific number of cases that 
were excluded for each HAC-associated secondary diagnosis code within 
each of the above mentioned HAC categories is also available. We refer 
readers to the RTI detailed report at the following Web site: http://www.rti.org/reports/cms/.
    In summary, Chart C below demonstrates that there were a total of 
287,993 discharges with a reported HAC-associated secondary diagnosis. 
Of the total 287,993 discharges, 19,839 (6.54 percent) discharges were 
HACs reported with a POA indicator of ``N'' or ``U'' that were 
identified as a HAC discharge. Of these 19,839 discharges, the number 
of discharges resulting in MS-DRG reassignments was 3,006 (15.96 
percent).

             Chart C--Discharge Frequencies of Current CMS HACS October 2010 Through September 2011
----------------------------------------------------------------------------------------------------------------
                                      Discharges with this    Discharges Identified as   Discharges that change
                                     condition as secondary             a HAC               MS-DRG due to HAC
                                            diagnosis        ---------------------------------------------------
       Selected HAC category       --------------------------
                                       Number    Percent \2\     Number    Percent \3\     Number    Percent \4\
                                     (column A)   (column B)   (column C)   (column D)   (column E)   (column F)
----------------------------------------------------------------------------------------------------------------
1. Foreign Object Retained After            606         0.01          284        46.86           37        13.03
 Surgery..........................
2. Air Embolism...................           45         0.00           34        75.56           14        41.18
3. Blood Incompatibility..........           22         0.00           11        50.00            1         9.09
4. Pressure Ulcer Stages III & IV.       96,646         1.08        1,770         1.83          286        16.16
5. Falls and Trauma...............      147,684         1.65        4,596         3.11        1,259        27.39
    a. Fracture...................      128,065         1.43        3,829         2.99          996        26.01
    b. Dislocation................        1,014         0.01           22         2.17            2         9.09
    c. Intracranial Injury........       15,478         0.17          694         4.48          258        37.18
    d. Crushing Injury............           55         0.00            1         1.82            0         0.00
    e. Burn.......................        2,147         0.02           42         1.96            3         7.14
    f. Electric Shock.............          925         0.01            8         0.86            0         0.00
Less: Discharges with multiple            3,764         0.04           41         1.09           18        43.90
 Falls & Trauma...................
5. Falls & Trauma: Unduplicated         143,920         1.61        4,555         3.16        1,241        27.24
 Total............................
6. Catheter-Associated UTI........       16,807         0.19        3,918        23.31          160         4.08
7. Vascular Catheter-Associated          11,324         0.13        5,921        52.29           20         0.34
 Infection........................

[[Page 53296]]

 
8. Poor Glycemic Control..........       15,145         0.17          555         3.66          152        27.39
9a. SSI Mediastinitis CABG........           58         0.07           50        86.21            5        10.00
9b. SSI Orthopedic................          351         0.31          244        69.52            6         2.44
9c. SSI Bariatric.................           25         0.19           24        96.00            2         8.33
10. Pulmonary Embolism & DVT              3,044         0.76        2,473        81.24        1,082        43.75
 Orthopedic.......................
                                   -----------------------------------------------------------------------------
        Total \1\.................      287,993         3.22       19,839         6.54        3,006        15.96
----------------------------------------------------------------------------------------------------------------
\1\ Discharges can appear in more than one row. The total figure is not adjusted for the 207 discharges with
  more than one HAC that appear as secondary diagnoses (15 of these resulted in MS-DRG reassignment).
\2\ Percent computed relative to total discharges ``at risk'' for this HAC. For HACs 1-8, this is 8,941,507. For
  HAC 9a, this is 77,744. For HAC 9b, this is 112,951. For HAC 9c, this is 13,404. For HAC 10, this is 401,246.
\3\ Percent computed relative to discharges with condition as a secondary diagnosis.
\4\ Percent computed relative to discharges with this HAC (Column C).
Source: RTI Analysis of MedPAR IPPS Claims, October 2010 through September 2011.

    A small number of discharges had multiple HAC categories reported 
during the same stay. In reviewing the 8.94 million claims, RTI found 
207 cases in which at least two different HAC categories were reported 
on the same discharge. Chart D below summarizes these cases. The 
Vascular Catheter-Associated Infection HAC category had the highest 
number of discharges involving another HAC category with 126 total 
discharges. Of these 126 discharges, 47 involved a code from the 
Pressure Ulcer Stages III & IV HAC category and 62 discharges involved 
a code from the Catheter-Associated UTI HAC category.
    Some of these cases with multiple HACs reported had both HAC codes 
ignored in the MS-DRG assignment. Of these 207 claims, 15 did not 
receive higher payments based on the presence of these reported HACs 
and we describe these claims below in section II.F.3.f.(2) of this 
preamble. Depending on the MS-DRG to which the cases were originally 
assigned, ignoring the HAC codes would have led to a MS-DRG 
reassignment if there were no other MCCs or CCs reported, if the MS-DRG 
was subdivided into severity levels, and if the case were not already 
in the lowest severity level prior to ignoring the HAC codes.

                             Chart D--Claims With More Than One HAC Secondary Diagnosis October 2010 Through September 2011
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                1. Foreign
                                                                  object    4. Pressure                            7. Vascular    8. Poor
                                                                 retained      ulcer       5. Falls   6. Catheter-  catheter-     glycemic
                             HAC                                  after      Stages III   and trauma   associated   associated    control       Total
                                                                 surgery    & IV  (MCC)   (MCC & CC)   UTI  (CC)    infection      (MCC)
                                                                   (CC)                                                (CC)
--------------------------------------------------------------------------------------------------------------------------------------------------------
3. Blood Incompatibility (CC)................................  ...........            1  ...........  ...........  ...........  ...........            1
5. Falls and Trauma (MCC & CC)...............................  ...........            8  ...........  ...........  ...........  ...........            8
6. Catheter-Associated UTI (CC)..............................            1           17            8  ...........  ...........  ...........           26
7. Vascular Catheter-Associated Infection (CC)...............            2           47           15           62  ...........  ...........          126
8. Poor Glycemic Control (MCC)...............................            1            2            1            4            5  ...........           13
9A. Surgical Site Infection Mediastinities CABG (CC).........  ...........            1            1  ...........            3  ...........            5
9B. Surgical Site Infection Following Certain Orthopedic       ...........            1  ...........            3            2  ...........            6
 Procedures (CC).............................................
10. Pulmonary Embolism & DVT Orthopedic (MCC)................  ...........  ...........           10            7  ...........            1           18
                                                              ------------------------------------------------------------------------------------------
Total Discharges with 2 HACs *...............................            4           77           35           76           10            1          203
--------------------------------------------------------------------------------------------------------------------------------------------------------
*In total, there were 207 discharges with more than one HAC secondary diagnosis. However, there were 4 discharges involving 3 HAC secondary diagnoses.
  These discharges included the following HAC secondary diagnoses:
Discharge 1: Pressure Ulcer Stages III & IV (MCC & CC), Catheter-Associated Infection (CC), and Vascular Catheter-Associated Infection (CC);
Discharge 2: Pressure Ulcer Stages III & IV (MCC & CC), Catheter-Associated Infection (CC), and Vascular Catheter Associated Infection (CC);
Discharge 3: Pressure Ulcer Stages III & IV (MCC & CC), Catheter-Associated Infection (CC), and Vascular Catheter Associated Infection (CC);
Discharge 4: Catheter-Associated Infection (CC), Vascular Catheter Associated Infection (CC), and Poor Glycemic Control (MCC).

[[Page 53297]]

d. RTI Analysis of Circumstances When Application of HAC Provisions 
Would Not Result in MS-DRG Reassignment for Current HACs
    As discussed in section II.F.1. and illustrated in the diagram in 
section II.F.1. of this preamble, there are instances when the MS-DRG 
assignment does not change even when a HAC-associated secondary 
diagnosis has a POA indicator of either ``N'' or ``U.'' In analyzing 
our claims data, RTI identified four main reasons why an MS-DRG 
assignment would not change despite the presence of a HAC. Those four 
reasons are described below and are shown in Chart E below. Column A 
shows the frequency of discharges that included a HAC-associated 
secondary diagnosis. Column B shows the frequency of discharges where 
the HAC-associated secondary diagnosis was coded as not POA and 
identified as a HAC discharge. Column C shows the frequency of 
discharges in which the HAC-associated secondary diagnosis coded as not 
POA resulted in a change in MS-DRG. Columns D, E, F, and G show the 
frequency of discharges in which the HAC-associated secondary diagnosis 
coded as not POA did not result in a change in MS-DRG assignment. 
Columns D, E, F, and G are explained in more detail below.
(1) Other MCCs/CCs Prevent Reassignment
    Column D (Other MCC/CCs that Prevent Reassignment) in Chart E below 
indicates the number of cases reporting a HAC-associated secondary 
diagnosis code that did not have an MS-DRG reassignment because of the 
presence of other secondary diagnoses on the MCC or CC list. A claim 
that is coded with a HAC-associated secondary diagnosis and a POA 
status of either ``N'' or ``U'' may have other secondary diagnoses that 
are classified as an MCC or a CC. In such cases, the presence of these 
other MCC and CC diagnoses will still lead to the assignment of a 
higher severity level, despite the fact that the GROUPER software is 
disregarding the ICD-9-CM code that identifies the selected HAC in 
making the MS-DRG assignment for that claim. For example, there were 
175 cases in which the ICD-9-CM codes for the Foreign Object Retained 
After Surgery HAC category were present, but the presence of other 
secondary diagnoses that were MCCs or CCs resulted in no change to the 
MS-DRG assignment. Chart E shows that a total of 12,335 cases did not 
have a change in the MS-DRG assignment because of the presence of other 
reported MCCs and CCs.
(2) Two Severity Levels Where HAC Does Not Impact MS-DRG Assignment
    Column E (Number of MS-DRGs with Two Severity Levels Where HAC Does 
Not Impact MS-DRG Assignment) shows the frequency with which discharges 
with a HAC as a secondary diagnosis coded as not POA did not result in 
an MS-DRG change because the MS-DRG is subdivided solely by the 
presence or absence of an MCC. A claim with a HAC and a POA indicator 
of either ``N'' or ``U'' may be assigned to an MS-DRG that is 
subdivided solely by the presence or absence of an MCC. In such cases, 
removing a HAC ICD-9-CM CC code will not lead to further changes in the 
MS-DRG assignment. Examples of these MS-DRG subdivisions are shown in 
the footnotes to the chart and include the following examples:
     MS-DRGs 100 and 101 (Seizures with or without MCC, 
respectively); and
     MS-DRGs 102 and 103 (Headaches with or without MCC, 
respectively).
    The codes that fall under the HAC category of Foreign Object 
Retained After Surgery are CCs. If this case were assigned to an MS-DRG 
with an MCC subdivision such as MS-DRGs 100 and 101, the presence of 
the HAC code would not affect the MS-DRG severity level assignment. In 
other words, if the Foreign Object Retained After Surgery code was the 
only secondary diagnosis reported, the case would be assigned to MS-DRG 
101. If the POA indicator was ``N,'' the HAC Foreign Object Retained 
After Surgery code would be ignored in the MS-DRG assignment logic. 
Despite the fact that the code was ignored, the case would still be 
assigned to the same lower severity level MS-DRG. Therefore, there 
would be no impact on the MS-DRG assignment.
    Column E in Chart E below shows that there were 1,922 cases where 
the HAC code was ``N'' or ``U'' and the MS-DRG assignment did not 
change because the case was already assigned to the lowest severity 
level.
(3) No Severity Levels
    Column F (Number of MS-DRGs with No Severity Levels) shows the 
frequency with which discharges with a HAC as a secondary diagnosis 
coded as not POA did not result in an MS-DRG change because the MS-DRG 
is not subdivided by severity levels. A claim with a HAC and a POA of 
``N'' or ``U'' may be assigned to an MS-DRG with no severity levels. 
For instance, MS-DRG 311 (Angina Pectoris) has no severity level 
subdivisions; this MS-DRG is not split based on the presence of an MCC 
or a CC. If a patient assigned to this MS-DRG develops a secondary 
diagnosis such as a Stage III pressure ulcer after admission, the 
condition would be considered to be a HAC. The code for the Stage III 
pressure ulcer would be ignored in the MS-DRG assignment because the 
condition developed after the admission (the POA indicator was ``N''). 
Despite the fact that the ICD-9-CM code for the HAC Stage III pressure 
ulcer was ignored, the MS-DRG assignment would not change. The case 
would still be assigned to MS-DRG 311. Chart E below shows that 2,570 
cases reporting a HAC-associated secondary diagnosis did not undergo a 
change in the MS-DRG assignment based on the fact that the case was 
assigned to an MS-DRG that had no severity subdivisions (that is, the 
MS-DRG is not subdivided based on the presence or absence of an MCC or 
a CC, rendering the presence of the HAC irrelevant for payment 
purposes).
(4) MS-DRG Logic
    Column G (MS-DRG Logic Issues) shows the frequency with which a HAC 
as a secondary diagnosis coded as not POA did not result in an MS-DRG 
change because of MS-DRG assignment logic. There were six discharges 
where the HAC criteria were met and the HAC logic was applied, however, 
due to the structure of the MS-DRG logic, these cases did not result in 
MS-DRG reassignment. These cases may appear similar to those discharges 
where the MS-DRG is subdivided into two severity levels by the presence 
or absence of an MCC and did not result in MS-DRG reassignment; 
however, these discharges differ slightly in that the MS-DRG logic also 
considers specific procedures that were reported on the claim. In other 
words, for certain MS-DRGs, a procedure may be considered the 
equivalent of an MCC or CC. The presence of the procedure code dictates 
the MS-DRG assignment despite the presence of the HAC-associated 
secondary diagnosis code with a POA indicator of ``N'' or ``U.''
    For example, a claim with a principal diagnosis code of 724.02 
(Spinal stenosis, lumbar region, without neurogenic claudication) with 
a HAC-associated secondary diagnosis code of 996.64 (Infection and 
inflammatory reaction due to indwelling urinary catheter) and diagnosis 
code 599.0 (Urinary tract infection, site not specified), having POA 
indicators of ``Y,'' ``N,'' and ``N,'' respectively, and procedure code 
84.80 (Insertion or replacement of interspinous process device(s)) 
results in an assignment to MS-DRG 490 (Back and Neck Procedures Except 
Spinal Fusion with CC/MCC or Disc Device/

[[Page 53298]]

Neurostimulator). In this case, the disc device (code 84.80) is what 
dictated the MS-DRG assignment and the presence of the HAC-associated 
secondary diagnosis code, 996.64, did not affect the MS-DRG assigned. 
Other examples of MS-DRGs that are subdivided in this same manner are 
as follows:
     MS-DRG 029 (Spinal procedures with CC or Spinal 
Neurostimulators);
     MS-DRG 129 (Major Head & Neck Procedures with CC/MCC or 
Major Device); and
     MS-DRG 246 (Percutaneous Cardiovascular Procedure with 
Drug-Eluting Stent with MCC or 4+ Vessels/Stents).
    Column G in the chart below shows that three of the six cases that 
did not result in MS-DRG reassignment due to the MS-DRG logic were in 
the Catheter-Associated UTI HAC category, two cases were in the Falls 
and Trauma HAC Category, and one case was in the Vascular Catheter-
Associated Infection HAC Category.
    In conclusion, a total of 16,833 cases (12,335 + 1,922 +2,570 + 6) 
did not have a change in MS-DRG assignment, regardless of the presence 
of a HAC. The reasons described above explain why only 3,006 cases had 
a change in MS-DRG assignment despite the fact that there were 19,839 
HAC cases with a POA of ``N'' or ``U.''

                                                  Chart E--Reasons HAC Did Not Change MS-DRG Assignment
                                                          [October 2010 through September 2011]
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                     HAC discharges that do not change MS-DRG
                                                                                         ---------------------------------------------------------------
                                             Number of                     Number of HAC                   Number of MS-
                                            discharges       Number of      discharges                     DRGs with two
          Selected HAC category              with this      discharges    that change MS-    Number of       severity      Number of MS-   Other MS-DRG
                                           condition as    identified as  DRG due to HAC  other MCCs/CCs   levels where    DRGs with No    logic issues
                                             secondary         a HAC                       that prevent    HAC does not      Severity           **
                                             diagnosis                                     reassignment   impact  MS-DRG      Levels
                                                                                                            Assignment*
                                              (Column A)      (Column B)      (Column C)      (Column D)      (Column E)      (Column F)      (Column G)
--------------------------------------------------------------------------------------------------------------------------------------------------------
1. Foreign Object Retained After                     606             284              37             175              56              16               0
 Surgery--CC............................
2. Air Embolism--MCC....................              45              34              14              17               0               3               0
3. Blood Incompatibility--CC............              22              11               1               7               1               2               0
4. Pressure Ulcer Stages III & IV--MCC..          96,646           1,770             286             991               0             493               0
5. Falls and Trauma--MCC & CC...........         143,920           4,555           1,241           2,449             488             375               2
6. Catheter-Associated UTI-CC...........          16,807           3,918             160           2,952             424             379               3
7. Vascular Catheter-Associated                   11,324           5,921              20           4,551             158           1,191               1
 Infection--CC..........................
8. Poor Glycemic Control--MCC & CC......          15,145             555             152             358               0              45               0
9A. Surgical Site Infection,                          58              50               5              28               0              17               0
 Mediastinitis, Following Coronary
 Artery Bypass Graft (CABG)--MCC........
9B. Surgical Site Infection Following                351             244               6             155              67              16               0
 Certain Orthopedic Procedures--CC......
9C. Surgical Site Infection Following                 25              24               2              19               0               3               0
 Bariatric Surgery for Obesity--CC......
10. Pulmonary Embolism & DVT Orthopedic--          3,044           2,473           1,082             633             728              30               0
 MCC & CC...............................
                                         ---------------------------------------------------------------------------------------------------------------
    Total\1\............................         287,993          19,839           3,006          12,335           1,922           2,570               6
--------------------------------------------------------------------------------------------------------------------------------------------------------
\1\ Discharges can appear in more than one row. The total figure is not adjusted for the 207 discharges with more than one HAC that appear as secondary
  diagnoses (15 of these resulted in MS-DRG reassignment).
*Examples where an HAC classified as a CC would not impact the DRG assignment if it were removed. The MS-DRG is subdivided by the presence or absence of
  an MCC. A CC would not impact this DRG assignment.
MS-DRGs 100 and 101 (Seizures with or without MCC, respectively).
MS-DRGs 102 and 103 (Headaches with or without MCC, respectively).
**Cases where HAC did not change MS-DRG assignment because of the MS-DRG logic.
MS-DRG 029 (Spinal Procedures with CC or Spinal Neurostimulators).
MS-DRG 129 (Major Head & Neck Procedures with CC/MCC or Major Device).

[[Page 53299]]

 
Source: RTI Analysis of MedPAR IPPS Claims, October 2010 through September 2011.

e. RTI Analysis of Coding Changes for HAC-Associated Secondary 
Diagnoses for Current HACs
    In addition to studying claims from October 2010 through September 
2011 (FY 2011), RTI evaluated claims data from 4 years prior to 
determine if there were significant changes in the number of discharges 
with a HAC being reported as a secondary diagnosis. RTI examined claims 
from FY 2007 through FY 2010 and compared these data to the FY 2011 
data.
    We refer readers to the RTI detailed report for all the conditions 
in each fiscal year (FY 2007 through FY 2011) as described above at the 
following Web site: http://www.rti.org/reports/cms/.
f. RTI Analysis of Estimated Net Savings for Current HACs
    RTI determined estimates of the net savings generated by the HAC 
payment policy based on MedPAR claims from October 2010 through 
September 2011.
(1) Net Savings Estimation Methodology
    The payment impact of a HAC is the difference between the IPPS 
payment amount under the initially assigned MS-DRG and the amount under 
the reassigned MS-DRG. The amount for the reassigned MS-DRG appears on 
the MedPAR files. To construct this, RTI modeled the IPPS payments for 
each MS-DRG following the same approach that we use to model the impact 
of IPPS annual rule changes. Specifically, RTI replicated the payment 
computations carried out in the IPPS PRICER program using payment 
factors for IPPS providers as identified in various CMS downloaded 
files. The files used are as follows:
     Version 28 of the Medicare Severity GROUPER software 
(applicable to discharges between October 1, 2010 and September 30, 
2011). IPPS MedPAR claims were run through this file to obtain needed 
HAC-POA output variables.
     The FY 2011 MS-DRG payment weight file. This file includes 
the weights, geometric mean length of stay (GLOS), and the postacute 
transfer payment indicators.
     CMS standardized operating and capital rates. Tables 1A 
through 1C, as downloaded from the Web site at: http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/Acute-Inpatient-Files-for-Download-Items/CMS1255464.html, include the full 
update and reduced update amounts, as well as the information needed to 
compute the blended amount for providers located in Puerto Rico.
     The IPPS impact files for FY 2011, also as downloaded from 
the Web site at: http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/Acute-Inpatient-Files-for-Download-Items/CMS1255464.html. This file includes the wage index and geographic 
adjustment factors in effect at the start of FY 2011, plus the provider 
type variable to identify providers qualifying for alternative 
hospital-specific amounts and their respective hospital-specific rates.
     The IPPS impact files for FY 2012, as downloaded from the 
Web site at: http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/Acute-Inpatient-Files-for-Download-Items/CMS1255464.html. This file is created for a subsequent payment year, 
but the file includes IME and DSH percent adjustments that were in 
effect as of March 2011. For providers that did not appear in the FY 
2012 file, we defaulted to the IME and DSH rates from the FY 2011 file.
     CMS historical provider-specific files (PSF). This 
includes the indicator to identify providers subject to the full or 
reduced standardized rates and the applicable operating and capital 
CCRs. A SAS version was downloaded from the Web site at: http://www.cms.hhs.gov/ProspMedicareFeeSvcPmtGen/04_psf_SAS.asp.
    There were three providers with discharges in the final HAC 
analysis file that did not appear in either of the impact files. For 
these providers, we identified the geographic CBSA from the historical 
PSF and assigned the wage index using values from Tables 4A and 4C as 
downloaded from the Web site at: http://www.cms.hhs.gov/AcuteInpatientPPS/IPPS2009/List.asp. These three providers were not 
eligible for IME or DSH adjustments.
    The steps for estimating the HAC payment impact are as follows:
    Step 1: Re-run the Medicare Severity GROUPER on all records in the 
analysis file. This is needed to obtain information on actual HAC-
related MS-DRG reassignments in the file, and to identify the CCs and 
MCCs that contribute to each MS-DRG assignment.
    Step 2: Model the base payment and outlier amounts associated with 
the initial MS-DRG (including all secondary diagnoses in the file) 
using the computations laid out in the CMS file ``Outlier Example FY 
2007 new.xls,'' as downloaded from the Web site at: http://www.cms.hhs.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/index.html?redirect=/04_outlier/ASP#TopOfPage, and 
modified to accommodate FY 2011 factors. RTI's first round of 
computations treated all claims as though paid under standard IPPS 
rules without adjusting for short-stay transfers or HSP amounts.
    Step 3: Model the base payment and outlier amounts associated with 
the final MS-DRG (excluding the HAC-related secondary diagnoses) using 
the computations laid out in the CMS file ``Outlier Example FY 2007 
new.xls,'' as downloaded from the Web site at: http://www.cms.hhs.gov/Medicare/Medicare-Fee-for-Payment/AcuteInpatientPPS/index.html?redirect=/04_outlier.asp#TopOfPage and modified to 
accommodate FY 2011 factors. RTI's first round of computations treated 
all claims as though paid under standard IPPS rules without adjusting 
for short-stay transfers or hospital-specific amounts.
    Step 4: Compute MS-DRG base savings as the difference between the 
nonoutlier payments for the initial and final MS-DRGs. Compute outlier 
amounts as the difference in outlier amounts due under the initial and 
final reassigned MS-DRG. Compute net savings due to HAC reassignment as 
the sum of base savings plus outlier amounts.
    Step 5: Adjust the model to incorporate short-stay transfer payment 
adjustments.
    Step 6: Adjust the model to incorporate hospital-specific payments 
for qualifying rural providers receiving the hospital-specific payment 
rates.
    It is important to mention that using the methods described above, 
the MS-DRG and outlier payment amounts that are modeled for the final 
assigned MS-DRG do not always match the DRG price and outlier amounts 
that appear in the MedPAR record. There are several reasons for this. 
Some discrepancies are caused by using single wage index, IME and DSH 
factors for the full period covered by the discharges, when in practice 
these payment factors can be adjusted for individual providers during 
the course of the fiscal year. In addition, RTI's approach disregards 
any Part A coinsurance amounts owed by individual beneficiaries with 
greater than sixty covered days in a spell of illness. Ten percent of 
all FY 2011 HAC

[[Page 53300]]

discharges showed at least some Part A coinsurance amount due from the 
beneficiary, although less than 2 percent of reassigned discharges (43 
cases in the analysis file) showed Part A coinsurance amounts due. Any 
Part A coinsurance payments would reduce the actual savings incurred by 
the Medicare program.
    There are also a number of less common special IPPS payment 
situations that are not factored into RTI's modeling. These could 
include new technology add-on payments, payments for blood clotting 
factors, reductions for replacement medical devices, adjustments to the 
capital rate for new providers, and adjustments to the capital rate for 
certain classes of providers who are subject to a minimum payment level 
relative to capital cost.
(2) Net Savings Estimate
    Chart F below summarizes the estimated net savings of current HACs 
based on MedPAR claims from October 2010 through September 2011, based 
on the methodology described above. Column A shows the number of 
discharges where an MS-DRG reassignment for each HAC category occurred. 
For example, there were 14 discharges with an Air Embolism that 
resulted in an actual MS-DRG reassignment. Column B shows the total net 
savings caused by MS-DRG reassignments for each HAC category. 
Continuing with the example of Air Embolism, the chart shows that the 
14 discharges with an MS-DRG reassignment resulted in a total net 
savings of $124,620. Column C shows the net savings per discharge for 
each HAC category. For the Air Embolism HAC category, the net savings 
per discharge is $8,901.

                                 Chart F--Estimated Net Savings of Current HACs
                                      [October 2010 Through September 2011]
----------------------------------------------------------------------------------------------------------------
                                                                Number of
                                                             discharges that  Net savings  (in  Net savings  per
                       Selected HAC                          change  MS-DRG       dollars)       discharge  (in
                                                               due to  HAC                          dollars)
                                                                  (Column A)        (Column B)        (Column C)
----------------------------------------------------------------------------------------------------------------
1. Foreign Object Retained After Surgery..................                37          $167,818            $4,536
2. Air Embolism...........................................                14           124,620             8,901
3. Blood Incompatibility..................................                 1             7,115                 0
4. Pressure Ulcer Stages III & IV.........................               286         1,846,449             6,456
5. Falls and Trauma:
    a. Fracture...........................................               996         6,232,020             6,257
    b. Dislocation........................................                 2             9,075             4,538
    c. Intracranial Injury................................               258         1,222,290             4,738
    d. Crushing Injury....................................                 0                 0                 0
    e. Burn...............................................                 3             4,583             1,528
    f. Other injuries.....................................                 0                 0                 0
    Less: Discharges with multiple Falls & Trauma.........               -18          -105,430            -5,857
5. Falls & Trauma: Unduplicated Total.....................             1,241         7,362,538             5,933
6. Catheter-Associated UTI................................               160           491,053             3,069
7. Vascular Catheter-Associated Infection.................                20            92,100             4,605
8. Poor Glycemic Control..................................               152         1,002,378             6,595
9a. SSI Mediastinitis CABG................................                 5            60,438            12,088
9b. SSI Orthopedic........................................                 6            41,503             6,917
9c. SSI Bariatric.........................................                 2             3,312                 0
10. Pulmonary Embolism & DVT Orthopedic...................             1,082         8,313,098             7,683
                                                           -----------------------------------------------------
    Total \1\.............................................             3,006        19,512,422             6,491
        Less: Discharges with Multiple HACs \2\...........               -15          -136,645            -9,110
                                                           -----------------------------------------------------
            Unduplicated Total............................             2,991        19,375,777             6,478
----------------------------------------------------------------------------------------------------------------
\1\ Discharges can have more than one Falls and Trauma subcategory HAC and therefore appear in more than one
  row.
\2\ Total net savings is adjusted by $136,645 for 15 claims that have multiple HACs.
Source: RTI Analysis of MedPAR IPPS Claims, October 2010 through September 2011.

    As shown in Chart F above, the total net savings calculated for 
October 2010 through September 2011 was roughly $19.4 million. The 
three HACs with the largest number of discharges resulting in MS-DRG 
reassignment, Falls and Trauma, Orthopedic PE/DVT, and Pressure Ulcer 
Stages III & IV, generated $17.5 million of net savings for the fiscal 
year. Estimated net savings for FY 2011 associated with the Falls and 
Trauma category were $7.4 million. Estimated net savings associated 
with Orthopedic PE/DVT for the fiscal year were $8.3 million and for 
Pressure Ulcer Stages III & IV were $1.85 million.
    The mean net savings per discharge calculated for October 2010 
through September 2011 was roughly $6,478. The HAC category of SSI, 
Mediastinitis, Following Coronary Artery Bypass Graft (CABG) had the 
highest net savings per discharge, but represented a small proportion 
of total net savings because the number of discharges that resulted in 
MS-DRG reassignment for this HAC was low. The HAC categories of Blood 
Incompatibility, where only one discharge resulted in MS-DRG 
reassignment, and SSI Following Bariatric Surgery for Obesity, where 
only two discharges resulted in MS-DRG reassignment had the lowest net 
savings per discharge. We refer readers to the RTI detailed report 
available at the following Web site: http://www.rti.org/reports/cms/.
    As we discuss in section II.F.1. of this preamble, implementation 
of this policy is part of an array of Medicare VBP tools that we are 
using to promote increased quality and efficiency of care. We point

[[Page 53301]]

out that a decrease over time in the number of discharges where these 
conditions are not POA is a desired consequence. We recognize that 
estimated net savings would likely decline as the number of such 
discharges decline. However, we believe that the sentinel effect 
resulting from CMS identifying these conditions is critical. It is our 
intention to continue to monitor trends associated with the frequency 
of these HACs and the estimated net payment impact through RTI's 
program evaluation and possibly beyond.
    As mentioned previously, a small number of cases analyzed by RTI 
for FY 2011 had multiple HACs during the same stay. In reviewing our 
8.94 million claims, RTI found 207 cases where at least two HACs were 
reported on the same admission as noted in section II.F.3.g.(2) of this 
preamble. Of these 207 claims, 15 resulted in MS-DRG reassignment. 
Chart G below summarizes these cases. There were 15 cases that had two 
HACs not POA that resulted in an MS-DRG reassignment. Of these, seven 
discharges involved Orthopedic PE/DVT, while four discharges involved 
the Pressure Ulcer Stages III & IV and Falls and Trauma HAC categories.

          Chart G--Claims With More Than One HAC Secondary Diagnosis Where MS-DRG Reassignment Occurred
                                      [October 2010 Through September 2011]
----------------------------------------------------------------------------------------------------------------
                                                                                   10. Pulmonary
                                                    4. Pressure    5. Falls and   embolism & DVT
                  Selected HAC                     ulcer stages    trauma--MCC &    orthopedic         Total
                                                   III & IV--MCC        CC             (MCC)
----------------------------------------------------------------------------------------------------------------
5. Falls and Trauma--MCC & CC...................               1  ..............               3               4
6. Catheter-Associated Urinary Tract Infection                 2               3               3               8
 (UTI)--CC......................................
7. Vascular Catheter-Associated Infection--CC...               1               1  ..............               2
8. Poor Glycemic Control (MCC)..................  ..............  ..............               1               1
                                                 ---------------------------------------------------------------
    Total.......................................               4               4               7              15
----------------------------------------------------------------------------------------------------------------

g. Previously Considered Candidate HACs--RTI Analysis of Frequency of 
Discharges and POA Indicator Reporting
    RTI evaluated the frequency of conditions previously considered, 
but not adopted as HACs in prior rulemaking, that were reported as 
secondary diagnoses (across all 8.94 million discharges) as well as the 
POA indicator assignments for these conditions. Chart H below indicates 
that the three previously considered candidate conditions most 
frequently reported as a secondary diagnosis were: (1) Clostridium 
Difficile-Associated Disease (CDAD), which demonstrated the highest 
frequency, with a total of 90,347 secondary diagnoses codes being 
reported for that condition, of which 30,176 reported a POA indicator 
of ``N''; (2) Methicillin Resistant Staphylococcus aureus, with a total 
of 83,976 secondary diagnosis codes being reported for that condition, 
with 3,498 of those reporting a POA indicator of ``N''; and (3) 
Iatrogenic Pneumothorax, with a total of 20,309 secondary diagnoses 
codes being reported for that condition, with 17,828 of those reporting 
a POA indicator of ``N.'' As these three conditions had the most 
significant impact for reporting a POA indicator of ``N,'' it is 
reasonable to believe that these same three conditions would have the 
greatest number of potential MS-DRG reassignments. The frequency of 
discharges for the previously considered HACs that could lead to 
potential changes in MS-DRG assignment is discussed in the next 
section. We take this opportunity to remind readers that, because more 
than one previously considered HAC diagnosis code can be reported per 
discharge (on a single claim), the frequency of these diagnosis codes 
may be more than the actual number of discharges with a previously 
considered candidate condition reported as a secondary diagnosis.

                     Chart H--POA Status of Previously Considered ``Candidate'' HAC Conditions--October 2010 Through September 2011
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                           Not present on admission                      Present on admission
                                                      Frequency  ---------------------------------------------------------------------------------------
        Previously considered HAC condition              as a            POA = N               POA = U               POA = Y               POA = W
                                                      secondary  ---------------------------------------------------------------------------------------
                                                      diagnosis     Number    Percent     Number    Percent     Number    Percent     Number    Percent
--------------------------------------------------------------------------------------------------------------------------------------------------------
1. Clostridium Difficile-Associated Disease (CDAD).       90,347     30,176      33.40        354       0.39     59,700      66.08        117       0.13
2. Delirium........................................          752        246      32.71          2       0.27        504      67.02          0       0.00
3. Legionnaire's Disease...........................          520         29       5.58          3       0.58        488      93.85          0       0.00
4. Staphylococcus aureus Septicemia................       18,844      4,043      21.46         37       0.20     14,736      78.20         28       0.15
5. Methicillin-Resistant Staphylococcus aureus.....       83,976      3,498       4.17        173       0.21     80,280      95.60         25       0.03
6. Iatrogenic Pneumothorax.........................       20,309     17,828      87.78          5       0.02      1,476       7.27          0       0.00
7. Ventilator-Associated Pneumonia.................        4,715      3,634      77.07          4       0.08      1,074      22.78          3       0.06
--------------------------------------------------------------------------------------------------------------------------------------------------------

    In Chart I below, Column A shows the number of discharges for each 
previously considered candidate HAC category when the condition was 
reported as a secondary diagnosis. For example, there were 90,347 
discharges

[[Page 53302]]

that reported CDAD as a secondary diagnosis. Previously considered 
candidate HACs reported with a POA indicator of ``N'' or ``U'' may 
cause MS-DRG reassignment (which would result in reduced payment to the 
facility). Column C shows the discharges for each previously considered 
candidate HAC reported with a POA indicator of ``N'' or ``U.'' 
Continuing with the example of CDAD, Chart I shows that, of the 90,347 
discharges, 30,530 discharges (33.79 percent) had a POA indicator of 
``N'' or ``U.'' Therefore, there were a total of 30,530 discharges that 
could potentially have had an MS-DRG reassignment. Column E shows the 
number of discharges where an actual MS-DRG reassignment could have 
occurred; the number of discharges with CDAD that could have resulted 
in actual MS-DRG reassignments is 784 (2.57 percent). Thus, while there 
were 30,530 discharges with CDAD reported with a POA indicator of ``N'' 
or ``U'' that could potentially have had an MS-DRG reassignment, the 
result was 784 (2.57 percent) potential MS-DRG reassignments. As 
discussed above, there are a number of reasons why a condition reported 
with a POA indicator of ``N'' or ``U'' would not result in an MS-DRG 
reassignment.
    In summary, Chart I below demonstrates there were a total of 
219,397 discharges with a previously considered candidate HAC reported 
as a secondary diagnosis. Of those, 60,025 discharges were reported 
with a POA indicator of ``N'' or ``U.'' The total number of discharges 
that could have resulted in MS-DRG reassignments is 3,544.

   Chart I--Previously Considered ``Candidate'' HAC Discharge Frequencies--October 2010 Through September 2011
----------------------------------------------------------------------------------------------------------------
                                      Discharges with this      Discharges with this     Cases that could change
                                     condition as secondary   condition not present on  MS-DRG due to previously
                                          diagnosis \2\        admission (POA = ``N''   considered candidate HAC
     Previously considered HAC     --------------------------       or ``U'') \3\                  \4\
             condition                                       ---------------------------------------------------
                                       Number      Percent       Number      Percent       Number      Percent
                                     (Column A)   (Column B)   (Column C)   (Column D)   (Column E)   (Column F)
----------------------------------------------------------------------------------------------------------------
1. Clostridium Difficile-                90,347         1.01       30,530        33.79          784         2.57
 Associated Disease (CDAD)........
2. Delirium.......................          752         0.01          248        32.98           18         7.26
3. Legionnaire's Disease..........          520         0.01           32         6.15            3         9.38
4. Staphylococcus aureus                 18,806         0.21        4,073        21.66           84         2.06
 Septicemia.......................
5. Methicillin-Resistant                 83,948         0.94        3,671         4.37            1         0.03
 Staphylococcus aureus (MRSA).....
6. Iatrogenic Pneumothorax........       20,309         0.23       17,833        87.81        2,652        14.87
7. Ventilator-Associated Pneumonia        4,715         0.05        3,638        77.16            2         0.05
                                   -----------------------------------------------------------------------------
    Total \1\.....................      219,397         2.45       60,025        27.36        3,544         5.90
----------------------------------------------------------------------------------------------------------------
\1\ Discharges can appear in more than one row.
\2\ Percent computed relative to total cases ``at risk,'' which is 8,941,507 for all candidate conditions.
\3\ Percent computed relative to discharges with condition as a secondary diagnosis.
\4\ Percent computed relative to discharges with condition as a secondary diagnosis and identified as a
  previously considered HAC (that is, coded as not present on admission).
Source: RTI Analysis of MedPAR IPPS Claims, October 2010 through September 2011.

h. Current and Previously Considered Candidate HACs--RTI Report on 
Evidence-Based Guidelines
    The RTI program evaluation includes a report that provides 
references for all evidence-based guidelines available for each of the 
selected and previously considered candidate HACs that provide 
recommendations for the prevention of the corresponding conditions. 
Guidelines were primarily identified using the AHRQ National Guidelines 
Clearing House (NGCH) and the CDC, along with relevant professional 
societies. Guidelines published in the United States were used, if 
available. In the absence of U.S. guidelines for a specific condition, 
international guidelines were included.
    Evidence-based guidelines that included specific recommendations 
for the prevention of the condition were identified for each of the 10 
selected conditions. In addition, evidence-based guidelines were also 
found for the previously considered candidate conditions.
    RTI prepared a final report to summarize its findings regarding 
evidence-based guidelines, which can be found on the Web site at: 
http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/HospitalAcqCond/Hospital-Acquired_Conditions.html.
i. Proposals Regarding Current HACs and Previously Considered Candidate 
HACs
    We believe that the RTI analysis summarized above does not provide 
additional information that would require us to change our previous 
determinations regarding current 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 48474 through 48491) for detailed discussion supporting our 
determination regarding each of these conditions.
    In the FY 2013 IPPS/LTCH PPS proposed rule, we discussed our 
rationale for proposing two new conditions, Surgical Site Infection 
(SSI) Following Cardiac Implantable Electronic Device (CIED) procedures 
(77 FR 27894 through 27896), and Iatrogenic Pneumothorax with Venous 
Catheterization (77 FR 27896 through 27897) for selection as HACs under 
section 1886(d)(4)(D) of the Act. (We previously proposed Iatrogenic 
Pneumothorax more generally as a HAC in the FY 2009 IPPS rulemaking (73 
FR 48485).) We also discussed a proposal to revise the Vascular 
Catheter-Associated Infection HAC category with the addition of two new 
diagnosis codes 999.32 (Bloodstream infection due to central venous 
catheter), and 999.33 (Local infection due to central venous catheter) 
(77 FR 27894). Accordingly, we are finalizing those proposals as 
discussed in section II.F.5. of this preamble.
    In addition to the evaluation of HAC and POA MedPAR claims data, 
RTI has conducted analyses on readmissions due to HACs and the 
incremental costs of HACs to the health care system, a study of 
spillover effects and

[[Page 53303]]

unintended consequences, as well as an analysis on the accuracy of 
coding of HACs and POA indicators. Reports on these analyses are 
publicly available on the CMS Web site at: http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/HospitalAcqCond/Hospital-Acquired_Conditions.html.
    Comment: Commenters encouraged CMS to more carefully evaluate this 
program and its potential for unintended consequences, and to explore 
how information learned from POA coding could be used to better 
understand and prevent HACs before it considers the inclusion of any 
additional categories of HACs.
    Response: We appreciate the commenters' response. We routinely, 
either internally or through our contractors, review the significant 
aspects of the HAC/POA Program.

G. Changes to Specific MS-DRG Classifications

    In the FY 2013 IPPS/LTCH PPS proposed rule (77 FR 27898), we 
invited public comment on each of the MS-DRG classification proposed 
changes described below, as well as our proposals to maintain certain 
existing MS-DRG classifications, which are also discussed below. In 
some cases, we proposed changes to the MS-DRG classifications based on 
our analysis of claims data. In other cases, we proposed to maintain 
the existing MS-DRG classification based on our analysis of claims 
data.
    CMS encourages input from our stakeholders concerning the annual 
IPPS updates when that input is made available to us by December of the 
year prior to the next annual proposed rule update. For example, to be 
considered for any updates or changes in FY 2013, comments and 
suggestions should have been submitted by early December 2011. The 
comments that were submitted in a timely manner are discussed below in 
this section.
    Below we summarize the public comments we received on the FY 2013 
proposed rule, if any, present our responses, and state our final 
policies.
1. Pre-Major Diagnostic Categories (Pre-MDCs)
a. Ventricular Assist Devices (VADs)
    A ventricular assist device (VAD) is a mechanical circulatory 
device or pump that is used to partially or completely support heart 
function and blood flow in patients with a damaged or weakened heart. 
The device takes blood from the ventricles of the heart and helps pump 
the blood to the rest of the body.
    Some VADs are intended for short-term use, often for patients who 
are recovering from heart attacks or heart surgery, while other VADs 
are intended for long-term use (months to years and, in some cases, for 
life). VADs are not the same device as artificial hearts, which are 
designed to completely take over cardiac function and generally require 
the removal of the patient's native heart.
    VADs are designed to assist the ventricles, either the right (RVAD) 
or the left (LVAD), and, in some cases, both ventricles at once 
(BiVAD). The type of VAD used depends on the patient's underlying heart 
disease and the pulmonary arterial resistance that determines the load 
on the right ventricle. LVADs are the most commonly used, but when 
pulmonary arterial resistance is high, right ventricular assistance 
becomes necessary and an RVAD may be inserted. Long-term VADs are 
normally used to help maintain a patient's quality of life while he or 
she awaits a heart transplant. This process is known as a ``bridge to 
transplant.'' However, sometimes the insertion of an LVAD becomes the 
final treatment for the patient, which is known as ``destination 
therapy.'' In this case, the VAD is a permanent implant, and no heart 
transplantation occurs. In a smaller number of cases, the implantation 
of a VAD, combined with pharmaceutical therapy, has enabled the native 
heart to recover sufficiently to allow the VAD to be explanted, a 
``bridge to recovery.''
    CMS has issued a national coverage determination (NCD) entitled 
``Artificial Hearts and Related Devices'' under Section 20.9 of the 
Medicare Coverage Manual (Pub. No. 100-3). This NCD, which describes 
CMS' requirements for coverage of medical services provided to Medicare 
beneficiaries for the insertion of VADs, can be found at the CMS Web 
site at: https://www.cms.gov/medicare-coverage-database/details/ncd-
details.aspx?NCDId=246&ncdver=5&NCAId=211&ver=20&NcaName=Artificial+Hear
ts&bc=ACAAAAAAIAAA&. We refer readers to this Web page for the complete 
viewing of the NCD for the insertion of VADs.
    The assignment of procedure codes used to describe the insertion of 
VADs has been discussed repeatedly in IPPS rulemaking, for the CMS-DRGs 
(in effect prior to FY 2008) and more recently for the MS-DRGs (FY 2008 
to present). We refer readers to the FY 2003 IPPS final rule (67 FR 
49989) for a complete discussion of the assignment of these procedure 
codes up to that date. In addition, the topic was discussed in FY 2005; 
we refer readers to the FY 2005 IPPS final rule (69 FR 48927 through 
48930) for a complete discussion regarding the assignment of these 
procedure codes for FY 2005. Specifically, for FY 2005, we moved ICD-9-
CM procedure code 37.66 (Insertion of implantable heart assist system) 
from CMS-DRG 525 (Other Heart Assist System Implant) to CMS-DRG 103 
(Heart Transplant). When we adopted the MS-DRG classification system in 
FY 2008, former CMS-DRG 103 remained in the Pre-MDC section but was 
renamed and subdivided into 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).
    For FY 2013, we received a request to restructure MS-DRGs 001 and 
002 by removing all of the procedure codes that describe the insertion 
of a device, leaving only procedure codes 33.6 (Combined heart-lung 
transplantation) and 37.51 (Heart transplantation) in the heart 
transplant DRGs. The requestor further asked that the remaining device 
codes be assigned to newly created MS-DRGs. The requestor believed 
that, within the existing MS-DRG grouping, CMS is underpaying for 
services to patients who have a VAD implanted and overpaying for 
services to patients who have heart transplantations. The requestor 
believed that the recommended restructuring ``would allow defined 
grouping of cases with the higher level of resource [sic] required 
reflected in payment.''
    In the FY 2013 IPPS/LTCH PPS proposed rule, we indicated that we 
had reviewed data in the September 2011 update of the FY 2011 MedPAR 
file and found that the average length of stay for heart 
transplantations and VAD implantation cases are very similar (35.1 days 
for heart transplantations and 36.63 days for VAD implantations). We 
also found that the average cost for VAD implantation cases alone is 
higher than the average cost of heart transplantation cases. The table 
below includes our findings.

----------------------------------------------------------------------------------------------------------------
                                                                  Number of      Average length
                            MS-DRG                                  cases           of stay        Average cost
----------------------------------------------------------------------------------------------------------------
MS-DRG 001--All Cases........................................           1,235              36.97        $164,846

[[Page 53304]]

 
MS-DRG 001--Cases with Heart Transplant without VAD..........             384              35.1          123,472
MS-DRG 001--Cases with VAD Insertion Alone...................             811              36.85         181,915
MS-DRG 002--All Cases........................................             313              19.66          89,818
MS-DRG 002--Cases with Heart Transplant without VAD..........             172              15.1           58,890
MS-DRG 002--Cases with VAD Insertion Alone...................             140              25.31         128,069
----------------------------------------------------------------------------------------------------------------

    We believe that this higher average cost could be attributable to 
the cost of the device itself. There are very few VADs approved by FDA; 
therefore, we believe this small group of manufacturers is able to set 
their own charges in the market. We pointed out that the IPPS is not 
designed to pay solely for the cost of devices. The MS-DRG 
classification system (and more importantly, the IPPS) is not based 
solely on the cost of devices.
    Rather, the MS-DRG system is a patient classification system that 
provides an average means of relating the type of patients a hospital 
treats (that is, case-mix) to the costs incurred by the hospital. We 
have previously stated that, ``Central to the success of the Medicare 
inpatient hospital prospective payment system is that DRGs have 
remained a clinical description of why the patient required 
hospitalization. We believe it would be undesirable to transform DRGs 
into detailed descriptions of the technology and processes used by the 
hospital to treat the patient. If such a transformation were to happen, 
the DRGs would become largely a repackaging of fee-for-service without 
the management and communication benefits. The separation of the 
clinical and payment weight methodologies allows a stable clinical 
methodology to be maintained, while the payment weights evolve in 
response to changing practice patterns. The packaging of all services 
associated with the care of a particular type of patient into a single 
payment amount provides the incentive for efficiency inherent in a DRG-
based prospective payment system. Substantial disaggregation of the 
DRGs into smaller units of payment, or a substantial number of cases 
receiving extra payments, would undermine the incentives and 
communication value in the DRG system.'' (66 FR 46904)
    The results of our review of the claims data for MS-DRGs 001 and 
002 are summarized in the following table.

------------------------------------------------------------------------
                                        Description of       Number of
                Code                        code(s)            cases
------------------------------------------------------------------------
MS-DRG 001 (Heart Transplant or Implant of Heart Assist System with MCC)
------------------------------------------------------------------------
All codes...........................  ..................           1,235
33.6 or 37.51.......................  Combined heart-                384
                                       lung
                                       transplantation
                                       or Heart
                                       transplantation.
33.6 or 37.51 with 37.66............  Combined heart-                 11
                                       lung
                                       transplantation
                                       or Heart
                                       transplantation
                                       with Insertion of
                                       implantable heart
                                       assist system
                                       (VAD).
37.52...............................  Implantation of                  2
                                       total internal
                                       biventricular
                                       heart replacement
                                       system
                                       (Artificial
                                       heart).
37.66...............................  Insertion of                   811
                                       implantable heart
                                       assist system
                                       (VAD).
37.60 with 37.64....................  Implantation or                  1
                                       insertion of
                                       biventricular
                                       external heart
                                       assist system +
                                       Removal of
                                       external heart
                                       assist system(s)
                                       or device(s).
37.63 with 37.64....................  Repair of heart                  0
                                       assist system +
                                       Removal of
                                       external heart
                                       assist system(s)
                                       or device(s).
37.64 with 37.65....................  Removal of                      22
                                       external heart
                                       assist system(s)
                                       or device(s) +
                                       plant of single
                                       ventricular
                                       (extracorporeal)
                                       external heart
                                       assist system.
                                      Multiple VADs                   22
                                       without heart
                                       transplant.
------------------------------------------------------------------------
 MS-DRG 002 (Heart Transplant or Implant of Heart Assist System without
                                  MCC)
------------------------------------------------------------------------
All codes...........................  ..................             313
33.6 or 37.51.......................  Combined heart-                172
                                       lung
                                       transplantation
                                       or Heart
                                       transplantation.
33.6 or 37.51 with 37.66............  Combined heart-                  0
                                       lung
                                       transplantation
                                       or Heart
                                       transplantation
                                       with Insertion of
                                       implantable heart
                                       assist system
                                       (VAD).
37.52...............................  Implantation of                  0
                                       total internal
                                       biventricular
                                       heart replacement
                                       system
                                       (Artificial
                                       heart).
37.66...............................  Insertion of                   140
                                       implantable heart
                                       assist system
                                       (VAD).
37.60 with 37.64....................  Implantation or                  0
                                       insertion of
                                       biventricular
                                       external heart
                                       assist system
                                       plus Removal of
                                       external heart
                                       assist system(s)
                                       or device(s).
37.63 with 37.64....................  Repair of heart                  0
                                       assist system +
                                       Removal of
                                       external heart
                                       assist system(s)
                                       or device(s).
37.64 with 37.65....................  Removal of                       1
                                       external heart
                                       assist system(s)
                                       or device(s) +
                                       plant of single
                                       ventricular
                                       (extracorporeal)
                                       external heart
                                       assist system.
                                      Multiple VADs                    4
                                       without heart
                                       transplant.
------------------------------------------------------------------------

    In the proposed rule, we stated that we believe that the IPPS 
should accurately recognize differences in utilization for clinically 
distinct procedures. However, we also reiterated the language in the FY 
2009 IPPS final rule that the payments under a prospective payment 
system are predicated on averages (73 FR 48443). We believe that to 
create a new MS-DRG specific to VAD implantation would require basing 
that MS-DRG almost exclusively on the presence of procedure code 37.66, 
representing a single procedure and currently one manufacturer with FDA 
approval. Currently, other manufacturers are reported to be in clinical 
trials with their VADs. We indicated that this approach negates our 
longstanding method of grouping like procedures and diminishes the 
concept of averaging. Further, we are concerned that ignoring the 
structure of the MS-DRG system solely for the purpose of increasing 
payment for one device would set an unwarranted precedent for defining 
all

[[Page 53305]]

of the other MS-DRGs in the system (73 FR 48497 and 48498).
    The commenter requested that we create two new MS-DRGs for the VADs 
and that the requested MS-DRGs be divided based on the presence or 
absence of an MCC. We pointed out that the final rule establishing the 
MS-DRGs sets forth five criteria, all five of which are required to be 
met in order to warrant creation of a CC or an MCC subgroup within a 
base MS-DRG. The criteria can be found in the FY 2008 IPPS final rule 
with comment period (72 FR 47169). The original criteria were based on 
average charges; we now use average costs (FY 2007 IPPS final rule (71 
FR 47882)). To reiterate, these criteria are as follows:
     A reduction in variance of costs of at least 3 percent.
     At least 5 percent of the patients in the MS-DRG fall 
within the CC or MCC subgroup.
     At least 500 cases are in the CC or MCC subgroup.
     There is at least a 20-percent difference in average costs 
between subgroups.
     There is a $2,000 difference in average cost between 
subgroups.
    As procedure code 37.66 predominates in our claims data for VAD 
implantations, as we did in the proposed rule, we are including the 
following table to demonstrate the cost difference between MS-DRG 001 
and MS-DRG 002.

------------------------------------------------------------------------
                                             Number of
                 MS-DRG                        cases       Average cost
------------------------------------------------------------------------
001--Cases with procedure code 37.66....             811        $181,915
002--Cases with procedure code 37.66....             140         128,069
------------------------------------------------------------------------

    As stated in the FY 2008 IPPS final rule with comment period, all 
five criteria must be met in order to subdivide an MS-DRG into MCC and 
non-MCC severity levels. In this instance, the number of cases in MS-
DRG 002 containing procedure code 37.66 is 140, not the minimum number 
of 500 cases as established by the MS-DRG severity criteria. Therefore, 
even if we were to create a new MS-DRG for VAD implantation, unless we 
further divided the MS-DRG based on the presence of an MCC, we would 
substantially overpay approximately 15 percent of total VAD cases. 
However, we could not create multiple MS-DRGs for VAD implantation 
without ignoring our rules for subdividing MS-DRGs.
    For these reasons, for FY 2013, we did not propose to make any 
changes to the structure of MS-DRGs 001 and 002. We invited public 
comment on our proposal.
    Comment: Several commenters stated that they had no objections to 
CMS' proposal to maintain the current structure of MS-DRG 001 and MS-
DRG 002 and not create separate MS-DRGs for VAD and heart transplants. 
The commenters stated that this proposal seems reasonable given the 
data and information provided.
    One commenter stated that MS-DRG weights should reflect the overall 
costs of all of the services involved in an admission and that it would 
be inappropriate to bifurcate these MS-DRGs solely due to the cost of a 
single device, especially when that device is currently distributed by 
a single manufacturer. The commenter agreed with our proposal to 
maintain the existing structure of MS-DRGs 001 and 002, but urged CMS 
to continue to monitor the composition and costs of these MS-DRGs 
moving forward, especially as new VAD devices are approved for 
implantation.
    Response: We appreciate the commenters' support for our proposal to 
maintain the existing structure of MS-DRG 001 and MS-DRG 002 for FY 
2013. We will continue to monitor the composition and costs of these 
MS-DRGs as new VAD devices are approved for implantation.
    Comment: One commenter stated that keeping the existing MS-DRG 001 
and MS-DRG 002 structure may ultimately be a deterrent for appropriate 
provision of care to Medicare beneficiaries because of the discrepancy 
of cost between cardiac transplantation and implantation of VADs. The 
commenter stated that the cost of the VAD implantation is commonly more 
than $50,000 greater than the cost of a cardiac transplantation. The 
commenter stated that providing two MS-DRGs for heart transplants and 
two for VAD implantations will assure access to the best available 
technology.
    Response: We acknowledge the commenter's concern about the 
potential for problems with future beneficiary access to VAD 
implantations and heart transplants. There are currently a limited 
number of FDA-approved VADs on the market. We will continue to monitor 
these MS-DRGs as additional VADs come onto the market and technologies 
change. We believe that creating separate MS-DRGs for VAD implantations 
and heart transplants could lead to significant reductions in the 
payment for heart transplants. Considering the limited number of FDA-
approved VADs and the negative impact that creating separate MS-DRGs 
for VAD implantations and heart transplants would have on heart 
transplant cases, we do not believe the creation of separate MS-DRGs 
for VAD implantations and heart transplants is appropriate at this 
time.
    After consideration of the public comments we received, we are 
finalizing our proposal to make no changes to MS-DRG 001 and MS-DRG 002 
for FY 2013.
b. Allogeneic Bone Marrow Transplant
    In the FY 2011 IPPS/LTCH PPS final rule (75 FR 50101), we deleted 
MS-DRG 009 (Bone Marrow Transplant) and created two new MS-DRGs: MS-DRG 
014 (Allogeneic Bone Marrow Transplant) and MS-DRG 015 (Autologous Bone 
Marrow Transplant). We created MS-DRGs 014 and 015 because of 
differences in costs associated with the procedures in these two MS-
DRGs. In the FY 2012 IPPS/LTCH PPS final rule (76 FR 51525 through 
51526), we further subdivided MS-DRG 015 into two severity levels, by 
deleting MS-DRG 015 and creating MS-DRG 016 (Autologous Bone Marrow 
Transplant with CC/MCC); and MS-DRG 017 (Autologous Bone Marrow 
Transplant without CC/MCC). We created MS-DRGs 014 and 015 as these 
groups meet all five criteria for subdivision by severity level that we 
established in the FY 2008 IPPS final rule with comment period (72 FR 
47169). As we discussed in the FY 2012 IPPS/LTCH PPS final rule, MS-DRG 
014 did not meet the criteria for subdivision by severity level.
    During the comment period for the FY 2012 IPPS/LTCH PPS proposed 
rule, we received a public comment regarding related and unrelated 
allogeneic bone marrow transplants (which are captured in MS-DRG 014) 
that had not been the subject of a proposal in that proposed rule. This 
issue was referred to briefly in the FY 2012 IPPS/LTCH PPS final rule 
(76 FR 51557), but we did not address the issue because we considered

[[Page 53306]]

the comment to be out of the scope of provisions of the proposed rule. 
However, we addressed this issue in the FY 2013 proposed rule. The 
commenter recommended that MS-DRG 014 be subdivided into two MS-DRGs 
based on related and unrelated transplant donor source.
    Allogeneic bone marrow transplantation utilizes the blood stem 
cells in bone marrow, umbilical cord blood, or peripheral blood from a 
donor that is either biologically related (sibling or other 
biologically close family member) or biologically unrelated (not a 
biologically close family member of the recipient) in the treatment of 
certain cancers and bone marrow diseases. Allogeneic transplant 
recipients must have a tissue type that matches the donor. According to 
the commenter, a related donor will typically be managed by the 
transplant facility from human leukocyte antigen (HLA) molecular typing 
through mobilization and collection, while an unrelated donor requires 
the use of donor registry for searching and collection process. 
According to the commenter, the unrelated donor setting adds 
significant costs to the transplant that would not be incurred in the 
related transplant setting.
    Currently, there are three ICD-9-CM procedure codes that identify 
the transplant donor source:

 00.91 (Transplant from live related donor)
 00.92 (Transplant from live non-related donor)
 00.93 (Transplant from cadaver)

    In our analysis of data in the FY 2011 MedPAR file, we found 467 
cases assigned to MS-DRG 014 with average costs of approximately 
$64,403 and an average length of stay of approximately 24.8 days. There 
were 125 cases that reported procedure code 00.91 on the claim as the 
related transplant donor source with average costs of approximately 
$55,969 and an average length of stay of approximately 24.1 days. In 
our analysis of the unrelated donor source, we included the cases 
reported with the transplant from a cadaver donor source (code 00.93) 
with the transplant from a live nonrelated donor source (code 00.92). 
There were 213 cases that reported either code 00.92 or 00.93 as the 
transplant donor source with average costs of approximately $64,837 and 
an average length of stay of approximately 23 days. There were 129 
cases that did not report a transplant donor source with average costs 
of approximately $71,859 and an average length of stay of approximately 
28.5 days. The following table illustrates our findings:

----------------------------------------------------------------------------------------------------------------
                                                                    Number of     Average length
                             MS-DRG                                   cases          of stay       Average costs
----------------------------------------------------------------------------------------------------------------
MS-DRG 014--All cases..........................................             467             24.8         $64,403
MS-DRG 014--Live related donor (code 00.91)....................             125             24.1          55,969
MS-DRG 014--Live nonrelated donor (code 00.92) or cadaver (code             213             23            64,837
 00.93)........................................................
MS-DRG 014--No donor source....................................             129             28.5          71,859
----------------------------------------------------------------------------------------------------------------

    As we noted in the proposed rule, one quarter of the cases (129 out 
of 467 cases) that did not report a transplant donor source code had 
the highest average costs of approximately $71,859, compared to $55,969 
for live related donors and $64,837 for live nonrelated or cadaver 
donors and $64,403 for the overall average cost of cases within MS-DRG 
014. The cases without a transplant donor source code also had a longer 
length of stay (28.5 days) than the live-related donor cases (24.1 
days), the live nonrelated or cadaver cases (23 days), and the overall 
cases (24.8 days) assigned to MS-DRG 014.
    Based on these findings, we stated that we believe that it would 
not be advisable to include cases without a transplant donor source 
code with the live nonrelated or cadaver donor cases, as we believe it 
would encourage providers not to report the transplant donor source 
code. All possible options must be included in any MS-DRG 
reconfiguration. Therefore, cases with no reported transplant donor 
source code must be included in the updated logic because this is the 
group with the highest average costs. Our clinical advisors reviewed 
this issue and do not support splitting MS-DRG 014 into two MS-DRGs 
because a quarter of the cases did not provide a transplant donor 
source. Therefore, we concluded that the cases reported with a 
transplant donor source code are appropriately assigned to MS-DRG 014 
and that MS-DRG does not warrant further subdivision. Without more 
complete information on donor source, we did not propose that MS-DRG 
014 be subdivided in the proposed rule. We invited public comment on 
our proposal not to subdivide MS-DRG 014 into two MS-DRGs based on 
related and unrelated donor source.
    Comment: Several commenters stated that they had no objections to 
CMS' proposal to maintain the current structure of MS-DRG 014. The 
commenters stated that the proposal seems reasonable based on the data 
and information provided. One commenter supported the subdivision to 
distinguish between related and unrelated allogeneic bone marrow 
transplants. However, the commenter stated that if CMS continues to 
believe that there is not sufficient data to support a split, CMS 
should require data collection of search and procurement costs. The 
commenter suggested that CMS establish a specific revenue code or line 
item on the hospital cost report to require hospitals to document the 
search and procurement costs in order to receive payment.
    Response: We agree with the commenters that stated that, based on 
data and our analysis, we should not subdivide MS-DRG 014 without more 
complete information on the donor source. As stated previously, one 
quarter of the cases (129 out of 467 cases) did not report a transplant 
donor source code. We believe that we have sufficient methods of 
reporting donor source on the claim by reporting ICD-9-CM code 00.91, 
00.92, or 00.93 and associated costs.
    After consideration of the public comments we received, we are not 
making any changes to MS-DRG 014 for FY 2013.
2. MDC 4 (Diseases and Disorders of the Ear, Nose, Mouth and Throat): 
Influenza With Pneumonia
    In the FY 2012 IPPS/LTCH PPS final rule (76 FR 51557), we discussed 
a public comment that we considered out of the scope of the FY 2012 
proposed rule. Therefore, we did not address the issues in the final 
rule. The commenter requested that we consider reassigning cases with a 
combined diagnosis of influenza with pneumonia from a set of simple 
pneumonia MS-DRGs to a set of MS-DRGs that captures a more severe type 
of pneumonia. The specific request involves cases now assigned to MS-
DRGs 193 (Simple Pneumonia and Pleurisy with MCC), 194 (Simple 
Pneumonia and Pleurisy with CC), and 195 (Simple Pneumonia and Pleurisy 
without MCC/CC) being moved to MS-DRGs 177 (Respiratory Infections and

[[Page 53307]]

Inflammations with MCC), 178 (Respiratory Infections and Inflammations 
with CC), and 179 (Respiratory Infections and Inflammations without 
MCC/CC).
    For the FY 2013 proposed rule, we examined data in the FY 2011 
MedPAR file on cases that reported diagnosis code 487.0 (Influenza with 
pneumonia) as the principal diagnosis with an additional secondary 
diagnosis code for one of the following types of pneumonia:

 482.0 (Pneumonia due to Klebsiella pneumoniae)
 482.1 (Pneumonia due to Pseudomonas)
 482.40 (Pneumonia due to Staphylococcus, unspecified)
 482.41 (Methicillin susceptible pneumonia due to 
Staphylococcus aureus)
 482.42 (Methicillin resistant pneumonia due to Staphylococcus 
aureus)
 482.49 (Other Staphylococcus pneumonia)
 482.81 (Pneumonia due to anaerobes)
 482.82 (Pneumonia due to Escherichia coli [E. coli])
 482.83 (Pneumonia due to other gram-negative bacteria)
 482.84 (Pneumonia due to Legionnaires' disease)
 482.89 (Pneumonia due to other specified bacteria)

    Currently, when one of the pneumonia codes listed above is reported 
as a principal diagnosis, the case is assigned to MS-DRG 177, 178, or 
179. However, when the patient has been diagnosed with one of these 
types of pneumonia and also has influenza, the ICD-9-CM coding book 
directs the coder to report diagnosis code 487.0 as the principal 
diagnosis and to assign an additional secondary code to describe the 
specific type of pneumonia. This reporting results in cases with 
diagnoses of both influenza and specific types of pneumonia being 
assigned to MS-DRG 193, 194, or 195 (Simple Pneumonia and Pleurisy with 
MCC, with CC, or without CC/MCC, respectively), instead of MS-DRG 177, 
178, or 179. The commenter requested that we reassign cases reporting 
code 487.0 as the principal diagnosis with one of the specific 
pneumonia codes listed above as a secondary diagnosis to MS-DRGs 177, 
178, and 179.
    We analyzed data from the MedPAR file on cases with patients with 
pneumonia and found the following:

----------------------------------------------------------------------------------------------------------------
                                                                  Number of    Average length of
                            MS-DRG                                  cases             stay         Average cost
----------------------------------------------------------------------------------------------------------------
MS-DRG 177--All cases........................................          69,128               8.20         $13,002
MS-DRG 178--All cases........................................          59,559               6.40           9,193
MS-DRG 179--All cases........................................          14,108               4.65           6,365
MS-DRG 193--All cases........................................         125,892               6.28           9,589
MS-DRG 193--Cases with principal diagnosis code 487.0 and                  57               9.3           15,867
 with a secondary diagnosis code of 482.0, 482.1, 482.40,
 482.41, 482.42, 482.49, 482.81, 482.82, 482.83, 482.84, or
 482.89......................................................
MS-DRG 193--Cases with principal diagnosis code 487.0 and               1,320               6.93          10,416
 without a secondary diagnosis code of 482.0, 482.1, 482.40,
 482.41, 482.42, 482.49, 482.81, 482.82, 482.83, 482.84, or
 482.89......................................................
MS-DRG 194--All cases........................................         191,030               4.73           6,524
MS-DRG 194--Cases with principal diagnosis code 487.0 and                  59               6.9            9,752
 with a secondary diagnosis code of 482.0, 482.1, 482.40,
 482.41, 482.42, 482.49, 482.81, 482.82, 482.83, 482.84, or
 482.89......................................................
MS-DRG 194--Principal diagnosis code 487.0 and without a                2,088               5.16           6,871
 secondary diagnosis code of 482.0, 482.1, 482.40, 482.41,
 482.42, 482.49, 482.81, 482.82, 482.83, 482.84, or 482.89...
MS-DRG 195--All cases........................................          80,253               3.53           4,660
MS-DRG 195--Cases with a principal diagnosis code 487.0 and a              12               4.8            5,842
 secondary diagnosis code of 482.0, 482.1, 482.40, 482.41,
 482.42, 482.49, 482.81, 482.82, 482.83, 482.84, or 482.89...
MS-DRG 195--Cases with principal diagnosis code 487.0 and               1,065               3.78           4,580
 without a secondary diagnosis code of 482.0, 482.1, 482.40,
 482.41, 482.42, 482.49, 482.81, 482.82, 482.83, 482.84, or
 482.89......................................................
----------------------------------------------------------------------------------------------------------------

    The data showed that cases reporting a principal diagnosis code 
487.0 with one of the pneumonia codes listed above as a secondary 
diagnosis have significantly higher average costs ($15,867 in MS-DRG 
193, $9,752 in MS-DRG 194, and $5,842 in MS-DRG 195) than those cases 
reported without one of the pneumonia codes listed above as a secondary 
diagnosis ($10,416 in MS-DRG 193, $6,871 in MS-DRG 194, and $4,580 in 
MS-DRG 195), and also the overall average costs for all cases in MS-
DRGs 193, 194, and 195 ($9,589, $6,524, and $4,660, respectively). The 
influenza and pneumonia cases had average costs that more closely align 
with the average costs of cases currently assigned to MS-DRGs 177, 178, 
and 179 ($13,002, $9,193, and $6,365, respectively).
    As a result of our analysis, the data support the commenter's 
request that we reassign cases reporting a principal diagnosis code 
487.0 and an additional secondary diagnosis code for one of the 
pneumonia codes listed above, from MS-DRGs 193, 194, and 195 to MS-DRGs 
177, 178, and 179. Our clinical advisors also support reassigning these 
cases to MS-DRGs 177, 178, and 179. Therefore, for FY 2013, we proposed 
to reassign cases with a principal diagnosis code 487.0 and an 
additional secondary diagnosis code of one of the following pneumonia 
codes listed as a secondary diagnosis codes from MS-DRGs 193, 194, and 
195 to MS-DRGs 177, 178, and 179: 482.0; 482.1; 482.40; 482.41; 482.42; 
482.49; 482.81; 482.82; 482.83; 482.84; and 482.89.
    We invited public comment on our proposal for FY 2013.
    Comment: Commenters supported our proposal to reassign cases with a 
principal diagnosis code of 487.0 with an additional secondary 
diagnosis code for the specified types of pneumonia from MS-DRGs 193 
and 195 to MS-DRGs 177, 178, and 179. The commenters stated that these 
proposed reassignments better capture the more severe type of pneumonia 
that results in significantly higher average costs. Other commenters 
stated the proposed reassignments were reasonable, given the data and 
information provided.

[[Page 53308]]

    Response: We appreciate the commenters' support of our proposals.
    After consideration of the public comments we received, we are 
finalizing our proposal of reassigning cases with a principal diagnosis 
code of 487.0 and an additional secondary diagnosis code of one of the 
following pneumonia codes as a secondary diagnosis code from MS-DRGs 
193, 194, and 195 to MS-DRGs 177, 178, and 179: 482.0; 482.1, 482.40, 
482.41, 482.42; 482.49; 482.81; 482.82; 482.83, 482.84; and 482.89.
3. MDC 5 (Diseases and Disorders of the Circulatory System)
a. Percutaneous Mitral Valve Repair With Implant
    We received a request to reassign procedure code 35.97 
(Percutaneous mitral valve repair with implant) to the following MS-
DRGs:
     MS-DRG 216 (Cardiac Valve & Other Major Cardiothoracic 
Procedures with Cardiac with MCC);
     MS-DRG 217 (Cardiac Valve & Other Major Cardiothoracic 
Procedures with Cardiac with CC);
     MS-DRG 218 (Cardiac Valve & Other Major Cardiothoracic 
Procedures with Cardiac without CC/MCC);
     MS-DRG 219 (Cardiac Valve & Other Major Cardiothoracic 
Procedures without Cardiac with MCC);
     MS-DRG 220 (Cardiac Valve & Other Major Cardiothoracic 
Procedures without Cardiac with CC); and
     MS-DRG 221 (Cardiac Valve & Other Major Cardiothoracic 
Procedures without Cardiac without CC/MCC).
    In the FY 2012 IPPS/LTCH PPS final rule (76 FR 51528 through 
51529), we discussed reassigning procedure code 35.97 from MS-DRGs 231 
and 232 (Coronary Bypass with PTCA with MCC and without MCC, 
respectively) and MS-DRGs 246 (Percutaneous Cardiovascular Procedure 
with Drug-Eluting Stent with 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). In that final rule, we stated that we 
did not have sufficient claims data on which to base and evaluate any 
proposed changes to the current MS-DRG assignment. Procedure code 35.97 
was created for use beginning October 1, 2010 (FY 2011) after the 
concept of percutaneous valve repair was presented at the March 2010 
ICD-9-CM Coordination and Maintenance Committee meeting. Procedure code 
35.97 was created at that time to describe the MitraClipTM 
device and any other percutaneous mitral valve repair devices currently 
on the market. This procedure code was assigned to the following MS-
DRGs: 231 and 232 (Coronary Bypass with PTCA with MCC and without MCC, 
respectively); 246 (Percutaneous Cardiovascular Procedure with Drug-
Eluting Stent with 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).
    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 described above. As we 
stated in the FY 2012 IPPS/LTCH PPS final rule, because procedure code 
35.97 had only been in use since October 1, 2010, there were no claims 
data in the most recent update of the MedPAR file at that time to 
evaluate any alternative MS-DRG assignments. Therefore, we did not make 
any MS-DRG assignment changes for procedure code 35.97 for FY 2012.
    For the FY 2013 proposed rule, we analyzed claims data from the FY 
2011 MedPAR file on the procedure that describes mitral valve repair 
with implant and found the following:

----------------------------------------------------------------------------------------------------------------
                                                                     Number of    Average length
                             MS-DRG                                    cases          of stay      Average costs
----------------------------------------------------------------------------------------------------------------
MS-DRG 216--All Cases...........................................           9,624           16.44         $61,015
MS-DRG 217--All Cases...........................................           5,655           10.24          41,324
MS-DRG 218--All Cases...........................................             995            7.43          34,587
MS-DRG 219--All Cases...........................................          15,336           12.53          50,176
MS-DRG 220--All Cases...........................................          18,455            7.53          34,150
MS-DRG 221--All Cases...........................................           4,719            5.59          29,082
MS-DRG 231--All Cases...........................................           1,170           12.17          49,728
MS-DRG 231--Cases with Procedure Code 35.97.....................               4           13.75          35,409
MS-DRG 232--All Cases...........................................           1,010            9.16          37,820
MS-DRG 232--Cases with Procedure Code 35.97.....................               9           13.56          46,008
MS-DRG 246--All Cases...........................................          29,299            5.20          20,725
MS-DRG 247--All Cases...........................................         109,661            2.39          13,014
MS-DRG 248--All Cases...........................................          13,562            6.35          19,785
MS-DRG 248--Cases with Procedure Code 35.97.....................               1           32.00         110,262
MS-DRG 249--All Cases...........................................          35,100            2.86          11,806
MS-DRG 250--All Cases...........................................           8,313            7.07          19,673
MS-DRG 250--Cases with Procedure Code 35.97.....................              39            9.77          29,753
MS-DRG 251--All Cases...........................................          31,316            2.92          12,658
MS-DRG 251--Cases with Procedure Code 35.97.....................              98            2.69          18,651
----------------------------------------------------------------------------------------------------------------

    We note that most of the cases were found in MS-DRGs 250 and 251, 
as we predicted in the FY 2012 IPPS/LTCH PPS final rule based on FDA's 
terms of the clinical trial for MitraClipTM. As stated 
earlier, the device is to be implanted in patients without any 
additional surgeries performed. There were 39 cases in MS-DRG 250 with

[[Page 53309]]

average costs of $29,753 (which includes cases with an MCC). These 
average costs are significantly lower than the average costs of $61,015 
for cases in MS-DRG 216, and the average costs of $50,176 for cases in 
MS-DRG 219 (which includes cases with an MCC). There were 98 cases in 
MS-DRG 251 (without MCC) with average costs of $18,651. These average 
costs also are lower than the average costs of comparable cases in MS-
DRGs 217, 218, 220, and 221, whose average costs range from a high of 
$41,324 to a low of $29,082. While the average costs of mitral valve 
repair cases are higher than the average costs of other cases assigned 
to MS-DRGs 250 and 251, they are significantly less than the average 
costs of cardiac valve replacement cases assigned to MS-DRGs 216 
through 221. Our analysis of the claims data does not support 
reassigning the procedure that describes percutaneous mitral valve 
repair with implant from MS-DRGs 250 and 251 to MS-DRGs 216 through 
221. Our clinical advisors also support maintaining the current 
assignment of this procedure in MS-DRGs 250 and 251. Therefore, based 
on our findings, we did not propose to reassign procedure code 35.97 
from MS-DRGs 250 and 251 to MS-DRGs 216 through 221.
    We invited public comment on our proposal to maintain the current 
assignment of procedure code 35.97 in MS-DRGs 250 and 251 and not to 
reassign the procedure code to MS-DRGs 217 through 221.
    Comment: Several commenters supported our proposal not to make any 
MS-DRG modifications for procedure code 35.97 cases, which are 
currently assigned to MS-DRGs 250 and 251. The commenters stated that 
the proposal was reasonable, given the data and information provided.
    Response: We appreciate the commenters' support for our proposal 
for FY 2013.
    Comment: A number of commenters recommended that CMS reassign code 
35.97 to MS-DRGs 216, 217, and 218. The commenters stated that 
percutaneous mitral valve repair offers an alternative to open surgery 
and is used in high risk patients. The commenters believed that the 
current payment is too low and that their hospitals may decide not to 
perform these procedures if the payment is not increased. The 
commenters stated that MS-DRGs 216, 217, and 218 more accurately 
reflect the associated comorbidities and the intensity of resources 
required to perform percutaneous mitral valve repairs with implant. 
Commenters also stated that the procedure is complex and requires a 
complex team of surgeon, imaging specialist, anesthesiologist, and 
interventionalist. Given this team approach, complexity, and lengthy 
procedure time, the commenters stated that MS-DRGs 216, 217, and 218 
were more appropriate MS-DRG assignments.
    One commenter, a manufacturer of a mitral valve repair device, 
echoed the comments above. The manufacturer also expressed concern that 
CMS' claims data may not fully reflect the costs of the mitral valve 
repair devices. The manufacturer stated that the data analyzed may have 
included some mitral valve repair cases that were performed in clinical 
trials and reflected trial-only device prices that were much lower than 
the planned commercial device prices.
    Response: We note that MS-DRGs 216, 217, 218 currently include the 
requirement that a cardiac catheterization be performed during the 
hospital stay. We assume that the commenters meant to include the 
complete range of MS-DRGs for cardiac valve and other major 
cardiothoracic procedures (that is, MS-DRG 219 (Cardiac Valve & Other 
Major Cardiothoracic Procedures without Cardiac with MCC), MS-DRG 220 
(Cardiac Valve & Other Major Cardiothoracic Procedures without Cardiac 
with CC), and MS-DRG 221 (Cardiac Valve & Other Major Cardiothoracic 
Procedures without Cardiac without CC/MCC), in addition to MS-DRGs 216, 
217, and 218). MS-DRGs 216, 217, and 218 include the provision of 
cardiac catheterizations, while MS-DRGs 219, 220, and 221 do not 
include the use of a cardiac catheterization.
    The claims data do not support adding percutaneous mitral valve 
repairs with implant to MS-DRGs 216, 217, and 218 (those with cardiac 
catheterizations) or to the complete range of DRGs that includes both 
those with and without cardiac catheterization (MS-DRGs 216 through 
221). As stated earlier, there were 39 cases in MS-DRG 250 with average 
costs of $29,753 (which includes an MCC). These average costs are 
significantly lower than the $61,015 average costs for cases in MS-DRG 
216 and the $50,176 average costs for cases in MS-DRG 219, which 
includes an MCC. There were 98 cases in MS-DRG 251 (without MCC) with 
average costs of $18,651. These average costs are also lower than the 
average costs of comparable cases in MS-DRG 217, 218, 220, and 221 
whose average costs range from a high of $41,324 to a low of $29,082. 
While the average costs for these cases are higher than for others in 
MS-DRGs 250 and 251, they are significantly less than those cardiac 
replacement valve cases assigned to MS-DRGs 216 through 221. Our data 
indicate that the average cost for this procedure, including the 
significant cost of the devices, is much closer to the average cost of 
the percutaneous procedures that comprise the remaining 99 percent of 
the claims in the MS-DRGs 250 and 251 than it is to the proposed MS-
DRGs, where payments are twice the reported cost of this procedure.
    In this case it is true that costs of the percutaneous mitral valve 
implantations are more than the average for MS-DRGs 250 and 251. 
However it is a fundamental principle of an averaged payment system 
that half of the procedures in a group will have above average costs. 
It is expected that there will be higher cost and lower cost subsets, 
especially when a subset has low numbers. In this case the other 
ninety-nine percent of the claims that make up the assigned DRG will be 
expected to continue to include cases with similar costs but also 
include many cases with below average costs. In an average payment 
system, the ``profit'' of low-cost cases balances the ``loss'' of the 
high-cost cases, and hospitals and manufacturers cannot expect to see 
``profit'' on every possible subset of cases in a DRG.
    Our clinical advisors state that the current MS-DRG assignment is 
reasonable because the operating room resource utilizations of 
percutaneous procedures, such as those found in MS-DRGs 250 and 251, 
tend to group together, and are generally less costly than open 
procedures, such as those found in MS-DRGs 216 through 221. 
Percutaneous procedures by organ system represent groupings that are 
reasonably clinically coherent. More significantly, our clinical 
advisors state that postoperative resource utilization is significantly 
higher for open procedures with the much greater morbidity and 
consequent recovery needs. Because the equipment, technique, staff, 
patient populations and physician specialty all tend to group by type 
of procedure (percutaneous versus open), separately grouping 
percutaneous and open procedures is more clinically consistent. 
Therefore, our clinical advisors recommend that we not move 
percutaneous mitral valve repairs with implants into MS-DRGs 216 
through 221. Based on the claims data and the advice of our clinical 
advisors, we do not believe the findings warrant moving code 35.97 from 
MS-DRGs 250 and 251 to MS-DRGs 216 though 221.

[[Page 53310]]

    After consideration of the public comments we received, we are 
finalizing our proposal to not make any MS-DRG modifications for 
procedure code 35.97 cases, which currently are assigned to MS-DRGs 250 
and 251, for FY 2013.
b. Endovascular Implantation of Branching or Fenestrated Grafts in 
Aorta
    The fenestrated (with holes) graft device is designed to treat 
patients with abdominal aortic aneurysms (AAA). Current treatment 
options for patients with AAAs include open surgical repair, 
endovascular repair using stent-grafts, or medical management.
    Aneurysmal disease that extends proximally to the level of the 
renal arteries is usually indicative of more extensive aortic disease 
and comorbidities. As a result, many of these patients are at a higher 
overall risk when undergoing open surgical repair. In addition, these 
patients are often not suitable for endovascular treatment with 
currently available endografts because the length of healthy aorta is 
insufficient to provide an adequate seal at the proximal end. The 
indications for use for many of the standard endografts call for an 
aortic neck length greater than or equal to 15 millimeters.
    Published industry reports estimate that 8 percent to 30 percent of 
patients with AAAs that need repair have aortic necks of less than 15 
millimeters in length. One institution has reported that over half of 
its patients with AAAs were considered ineligible for endovascular 
aneurysm repair or endovascular aortic repair (EVAR) due to an 
inadequate length of nondiseased aorta. These patients also were 
predominantly contraindicated for open repair.
    Prior to the development of a fenestrated graft device, the only 
treatment option available to a large number of these high-risk 
patients would have been medical management. Open surgical repair is 
too challenging to frail patients, as it requires supraceliac clamping 
of the aorta and may result in renal ischemia, mesenteric ischemia, or 
atheroembolization of the visceral vessels of the aorta. EVAR with a 
standard endograft is not a viable option either because the shortened 
neck precludes an adequate proximal end seal, which can lead to type I 
endoleaks (leaking of blood around the device into the aneurysm 
resulting in continued pressurization of the aneurysm). Medical 
management alone leaves these patients at high risk for AAA-related 
morbidity and mortality. These suboptimal choices led to the creation 
of fenestrated endografts that can seal above the renal arteries while 
maintaining access and uninterrupted blood flow to branch vessels of 
the aorta.
    The fenestrated graft is currently under clinical trial in the 
United States. Effective April 4, 2012, the Zenith[supreg] Fenestrated 
AAA Endovascular Graft (Cook[supreg] Medical) received FDA approval. 
Another manufacturer of fenestrated grafts expects to receive FDA 
approval for its device within 3 years.
    At the September 15, 2010 meeting of the ICD-9-CM Coordination and 
Maintenance Committee, the topic of fenestrated graft was presented 
with a request for a unique procedure code. As a result of that 
meeting, and additional meetings with manufacturers throughout the 
year, procedure code 39.78 (Endovascular implantation of branching or 
fenestrated graft(s) in aorta) was created for use beginning October 1, 
2011 (FY 2012). This code is assigned to MS-DRGs 252, 253, and 254 
(Other Vascular Procedures with MCC, with CC, and without CC/MCC, 
respectively).
    We have received a request from a manufacturer to reassign 
procedure code 39.78 from MS-DRGs 252, 253, and 254 to MS-DRGs 237 and 
238 (Major Cardiovascular Procedures with MCC and without MCC, 
respectively). The requestor stated that the assignment to MS-DRGs 252, 
253, and 254 violates both of CMS' stated principles regarding 
assigning new codes to MS-DRGs that reflect both clinical coherence and 
similar consumption of resources.
    From the standpoint of clinical coherence, the requestor noted 
that, while procedures in MS-DRGs 252, 253, and 254 are vascular 
procedures, the procedures do not involve the aorta. The requestor 
further noted that AAA repairs, both open and endovascular, are 
assigned to MS-DRGs 237 and 238. From the standpoint of similar 
consumption of resources, the requestor included anticipated device 
costs of $17,424 to $21,824 for a fenestrated endovascular procedure. 
The requestor noted that these costs only represent the device and do 
not include any additional resources required during the 
hospitalization. The requestor believed that the device costs are more 
similar to devices used in MS-DRGs 237 and 238.
    CMS' practice is to assign new codes to MS-DRGs where similar 
procedures are also located. In terms of clinical coherence, CMS 
assigned the new code to the vascular procedure MS-DRGs (252, 253, and 
254) where other noncoronary endovascular procedures for blood vessel 
repair also are assigned. This decision was based on our practice to 
group similar procedures together, in this case repairs to blood 
vessels, especially for new codes when CMS has no data history.
    With regard to resource consumption, we point out that procedure 
code 39.78 was created for use effective with discharges on or after 
October 1, 2011. Our review of data in the MedPAR file shows no 
utilization of this code because it is too new. That is, we have no 
claims data that would either prove or disprove the requestor's 
supposition that procedure code 39.78 is not adequately paid under MS-
DRGs 252, 253, and 254. As discussed elsewhere in this preamble, the 
MS-DRG system is not a device classification system. Therefore, because 
there are very few companies currently marketing their fenestrated 
graft devices, we are concerned that these companies are able to set 
their own charges in the market.
    In addition, the requestor opined that ``an argument could possibly 
be made that the increased device costs and longer procedural times for 
[procedure code] 39.78 suggest assignment into MS-DRG 237 alone would 
be appropriate,'' although the requestor further stated that, without a 
significant volume of actual claims data, it might be more reasonable 
[for CMS] to take a conservative approach and assign these procedures 
to either MS-DRG 237 or MS-DRG 238. We note that MS-DRGs 237 and 238 
are paired MS-DRGs, with both MS-DRGs containing the same procedure 
codes, but which have been subdivided based on the formula for the 
presence or absence of comorbid or complicating conditions. It is not 
an inherent part of the GROUPER logic to assign a code to only one DRG 
in a set of paired or triplicate MS-DRGs.
    Because there is no data history for procedure code 39.78 that 
would justify a reassignment based on either clinical coherence or 
resource consumption, in the FY 2013 IPPS/LTCH PPS proposed rule (77 FR 
27903 and 27904), we did not propose to make a change to the MS-DRG 
assignment of procedure code 39.78 for FY 2013. We stated our belief 
that procedure code 39.78 has been appropriately placed within the MS-
DRG structure. We also stated that we would continue to evaluate the 
clinical coherence and resource consumption costs that impact this code 
and the current MS-DRG assignment. We invited public comment on our 
proposal.
    Comment: Many commenters agreed or did not have any specific 
objections regarding our proposal to not reassign procedure code 39.78 
from MS-DRGs 252, 253, and 254 to MS-DRGs 237 and 238 for FY 2013 based 
on the information we provided.

[[Page 53311]]

    Response: We appreciate the commenters' support for our proposal 
for FY 2013.
    Comment: Numerous commenters representing various professional 
organizations and device manufacturers disagreed with our proposal to 
maintain the current MS-DRG structure for procedure code 39.78. The 
commenters urged CMS to reevaluate the proposal and reassign procedure 
code 39.78 to MS-DRGs 237 and 238 for FY 2013.
    The commenters stated that the proposed MS-DRG assignment for 
procedure code 39.78 is not clinically correct. Specifically, the 
commenters stated that the association of a fenestrated graft procedure 
to peripheral arterial endovascular interventions is not representative 
of the complexities involved in performing the fenestrated graft 
surgery, nor does it adequately depict a hospital's utilization of 
resources. The commenters further noted that the implantation of 
fenestrated grafts is more similar, from a clinical and resource 
consumption perspective, to the other endovascular graft procedures 
within MS-DRGs 237 and 238 than it is to the vascular procedures 
assigned to MS-DRGs 252, 253, and 254.
    One commenter provided detailed information outlining the specific 
FDA-approved indications for both the standard and fenestrated 
endovascular graft procedures for treatment of aneurysms to further 
demonstrate how clinically similar the procedures actually are. Other 
commenters clarified that fenestrated grafts require all the resources 
of a standard endovascular graft procedure in addition to all the 
resources required for placement of stents in the renal and visceral 
arteries to maintain perfusion. Another commenter reported that the 
devices required to perform a fenestrated graft procedure are ``(1) 
more complicated, more numerous, and, in aggregate, significantly more 
expensive than those required for the predecessor [standard] 
procedures; and (2) the fenestrated/branch procedure itself is more 
complex and time consuming, requiring significantly greater hospital 
operating room time and resources.'' Therefore, according to the 
commenters, the resources required to perform implantation of a 
fenestrated graft are far more extensive in comparison to the resources 
utilized to perform procedures assigned to MS-DRGs 252, 253, and 254.
    Some commenters also believed that CMS may have misunderstood some 
of the aspects of the fenestrated graft procedure. The commenters 
indicated that if the standard endovascular graft procedure (for 
example, procedure code 39.71 (Endovascular implantation of other graft 
in abdominal aorta) is currently assigned to MS-DRGs 237-238 and the 
fenestrated endovascular graft procedure requires greater utilization 
of resources, logically procedure code 39.78 should be assigned to MS-
DRGs 237 and 238.
    Other commenters reiterated the benefits of fenestrated graft 
procedures to those patients who are not candidates for standard 
endovascular grafts or open surgical repair. These commenters indicated 
that the patients necessitating fenestrated grafts are a complex 
patient population. Some commenters also stated that, despite the lack 
of sufficient MedPAR claims data for procedure code 39.78, CMS should 
consider the clinical similarities between fenestrated graft procedures 
and the other procedures that currently group to MS-DRGs 237 and 238.
    The commenters stated that, by reassigning procedure code 39.78 to 
MS-DRGs 237 and 238, patients would no longer be restricted access to 
this technology for treatment of juxtarenal/pararenal (next to or at 
renal arteries) aneurysms and hospitals would be more appropriately 
paid for the services they are providing.
    Response: Although we did not propose to reassign procedure code 
39.78 from MS-DRGs 252, 253, and 254 to MS-DRGs 237 and 238 for FY 
2013, upon further review and consideration of the comments received, 
we agree with the commenters that the fenestrated grafts are more 
similar from a clinical and resource consumption perspective to the 
other endovascular graft procedures within MS-DRGs 237 and 238.
    Therefore, as final policy for FY 2013, we are reassigning 
procedure code 39.78 from MS-DRG 252, 253, and 254 to MS-DRGs 237 and 
238.
4. MDC 10 (Endocrine, Nutritional, and Metabolic Diseases and 
Disorders): Disorders of Porphyrin Metabolism
    We received a request for the creation of a new MS-DRG to better 
identify cases where patients with disorders of porphyrin metabolism 
exist, to recognize the resource requirements in caring for these 
patients, to ensure appropriate payment for these cases, and to 
preserve patient access to necessary treatments. Porphyria is defined 
as a group of rare disorders (``porphyrias'') that interfere with the 
production of hemoglobin that is needed for red blood cells. While some 
of these disorders are genetic (inborn) and others can be acquired, 
they all result in the abnormal accumulation of hemoglobin building 
blocks, called porphyrins, which can be deposited in the tissues where 
they particularly interfere with the functioning of the nervous system 
and the skin.
    Treatment for patients suffering from disorders of porphyrin 
metabolism consists of an intravenous injection of Panhematin[supreg] 
(hemin for injection). In 1984, this pharmaceutical agent became the 
first approved drug for a rare disease to be designated under the 
Orphan Drug Act. It is the only FDA-approved prescription treatment for 
acute intermittent porphyria, being approved for manifestations 
temporarily related to the menstrual cycle in susceptible women.
    ICD-9-CM diagnosis code 277.1 (Disorders of porphyrin metabolism) 
describes these cases, which are currently assigned to MS-DRG 642 
(Inborn and Other Disorders of Metabolism). We analyzed data from the 
FY 2011 MedPAR file for cases assigned to this MS-DRG. As shown in the 
table below, we found a total of 1,447 cases in MS-DRG 642 with an 
average length of stay of 4.63 days and average costs of $7,400. We 
then analyzed the data for cases reporting diagnosis code 277.1 as the 
principal diagnosis in this same MS-DRG. We found a total of 330 cases, 
with an average length of stay of 6.12 days and average costs of 
$11,476.

----------------------------------------------------------------------------------------------------------------
                                                                     Number of    Average length
                             MS-DRG                                    cases          of stay      Average costs
----------------------------------------------------------------------------------------------------------------
MS-DRG 642--All cases...........................................           1,447            4.63          $7,400
MS-DRG 642- Cases with principal diagnosis code 277.1...........             330            6.12          11,476
----------------------------------------------------------------------------------------------------------------

     While the average costs for the 330 cases reporting a principal 
diagnosis code of 277.1 were higher than all cases in MS-DRG 642 
($11,476 versus $7,400), the volume of affected cases is small, 
representative of approximately

[[Page 53312]]

20 percent of all of the cases in MS-DRG 642. Under our existing policy 
(76 FR 51487 and 51488), in deciding whether to make modifications to 
the MS-DRGs, we consider whether the resource consumption and clinical 
characteristics of the patients with a given set of conditions are 
significantly different from the remaining patients in the MS-DRG. We 
evaluate the utilization of resources related to patient care using 
average costs and length of stay and rely on the judgment of our 
medical advisors to decide whether patients are clinically distinct or 
similar to other patients in the MS-DRG. In evaluating resource costs, 
we consider both the absolute and percentage differences in average 
costs between the cases we selected for review and the reminder of 
cases in the MS-DRG. We also consider variation in costs within these 
groups; that is, whether observed average differences are consistent 
across patients or attributable to cases that were extreme in terms of 
costs or length of stay. Further, we consider the number of patients 
who have a given set of characteristics and generally prefer not to 
create a new MS-DRG unless it would include a substantial number of 
cases. Therefore, in the FY 2013 proposed rule, we determined that the 
findings do not support the creation of a new MS-DRG.
    We acknowledge the importance of ensuring that patients diagnosed 
with a disorder of porphyrin metabolism have adequate access to care 
and receive the necessary treatment. Despite the fact that our data 
analysis did not demonstrate support for the creation of a new MS-DRG 
at this time, we also explored an alternative option. In reviewing the 
medical MS-DRGs in terms of resources and clinical coherence that are 
also located within MDC 10, we found three MS-DRGs that we believe are 
similar to MS-DRG 642. We analyzed data from the MedPAR file on cases 
in MS-DRGs 643, 644, and 645 (Endocrine Disorders with MCC, with CC, 
and without CC/MCC, respectively) to determine if the cases reporting a 
principal diagnosis code of 277.1 would be more appropriately 
reassigned from MS-DRG 642 to MS-DRGs 643, 644, and 645. Upon 
examination of the data, we found that the average costs of these cases 
were $10,835, $6,816, and $4,762, respectively, as shown in the table 
below.

----------------------------------------------------------------------------------------------------------------
                                                                     Number of    Average length
                             MS-DRG                                    cases          of stay      Average costs
----------------------------------------------------------------------------------------------------------------
MS-DRG 643--Cases with principal diagnosis code 277.1...........           6,562            7.11         $10,835
MS-DRG 644--Cases with principal diagnosis code 277.1...........          12,769            4.89           6,816
MS-DRG 645--Cases with principal diagnosis code 277.1...........           5,979            3.40           4,762
----------------------------------------------------------------------------------------------------------------

    Based on these findings, if we were to reassign cases where 
disorders of porphyrin metabolism (diagnosis code 277.1) were reported 
as the principal diagnosis with a secondary diagnosis designated as a 
CC (MS-DRG 644) or with a secondary diagnosis that was not a CC/MCC 
(MS-DRG 645), Medicare would pay significantly less for these cases 
than they are now paid under MS-DRG 642. Therefore, it would not be 
appropriate to reassign cases reporting a principal diagnosis code of 
277.1 from MS-DRG 642 to MS-DRGs 643, 644, and 645. In addition, our 
clinical advisors did not support this reassignment. 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 
and the alternative option discussed, our clinical advisors agree that 
the current MS-DRG assignment for diagnoses of disorders of porphyrin 
metabolism (diagnosis code 277.1) to MS-DRG 642 is most appropriate at 
this time.
    In the proposed rule, we acknowledged and recognized the severity 
of symptoms that patients diagnosed with disorders of porphyrin 
metabolism may experience. We also stated that we are sensitive to 
concerns about access to care and treatment for these patients. We 
further indicated that we would continue to monitor this issue and 
determine how to better account for the variation in resource 
utilization within the IPPS for these cases.
    In summary, we did not propose to create a new MS-DRG or to 
reassign cases reporting a principal diagnosis code of 277.1 to MS-DRGs 
643, 644, and 645 for FY 2013. We invited public comment on our 
proposal.
    Comment: Several commenters agreed with our proposal to not create 
a new MS-DRG or to reassign cases reporting a principal diagnosis code 
of 277.1 from MS-DRG 642 to MS-DRGs 643, 644, and 645 for FY 2013.
    Response: We appreciate the commenters' support for our proposal.
    Comment: Two commenters, representing organizations dedicated to 
the treatment, education, and study of patients diagnosed with 
disorders of porphyrin metabolism, appreciated the attention that CMS 
devoted to this issue. However, these commenters expressed concern that 
CMS' proposal to not create a new MS-DRG for these cases would 
negatively impact beneficiary access to necessary treatments. For 
example, according to one of the commenters, certain facilities are 
unable to provide the needed Panhematin[supreg] therapy as a result of 
the costs incurred and the present MS-DRG assignment. The commenters 
believed that for beneficiaries who experience an acute porphyric 
attack, there are not any alternative therapies compared to the 
effectiveness of Panhematin[supreg].
    One of the commenters also submitted data from its own analysis 
indicating that not only are the average costs of porphyria cases 
greater than the average costs of all cases in MS-DRG 642, but also 
that the average costs of porphyria cases are greater than the average 
costs of other cases that contain the top 10 principal diagnoses (by 
volume of discharges) assigned to MS-DRG 642. The commenter asserted 
that, based on its analysis, as well as the analysis conducted and 
presented by CMS in the FY 2013 IPPS/LTCH PPS proposed rule (77 FR 
27904 through 27905), porphyria cases undoubtedly satisfy the criteria 
to create a new MS-DRG.
    Additionally, the commenters opposed CMS' position regarding the 
inadequate number of cases in which to establish a new MS-DRG for 
porphyria cases. One of the commenters reported that, based on its own 
analysis, the number of porphyria cases demonstrated a significant 
subset of the total cases that grouped to MS-DRG 642. The other 
commenter acknowledged that the number of porphyria cases is small; 
however this commenter maintained that CMS may inadvertently be sending 
the message that rare diseases affecting smaller populations are not as 
significant as those diseases affecting larger populations by not 
creating a new MS-DRG for porphyria cases. The commenters urged CMS to 
reconsider

[[Page 53313]]

the proposal and create a new MS-DRG for cases with a principal 
diagnosis of porphyria to ensure these beneficiaries have access to 
treatment for this potentially life-threatening disease.
    Response: We acknowledge the commenters' concerns. CMS is committed 
to improving the lives and quality of care for Medicare beneficiaries. 
We take this opportunity to note that it is not appropriate for 
facilities to deny treatment to beneficiaries needing a specific type 
of therapy or treatment that involves increased costs. The MS-DRG 
system is a system of averages and it is expected that across the 571 
diagnostic related groups that within certain groups, some cases may 
demonstrate higher than average costs, while other cases may 
demonstrate lower than average costs.
    As discussed in the FY 2013 IPPS/LTCH PPS proposed rule (77 FR 
27904 through 27905), we recognize the average costs of the small 
number of porphyria cases are greater than all the cases in MS-DRG 642. 
While the commenter's analysis found that approximately 50 percent of 
porphyria cases were more expensive than the average cost of the other 
cases in this MS-DRG, it is not alarming and, in fact, is what we would 
expect (as the remaining percent of cases are less expensive than the 
average). The data provided by the commenter demonstrates that it is a 
subset of the porphyria cases that has the significantly higher cost 
exactly as it is a subset of the MS-DRG that has significantly higher 
costs. An averaged payment system depends on aggregation of similar 
cases with a range of costs, and these data are not unusual. In fact, 
it is usually possible to define subsets with higher values and subsets 
with lower values. We continue to follow our usual practice of 
identifying sufficiently large sets of claims data with a resource/cost 
similarity and clinical similarity and do not wish to abandon our use 
of diagnostic related groups in favor of smaller ``single diagnosis 
payments'' or even, as suggested by the commenter's data, subsets 
within a single diagnosis.
    We disagree with the commenter that our proposal to not create a 
new MS-DRG for porphyria cases sends the message that rare diseases and 
patient access to treatment are not a significant cause for concern to 
the Agency in comparison to other well known and publicly recognized 
conditions. Although it was not included as part of the commenter's 
initial request for a new MS-DRG, we also explored an alternative 
option to reassign cases with a principal diagnosis of porphyria as was 
discussed in the FY 2013 IPPS/LTCH PPS proposed rule (77 FR 27904 
through 27905). Furthermore, we indicated our intent to continue to 
monitor this issue.
    As mentioned previously, we are sensitive to the commenters' 
concerns and access to treatment for beneficiaries who have been 
diagnosed with this condition. However, for the reasons summarized 
above, we are finalizing our proposal for FY 2013 to not create a new 
MS-DRG or to reassign cases with a principal diagnosis of porphyria 
(code 277.1) from MS-DRG 642 to MS-DRGs 643, 644, and 645.
5. 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. MCE New Length of Stay Edit for Continuous Invasive Mechanical 
Ventilation for 96 Consecutive Hours or More
    In the FY 2013 IPPS/LTCH PPS proposed rule (77 FR 27905 and 27906), 
we proposed to make a change to the MCE edits which included the 
creation of a new length of stay edit for continuous invasive 
mechanical ventilation for 96 consecutive hours or more.
    It was brought to our attention that a number of hospitals 
reporting ICD-9-CM procedure code 96.72 (Continuous invasive mechanical 
ventilation for 96 consecutive hours or more) may be inaccurately 
reporting this code. As the title of the procedure code implies, a 
patient must have received continuous mechanical ventilation for 96 
hours or more in order for this code to be assigned. This equates to a 
patient being hospitalized for at least a 4-day length of stay and 
having received continuous invasive mechanical ventilation for a 
minimum of 4 days. Therefore, a patient with a length of stay less than 
4 days who received continuous invasive mechanical ventilation should 
not have procedure code 96.72 reported on the claim.
    The ICD-9-CM classification system contains three procedure codes 
that identify and describe continuous invasive mechanical ventilation: 
procedure code 96.70 (Continuous invasive mechanical ventilation of 
unspecified duration); procedure code 96.71 (Continuous invasive 
mechanical ventilation for less than 96 consecutive hours); and 
procedure code 96.72 (Continuous invasive mechanical ventilation for 96 
consecutive hours or more). To assist in the accurate assignment of 
these codes, guidance in the form of a ``Note'' is provided within the 
designated procedure section of ICD-9-CM. This ``Note'' describes the 
calculation of the number of hours during a hospitalization in which a 
patient receives continuous invasive mechanical ventilation. In 
addition, coding advice pertaining to appropriate code assignment for 
mechanical ventilation has been published in various editions of the 
American Hospital Association's (AHA's) Coding Clinic for ICD-9-CM.
    For the proposed rule, we analyzed the FY 2011 MedPAR data to 
determine how many cases reported procedure code 96.72 with a length of 
stay less than 4 days. Specifically, we reviewed cases reporting 
procedure code 96.72 with a length of stay of 1 day, 2 days, or 3 days. 
We found a total of 595 cases meeting those criteria. The data analysis 
showed there were 89 cases reporting procedure code 96.72 with a length 
of stay of 1 day and average costs of $5,948, 134 cases reporting 
procedure code 96.72 with a length of stay of 2 days and average costs 
of $7,776, and 372 cases reporting procedure code 96.72 with a length 
of stay of 3 days and average costs of $11,613.
    The data also demonstrated that the 595 cases found were 
distributed across a wide range of MS-DRGs, with the top two (in terms 
of volume) being MS-DRG 207 (Respiratory System Diagnosis with 
Ventilator Support 96+ Hours) and MS-DRG 870 (Septicemia or Severe 
Sepsis with Mechanical Ventilation 96+ hours). We note that the two MS-
DRGs with the highest volume of cases reporting procedure code 96.72 
and having a length of stay less than 4 days are the two MS-DRGs that 
specifically reference ``96+ hours'' in their titles. More importantly, 
a large percentage of these cases reporting procedure code 96.72 in 
error are being grouped to the incorrect MS-DRGs, resulting in 
significant overpayments. For example, of the 89 cases reporting 
procedure code 96.72 with a length of stay of 1 day, 31 cases were 
grouped to MS-DRGs 207 and 870. Of the 134 cases reporting procedure 
code 96.72 with a length of stay of 2 days, 54 cases were grouped to 
MS-DRGs 207 and 870. Lastly, of the 372 cases reporting procedure code 
96.72 with a length of stay of 3 days, 160 cases were grouped to MS-
DRGs 207 and 870. Therefore, the data show that a total of 245 cases 
(41 percent)

[[Page 53314]]

were grouped to MS-DRGs 207 and 870 in error, resulting in 
approximately $25,000 in increased payments for each case (or 
approximately $6 million in increased payments for all 245 cases). 
Based on the results of these figures for that portion of the total 595 
cases found, there is an even larger dollar amount that is being 
overpaid to hospitals. These overpayments justify corrective actions.
    However, we also noted that the presumed amount of overpayments for 
claims having a length of stay less than 4 days, as discussed above, is 
merely an estimate based on the data analysis that has been conducted 
at this time. We are aware that, for particular circumstances such as 
those patients who may require observation services, it is possible to 
have procedure code 96.72 reported on the claim with a length of stay 
less than 4 days. Although unlikely, a patient might be briefly 
ventilated in an extended outpatient stay following a toxic ingestion 
with loss of protective reflexes or following outpatient procedures 
with a prolonged effect of anesthesia. A subsequent conversion to an 
inpatient stay would cause the costs to be attributable to the stay, 
while the days themselves were not reported in the inpatient date span 
on the claim. Similar effects could occur following an observation stay 
for a patient on chronic home or skilled nursing facility ventilation. 
It is for this reason that we proposed a new edit in which claims found 
to have procedure code 96.72 with a length of stay less than 4 days 
would be returned to the provider for validation and resubmission. We 
indicated in the proposed rule that we would issue instructions in the 
form of a Change Request (CR) prior to the implementation date. We 
invited the public to comment on our proposal to create this edit, 
effective for FY 2013.
    Comment: Commenters urged CMS to reconsider the proposed new edit 
for claims reporting procedure code 96.72 with a length of stay less 
than 4 days that would result in these claims being returned to the 
provider for validation and resubmission. Although several commenters 
agreed with the concept of the edit, the commenters expressed concern 
that the proposed process would be administratively burdensome to 
hospitals that may be accurately reporting the code according to 
established coding rules. For example, the commenters noted that coding 
rules allow the counting of hours a patient is on mechanical 
ventilation to begin from the time ventilation is initiated in the 
emergency room department or upon admission. The commenters also stated 
that for those instances where patients may require observation 
services, as CMS noted in the proposed rule, it is possible that 
procedure code 96.72 can be reported on a claim with a length of stay 
less than 4 days. These commenters recommended that CMS work with the 
Medicare administrative contractors (MACs) to develop a less burdensome 
process for providers to implement this edit.
    Response: We appreciate and acknowledge the commenters' concerns. 
In developing systems requirements, we will continue to work with MACs. 
Recent programming enhancements now allow the use of data fields that 
were not previously available for claims processing. We believe that 
these enhancements will eliminate the concern regarding additional 
administrative burden to hospitals.
    After consideration of the public comments received, for FY 2013, 
we are finalizing our proposal to make a change to the MCE edits to 
include the creation of a new length of stay edit for procedure code 
96.72 when reported on a claim with a length of stay less than 4 days. 
Detailed instructions will be issued in a future Change Request (CR) 
prior to the implementation date.
b. Sleeve Gastrectomy Procedure for Morbid Obesity
    In the FY 2012 IPPS/LTCH PPS final rule (76 FR 51539 through 
51541), we discussed the issue of sleeve gastrectomy procedures for 
morbid obesity under the section of the rule titled ``MDC 10 
(Endocrine, Nutritional, and Metabolic Diseases and Disorders)'' as 
well as under the section for ``Medicare Code Editor (MCE) Changes.'' 
We refer the reader to these sections for additional details and 
background information.
    Effective October 1, 2011, procedure code 43.82 (Laparoscopic 
vertical (sleeve) gastrectomy) was created and designated as a 
noncoverage procedure in the Medicare Code Editor. A Decision Memo 
related to Bariatric Surgery for the Treatment of Morbid Obesity was 
issued effective June 27, 2012, which describes a change in coverage to 
Medicare beneficiaries for this procedure. Information related to this 
decision memo can be located at the following CMS Web page: http://www.cms.gov/medicare-coverage-database/details/nca-decision-memo.aspx?NCAId=258&fromdb=true.
    As this noncovered procedure edit for procedure code 43.82 is no 
longer valid, we are removing it from the MCE for FY 2013. Instructions 
in the form of a Change Request will be issued prior to October 1, 
2012. In addition, updates to the Medicare National Coverage 
Determinations Manual, Section 100.1, Nationally Noncovered Indications 
for Bariatric Surgery for Treatment of Morbid Obesity, will be revised 
to reflect this change in coverage.
6. 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 2013, 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

[[Page 53315]]

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 in the MDC with these 
diagnoses. Therefore, assignment to these surgical classes should only 
occur if no other surgical class more closely related to the diagnoses 
in the MDC is appropriate.
    A second example occurs when the difference between the average 
costs for two surgical classes is very small. We have found that small 
differences generally do not warrant reordering of the hierarchy 
because, as a result of reassigning cases on the basis of the 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 the FY 2013 IPPS/LTCH PPS proposed rule, we proposed limited 
changes to the MS-DRG classifications for FY 2013, as discussed in 
sections II.G.1. and 4. of this preamble. In our review of these 
proposed changes, we did not identify any needed changes to the 
surgical hierarchy. Therefore, in the proposed rule (77 FR 27906), we 
did not propose any changes to the surgical hierarchy for Pre-MDCs and 
MDCs for FY 2013.
    Comment: Several commenters stated that our proposal to make no 
changes to the surgical hierarchy seems reasonable, given the data and 
information provided.
    Response: Based on these public comments and our review of the 
proposal to make no revisions to the surgical hierarchy using the March 
2012 update of the FY 2011 MedPAR file and the revised GROUPER 
software, we found that the proposal to make no revisions is still 
supported by the data. Therefore, in this final rule, we are making no 
changes to the surgical hierarchy for FY 2013.
7. Complications or Comorbidity (CC) Exclusions List
a. Background
    Under the IPPS MS-DRG classification system, we have developed a 
standard list of diagnoses that are considered CCs. Historically, we 
developed this list using physician panels that classified each 
diagnosis code based on whether the diagnosis, when present as a 
secondary condition, would be considered a substantial complication or 
comorbidity. A substantial complication or comorbidity was defined as a 
condition that, because of its presence with a specific principal 
diagnosis, would cause an increase in the length of stay by at least 1 
day in at least 75 percent of the patients. We refer readers to section 
II.D.2. and 3. of the preamble of the FY 2008 IPPS final rule with 
comment period for a discussion of the refinement of CCs in relation to 
the MS-DRGs we adopted for FY 2008 (72 FR 47121 through 47152).
b. CC Exclusions List for FY 2013
    In the September 1, 1987 final notice (52 FR 33143) concerning 
changes to the DRG classification system, we modified the GROUPER logic 
so that certain diagnoses included on the standard list of CCs would 
not be considered valid CCs in combination with a particular principal 
diagnosis. We created the CC Exclusions List for the following reasons: 
(1) To preclude coding of CCs for closely related conditions; (2) to 
preclude duplicative or inconsistent coding from being treated as CCs; 
and (3) to ensure that cases are appropriately classified between the 
complicated and uncomplicated DRGs in a pair. As we indicated above, we 
developed a list of diagnoses, using physician panels, to include those 
diagnoses that, when present as a secondary condition, would be 
considered a substantial complication or comorbidity. In previous 
years, we have made changes to the list of CCs, either by adding new 
CCs or deleting CCs already on the list.
    In the May 19, 1987 proposed notice (52 FR 18877) and the September 
1, 1987 final notice (52 FR 33154), we explained that the excluded 
secondary diagnoses were established using the following five 
principles:
     Chronic and acute manifestations of the same condition 
should not be considered CCs for one another.
     Specific and nonspecific (that is, not otherwise specified 
(NOS)) diagnosis codes for the same condition should not be considered 
CCs for one another.
     Codes for the same condition that cannot coexist, such as 
partial/total, unilateral/bilateral, obstructed/unobstructed, and 
benign/malignant, should not be considered CCs for one another.
     Codes for the same condition in anatomically proximal 
sites should not be considered CCs for one another.
     Closely related conditions should not be considered CCs 
for one another.
    The creation of the CC Exclusions List was a major project 
involving hundreds of codes. We have continued to review the remaining 
CCs to identify additional exclusions and to remove diagnoses from the 
master list that have been shown not to meet the definition of a 
CC.\13\
---------------------------------------------------------------------------

    \13\ See the FY 1989 final rule (53 FR 38485, September 30, 
1988), for the revision made for the discharges occurring in FY 
1989; the FY 1990 final rule (54 FR 36552, September 1, 1989), for 
the FY 1990 revision; the FY 1991 final rule (55 FR 36126, September 
4, 1990), for the FY 1991 revision; the FY 1992 final rule (56 FR 
43209, August 30, 1991) for the FY 1992 revision; the FY 1993 final 
rule (57 FR 39753, September 1, 1992), for the FY 1993 revision; the 
FY 1994 final rule (58 FR 46278, September 1, 1993), for the FY 1994 
revisions; the FY 1995 final rule (59 FR 45334, September 1, 1994), 
for the FY 1995 revisions; the FY 1996 final rule (60 FR 45782, 
September 1, 1995), for the FY 1996 revisions; the FY 1997 final 
rule (61 FR 46171, August 30, 1996), for the FY 1997 revisions; the 
FY 1998 final rule (62 FR 45966, August 29, 1997) for the FY 1998 
revisions; the FY 1999 final rule (63 FR 40954, July 31, 1998), for 
the FY 1999 revisions; the FY 2001 final rule (65 FR 47064, August 
1, 2000), for the FY 2001 revisions; the FY 2002 final rule (66 FR 
39851, August 1, 2001), for the FY 2002 revisions; the FY 2003 final 
rule (67 FR 49998, August 1, 2002), for the FY 2003 revisions; the 
FY 2004 final rule (68 FR 45364, August 1, 2003), for the FY 2004 
revisions; the FY 2005 final rule (69 FR 49848, August 11, 2004), 
for the FY 2005 revisions; the FY 2006 final rule (70 FR 47640, 
August 12, 2005), for the FY 2006 revisions; the FY 2007 final rule 
(71 FR 47870) for the FY 2007 revisions; the FY 2008 final rule (72 
FR 47130) for the FY 2008 revisions, the FY 2009 final rule (73 FR 
48510), the FY 2010 final rule (74 FR 43799); the FY 2011 final rule 
(75 FR 50114); and the FY 2012 final rule (76 FR 51542). 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 Revisions Based on Changes to the ICD-9-CM Diagnosis Codes for 
FY 2013
    For FY 2013, we did not propose to make any revisions to the CC 
Exclusions List. There were no changes made to the ICD-9-CM coding 
system, effective October 1, 2012, due to the partial code freeze. (We 
refer readers to section

[[Page 53316]]

II.G.9. of the preamble of this final rule for a discussion of the ICD-
9-CM coding system.)
(2) Suggested Changes to the MS-DRG Severity Levels for Diagnosis Codes 
for FY 2013
(A) Protein-Calorie Malnutrition
    We received a request that we consider changing the severity levels 
for the following protein-calorie malnutrition diagnosis codes:

 263.0 (Malnutrition of moderate degree)
 263.1 (Malnutrition of mild degree)
 263.9 (Unspecified protein-calorie malnutrition)

    It was suggested that we change the severity level for diagnosis 
codes 263.0 and 263.1 from a non-CC to a CC, while changing the 
severity level for diagnosis code 263.9 from a CC to a non-CC. We 
received this comment during the comment period for the FY 2012 IPPS/
LTCH PPS proposed rule. We referred to this issue briefly in the FY 
2012 IPPS/LTCH PPS final rule (76 FR 51557). We indicated that we 
considered this comment outside of the scope of the proposed rule, as 
we did not propose any severity level changes to these codes for FY 
2012, and did not address it in the final rule. However, we addressed 
this issue in the FY 2013 proposed rule (77 FR 27907 through 27908) and 
are finalizing our policy in this final rule.
    For the proposed rule, we analyzed the claims data in the FY 2011 
MedPAR file for diagnosis codes 263.0, 263.1, and 263.9. We used the 
same approach we used in initially creating the MS-DRGs and classifying 
secondary diagnosis codes as non-CCs, CCs, or MCCs. A detailed 
discussion of the process and criteria we used in this process is 
described in the FY 2008 IPPS final rule with comment period (72 FR 
47158 through 47161). We refer the readers to this discussion for 
complete information on our approach to developing the non-CC, CC, and 
MCC lists. Each diagnosis for which Medicare data were available was 
evaluated to determine its impact on resource use and to determine the 
most appropriate CC subclass (non-CC, CC, or MCC) assignment. In order 
to make this determination, the average cost for each subset of cases 
was compared to the expected cost for cases in that subset. The 
following format was used to evaluate each diagnosis:

----------------------------------------------------------------------------------------------------------------
 
----------------------------------------------------------------------------------------------------------------
            Code  Diagnosis              Cnt1          C1            Cnt2          C2            Cnt3          C3
----------------------------------------------------------------------------------------------------------------

    Count (Cnt) is the number of patients in each subset. C1, C2, and 
C3 are a measure of the impact on resource use of patients in each of 
the subsets. The C1, C2, and C3 values are a measure of the ratio of 
average costs for patients with these conditions to the expected 
average cost across all cases. The C1 value reflects a patient with no 
other secondary diagnosis or with all other secondary diagnoses that 
are non-CCs. The C2 value reflects a patient with at least one other 
secondary diagnosis that is a CC but none that is an MCC. The C3 value 
reflects a patient with at least one other secondary diagnosis that is 
an MCC. A value close to 1.0 in the C1 field suggests that the 
diagnosis code produces the same expected value as a non-CC. A value 
close to 2.0 suggests the condition is more like a CC than a non-CC but 
not as significant in resource usage as an MCC. A value close to 3.0 
suggests the condition is expected to consume resources more similar to 
an MCC than a CC or non-CC. For additional details on this analysis, we 
refer readers to the FY 2008 IPPS final rule with comment period (72 FR 
47158 through 47161).
    The following chart shows the analysis for each of the protein-
calorie malnutrition diagnosis codes:

 
----------------------------------------------------------------------------------------------------------------
                      Diagnosis                              Cnt 1                 Cnt 2                 Cnt 3
      Code           description      CC Level    Cnt 1      Impact     Cnt 2      Impact     Cnt 3      Impact
----------------------------------------------------------------------------------------------------------------
263.0...........  Malnutrition of       Non-CC      6,040       2.14     21,383       2.61     21,635       3.20
                   moderate degree.
263.1...........  Malnutrition of       Non-CC      4,139       2.22     11,598       2.50      8,921       3.13
                   mild degree.
263.9...........  Unspecified               CC      2,737       2.16    165,825       2.54    178,044       3.34
                   protein-calorie
                   malnutrition.
----------------------------------------------------------------------------------------------------------------

    We ran the following 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 a 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 findings ranged from a low of 
2.14 to a high of 2.22. As stated earlier, a C1 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. The C1 findings suggest that 
these codes are more like a CC than a non-CC. The C2 findings ranged 
from 2.50 to 2.61. A value close to 2.0 suggests the condition is more 
like a CC than a non-CC but not as significant in resource usage as an 
MCC. A value close to 3.0 suggests the condition is expected to consume 
resources more similar to an MCC than a CC or non-CC. The C2 findings 
of 2.50 for diagnosis code 263.1 and 2.54 for diagnosis code 263.9 
suggest these codes are more similar to a CC than a non-CC, while the 
finding of 2.61 for diagnosis code 263.0 is borderline more similar to 
an MCC than a CC or non-CC when there is at least one other secondary 
diagnosis code that is a CC but none that is an MCC.
    CC conditions typically have a C1 value over 1.75, a C2 value under 
2.5, and a C3 value under 3.2. MCC conditions typically have a C1 value 
over 2.4, a C2 value over 2.8, and a C3 value over 3.3. We concluded 
that diagnosis code 263.0 is more similar to a CC than an MCC.
    Therefore, the C1 and C2 findings support changing diagnosis codes 
263.0 and 263.1 from a non-CC to a CC and maintaining code 263.9 as a 
CC. Our clinical advisors reviewed this issue and are in support of 
these findings that these conditions are more appropriately classified 
as CCs. Based on the data and clinical analysis, we proposed for FY 
2013 to change diagnosis codes 263.0 and 263.1 from a non-CC to a CC. 
We did not propose any change to the severity level for diagnosis code 
263.9. We invited public comment on our proposals.
    Comment: Several commenters supported our proposal to change the 
severity level for codes 263.0 and 263.1

[[Page 53317]]

from a non-CC to a CC and to maintain the severity level of code 263.9 
as a CC. Several commenters stated that the proposal seems reasonable, 
given the data and information provided. Some commenters expressed 
appreciation for CMS' recognition of the increased costs of care 
associated with these conditions and support efforts to more accurately 
reflect its impact.
    Response: We appreciate the support of the commenters.
    After consideration of the public comments we received, we are 
finalizing our proposal to change diagnosis codes 263.0 and 263.1 from 
a non-CC to a CC and to maintain the severity level of a CC for 
diagnosis code 263.9 for FY 2013.
(B) Antineoplastic Chemotherapy Induced Anemia
    We received a request from a commenter that the severity level for 
diagnosis code 285.3 (Antineoplastic chemotherapy induced anemia) be 
changed from a non-CC to a CC. We received this comment during the 
comment period for the FY 2012 IPPS/LTCH PPS proposed rule. We referred 
to this issue briefly in the FY 2012 IPPS/LTCH PPS final rule (76 FR 
51557). In that rule, we indicated that we considered this comment 
outside of the scope of the proposed rule because we did not propose 
any severity level changes to diagnosis code 285.3 for FY 2012; 
therefore, we did not address the issue in the final rule. However, we 
addressed this issue in the FY 2013 proposed rule and are finalizing 
our policy in this final rule. For the proposed rule, we examined 
claims data in the FY 2011 MedPAR file for diagnosis code 285.3 
according to the approach that we used in FY 2008 as described above. 
The following table illustrates our findings:

--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                 Cnt 1                   Cnt 2                   Cnt 3
              Code                       Diagnosis description         CC Level      Cnt 1      Impact       Cnt 2      Impact       Cnt 3      Impact
--------------------------------------------------------------------------------------------------------------------------------------------------------
285.3...........................  Antineoplastic chemotherapy              Non-CC     1,937        1.36      11,858        2.21       6,036        3.11
                                   induced anemia.
--------------------------------------------------------------------------------------------------------------------------------------------------------

    As discussed above, a value close to 1.0 in the C1 field suggests 
that the diagnosis code produces the same expected value as a non-CC. A 
value of 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. The C1 
finding for diagnosis code 285.3 of 1.36 supports the current severity 
level of a non-CC. The C2 finding of 2.21 for diagnosis code 285.3 
suggests that this code is more similar to a CC than a non-CC but not 
as significant as an MCC when there is at least one other secondary 
diagnosis code that is a CC. CC conditions typically have a C1 value 
over 1.75, a C2 value under 2.5, and a C3 value under 3.2.
    Therefore, the C1 and C2 findings do not support changing the 
severity level for diagnosis code 285.3 to a CC. In addition, our 
clinical advisors reviewed this issue and support the decision not to 
change the severity level for diagnosis code 285.3 because the anemia 
is inherent in the treatment of cancer and does not qualify as a CC. As 
a result of our data analysis as well as the advice of our clinical 
advisors, we did not propose any change to the severity level for 
diagnosis code 285.3 for FY 2013. We invited public comment on our 
proposal.

    Comment: Several commenters stated that our proposal to maintain 
the severity level of a non-CC for code 285.3 seems reasonable, given 
the data and information provided.
    Response: We appreciate the support of the commenters for our 
proposal.
    After consideration of the public comments we received, we are 
finalizing our proposal to not change the severity level for diagnosis 
code 285.3 for FY 2013.
(C) Cardiomyopathy and Congestive Heart Failure, Unspecified
    We received a comment that recommended changes to the severity 
levels for the cardiomyopathy and congestive heart failure, unspecified 
codes. The commenter recommended that cardiomyopathy codes, which are 
currently classified as CCs, be changed to non-CCs and diagnosis code 
428.0 (Congestive heart failure, unspecified) be changed from a non-CC 
to a CC. According to the commenter, these recommended changes would 
better represent the resources utilized in caring for this population 
and reduce the administrative burden in clarifying these diagnoses with 
providers. We received this comment during the comment period for the 
FY 2012 IPPS/LTCH PPS proposed rule. We referred to this issue briefly 
in the FY 2012 IPPS/LTCH PPS final rule (76 FR 51557). We indicated 
that we considered this comment outside of the scope of the proposed 
rule because we did not propose any severity level changes to these 
codes for FY 2012; therefore, we did not address it in the final rule. 
However, we addressed this issue in the FY 2013 proposed rule and are 
finalizing our policy in this final rule.
    The commenter did not provide a list of the cardiomyopathy codes. 
We identified the following codes for analysis of the claims data in 
the FY 2011 MedPAR file:

 425.4 (Other primary cardiomyopathies)
 425.5 (Alcoholic cardiomyopathy)
 425.7 (Nutritional and metabolic cardiomyopathy)
 425.8 (Cardiomyopathy in other diseases classified elsewhere)
 425.9 (Secondary cardiomyopathy, unspecified)
 428.0 (Congestive heart failure, unspecified)

    We did not include diagnosis codes 425.11 (Hypertrophic obstructive 
cardiomyopathy) and 425.18 (Other hypertrophic cardiomyopathy) for our 
analysis because these two codes were created in FY 2012 and the data 
are not yet available. We examined claims data according to the 
approach that we used in FY 2008 as described above. The following 
table illustrates our findings:

--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                     Cnt 1                 Cnt 2                 Cnt 3
                    Code                          Diagnosis description       CC Level    Cnt 1      Impact     Cnt 2      Impact     Cnt 3      Impact
--------------------------------------------------------------------------------------------------------------------------------------------------------
425.4......................................  Other primary cardiomyopathies         CC     39,489       1.47    243,719       2.18    139,689       3.20
425.5......................................  Alcoholic cardiomyopathy......         CC        438       1.68      2,643       2.19      1,670       3.26
425.7......................................  Nutritional and metabolic              CC         60       1.18        869       2.17        799       3.14
                                              cardiomyopathy.
425.8......................................  Cardiomyopathy in other                CC        940       1.19      5,967       2.15      5,171       3.14
                                              diseases classified elsewhere.

[[Page 53318]]

 
425.9......................................  Secondary cardiomyopathy,              CC        356       1.56      2,078       2.07      1.372       3.22
                                              unspecified.
428.0......................................  Congestive heart failure,          Non-CC    304,963       1.40    634,241       2.16    748,649       3.06
                                              unspecified.
--------------------------------------------------------------------------------------------------------------------------------------------------------

    The table above shows that the C1 findings for the cardiomyopathy 
codes ranged from a low of 1.18 to a high of 1.68. A value close to 1.0 
in the C1 field suggests that the diagnosis code produces the same 
expected value as a non-CC. A value of 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. The C1 findings suggest that the majority of 
these cardiomyopathy codes are more similar to a non-CC than a CC. The 
C2 findings ranged from a low of 2.07 to a high of 2.19. These findings 
suggest that these cardiomyopathy codes are more similar to a CC.
    The C1 finding for diagnosis code 428.0 of 1.40 suggests that the 
condition is more similar to a non-CC than a CC. The C2 finding for 
diagnosis code 428.0 of 2.16 suggests that the secondary diagnosis is 
more similar to a CC than a non-CC.
    The data are mixed between the C1 and C2 findings for the 
cardiomyopathy codes and do not consistently support a change in the 
severity level. Our clinical advisors reviewed these issues and are not 
in support of proposing any changes to the severity levels for these 
codes. Our clinical advisors stated that the diagnosis of 
cardiomyopathy (diagnosis codes 425.4 through 425.9) is generally 
severe, with significant impact on the patient requiring additional 
monitoring resources and cognitive effort, and is appropriately 
classified as a CC.
    The data are mixed between the C1 and C2 findings for the 
congestive heart failure, unspecified, diagnosis code 428.0. Our 
clinical advisors reviewed these issues and are not in support of 
proposing any changes to the severity level of code 428.0. They 
indicated that diagnosis code 428.0 is very nonspecific and does not 
identify the severity of the heart failure, and concluded that the 
current classification for code 428.0 as a non-CC is appropriate. As a 
result of our data analysis and clinical advisors' review of these 
issues, we did not propose any changes to the severity level for the 
cardiomyopathy and congestive heart failure, unspecified codes for FY 
2013. We invited public comment on our proposal.
    Comment: Several commenters stated that our proposal to make no 
changes to the severity level for cardiomyopathy and congestive heart 
failure, unspecified codes seems reasonable, given the data and 
information provided.
    Response: We appreciate the support of the commenters for our 
proposal.
    After consideration of the public comments we received, we are 
finalizing our proposal to maintain the current severity level for 
cardiomyopathy and congestive heart failure, unspecified codes for FY 
2013.
(D) Chronic Total Occlusion of Artery of the Extremities
    We received a request to change the severity level designation for 
diagnosis code 440.4 (Chronic total occlusion of artery of the 
extremities) to a CC. Currently, the diagnosis code is classified as a 
non-CC. Chronic total occlusion of artery of the extremities forms when 
plaque accumulates in an artery over an extended period of time, 
resulting in total cessation of blood flow. We analyzed claims data in 
the FY 2011 MedPAR file for this diagnosis code according to the 
approach that we used in FY 2008 as described above. The following 
table illustrates our findings:

--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                 Cnt 1                   Cnt 2                   Cnt 3
                  Code                       Diagnosis description     CC Level      Cnt 1      Impact       Cnt 2      Impact       Cnt 3      Impact
--------------------------------------------------------------------------------------------------------------------------------------------------------
440.4...................................  Chronic total occlusion of       Non-CC     8,439        1.38       8,057        2.70       5,366        3.23
                                           artery of the extremities.
--------------------------------------------------------------------------------------------------------------------------------------------------------

    The C1 finding of 1.38 for diagnosis code 440.4 supports the 
current designation of this diagnosis code as a non-CC. However, the C2 
findings of 2.70 suggests that this code is similar to a CC or perhaps 
an MCC, as this value is near to 3.0, which suggests that this 
condition is similar to an MCC. However, we would expect a higher C1 
value such as 2.4 for this condition to qualify as an MCC.
    The C1 and C2 findings support changing diagnosis code 440.4 from a 
non-CC to a CC. Our clinical advisors reviewed this issue and are in 
support of changing the severity level because this condition behaves 
as a CC. Therefore, in the FY 2013 IPPS/LTCH PPS proposed rule, we 
proposed to change the severity level for diagnosis code 440.4 from a 
non-CC to a CC for FY 2013. We invited public comment on our proposal.
    Comment: Several commenters supported our proposed change to the 
severity level from a non-CC to a CC for code 440.4. Several commenters 
stated that the proposal seems reasonable, given the data and 
information provided.
    One commenter stated that crossing a stenotic occlusive lesion 
typically requires manipulation of the guidewire with a single catheter 
that remains in the vessel lumen. In contrast, crossing a chronic total 
occlusion typically requires multiple wires and catheters whereby the 
wire leaves the vessel lumen, dissects through the subintimal plane 
around the occlusive lesion, and then must be manipulated back into the 
true outflow lumen. According to the commenter, the additional time, 
intensity of work, and resources necessary to perform an endovascular 
revascularization of a chronic total occlusion justify the proposed 
increase in severity level.
    Response: We appreciate the support of the commenters for our 
proposal.
    After consideration of the public comments we received, we are 
finalizing our proposal to change the severity level for diagnosis code 
440.4 from a non-CC to a CC for FY 2013.
(E) Acute Kidney Failure With Other Specific Pathological Lesion in 
Kidney
    We received a request to consider changing the severity level for 
diagnosis code 584.8 (Acute kidney failure with other specified 
pathological lesion in kidney). This diagnosis code's severity level is 
currently classified as an MCC. We examined claims data for this code 
in the FY 2011 MedPAR file according to the approach described above. 
The following table illustrates those findings.

[[Page 53319]]

--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                       Severity                  Cnt 1                   Cnt 2                   Cnt 3
                  Code                       Diagnosis description       level       Cnt 1      Impact       Cnt 2      Impact       Cnt 3      Impact
--------------------------------------------------------------------------------------------------------------------------------------------------------
584.8...................................  Acute kidney failure with           MCC        12        0.98          13        1.89       1,350        3.17
                                           other specified
                                           pathological lesion in
                                           kidney.
--------------------------------------------------------------------------------------------------------------------------------------------------------

    As discussed above, a C1 value close to 1.0 in the C1 field 
suggests that the diagnosis code produces the same expected value as a 
diagnosis code that has been classified as a non-CC. A value close to 
2.0 in the C1 field suggests that the condition is more similar to a CC 
severity level than a non-CC severity level, but not as significant in 
resource usage as an MCC severity level. In this case, the C1 value 
finding for diagnosis code 584.8 of 0.98 suggests that this diagnosis 
code is more similar to a non-CC than an MCC. A C2 value close to 3.0 
suggests that the condition is more similar to an MCC than a CC or a 
non-CC. A C2 value close to 2.0 suggests that the condition is more 
similar to a CC than a non-CC. The C2 value finding for diagnosis code 
584.8 of 1.89 supports classifying the severity level of this diagnosis 
code as a CC. Therefore, the C1 and C2 value findings support changing 
the severity level of diagnosis code 584.8 from an MCC to a lower 
severity level, that is, a CC. Our clinical advisors reviewed this 
issue and stated that this condition behaves as a CC. Therefore, they 
supported changing the severity level of this diagnosis code to a CC. 
Based on the clinical analysis and consistent with supporting claims 
data, we believe that the severity level of diagnosis code 584.8 should 
be changed from an MCC to a CC. Therefore, in the FY 2013 IPPS/LTCH PPS 
proposed rule, we proposed to change the severity level of diagnosis 
code 584.8 from an MCC to a CC for FY 2013. We invited public comment 
on our proposal.
    Comment: Commenters stated CMS' proposed change to the severity 
level of diagnosis code 584.8 from an MCC to a CC was reasonable, given 
the data and information provided.
    Response: We appreciate the support of the commenters for our 
proposal.
    Comment: One commenter opposed the proposal to change the severity 
level of diagnosis code 584.8 from an MCC to a CC. The commenter stated 
that this downgrade penalizes hospitals willing to take on sicker 
patients because additional care is required to treat patients with 
this condition. The commenter stated that this change would also hurt 
hospitals whose clinical documentation staff, in conjunction with 
providers, perform the additional work of identifying the underlying 
cause of the kidney failure.
    Response: Information from our claims data does not support the 
commenter's statement that these are sicker patients who should be 
classified at the MCC severity level. As discussed above, our claims 
data suggests that code 584.8 is more appropriately classified as a CC. 
The C1 finding of 0.98 suggests that this code is more like a non-CC 
than an MCC. The C2 finding of 1.89 supports classifying this code as 
either a non-CC or CC. Therefore, the C1 and C2 findings support 
changing code 584.8 from an MCC to a lower severity level. Our clinical 
advisors reviewed this issue and support changing the severity level of 
this code to a CC. Our clinical analysis and consistent claims data 
support changing code 584.8 from an MCC to CC.
    We disagree with the commenter's statement that this severity level 
change would hurt hospitals whose clinical documentation staff, in 
conjunction with providers, perform the additional work of identifying 
the underlying cause of the kidney failure. CMS supports improved 
documentation practices by providers, which leads to better patient 
care. Providers should consistently work on improved clinical 
documentation for all patients, not just those who have a secondary 
diagnosis on the MCC list. We do not agree that changing the severity 
level of procedure code 584.8 hurts hospitals who attempt to improve 
the clinical document in their medical records.
    After consideration of the public comments we received, we are 
finalizing our proposal to change the severity level of diagnosis code 
584.8 from an MCC to a CC.
(F) Pressure Ulcer, Unstageable
    We received a request to consider changing the severity level for 
diagnosis code 707.25 (Pressure ulcer, unstageable) from its current 
classification as a non-CC to an MCC. This issue was referred to as an 
out-of-scope public comment in the FY 2012 IPPS/LTCH PPS final rule (76 
FR 51557), but was not addressed in that rule.
    For the FY 2013 IPPS/LTCH PPS proposed rule (77 FR 27910), we 
analyzed claims data for diagnosis code 707.25 from the FY 2011 MedPAR 
file according to the process and approach described above. The 
following table illustrates our findings:

--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                 Cnt 1                   Cnt 2                   Cnt 3
                 Code                      Diagnosis description       CC level      Cnt 1      Impact       Cnt 2      Impact       Cnt 3      Impact
--------------------------------------------------------------------------------------------------------------------------------------------------------
707.25...............................  Pressure ulcer, unstageable..       Non-CC     1,839        1.87       7,161        2.46      13,285        3.08
--------------------------------------------------------------------------------------------------------------------------------------------------------

    As discussed above, a C1 value close to 2.0 suggests the condition 
is more similar to a CC than a non-CC severity level but not as 
significant in resource usage as an MCC. The C1 value finding of 1.87 
for diagnosis code 707.25, which is near but not that close to a 2.0, 
suggests that this code is more similar to a CC than an MCC. A C2 value 
of close to 3.0 suggests the condition is more similar to an MCC than a 
CC or non-CC. The C2 value finding for diagnosis code 707.25 is 2.46, 
which is not close to 3.0 and, therefore, the data do not support 
classifying this as an MCC. The C1 and C2 findings are more supportive 
of a classification as a CC than an MCC. There is another problem with 
this request to change diagnosis code 707.25 from a non-CC to an MCC. 
Currently, only stages III and IV pressure ulcers are MCCs. This 
unstageable code captures a pressure ulcer whose stage has not been 
determined. It would be inappropriate to assume that a pressure ulcer 
reported with diagnosis code 707.25 might be a stage III or IV pressure 
ulcer. Our claims data C1 and C2 findings do not support the fact that 
this code acts as an MCC. As mentioned earlier, the claims data are 
more supportive of a classification as a CC than an MCC. We asked our 
clinical advisors to review this issue. Our clinical advisors agree 
that the data findings and their own clinical evaluation support not 
changing the severity level of this diagnosis code to a CC or an MCC. 
Our clinical advisors

[[Page 53320]]

recommend that unstageable pressure ulcers should continue to be 
classified as a non-CC because the stage is not clearly designated as a 
stage III or IV. Unstageable codes do not delineate what the stage of 
the ulcer might be. As a result of our data analysis as well as the 
advice of our clinical advisors, we believe that unstageable pressure 
ulcers should continue to be classified as a non-CC. Therefore, we 
proposed that diagnosis code 707.25 remain a non-CC for FY 2013.
    We invited public comment on our proposal not to change the 
severity level for diagnosis code 707.25 for FY 2013.
    Comment: Several commenters supported our proposal not to change 
the severity level for diagnosis code 707.25. The commenters stated the 
proposal seems reasonable, given the data and information provided.
    Response: We appreciate the support of the commenters.
    Comment: One commenter questioned whether a ``not examined ulcer'' 
would be classified the same as unstageable. The commenter stated that 
an ulcer should not be classified as unstageable simply because it was 
not examined.
    Response: If a pressure ulcer is documented in the medical record 
and the stage is unspecified, code 707.20 (Pressure ulcer, unspecified 
stage) would be assigned.
    Comment: Some commenters did not support our proposal. The 
commenters pointed out that the National Pressure Ulcer Advisory Panel 
defines unstageable pressure ulcers as at least a stage III pressure 
ulcer and suggested that the resource expenditures associated with 
treating this condition would meet the definition of an MCC. Another 
commenter recommended that the severity level for code 707.25 be 
changed to a CC.
    Response: Based on the data and our analysis presented above, we 
concluded that diagnosis code 707.25 did not warrant a change to the 
severity level. Our clinical advisors recommend that unstageable 
pressure ulcers should continue to be classified as a non-CC because 
the stage is not clearly designated as a stage III or IV. Without 
knowing the stage of the ulcer, an assumption should not be made.
    After consideration of the public comments we received, we are 
finalizing our proposal to not change the severity level for code 
707.25 for FY 2013.
    For FY 2013, we proposed changes to Table 6G (Additions to the CC 
Exclusion List). As we discussed earlier, we are finalizing our 
proposed changes to the severity level for diagnosis codes 263.0, 
263.1, and 440.4 from a non-CC to a CC. There are no proposed and 
finalized changes to Table 6H (Deletions to the CC Exclusion List). 
These tables, which contain codes that are effective for discharges 
occurring on or after October 1, 2012, are not being published in the 
Addendum to this final rule because of the length of the two tables. 
Instead, we are making them available through the Internet on the CMS 
Web site at: http://www.cms.hhs.gov/Medicare/Medicare-Fee-for-Service-
Payment/AcuteInpatientPPS/index.html. Each of these principal diagnoses 
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, 2011, the indented 
diagnoses were not recognized by the GROUPER as valid CCs for the 
asterisked principal diagnosis.
    To assist readers in identifying the changes to the MCC and CC 
lists that occur as a result of our review of severity levels for 
several ICD-9-CM diagnosis codes, we are providing the following 
summaries of those MCC and CC changes for FY 2013. There are no new, 
revised, or deleted diagnosis codes for FY 2013. Therefore, there are 
no Tables 6A, 6C, and 6E published for FY 2013.

Summary of Additions to the MS-DRG MCC List--Table 6I.1

    There are no additions to the MS-DRG MCC List.

                                                Summary of Deletions From the MS-DRG MCC List--Table 6I.2
--------------------------------------------------------------------------------------------------------------------------------------------------------
                     Code                                                                      Description
--------------------------------------------------------------------------------------------------------------------------------------------------------
584.8.........................................  Acute kidney failure with other specified pathological lesion in kidney.
--------------------------------------------------------------------------------------------------------------------------------------------------------

                                                 Summary of Additions to the MS-DRG CC List--Table 6J.1
--------------------------------------------------------------------------------------------------------------------------------------------------------
                     Code                                                                      Description
--------------------------------------------------------------------------------------------------------------------------------------------------------
263.0.........................................  Malnutrition of moderate degree.
263.1.........................................  Malnutrition of mild degree.
440.4.........................................  Chronic total occlusion of artery of the extremities.
584.8.........................................  Acute kidney failure with other specified pathological lesion in kidney.
--------------------------------------------------------------------------------------------------------------------------------------------------------

Summary of Deletions From the MS-DRG CC List--Table 6J.2

    There are no deletions from the MS-DRG CC list.
    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 29.0, is available on a CD 
for $225.00. Version 30.0 of this manual, which will include the final 
FY 2013 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.
8. 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

[[Page 53321]]

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.\14\
---------------------------------------------------------------------------

    \14\ The original list of the ICD-9-CM procedure codes for the 
procedures we consider nonextensive procedures, if performed with an 
unrelated principal diagnosis, was published in Table 6C in section 
IV. of the Addendum to the FY 1989 final rule (53 FR 38591). As part 
of the FY 1991 final rule (55 FR 36135), the FY 1992 final rule (56 
FR 43212), the FY 1993 final rule (57 FR 23625), the FY 1994 final 
rule (58 FR 46279), the FY 1995 final rule (59 FR 45336), the FY 
1996 final rule (60 FR 45783), the FY 1997 final rule (61 FR 46173), 
and the FY 1998 final rule (62 FR 45981), we moved several other 
procedures from DRG 468 to DRG 477, and some procedures from DRG 477 
to DRG 468. No procedures were moved in FY 1999, as noted in the 
final rule (63 FR 40962); in FY 2000 (64 FR 41496); in FY 2001 (65 
FR 47064); or in FY 2002 (66 FR 39852). In the FY 2003 final rule 
(67 FR 49999) we did not move any procedures from DRG 477. However, 
we did move procedure codes from DRG 468 and placed them in more 
clinically coherent DRGs. In the FY 2004 final rule (68 FR 45365), 
we moved several procedures from DRG 468 to DRGs 476 and 477 because 
the procedures are nonextensive. In the FY 2005 final rule (69 FR 
48950), we moved one procedure from DRG 468 to 477. In addition, we 
added several existing procedures to DRGs 476 and 477. In the FY 
2006 (70 FR 47317), we moved one procedure from DRG 468 and assigned 
it to DRG 477. In FY 2007, we moved one procedure from DRG 468 and 
assigned it to DRGs 479, 553, and 554. In FYs 2008, 2009, FY 2010, 
FY 2011, and FY 2012, no procedures were moved, as noted in the FY 
2008 final rule with comment period (72 FR 46241); the FY 2009 final 
rule (73 FR 48513); the FY 2010 final rule (74 FR 43796); the FY 
2011 final rule (75 FR 50122); and the FY 2012 final rule (76 FR 
51549).
---------------------------------------------------------------------------

    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 2013, we did not propose to change the 
procedures assigned among these MS-DRGs.
    We did not receive any public comments on our proposal. Therefore, 
as we proposed, we are not making any changes to the procedures 
assigned to MS-DRGs 981 through 983, MS-DRGs 984 through 986, and MS-
DRGs 987 through 989 for FY 2013.
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 2013, we did not propose to remove any procedures from MS-DRGs 981 
through 983 or MS-DRGs 987 through 989 into one of the surgical MS-DRGs 
for the MDC into which the principal diagnosis is assigned.
    We did not receive any public comments on our proposal. Therefore, 
as we proposed, we are not making any changes to the procedures 
assigned to MS-DRGs 981 through 983 or MS-DRGs 987 through 989 for FY 
2013.
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 2013, we did not 
propose to move any procedure codes among these MS-DRGs.
    We did not receive any public comments on our proposal. Therefore, 
as we proposed, we are not moving any procedures assigned to MS-DRGs 
981 through 983, MS-DRGs 984 through 986, and MS-DRGs 987 through 989 
for FY 2013.

[[Page 53322]]

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 4. of this preamble, we did not propose to add 
any diagnosis or procedure codes to MDCs for FY 2013. We did not 
receive any public comments on our proposal. Therefore, as we proposed, 
we are not adding any diagnosis or procedure codes to MDCs for FY 2013.
9. Changes to the ICD-9-CM Coding System, Including Discussion of the 
Replacement of the ICD-9-CM Coding System With the ICD-10-CM and ICD-
10-PCS Systems in FY 2014
a. ICD-9-CM Coding System
    The ICD-9-CM is a coding system currently used for the reporting of 
diagnoses and procedures performed on a patient. In September 1985, the 
ICD-9-CM Coordination and Maintenance Committee was formed. This is a 
Federal interdepartmental committee, co-chaired by the National Center 
for Health Statistics (NCHS), the Centers for Disease Control and 
Prevention, and CMS, charged with maintaining and updating the ICD-9-CM 
system. The Committee is jointly responsible for approving coding 
changes, and developing errata, addenda, and other modifications to the 
ICD-9-CM to reflect newly developed procedures and technologies and 
newly identified diseases. The Committee is also responsible for 
promoting the use of Federal and non-Federal educational programs and 
other communication techniques with a view toward standardizing coding 
applications and upgrading the quality of the classification system.
    The Official Version of the ICD-9-CM contains the list of valid 
diagnosis and procedure codes. (The Official Version of the ICD-9-CM is 
available from the Government Printing Office on CD-ROM for $29.00 by 
calling (202) 512-1800.) Complete information on ordering the CD-ROM is 
also available at: http://www.cms.hhs.gov/ICD9ProviderDiagnosticCodes/05CDROM.asp#TopOfPage. The Official Version of the ICD-9-CM is no 
longer available in printed manual form from the Federal Government; it 
is only available on CD-ROM. Users who need a paper version are 
referred to one of the many products available from publishing houses.
    The NCHS has lead responsibility for the ICD-9-CM diagnosis codes 
included in the Tabular List and Alphabetic Index for Diseases, while 
CMS has lead responsibility for the ICD-9-CM procedure codes included 
in the Tabular List and Alphabetic Index for Procedures.
    The Committee encourages participation in the above process by 
health-related organizations. In this regard, the Committee holds 
public meetings for discussion of educational issues and proposed 
coding changes. These meetings provide an opportunity for 
representatives of recognized organizations in the coding field, such 
as the American Health Information Management Association (AHIMA), the 
American Hospital Association (AHA), and various physician specialty 
groups, as well as individual physicians, health information management 
professionals, and other members of the public, to contribute ideas on 
coding matters. After considering the opinions expressed at the public 
meetings and in writing, the Committee formulates recommendations, 
which then must be approved by the agencies.
    The Committee presented proposals for coding changes for 
implementation in FY 2013 at a public meeting held on September 14, 
2011 and finalized the coding changes after consideration of comments 
received at the meetings and in writing by November 18, 2011.
    The Committee held its 2012 meeting on March 5, 2012. New codes for 
which there was consensus of public support and for which complete 
tabular and indexing changes were made by May 2012 are included in the 
October 1, 2012 update to ICD-9-CM. Code revisions that were discussed 
at the March 5, 2012 Committee meeting but that could not be finalized 
in time to include them in the tables listed in section VI. of the 
Addendum to the proposed rule are included in Table 6B which is listed 
in section VI. of the Addendum to this final rule and available via the 
Internet on the CMS Web site, and are marked with an asterisk (*).
    In the FY 2013 IPPS/LTCH PPS proposed rule (77 FR 27912), we stated 
that, for FY 2013, there were no changes to the ICD-9-CM coding system 
due to the partial code freeze or for new technology. However, at the 
March 5, 2012 meeting there was a request for a code for a new 
technology. As discussed below, only codes for new technologies or new 
diagnoses are being considered during the partial code freeze. After 
discussions at the meeting and public comment received after the 
meeting, it was decided that there will be one new procedure code 
effective October 1, 2012: new code 00.95 (Injection or infusion of 
glucarpidase).
    Therefore, there are no new, revised, or deleted diagnosis codes 
and no revised or deleted procedure codes that are usually announced in 
Tables 6A (New Diagnosis Codes), 6C (Invalid Diagnosis Codes), 6D 
(Invalid Procedure Codes), 6E (Revised Diagnosis Code Titles), and 6F 
(Revised Procedure Codes). The new procedure code is listed in Table 6B 
(New Procedure Codes) for this final rule, which is available via the 
Internet on the CMS Web site.
    Copies of the minutes of the procedure codes discussions at the 
Committee's September 14, 2011 meeting and March 5, 2012 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 14, 2011 meeting and March 
5, 2012 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

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for the addition of new diagnosis and procedure codes on April 1 of 
each year, but the addition of such codes shall not require the 
Secretary to adjust the payment (or diagnosis-related group 
classification) * * * until the fiscal year that begins after such 
date.'' This requirement improves the recognition of new technologies 
under the IPPS system by providing information on these new 
technologies at an earlier date. Data will be available 6 months 
earlier than would be possible with updates occurring only once a year 
on October 1.
    While section 1886(d)(5)(K)(vii) of the Act states that the 
addition of new diagnosis and procedure codes on April 1 of each year 
shall not require the Secretary to adjust the payment, or DRG 
classification, under section 1886(d) of the Act until the fiscal year 
that begins after such date, we have to update the DRG software and 
other systems in order to recognize and accept the new codes. We also 
publicize the code changes and the need for a mid-year systems update 
by providers to identify the new codes. Hospitals also have to obtain 
the new code books and encoder updates, and make other system changes 
in order to identify and report the new codes.
    The ICD-9-CM Coordination and Maintenance Committee holds its 
meetings in the spring and fall in order to update the codes and the 
applicable payment and reporting systems by October 1 of each year. 
Items are placed on the agenda for the ICD-9-CM Coordination and 
Maintenance Committee meeting if the request is received at least 2 
months prior to the meeting. This requirement allows time for staff to 
review and research the coding issues and prepare material for 
discussion at the meeting. It also allows time for the topic to be 
publicized in meeting announcements in the Federal Register as well as 
on the CMS Web site. The public decides whether or not to attend the 
meeting based on the topics listed on the agenda. Final decisions on 
code title revisions are currently made by March 1 so that these titles 
can be included in the IPPS proposed rule. A complete addendum 
describing details of all changes to ICD-9-CM, both tabular and index, 
is published on the CMS and NCHS Web sites in May of each year. 
Publishers of coding books and software use this information to modify 
their products that are used by health care providers. This 5-month 
time period has proved to be necessary for hospitals and other 
providers to update their systems.
    A discussion of this timeline and the need for changes are included 
in the December 4-5, 2005 ICD-9-CM Coordination and Maintenance 
Committee minutes. The public agreed that there was a need to hold the 
fall meetings earlier, in September or October, in order to meet the 
new implementation dates. The public provided comment that additional 
time would be needed to update hospital systems and obtain new code 
books and coding software. There was considerable concern expressed 
about the impact this new April update would have on providers.
    In the FY 2005 IPPS final rule, we implemented section 
1886(d)(5)(K)(vii) of the Act, as added by section 503(a) of Public Law 
108-173, by developing a mechanism for approving, in time for the April 
update, diagnosis and procedure code revisions needed to describe new 
technologies and medical services for purposes of the new technology 
add-on payment process. We also established the following process for 
making these determinations. Topics considered during the Fall ICD-9-CM 
Coordination and Maintenance Committee meeting are considered for an 
April 1 update if a strong and convincing case is made by the requester 
at the Committee's public meeting. The request must identify the reason 
why a new code is needed in April for purposes of the new technology 
process. The participants at the meeting and those reviewing the 
Committee meeting summary report are provided the opportunity to 
comment on this expedited request. All other topics are considered for 
the October 1 update. Participants at the Committee meeting are 
encouraged to comment on all such requests. There were no requests 
approved for an expedited April 1, 2012 implementation of an ICD-9-CM 
code at the September 14, 2011 Committee meeting. Therefore, there were 
no new ICD-9-CM codes implemented on April 1, 2012.
    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. 
Thus, although we publish the code titles in the IPPS proposed and 
final rules, they are not subject to comment in the proposed or final 
rules. We will continue to publish the October code updates in this 
manner within the IPPS proposed and final rules. For codes that are 
implemented in April, we will assign the new procedure code to the same 
MS-DRG in which its predecessor code was assigned so there will be no 
MS-DRG impact as far as MS-DRG assignment. Any midyear coding updates 
will be available through the Web sites indicated above and through the 
Coding Clinic for ICD-9-CM. Publishers and software vendors currently 
obtain code changes through these sources in order to update their code 
books and software systems. We will strive to have the April 1 updates 
available through these Web sites 5 months prior to implementation 
(that is, early November of the previous year), as is the case for the 
October 1 updates.
b. Code Freeze
    The International Classification of Diseases, 10th Revision (ICD-
10) coding system applicable to hospital inpatient services is 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 proposed rule that would delay, 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 proposed rule, CMS-0040-P, went on display at the Office 
of the Federal Register on April 9, 2012, and was published in the 
Federal Register on April 17, 2012 (77 FR 22950) and is available for 
viewing at: http://www.gpo.gov/fdsys/browse/collection.action?collectionCode=FR.

[[Page 53324]]

    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. There was an announcement at the September 15-16, 2010 and 
September 14, 2011 ICD-9-CM Coordination and Maintenance Committee 
meetings 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, 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, 2013, 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, 2013, as the system would no longer 
be a HIPAA standard and, therefore, no longer be used for reporting. 
With the proposed ICD-10 implementation delay, there will be only 
limited code updates to both ICD-9-CM and ICD-10 to capture new 
technology and new diagnoses on October 1, 2013.
     On October 1, 2014, regular updates to ICD-10 were to 
begin. As stated earlier, HHS has issued a proposed rule that would 
delay the compliance date of ICD-10 from October 1, 2013, to October 1, 
2014. If this delay is implemented as proposed, there would be only 
limited ICD-10 code updates for new technologies and new diseases on 
October 1, 2014. There would 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. Full ICD-10 updates would begin on 
October 1, 2015, one year after the implementation of ICD-10.
    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, 2014, 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.gov/Medicare/Coding/ICD9ProviderDiagnosticCodes/index.html?redirect=/
icd9ProviderDiagnosticCodes/03.asp#TopOfPage. A summary of the 
September 14, 2011 Committee meeting, along with both written and audio 
transcripts of this meeting, are posted on the ``Download'' section of 
this Web page.
    Comment: Several commenters expressed concern about the delay in 
the implementation of ICD-10. Some commenters supported a delay, while 
others opposed any delay.
    Response: Proposals on ICD-10 implementation are being addressed 
through a separate rulemaking as we have indicated above. These 
comments will be addressed as part of that separate rulemaking.
c. Processing of 25 Diagnosis Codes and 25 Procedure Codes on Hospital 
Inpatient Claims
    CMS is currently processing all 25 diagnosis codes and 25 procedure 
codes submitted on electronic hospital inpatient claims. Prior to 
January 1, 2011, hospitals 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 
issued a proposed rule that would delay the compliance date of ICD-10 
from October 1, 2013 to October 1, 2014. 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

[[Page 53325]]

CMS Web site at: http://www.cms.gov/ICD10/17_ICD10_MS_DRG_Conversion_Project.asp. 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 at: http://www.cms.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.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://www.cms.gov/ICD10/17_ICD10_MS_DRG_Conversion_Project.asp. 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-DRGs 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.
    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 is posted on the CMS ICD-10 
MS-DRG conversion Web site at: http://www.cms.gov/ICD10/17_ICD10_MS_DRG_Conversion_Project.asp. The paper describes 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 paper was distributed and discussed at 
the September 15, 2010 ICD-9-CM Coordination and Maintenance Committee. 
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. For detailed information on this study, we refer 
readers to the complete report which is posted on the CMS Web site at: 
http://www.cms.gov/ICD10/17_ICD10_MS_DRG_Conversion_Project.asp.
    CMS provided an overview of this hospital payment impact study at 
the March 5, 2012 ICD-9-CM Coordination and Maintenance Committee 
meeting. This presentation followed presentations on the creation of 
ICD-10 MS-DRGs Version 29.0. A summary report of this meeting can be 
found on the CMS Web site at: http://www.cms.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 will provide 
additional information to the public as CMS is evaluating refinements 
made to the ICD-10 MS-DRGs based on public comments.
    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.
10. Public Comments on Issues Not Addressed in the Proposed Rule
    We received a number of public comments regarding MS-DRG issues 
that were outside of the scope of the proposals included in the FY 2013 
IPPS/LTCH PPS proposed rule. We have summarized these public comments 
below. However, because these public comments were outside of the scope 
of the proposed rule, we are not addressing them in this final rule. As 
stated in section II.G. of this preamble, we encourage individuals with 
comments about MS-DRG classifications to submit these comments no later 
than December of each year so they can be considered for possible 
inclusion in the annual proposed rule and, if included, may be 
subjected to public review and comment. We will consider these comments 
for possible proposals in future rulemaking as part of our annual 
review process.
    Some commenters requested that CMS create a new MS-DRG for total 
ankle replacement procedures. One commenter requested that CMS 
eliminate the severity levels for heart and liver transplants and 
implement one MS-DRG for heart transplants and one MS-DRG for liver 
transplants.
    One commenter requested that CMS conduct an analysis of diagnosis 
code V45.88 (Status post administration of tPA (rt-PA) in a different 
facility within the last 24 hours prior to admission to current 
facility) to determine whether new data warrant any change in the MS-
DRG structure for these cases.
    One commenter recommended that bronchial valve procedures reported 
with ICD-9-CM 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), that 
are assigned to medical MS-DRGs 190 and 192 (Chronic Obstructive 
Pulmonary Disease with MCC, with CC, or without MCC/CC, respectively) 
be assigned instead to

[[Page 53326]]

surgical MS-DRGs 163 and 165 (Major Chest Procedures with MCC, with CC, 
or without MCC/CC, respectively).

H. Recalibration of MS-DRG Weights

1. Data Sources for Developing the Weights
    In developing the FY 2013 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 2011 MedPAR data used in this final rule include 
discharges occurring on October 1, 2010, through September 30, 2011, 
based on bills received by CMS through March 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 2011 MedPAR file used in calculating the 
relative weights includes data for approximately 10,804,695 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 March 31, 2012 
update of the FY 2011 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 
relative weights for FY 2013 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 (that is, for the calculation of the FY 2013 MS-DRG 
relative weights, we use data from the FY 2010 HCRIS, which are data 
from cost reports that began on or after October 1, 2009 and before 
October 1, 2010). However, during the development of this final rule, 
as was the case with the proposed rule, we have found that those cost 
reports in the FY 2010 HCRIS dataset with fiscal year begin dates that 
are on or after May 1, 2010, and before October 1, 2010, are not 
accessible. This is because cost reports with fiscal year begin dates 
of May 1, 2010, through September 30, 2010, were filed on the new cost 
report Form 2552-10, and cost reports filed on Form 2552-10 are not 
currently accessible in the HCRIS. However, because data from cost 
reports filed on Form 2552-10 are not currently available, to ensure 
that the FY 2013 MS-DRG relative weights are calculated with a dataset 
that is as comprehensive and accurate as possible, as we proposed, we 
are calculating the final FY 2013 MS-DRG relative weights with data 
from FY 2010 cost reports for providers with fiscal year begin dates of 
on or after October 1, 2009 and before May 1, 2010, and backfilling 
with data from FY 2009 cost reports for those providers that have 
fiscal year begin dates on or after May 1, 2010 through September 30, 
2010. We used cost report data from the March 31, 2012 update of the 
HCRIS for FY 2009 and FY 2010 in calculating the FY 2013 cost-based 
relative weights.
2. Methodology for Calculation of the Relative Weights
    The methodology we used to calculate the FY 2013 MS-DRG cost-based 
relative weights based on claims data in the FY 2011 MedPAR file and 
data from the FY 2009 and FY 2010 Medicare cost reports is as follows:
     To the extent possible, all the claims were regrouped 
using the proposed FY 2013 MS-DRG classifications discussed in sections 
II.B. and G. of the preamble of this final rule.
     The transplant cases that were used to establish the 
relative weights for heart and heart-lung, liver and/or intestinal, and 
lung transplants (MS-DRGs 001, 002, 005, 006, and 007, respectively) 
were limited to those Medicare-approved transplant centers that have 
cases in the FY 2010 MedPAR file. (Medicare coverage for heart, heart-
lung, liver and/or intestinal, and lung transplants is limited to those 
facilities that have received approval from CMS as transplant centers.)
     Organ acquisition costs for kidney, heart, heart-lung, 
liver, lung, pancreas, and intestinal (or multivisceral organs) 
transplants continue to be paid on a reasonable cost basis. Because 
these acquisition costs are paid separately from the prospective 
payment rate, it is necessary to subtract the acquisition charges from 
the total charges on each transplant bill that showed acquisition 
charges before computing the average cost for each MS-DRG and before 
eliminating statistical outliers.
     Claims with total charges or total lengths of stay less 
than or equal to zero were deleted. Claims that had an amount in the 
total charge field that differed by more than $10.00 from the sum of 
the routine day charges, intensive care charges, pharmacy charges, 
special equipment charges, therapy services charges, operating room 
charges, cardiology charges, laboratory charges, radiology charges, 
other service charges, labor and delivery charges, inhalation therapy 
charges, emergency room charges, blood charges, and anesthesia charges 
were also deleted.
     At least 96.2 percent of the providers in the MedPAR file 
had charges for 10 of the 15 cost centers. Claims for providers that 
did not have charges greater than zero for at least 10 of the 15 cost 
centers were deleted.
     Statistical outliers were eliminated by removing all cases 
that were beyond 3.0 standard deviations from the 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

[[Page 53327]]

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. Thus, if the higher charges of these HAC claims are 
grouped into lower severity MS-DRGs prior to the relative weight-
setting process, the relative weights of these particular MS-DRGs would 
become artificially inflated, potentially skewing the relative weights. 
In addition, we want to protect the integrity of the budget neutrality 
process by ensuring that, in estimating payments, no increase to the 
standardized amount occurs as a result of lower overall payments in a 
previous year that stem from using weights and case-mix that are based 
on lower severity MS-DRG assignments. If this would occur, the 
anticipated cost savings from the HAC policy would be lost.
    To avoid these problems, we reset the POA indicator field to ``Y'' 
only for relative weight-setting purposes for all claims that otherwise 
have 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 15 cost groups for each claim were 
standardized to remove the effects of differences in area wage levels, 
IME and DSH payments, and for hospitals in Alaska and Hawaii, the 
applicable 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 15 
cost groups so that each MS-DRG had 15 standardized charge totals. 
These charges were then adjusted to cost by applying the national 
average CCRs developed from the FY 2009 and FY 2010 cost report data.
    The 15 cost centers that we used in the relative weight calculation 
are shown in the following table. The table shows the lines on the cost 
report and the corresponding revenue codes that we used to create the 
15 national cost center CCRs.
BILLING CODE 4120-01-P

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BILLING CODE 4120-01-C

[[Page 53340]]

3. Development of National Average CCRs
    We developed the national average CCRs as follows:
    Using the FY 2009 and FY 2010 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-4 and deriving the Medicare-specific 
costs by applying the hospital-specific departmental CCRs to the 
Medicare-specific charges for each line item from Worksheet D-4. Once 
each hospital's Medicare-specific costs were established, we summed the 
total Medicare-specific costs and divided by the sum of the total 
Medicare-specific charges to produce national average, charge-weighted 
CCRs.
    After we multiplied the total charges for each MS-DRG in each of 
the 15 cost centers by the corresponding national average CCR, we 
summed the 15 ``costs'' across each MS-DRG to produce a total 
standardized cost for the MS-DRG. The average standardized cost for 
each MS-DRG was then computed as the total standardized cost for the 
MS-DRG divided by the transfer-adjusted case count for the MS-DRG. The 
average cost for each MS-DRG was then divided by the national average 
standardized cost per case to determine the relative weight.
    The FY 2013 cost-based relative weights were then normalized by an 
adjustment factor of 1.5916044904 so that the average case weight after 
recalibration was equal to the average case weight before 
recalibration. The normalization adjustment is intended to ensure that 
recalibration by itself neither increases nor decreases total payments 
under the IPPS, as required by section 1886(d)(4)(C)(iii) of the Act.
    The 15 national average CCRs for FY 2013 are as follows:

------------------------------------------------------------------------
                          Group                                 CCR
------------------------------------------------------------------------
Routine Days............................................           0.514
Intensive Days..........................................           0.442
Drugs...................................................           0.199
Supplies & Equipment....................................           0.335
Therapy Services........................................           0.370
Laboratory..............................................           0.143
Operating Room..........................................           0.238
Cardiology..............................................           0.145
Radiology...............................................           0.136
Emergency Room..........................................           0.226
Blood and Blood Products................................           0.389
Other Services..........................................           0.397
Labor & Delivery........................................           0.450
Inhalation Therapy......................................           0.189
Anesthesia..............................................           0.109
------------------------------------------------------------------------

    Since FY 2009, the relative weights have been based on 100 percent 
cost weights based on our MS-DRG grouping system.
    When we recalibrated the DRG weights for previous years, we set a 
threshold of 10 cases as the minimum number of cases required to 
compute a reasonable weight. In the FY 2013 IPPS/LTCH PPS proposed rule 
(77 FR 27930), we proposed to use that same case threshold in 
recalibrating the MS-DRG weights for FY 2013. Using data from the FY 
2011 MedPAR file, there were 8 MS-DRGs that contain fewer than 10 
cases. Under the MS-DRGs, we have fewer low-volume DRGs than under the 
CMS DRGs because we no longer have separate DRGs for patients 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 2013, because we do not have sufficient MedPAR data to set 
accurate and stable cost weights for these low-volume MS-DRGs, we 
proposed to compute weights for the low-volume MS-DRGs by adjusting 
their FY 2012 weights by the percentage change in the average weight of 
the cases in other MS-DRGs. The crosswalk table is shown below:

------------------------------------------------------------------------
    Low[dash]Volume MS-DRG         MS-DRG Title     Crosswalk to MS-DRG
------------------------------------------------------------------------
768...........................  Vaginal Delivery   FY 2012 FR weight
                                 with O.R.          (adjusted by percent
                                 Procedure Except   change in average
                                 Sterilization      weight of the cases
                                 and/or D&C.        in other MS-DRGs).
789...........................  Neonates, Died or  FY 2012 FR weight
                                 Transferred to     (adjusted by percent
                                 Another Acute      change in average
                                 Care Facility.     weight of the cases
                                                    in other MS-DRGs).
790...........................  Extreme            FY 2012 FR weight
                                 Immaturity or      (adjusted by percent
                                 Respiratory        change in average
                                 Distress           weight of the cases
                                 Syndrome,          in other MS-DRGs).
                                 Neonate.
791...........................  Prematurity with   FY 2012 FR weight
                                 Major Problems.    (adjusted by percent
                                                    change in average
                                                    weight of the cases
                                                    in other MS-DRGs).
792...........................  Prematurity        FY 2012 FR weight
                                 without Major      (adjusted by percent
                                 Problems.          change in average
                                                    weight of the cases
                                                    in other MS-DRGs).
793...........................  Full-Term Neonate  FY 2012 FR weight
                                 with Major         (adjusted by percent
                                 Problems.          change in average
                                                    weight of the cases
                                                    in other MS-DRGs).
794...........................  Neonate with       FY 2012 FR weight
                                 Other              (adjusted by percent
                                 Significant        change in average
                                 Problems.          weight of the cases
                                                    in other MS-DRGs).
795...........................  Normal Newborn...  FY 2012 FR weight
                                                    (adjusted by percent
                                                    change in average
                                                    weight of the cases
                                                    in other MS-DRGs).
------------------------------------------------------------------------

[[Page 53341]]

    We did not receive any public comments on this section. In this 
final rule, we are adopting the national average CCRs as proposed 
without modification, with the MS-DRG weights recalibrated based on 
these CCRs.
4. Bundled Payments for Care Improvement (BPCI) Initiative
a. Background
    Section 3021 of the Affordable Care Act, codified at section 1115A 
of the Act, authorizes CMS to test innovative payment and service 
delivery models with the goal of reducing Medicare program expenditures 
while preserving or enhancing the quality of care furnished to 
individuals. Because initiatives established under this authority could 
result in IPPS hospitals receiving a payment different than what they 
otherwise would receive under the IPPS, we believe it is important to 
identify how these initiatives are addressed in the context of MS-DRG 
recalibration and ratesetting, budget neutrality, and the impact 
analysis in the Addendum of this final rule, as we did in the proposed 
rule.
    Under the Bundled Payments for Care Improvement (BPCI) initiative, 
CMS would link payments for multiple services that patients receive 
during an episode of care. CMS is working in partnership with providers 
to develop and test models of bundling payments through the BPCI 
initiative. On August 23, 2011, CMS invited providers to apply to help 
develop and test four different models of bundling payments. For 
additional information, we refer readers to the CMS Web site at: http://www.innovations.cms.gov/initiatives/Bundled-Payments/index.html. We 
are providing below a brief overview of payments under each model. 
However, the BPCI initiative Request for Application and related 
information on the CMS Web site at http://www.innovations.cms.gov/initiatives/Bundled-Payments/index.html/ provide more details of this 
initiative.
    As described below and also in the Addendum to the proposed rule 
and this final rule, we generally proposed to include, and for this 
final rule are including, data from hospitals participating in the BPCI 
initiative and to treat these hospitals without regard to their 
participation in the BPCI initiative for the purposes of IPPS 
ratesetting.
    We did not receive any public comments about our proposals. 
Therefore, as discussed in greater detail below, we are finalizing the 
treatment of hospitals participating in the BPCI initiative as 
proposed. For hospitals participating in Models 1, 2, and 4, we are 
finalizing treating these hospitals the same as prior fiscal years for 
purposes of the FY 2013 (and subsequent years) IPPS payment modeling 
and ratesetting process 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).
Model 1
    In Model 1, the episode of care is defined as the inpatient 
hospital services for the acute care hospital stay only. Applicants for 
this model were asked to propose discount percentages for various 
periods of the 3-year program, which would be applied to the IPPS 
operating MS-DRG payment for each participating hospital's MS-DRGs over 
the lifetime of the initiative. That is, for hospitals participating in 
Model 1, Medicare would continue to pay participating acute care 
hospitals under the IPPS. However, these payments to participating 
acute care hospitals would be at a reduced payment amount that reflects 
the applicable discount percentage for cases in all MS-DRGs for the 
specific period of the program. We note that an adjustment would be 
made such that payments for IME, DSH, and outliers would be calculated 
based on the nondiscounted MS-DRG operating IPPS payment amount and 
then paid, if applicable, in addition to the discounted MS-DRG 
operating IPPS payment. The minimum discount percentage that awardees 
are expected to offer would be phased in over time, with the discount 
percentage updated as frequently as every 6 months.
Model 2
    In Model 2, the episode of care is defined as the inpatient acute 
care hospital stay for specific clinical conditions and a specified 
period of time following discharge (with a minimum episode length of at 
least 30 days following hospital discharge). The payment bundle for 
Model 2 would encompass all Medicare Part A payments for designated MS-
DRGs, Part B professional services paid under the Medicare Physician 
Fee Schedule (MPFS) during the hospital stay, and related professional 
services furnished after discharge during the episode, ``related 
readmissions'' (as defined under the BPCI initiative), care by a 
postacute care provider such as an HHA, IRF, SNF, LTCH, and other 
related services furnished during the episode (that is, all Medicare 
Part A and Part B with the exception of hospice care). Applicants, 
which may be a Medicare supplier or provider, groups of such entities, 
or other organizations that bring together providers and suppliers to 
test the model, were asked to propose specific MS-DRG(s) for the 
clinical condition(s) to be tested in Model 2. Furthermore, the 
applicants were asked to propose the target price on an MS-DRG basis 
for the episode that includes a single rate of discount off of the 
expected Medicare payment (including hospital, postacute care, Medicare 
Part B professional services, and other services, as applicable) for 
all Model 2 beneficiaries discharged from the inpatient hospital stay 
with the specified MS-DRG(s). We note that, when proposing the target 
price, applicants were instructed to include IPPS outlier payments in 
their calculation; however, IPPS IME and DSH payments should be 
excluded from the target price. In Model 2, payments would be made at 
the usual fee-for-service payment rates to the participating providers 
through the regular claims processing system, after which the aggregate 
Medicare payment for the episode would be reconciled against the target 
price. If aggregate Medicare expenditures are less than the target 
price, the awardee would be paid the difference as a reconciliation 
payment. Conversely, if aggregate Medicare expenditures exceed the 
target price, CMS would recoup that amount from the awardee.
Model 3
    In Model 3, the episode of care begins at initiation of postacute 
services at one of four postacute care providers (HHAs, IRFs, SNFs, and 
LTCHs) within 30 days after discharge from any acute care hospital for 
specific clinical conditions. As with the other three models, 
applicants may be one or more Medicare providers or supplier or other 
organization(s) bringing those entities together to test the model. 
Applicants were asked to propose an episode length that would extend to 
at least 30 days following initiation of care at an HHA, IRF, SNF, or 
LTCH. The payment bundle for Model 3 would encompass care by a 
postacute care provider, and other related services furnished during 
the episode, including Medicare Part B professional services paid under 
the MPFS, and inpatient hospital readmissions (as defined under the 
BPCI initiative). In contrast to Model 2, the payment bundle for Model 
3 does not include services provided in the initial acute care hospital 
stay. We note that, while the episode is initiated at one of the four 
postacute care providers rather than at an acute care hospital, 
applicants were asked to specify the clinical condition(s) to be tested 
in Model 3 by proposing relevant MS-

[[Page 53342]]

DRG(s). Therefore, applicable to all Model 3 beneficiaries discharged 
from any inpatient acute care hospital stay with the specified MS-
DRG(s), applicants were to propose a target price on an MS-DRG basis 
for the episode that includes a single rate of discount off of the 
expected Medicare payment, which includes care by a postacute care 
provider, related Medicare Part B professional services paid under the 
MPFS, inpatient hospital readmissions, and other related services 
furnished during the episode. In Model 3, payments would be made at the 
usual fee-for-service payment rates to the participating providers 
through the regular claims processing process, after which the 
aggregate Medicare payment for the episode would be reconciled against 
the target price. Like Model 2, if aggregate Medicare expenditures are 
less than the target price, the awardee would be paid the difference as 
a reconciliation payment. Conversely, if aggregate Medicare 
expenditures exceed the target price, CMS would recoup that amount from 
the awardee. We note that Model 3 does address payment for related 
hospital readmissions.
Model 4
    In Model 4, the episode of care is defined as the acute care 
hospital stay and includes all ``related readmissions'' (as defined 
under the BPCI initiative). The payment bundle for Model 4 would 
encompass Medicare inpatient hospital services, Medicare Part B 
professional services paid under the MPFS furnished during the initial 
hospitalization, as well as hospital services and Medicare Part B 
professional services during any related readmissions. Applicants were 
asked to propose specific MS-DRG(s) for the clinical condition(s) to be 
tested in Model 4. Applicants for this model were asked to propose a 
target price for the episode that includes a single rate of discount 
off of expected Medicare payment (including both Medicare Part A 
hospital services and Part B professional services) for all 
beneficiaries discharged from the inpatient hospital stay with the 
specified MS-DRG(s).
    In contrast to Models 2 and 3, where usual Medicare fee-for-service 
payments are made to all providers and reconciliation of Medicare 
spending against the target price for the episode is conducted 
retrospectively, under Model 4, hospitals would receive a prospectively 
established bundled payment for specified MS-DRGs. This payment would 
include both the MS-DRG payment for the hospital and a fixed payment 
amount for the Medicare Part B professional services anticipated to be 
furnished during the episode. That is, separate payment for providers' 
professional services furnished during the inpatient hospital stay 
would not be made. Participating Model 4 hospitals receiving payment 
would take responsibility for distributing payment to providers that 
would otherwise be paid separately. We note that IPPS IME and DSH 
payments to Model 4 hospitals would be calculated based on the 
nondiscounted base MS-DRG operating IPPS payment that would have been 
made in the absence of the model. Other applicable payment adjustors 
would also be calculated based on the base MS-DRG operating IPPS 
payment amount that would otherwise have applied to the case, as 
opposed to the prospectively established amount paid through this 
initiative, which would be higher as it includes payment for Part B 
services as well as the base MS-DRG payment. Under Model 4, no separate 
IPPS outlier payments would be made.
b. Treatment of Data From Hospitals Participating in the BPCI 
Initiative
    As discussed above, acute care hospitals had the opportunity to 
apply and participate in the BPCI payment models described above. As we 
discussed in the FY 2013 IPPS/LTCH PPS proposed rule (77 FR 27932), for 
Model 1 and Model 2, participating acute care hospitals would continue 
to receive an IPPS payment under section 1886(d) of the Act (subject to 
a predetermined discount for hospitals participating in Model 1). For 
Model 2, participating hospitals may also receive a reconciliation 
payment under the BPCI initiative (based on their predetermined target 
price). Under Model 3, services provided in the initial acute care 
hospital stay are not included; however, the model does address payment 
for possible hospital readmissions. Under Model 1, hospitals 
participate for all MS-DRGs, while, under Model 2, hospitals 
participate for only pre-selected MS-DRGs. We believe it is appropriate 
to include all applicable data from these subsection(d) hospitals in 
our IPPS payment modeling and ratesetting calculations because these 
hospitals are still receiving IPPS payments under section 1886(d) of 
the Act (in addition to, with respect to Model 2 hospitals, any 
reconciliation payment the hospital may receive under the BPCI 
initiative). Moreover, even if these hospitals were not receiving IPPS 
payments under section 1886(d) of the Act (and were participating in 
Models 1 and 2), the Secretary has the authority to make appropriate 
adjustments for payment amounts under section 1886(d)(5)(I)(i) of the 
Act to include all applicable data from these subsection(d) hospitals 
in our IPPS ratesetting calculations. We believe it is appropriate to 
use the Secretary's authority under section 1886(d)(5)(I)(i) of the Act 
to include all IPPS, short-term, acute care hospitals within the IPPS 
ratesetting calculations because excluding these hospitals would 
diminish the number of providers used to determine the IPPS rates, 
which could cause fluctuations in the IPPS rates and could produce 
instability to the IPPS rates. Therefore, because we believe it is 
appropriate to include all claims from hospitals participating within 
Models 1 and 2 within the IPPS ratesetting calculations, using the 
Secretary's authority under section 1886(d)(5)(I)(i) of the Act, in the 
FY 2013 IPPS/LTCH PPS proposed rule (77 FR 27932), we proposed to 
include all applicable data from ``subsection (d)'' hospitals 
participating in Models 1 and 2 under the BPCI initiative in our IPPS 
payment modeling and ratesetting calculations (which includes 
recalibration of the MS-DRG weights, ratesetting, calculation of the 
budget neutrality factors, and the impact analysis). In essence, we 
proposed to continue to treat these hospitals the same as prior fiscal 
years for purposes of the FY 2013 (and subsequent years) IPPS payment 
modeling and ratesetting process without regard to a hospital's 
participation within these two bundled payment models (that is, we 
would treat these hospitals as if they are not participating in Model 1 
or Model 2 under the BPCI initiative). We did not receive any public 
comments on our proposal. Therefore, we are finalizing treating these 
hospitals the same as prior fiscal years for purposes of the FY 2013 
(and subsequent years) IPPS payment modeling and ratesetting process 
without regard to a hospital's participation within these two bundled 
payment models (that is, we would treat these hospitals as if they are 
not participating in Model 1 or Model 2 under the BPCI initiative), as 
we proposed.
    In contrast to BPCI Models 1 and 2 (wherein participating IPPS 
hospitals would receive an IPPS payment under section 1886(d) of the 
Act, and, in the case of Model 2, may also receive a reconciliation 
payment under the BPCI initiative), IPPS hospitals participating in 
Model 4 would receive a predetermined bundled payment for Medicare Part 
A and Part B services for a pre-specified MS-DRG ``episode'' (and any 
``related readmissions'' as defined under the BPCI initiative). These 
bundled payments are for certain pre-

[[Page 53343]]

specified MS-DRG(s) episodes (not all cases) and would be made in 
accordance with the terms of the model, as authorized by section 1115A 
of the Act (these IPPS hospitals would also receive ``regular'' IPPS 
payments under section 1886(d) of the Act for those MS-DRGs not 
included in the bundling model). Similar to Models 1 and 2, we believe 
it is appropriate to keep all applicable data from these ``subsection 
(d)'' hospitals in our IPPS payment modeling and ratesetting 
calculations because the majority of Medicare payments these hospitals 
would receive would be IPPS payments under section 1886(d) of the Act 
(that is, payments for cases in MS-DRGs that are not included in the 
bundled payment model). Moreover, although these hospitals are not 
receiving payments under 1886(d) of the Act for the cases included in 
the prospective bundled payment under Model 4, the Secretary has the 
authority to make appropriate adjustments for payment amounts at 
section 1886(d)(5)(I)(i) of the Act to include all applicable data from 
these subsection (d) hospitals in our IPPS ratesetting calculations. We 
believe it is appropriate to use the Secretary's authority under 
section 1886(d)(5)(I)(i) of the Act to include all IPPS, short-term, 
acute care hospitals and their claims within the IPPS ratesetting 
calculations because excluding these hospitals would diminish the 
number of providers used to determine the IPPS rates, which could cause 
fluctuations in the IPPS rates and could produce instability to the 
IPPS rates. Therefore, because we believe it is appropriate to include 
all claims from hospitals participating within Models 1 and 2 within 
the IPPS ratesetting calculations and use the Secretary's authority 
under section 1886(d)(5)(I)(i) of the Act to include those hospitals 
and claims, we also believe it is appropriate to include all applicable 
data from subsection (d) hospitals participating in Model 4 in our IPPS 
payment modeling and ratesetting calculations (which includes 
recalibration of the MS-DRG weights, ratesetting, calculation of the 
budget neutrality factors, and the impact analysis) and proposed to do 
so in the FY 2013 IPPS/LTCH PPS proposed rule (77 FR 27932 through 
27933). In essence, we proposed to continue to treat these hospitals 
the same as prior fiscal years for purposes of the FY 2013 (and 
subsequent years) IPPS payment modeling and ratesetting process without 
regard to a hospital's participation within this bundled payment model 
(that is, we would treat these hospitals as if they are not 
participating in Model 4 under the BPCI initiative). We did not receive 
any public comments on our proposal. Therefore, we are finalizing 
treating these hospitals the same as prior fiscal years for purposes of 
the FY 2013 (and subsequent years) IPPS payment modeling and 
ratesetting process without regard to a hospital's participation within 
these two bundled payment models (that is, we would treat these 
hospitals as if they are not participating in Model 4 under the BPCI 
initiative), as we proposed.
    We note that Model 3 only addresses payments for related 
readmissions and postacute care services (rather than IPPS payments). 
Therefore, we believed it was not necessary to propose to address the 
treatment of any data for participating hospitals in Model 3. We 
continue to believe it is not necessary to address the treatment of any 
data for participating hospitals in Model 3. We did not receive any 
public comments on our decision not to propose to address the treatment 
of any data for participating hospitals in Model 3.
    Because we did not receive any public comments, we are finalizing 
the treatment of hospitals participating in the BPCI initiative as 
proposed. For hospitals participating in Models 1, 2, and 4, we are 
finalizing treating these hospitals the same as prior fiscal years for 
purposes of the FY 2013 (and subsequent years) IPPS payment modeling 
and ratesetting process 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).

I. Add-On Payments for New Services and Technologies

1. Background
    Sections 1886(d)(5)(K) and (L) of the Act establish a process of 
identifying and ensuring adequate payment for new medical services and 
technologies (sometimes collectively referred to in this section as 
``new technologies'') under the IPPS. Section 1886(d)(5)(K)(vi) of the 
Act specifies that a medical service or technology will be considered 
new if it meets criteria established by the Secretary after notice and 
opportunity for public comment. Section 1886(d)(5)(K)(ii)(I) of the Act 
specifies that a new medical service or technology may be considered 
for new technology add-on payment if, ``based on the estimated costs 
incurred with respect to discharges involving such service or 
technology, the DRG prospective payment rate otherwise applicable to 
such discharges under this subsection is inadequate.'' We note that 
beginning with 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. The regulations at 
42 CFR 412.88 also implement these provisions and describe the 
additional payment for the new medical service or technology. 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 42 CFR 412.87(b)(2), a 
specific medical service or technology will be considered ``new'' for 
purposes of new medical service or technology add-on payments until 
such time as Medicare data are available to fully reflect the cost of 
the technology in the MS-DRG weights through recalibration. 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 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

[[Page 53344]]

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 2012 IPPS/LTCH PPS final rule contains the final 
thresholds that we used to evaluate applications for new technology 
add-on payments for FY 2013 in this final rule. We refer readers to the 
Web site http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/FR2012/list.asp#TopOfPage for a complete viewing of 
Table 10 from the FY 2012 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 complete discussion of this criterion (66 FR 46902).
    The new medical service or technology add-on payment policy under 
the IPPS provides additional payments for cases with relatively high 
costs involving eligible new medical services or technologies while 
preserving some of the incentives inherent under an average-based 
prospective payment system. The payment mechanism is based on the cost 
to hospitals for the new medical service or technology. Under 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 for new medical services and technologies 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 
criterion, 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 of Clinical Standards and 
Quality (CCSQ) and the Director of the Center for Medicare (CM), who is 
also designated as the CTI's Executive Coordinator.
    The specific processes for coverage, coding, and payment are 
implemented by CM, CCSQ, and the local claims-payment contractors (in 
the case of local coverage and payment decisions). The CTI supplements, 
rather than replaces, these processes by working to assure that all of 
these activities reflect the agency-wide priority to promote high-
quality, innovative care. At the same time, the CTI also works to 
streamline, accelerate, and improve coordination of these processes to 
ensure that they remain up to date as new issues arise. To achieve its 
goals, the CTI works to streamline and create a more transparent coding 
and payment process, improve the quality of medical decisions, and 
speed patient access to effective new treatments. It is also dedicated 
to supporting better decisions by patients and doctors in using 
Medicare-covered services through the promotion of better evidence 
development, which is critical for improving the quality of care for 
Medicare beneficiaries.
    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 potential applicants, such as 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 and/or payment 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 2014 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

[[Page 53345]]

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 2014, 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 2013 prior 
to publication of the FY 2013 IPPS/LTCH PPS proposed rule, we published 
a notice in the Federal Register on November 18, 2011 (76 FR 71571 
through 71572), and held a town hall meeting at the CMS Headquarters 
Office in Baltimore, MD, on February 14, 2012. 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 2013 new medical service and 
technology add-on payment applications before the publication of the FY 
2013 proposed rule.
    Approximately 70 individuals registered to attend the town hall 
meeting in person, while additional individuals listened over an open 
telephone line. Four of the five FY 2013 applicants presented 
information on its technology, including a discussion of data 
reflecting the substantial clinical improvement aspect of the 
technology. We considered each applicant's presentation made at the 
town hall meeting, as well as written comments submitted on the 
applications that were received by the due date of March 6, 2012, in 
our evaluation of the new technology add-on payment applications for FY 
2013 in the proposed rule.
    In response to the published notice and the new technology town 
hall meeting, commenters submitted and presented public comments that 
were unrelated to the substantial clinical improvement criterion in 
regard to the new technology applications for FY 2013. We also received 
public comments on the proposed rule relating to topics such as 
marginal cost factors for new technology add-on payments, and the use 
of external data in determining the cost threshold and mapping new 
technologies to the appropriate MS-DRG. Because we did not request 
public comments nor propose to make any changes to any of the issues 
above, we are not summarizing these public comments nor responding to 
them in this final rule.
3. FY 2013 Status of Technology Approved for FY 2012 Add-On Payments: 
Auto Laser Interstitial Thermal Therapy (AutoLITT\TM\) System
    Monteris Medical submitted an application for new technology add-on 
payments for FY 2011 for the AutoLITT\TM\. AutoLITT\TM\ 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 AutoLITT\TM\ received a 510K FDA clearance in May 2009. The 
AutoLITT\TM\ is indicated for use to necrotize or coagulate soft tissue 
through interstitial irradiation or thermal therapy in medicine and 
surgery in the discipline of neurosurgery with 1064 nm lasers. The 
AutoLITT\TM\ may be used in patients with glioblastoma multiforme brain 
tumors. The applicant stated in its application and through 
supplemental information that, due to required updates, the technology 
was actually introduced to the market in December 2009. The applicant 
explained that it was necessary to reduce the thermal damage lines from 
three to one and complete International Electrotechnical Commission/
Underwriter Laboratory testing, which led to the introduction of the 
technology to the market in December 2009, although the technology was 
approved by FDA in May 2009. The applicant also stated through 
supplementary information to its application that the first sale of the 
product took place on March 19, 2010. However, because the product was 
already available for use in December 2009, it appears that the newness 
date would begin in December 2009. In the FY 2011 IPPS/LTCH PPS 
proposed rule, we welcomed public comments on this issue.
    After evaluation of the newness, costs, and substantial clinical 
improvement criteria for new technology payments for the AutoLITT\TM\ 
and consideration of the public comments we received in response to the 
FY 2011 IPPS/RY 2011 LTCH PPS proposed rule, including the additional 
analysis of clinical data and supporting information submitted by the 
applicant, we approved the AutoLITT\TM\ for new technology add-on 
payments for FY 2011. Consistent with the applicant's clinical trial, 
the add-on payment is intended only for use of the device in cases of 
glioblastoma multiforme. Therefore, we limited the new technology add-
on payment to cases involving the AutoLITT\TM\ in MS-DRGs 025 
(Craniotomy and Endovascular Intracranial Procedures with MCC), 026 
(Craniotomy and Endovascular Intracranial Procedures with CC), and 027 
(Craniotomy and Endovascular Intracranial Procedures without CC or 
MCC). Cases involving the AutoLITT\TM\ 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

[[Page 53346]]

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 AutoLITT\TM\ 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 AutoLITT\TM\ 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 AutoLITT\TM\ 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'' (42 CFR 
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). In the proposed rule, 
with regard to the newness criterion for the AutoLITT\TM\, we stated 
that we consider the beginning of the newness period for the device to 
commence from the market release date of December 2009. Therefore, for 
FY 2013, as of December 2012, the AutoLITT\TM\ will have been on the 
market for 3 years, and would therefore no longer be considered ``new'' 
as of December 2012 nor be considered eligible for new technology add-
on payments in FY 2013. However, we received information from the 
applicant that the market release date of the AutoLITT\TM\ occurred 
after April 2010 (which occurs in the latter half of the fiscal year) 
and, therefore, it appears that the AutoLITT\TM\ would still be 
considered ``new'' for FY 2013 and would still be eligible for new 
technology add-on payments in FY 2013. We note that we received this 
information in close proximity to the publication of the proposed rule 
and anticipated receiving further information on the delayed market 
release date from the applicant and welcomed public comment as well.
    Comment: The applicant submitted a public comment to demonstrate 
that the AutoLITT\TM\ was first available on May 11, 2010, which would 
make the AutoLITT\TM\ eligible for new technology add-on payments in FY 
2013 (because the 3-year anniversary date of AutoLITT\TM\ would take 
place in the latter half of the fiscal year). The manufacturer 
explained that some of the sterile disposable products were not 
released from quarantine until May 11, 2010, which prevented the 
AutoLITT\TM\ from being used prior to May 11, 2010. Therefore, the 
manufacturer asserted that the first time the AutoLITT\TM\ was 
available on the market was May 11, 2010.
    Response: We appreciate the manufacturer providing this information 
and we agree that the AutoLITT\TM\ is considered new as of May 11, 
2010, instead of December 2009. As stated above, in general, we extend 
new technology 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). Because the 3-year 
anniversary date of the AutoLITT\TM\ entry on the market occurs in the 
latter half of the fiscal year, we still consider the AutoLITT\TM\ to 
be new for FY 2013. Therefore, we are continuing to make new technology 
add-on payments for the AutoLITT\TM\ in FY 2013. We discuss the coding 
and payment policies for the AutoLITT\TM\ earlier in this section.
    Comment: Several public commenters recommended extending new 
technology add-on payments for the AutoLITT\TM\ in FY 2013.
    Response: As stated above, we still consider the AutoLITT\TM\ to be 
new for FY 2013, and will continue to make new technology add-on 
payments for the AutoLITT\TM\ in FY 2013.
4. FY 2013 Applications for New Technology Add-On Payments
    We received six applications for new technology add-on payments for 
FY 2013. However, two applicants withdrew their applications prior to 
the publication of the proposed rule.
a. Glucarpidase (Trade Brand Voraxaze[supreg])
    BTG International, Inc. (BTG) submitted an application for new 
technology add-on payments for Glucarpidase (trade brand 
Voraxaze[supreg]) for FY 2013. In the proposed rule, we summarized this 
application, and stated that Glucarpidase is used in the treatment of 
patients who have been diagnosed with toxic methotrexate (MTX) 
concentrations as a result of renal impairment. The administration of 
Glucarpidase causes a rapid and sustained reduction of toxic MTX 
concentrations.
    Methotrexate (MTX) is a widely used anticancer agent. The 
administration of high-dose methotrexate (HDMTX) is an important 
component of the treatment provided to patients who have been diagnosed 
with various types of cancer. According to the applicant, HDMTX, in 
particular, is specifically used in the treatment of patients who have 
been diagnosed with osteosarcoma, acute lymphoblastic leukemia, non-
Hodgkin's lymphoma, or primary CNS lymphoma. The applicant further 
stated that the administration of HDMTX can cause renal dysfunction. 
Renal dysfunction impairs the elimination of MTX, which in turn causes 
the levels of MTX to rise to the point of life-threatening toxicity.
    The applicant maintains that there are not any currently FDA-
approved pharmaceutical treatment options available to rapidly decrease 
MTX levels in patients who have been diagnosed with toxic MTX 
concentrations as a result of renal impairment. The applicant asserts 
that extracorporeal treatment options that are routinely employed to 
rapidly treat this condition, such as hemodialysis, hemodiafiltration, 
high-flux hemodialysis, charcoal hemoperfusion or hemofiltration, 
peritoneal dialysis, exchange transfusion, or plasma exchange, are 
invasive, may add excess morbidity to the treatment regimen, and have 
proven to have limited effects.\15\ High flux hemodialysis is the most 
effective method of extracorporeal MTX removal, but this method 
requires 5 to 6 days of daily treatment (4 to 6 hours per session).\16\ 
The risks associated with repeated hemodialysis procedures such as 
anemia, infection, and increased mortality, especially in neutropenic 
or thrombocytopenic patients, are significant and cause rebounds in MTX 
levels. The applicant maintains that other treatment options, such as 
the

[[Page 53347]]

administration of leucovorin, hydration, and urinary alkalinization, 
also are commonly used to reduce harmful levels of MTX. However, these 
treatment options do not reduce toxic MTX concentrations in all patient 
populations.\17\
---------------------------------------------------------------------------

    \15\ Widemann et al., [Cancer, 2004, and Vilay et al.,], 
Pharmacotherapy, Vol. 30, January, 2010).
    \16\ Wall et al., American Journal of Kidney Diseases, Vol. 28, 
No. 6, 1996.
    \17\ Pinedo et al, Cancer Research, 36, 4418-4424 December, 
1976.
---------------------------------------------------------------------------

    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 more 
detail below. Voraxaze[supreg] was available on the market in the 
United States as a commercial product to the larger population as of 
April 30, 2012.
    With regard to newness, in the proposed rule we expressed concern 
that Voraxaze[supreg] may no longer be considered ``new.'' 
Specifically, section 1886(d)(5)(K)(ii)(II) of the Act requires that we 
provide for the collection of cost data for a new medical service or 
technology for a period of at least 2 years and no more than 3 years 
``beginning on the date on which an inpatient hospital code is issued 
with respect to the service or technology''. In addition, the 
regulations at Sec.  412.87(b)(2) state 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 (depending on when a new code 
is assigned and data on the new service or technology become available 
for DRG recalibration). After CMS has recalibrated the DRGs, based on 
available data, to reflect the costs of an otherwise new medical 
service or technology, the medical service or technology will no longer 
be considered `new' under the criterion of this section.'' As we have 
indicated in the past, we generally believe that the newness period 
begins on the date that FDA approval is granted. The FDA approval date 
is typically the date when new technologies are available on the market 
and as a result begin to be reflected within the MS-DRGs cost data.
    As noted above, Voraxaze[supreg] was approved by the FDA in January 
2012. However, starting in 1993, certain patients were able to obtain 
access to Voraxaze[supreg] as an investigational drug through an 
expanded access program, and the applicant has been authorized to 
recover certain costs of making Voraxaze[supreg] available through its 
expanded access program since 2007. We discuss below in more detail 
whether the cost of Voraxaze[supreg] is already reflected within the 
MS-DRG relative weights.
    To determine the date of newness for Voraxaze[supreg], as we stated 
in the proposed rule, we believe it is appropriate to compare 
investigational drugs provided under the expanded access program to 
devices eligible for the Humanitarian Use Device (HUD) Program because 
these programs contain similarities for the purpose of evaluating the 
newness criterion.
    In prior final rules, we have evaluated and approved technologies 
with a Humanitarian Device Exemption (HDE) approval. In the FY 2010 
IPPS/LTCH PPS final rule, we approved new technology add-on payments 
for the Spiration[supreg] IBV[supreg], which received a HDE approval 
from the FDA on October 24, 2008, and had its first Institutional 
Review Board (IRB) approval on March 12, 2009 (74 FR 43754, 43819). 
Therefore, technologies with an HDE approval may be eligible for new 
technology add-on payments. In other words, we have concluded that HDE 
approval constitutes an FDA approval in the context of the newness 
criterion and would begin the newness period, subject to market 
availability.
    There are separate processes and standards for providing expanded 
access to investigational drugs for treatment use and for the HUD 
Program. The term ``expanded access'' refers to the use of 
investigational drugs, or approved drugs where availability is limited 
by a risk evaluation or mitigation strategy, when the primary purpose 
is to diagnose, monitor, or treat a patient's disease or condition. 
When the requirements in (FDA's regulations at) 21 CFR Part 312, 
Subpart I are met, a patient or group of patients with a serious or 
immediately life-threatening disease or condition, and no comparable or 
satisfactory alternative therapy, may obtain expanded access to an 
investigational drug. When patients obtain expanded access to an 
unapproved investigational drug, the safety and effectiveness of the 
drug have not been fully established, and the drug does not have formal 
FDA approval under a New Drug Application (NDA) or Biologics Licensing 
Application (BLA) for commercial marketing. Manufacturers may continue 
conducting clinical trials in parallel to the expanded access program 
in order to pursue formal market approval from the FDA under an NDA or 
BLA for commercial marketing. The FDA's Office of Orphan Products 
Development administers the Humanitarian Use Device (HUD) Program. A 
HUD is a device that is intended to benefit patients by treating or 
diagnosing a disease or condition that affects fewer than 4,000 
individuals in the United States per year. To obtain approval for a 
HUD, a HDE application is submitted to FDA. A HDE application is 
similar in both form and content to a Premarket Approval (PMA) 
application, but is exempt from the effectiveness requirements of a 
PMA. A HDE application must, however, contain sufficient information 
for FDA to determine that the device does not pose an unreasonable or 
significant risk of illness or injury, and that the probable benefit to 
health 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. An approved HDE authorizes 
marketing of the HUD, however, an HDE approval requires that the device 
only be used in facilities that have established a local IRB to 
supervise clinical testing of devices, and that an IRB approve the use 
of the device to treat or diagnose the specific disease. Although HUDs 
can be marketed, they are subject to a general prohibition on profit; 
that is, they may not, except in narrow circumstances, be sold for an 
amount that exceeds the cost of research and development, fabrication 
and distribution.
    Expanded access to investigational drugs and the HUD Program have 
similarities and differences that are relevant to the newness criterion 
as we stated in the proposed rule. Both have limits on who is eligible 
to receive a drug or use a device. In addition, to satisfy the 
requirements for expanded access in FDA's regulations, and for a HDE to 
meet the standard for approval, a sponsor is not required to 
demonstrate effectiveness of the product at the same level as for 
approval of a PMA, NDA, or BLA. Expanded access to investigational 
drugs and the HUD Program differ in many ways, including that the HUD 
Program is for devices, and the expanded access programs provide access 
to drugs. In addition, under the HUD Program, the device is granted FDA 
approval for limited use. However, while FDA authorizes expanded access 
to an investigational drug, FDA does not approve the investigational 
drug when it authorizes expanded access.
    This second difference is key to our interpretation of our policy 
to recognize a HDE approval as an FDA approval. We believe that the 
availability of a drug through the expanded access program

[[Page 53348]]

would not constitute FDA approval in the context of the newness 
criterion because unapproved, investigational drugs made available to 
certain patients through the expanded access program do not receive FDA 
approval prior to enrollment in the program and cannot be marketed. In 
other words, we believe that for the purposes of evaluating whether a 
new technology meets the newness criterion, it may be appropriate not 
to consider the date when Voraxaze[supreg] became available to certain 
patients through the applicant's expanded access program as the date of 
market availability.
    We note that cost recovery for investigational drugs is of concern 
with regard to the newness criterion. Although a sponsor (for example, 
a drug manufacturer) may not commercially distribute an investigational 
drug, in certain circumstances, a sponsor of a clinical trial or an 
expanded access program may receive authorization from FDA to charge 
for certain costs associated with making an investigational drug 
available. The applicant has been authorized to recover certain costs 
by making Voraxaze[supreg] available since 2007. As we stated earlier, 
once CMS has recalibrated the DRGs based on available data to reflect 
the costs of an otherwise new technology, that technology will no 
longer be considered ``new''' for the purposes of the new technology 
add-on payments. It is possible that a hospital may have submitted a 
claim to Medicare for the cost of Voraxaze[supreg] provided through the 
applicant's expanded access program. Therefore, it is also possible 
that the costs associated with this technology may already be reflected 
in some limited fashion in the data used to determine the MS-DRG 
relative weights. While these are possibilities, we have not in the 
past been confronted with a situation where an applicant has indicated 
that hospitals have sought cost recovery for their technology when the 
technology was available through the expanded access program. We also 
have not been confronted with a situation where an applicant has 
indicated that cost recovery was sought for technologies (that were not 
available via an expanded access program) during clinical trials. We 
note that our data do not distinguish charges for drugs by FDA approval 
status, and, therefore, we do not exclude from the relative weight 
calculation costs (as derived from charges) associated with 
investigational drugs if they are included by hospitals on a claim. 
Therefore, cost data for non-FDA approved technologies (that is, still 
involved in clinical trials) may be present in the relative weights on 
a very limited basis prior to FDA approval, regardless of whether a 
technology received new technology add-on payments.
    We invited public comment regarding the issue of whether a drug is 
considered ``new'' for the purposes of new technology add-on payments 
starting with its availability in the expanded access program, and how 
that may differ from devices being considered ``new'' starting from the 
date the device received FDA approval under a HDE (subject to market 
availability or availability to Medicare beneficiaries) and 
specifically requested comment on these considerations in the context 
of Voraxaze[supreg]. We also invited public comment on whether the 
costs of Voraxaze[supreg], or more generally, any unapproved 
investigational drug for which cost recovery is authorized are already 
included in data used to determine relative weights, and how that 
influences the start of a newness period, if at all. In addition, we 
invited public comment regarding the market availability of 
Voraxaze[supreg] between its FDA approval date of January 17, 2012, and 
the market availability date according to the applicant of April 2012 
and the reasons for the delay in availability.
    Comment: Several public commenters responded with opinions 
regarding whether Voraxaze[supreg] should be considered new for the 
purposes of new technology add-on payments. One commenter stated that 
Voraxaze[supreg] was available on a ``very limited basis'' since 1993, 
and recommended that it be considered ``new'' for the purpose of new 
technology add-on payments. The commenter also stated that because the 
manufacturer was only covering its costs under the expanded access 
program, existing charge data do not adequately reflect the ``true 
price'' of the technology. The commenter further noted that the 
frequency with which the technology is used is low, and that the 
associated relative weights are ``likely artificially low.''
    The applicant submitted information through the submittal of a 
public comment documenting that Voraxaze[supreg] was approved by the 
FDA in January 2012 and that marketing of Voraxaze did not begin until 
April 2012. The applicant added that the FDA's Office of Prescription 
Drug Promotion (OPDP) considers a product new from the point of initial 
marketing and promotion, stating that, ``OPDP generally considers that 
`new' is an accurate description of the marketing phase for six months 
from the time a product is initially marketed and this should be 
distinguished from the time a product is cleared by FDA for 
marketing.'' The applicant concluded that the FDA recognizes a time 
delay between approval and commercial availability as standard in the 
pharmaceutical industry.
    In addition, the applicant provided supplemental information that 
demonstrated that Voraxaze was not available on the market until April 
30, 2012. This documentation included specific information regarding 
training, manufacturing/packaging and trade/distribution activities 
that needed to take place prior to April 30, 2012. Once these 
activities were completed, the applicant stated that it discontinued 
the treatment of IND/cost recovery program for Voraxaze[supreg] on 
April 29, 2012, and that market availability of Voraxaze[supreg] began 
on April 30, 2012.
    The applicant also noted that one of the reasons it did not 
initiate commercialization activities prior to the FDA approval date of 
January 30, 2012 was because the company was awaiting final FDA 
labeling approval (that is, prescribing information) for 
Voraxaze[supreg], which was delivered to BTG on the day of approval, 
which was January 17, 2012. The applicant believed it would not have 
been prudent for BTG to initiate commercialization activities before 
receiving the final labeling approval because it would have required 
expensive and time-consuming rework.
    One commenter stated that Voraxaze[supreg] meets the newness 
criteria. The commenter explained that the FDA approval date is 
reasonable to use for determination of newness. The commenter stated 
that prior to FDA approval, Voraxaze[supreg] was only available through 
a laborious expanded access process that many oncology centers did not 
have in place. Thus, it was truly only available at many centers for 
the first time as of April 30, 2012.
    Another commenter stated that it believed that Voraxaze[supreg] 
does not meet the newness criterion but did not provide additional 
information.
    Response: Generally, our policy is to begin the newness period on 
the date of FDA approval/clearance or, if later, the date of market 
availability for the technology. Availability under the expanded access 
program neither represents the date of FDA approval (in this case, 
January 2012) nor the date of market availability (April 30, 2012). 
Therefore, we consider Voraxaze[supreg] to be ``new'' as of April 30, 
2012, its date of market availability.
    We note, as discussed in section II.G.7. of the preamble to this 
final rule, we are creating a new ICD-9-CM procedure code 00.95 
(Injection or

[[Page 53349]]

infusion of glucarpidase) to identify this new technology. This new 
code is effective October 1, 2012.
    With respect to the cost criterion, as we described in the proposed 
rule, the applicant researched the 2009 Standard Analytic Inpatient 
File (SAF) for cases with a principal or secondary diagnosis of 
osteosarcoma (ICD-9-CM code series 170.xx), acute lymphoblastic 
leukemia (ICD-9-CM code series 204.0x), non-Hodgkin's lymphoma (ICD-9-
CM code series 200.xx and 202.xx), or primary CNS lymphoma (ICD-9-CM 
code series 200.5x) with a corresponding ICD-9-CM procedure code for 
chemotherapy (99.25) that may be eligible for Voraxaze[supreg], based 
on the product's approved indications. The applicant's search yielded 
potentially eligible cases within 249 MS-DRGs, of which 56 MS-DRGs 
captured 12 or more cases.
    Using this universe of cases (249 MS-DRGs), the applicant added the 
additional costs of Voraxaze[supreg] to the case-weighted average 
standardized charge per case. Although the applicant submitted data 
related to the estimated cost of Voraxaze[supreg], the applicant noted 
that the cost of the technology was proprietary information. According 
to the applicant, it did not convert the costs to charges for this 
analysis because of the technology's high cost. The applicant maintains 
that an average adult receiving treatment for one of the diagnoses 
above would require a minimum of four vials of Voraxaze[supreg].
    The applicant used the following multiple analysis of different 
subsets of MS-DRGs to compare the average case-weighted standardized 
charge per case to the average case-weighted threshold to determine 
that Voraxaze[supreg] met the cost criteria:
     The applicant found 12,324 eligible cases within 249 MS-
DRGs, and determined a case-weighted average standardized charge per 
case of $87,582 (which includes the cost of Voraxaze[supreg]) and a 
case-weighted threshold of $39,216. The applicant maintains that 
Voraxaze[supreg] meets the cost criterion because the case-weighted 
average standardized charge per case exceeds the case-weighted 
threshold.
     The applicant excluded those MS-DRGs that had fewer than 
11 cases, which resulted in 12,134 eligible cases within 56 MS-DRGs. 
The applicant determined a case-weighted average standardized charge 
per case of $84,039 (which includes the cost of Voraxaze[supreg]) and a 
case-weighted threshold of $37,195. The applicant maintains that 
Voraxaze[supreg] meets the cost criterion because the case-weighted 
average standardized charge per case exceeds the case-weighted 
threshold.
     The applicant analyzed the 20 MS-DRGs that contained the 
highest number of cases and, based on the 11,534 cases they stated they 
found, determined a case-weighted average standardized charge per case 
of $80,400 (which includes the cost of Voraxaze[supreg]) and a case-
weighted threshold of $34,990. The applicant maintains that 
Voraxaze[supreg] meets the cost criterion because the case-weighted 
average standardized charge per case exceeds the case-weighted 
threshold.
    We invited public comment on whether or not Voraxaze[supreg] meets 
the cost criterion. Specifically, we welcomed public comment on the 
methodologies used in the applicant's analysis, including (1) the 
methods used to identify the eligible cases used in the cost analysis 
of this technology, especially if there are cases that should be 
excluded from the analysis because of clinical reasons, and if there 
are other ways to identify cases for which this technology may be 
appropriate, and (2) the appropriateness of not converting the costs to 
charges for the purposes of this analysis and what would be an accurate 
and appropriate CCR for this technology.
    Comment: The applicant submitted a public comment stating that it 
believed that Voraxaze[supreg] meets the cost criterion because the 
commercial costs of Voraxaze[supreg] are not reflected in the MS-DRG 
relative weights. The applicant added that Voraxaze[supreg] was 
available via expanded access since 2007 and hospitals were not allowed 
to submit for reimbursement of Voraxaze[supreg] because it was an 
investigational drug. Even if hospitals attempted to submit for 
reimbursement, the applicant noted that the Voraxaze[supreg] cost 
recovery price is substantially lower than its commercial price of 
$22,500 (effective April 30, 2012) and any existing data prior to April 
30, 2012 used to determine MS-DRG relative weights would not capture 
such a price difference and would largely underestimate the cost of 
Voraxaze[supreg]. Other commenters stated that Voraxaze[supreg] clearly 
meets the cost criterion. The commenters explained that they believed 
the situations where Voraxaze[supreg] is indicated for use were rare, 
and in those situations they believed that the cost of care for the 
affected patient rises substantially.
    Response: We appreciate the commenters' input. We agree that 
Voraxaze[supreg] meets the cost criterion.
    With regard to substantial clinical improvement, the applicant 
maintains that Voraxaze[supreg] is a clinical improvement compared to 
current treatment options because it is less time intensive, allows 
certain patient populations to avoid risks associated with current 
treatment options, and has characteristics that allows it to reduce MTX 
concentrations more effectively. As noted above, the applicant 
maintains that current treatment options for renal impairment as a 
result of toxic MTX concentrations are limited to extracorporeal 
methods that are time-intensive and could subject patients in certain 
populations to harm from the associated risks. The applicant states 
that the administration of Voraxaze[supreg] to patients who have been 
diagnosed with HDMTX-induced renal dysfunction metabolizes circulating 
MTX to the inactive metabolite DAMPA. The applicant asserts that this 
characteristic action of the technology represents a substantial 
clinical improvement over current treatment options available to 
patients who have toxic MTX concentrations in a more effective, and 
rapid way, and provides protection to eligible patient populations 
against potential harm associated with current treatment options.
    In addition, the applicant provided the results from a study of 23 
patients diagnosed with MTX-induced renal dysfunction treated with 
Voraxaze[supreg]. During this study, the applicant reported that the 
administration of Voraxaze[supreg] lowered toxic MTX concentrations in 
patients within 15 minutes after the administration by more than 98 
percent. Because the administration of Voraxaze[supreg] could 
metabolize both leucovorin and its active metabolite, 5-mTHF, these 
patients were also administered Leucovorin, a drug used to enhance the 
treatment for patients with high levels of MTX. The applicant noted 
that the combination of Voraxaze[supreg] and Leucovorin rescue was well 
tolerated by the 23 patients studied, and MTX-related toxicities were 
reduced from severe to mild to moderate. The range of age of these 23 
patients was 19 to 94 years old with 18 of the 23 patients being 50 
years or older.\18\ The applicant asserted that the types of health 
conditions treated with HDMTX, such as acute lymphoblastic leukemia, 
osteosarcoma, central nervous system (CNS) lymphoma, and leptomeningeal 
cancer, tend to occur within the Medicare population and cites research 
that states ``HD-MTX-induced renal failure with persistence of toxic 
blood MTX levels is a rare but life threatening complication that 
occurs more frequently in adults, particularly those with advanced age 
and CNS

[[Page 53350]]

lymphoma.'' \19\ When these malignancies arise which require treatment 
with HDMTX, HDMTX-induced renal failure with persistent toxic MTX 
levels is a complication that occurs more frequently in adults. The 
applicant asserted that the administration of Voraxaze[supreg] has been 
shown to be well-tolerated by older adult patients, while achieving 
similar reduction rates in younger patient populations who have been 
diagnosed with toxic MTX concentrations and treated with 
Voraxaze[supreg].\20\ The applicant also provided additional published 
peer-reviewed articles\21,22,23,24,25,26\ relevant to their application 
to support their assertion that they meet the substantial clinical 
improvement criteria.
---------------------------------------------------------------------------

    \18\ Green and Chamberlan, Cancer Chemotherapy and Pharmacology 
Volume 63, November 4, 2009.
    \19\ Schwartz, Borner et al., The Oncologist, December 2007.
    \20\ Schwartz, Borner et al,. The Oncologist, December 2007.
    \21\ Levy CC, Goldman P. The enzymatic hydrolysis of 
methotrexate and folic acid. J Biol Chem. 1967; 242:2993-2998.
    \22\ Minton NP, Atkinson T, Sherwood RF. Molecular cloning of 
the Pseudomonas carboxypeptidase G2 gene and its expression in 
Escherichia coli and Pseudomonas putida. J Bacteriol. 1983; 156: 
1222-1227\.\
    \23\ Widemann BC, Balis FM, Kim A, et al. Glucarpidase, 
leucovorin and thymidine for high-dose methotrexate induced renal 
dysfunction. Clinical and pharmacologic factors affecting outcome. J 
Clin Oncology 2010; 28:1-8.
    \24\ Patterson DM, Lee SM. Glucarpidase following high-dose 
methotrexate: update on development. Expert Opin Biol Ther. 
2010;10(1):105-111.
    \25\ Phillips M, Smith W, Balan G, et al. Pharmacokinetics of 
glucarpidase in subjects with normal and impaired renal function. J 
Clin Pharmacol 2008; 48:279-284.
    \26\ Bleyer WA. Methotrexate: clinical pharmacology, current 
status and therapeutic guidelines. Cancer Treat Rev. 1977;4:87-101.
---------------------------------------------------------------------------

    We invited public comment on whether or not Voraxaze[supreg] meets 
the criterion of representing a substantial clinical improvement for 
Medicare beneficiaries.
    Comment: The applicant submitted public comments that stated, 
``Voraxaze[supreg] meets the substantial clinical benefit criterion 
because the FDA accepted, reviewed, and approved the biologic licenses 
application (BLA) for Voraxaze[supreg] on an accelerated timeline. The 
FDA initiates an expedited review when a high unmet need exists and 
when an applicant has a product that may qualify as a substantial 
clinical improvement.''
    Several other public comments also stated that Voraxaze[supreg] 
meets the substantial clinical improvement criteria. One of the 
commenters, a pediatric oncologist, asserted that prior to 
Glucarpidase, there were no reliably effective interventions for 
patients suffering from high dose MTX induced renal dysfunction, a life 
threatening medical emergency. The commenter further noted that 
numerous interventions historically employed were generally invasive 
(that is, charcoal hemoperfusion), had variable but limited impact, and 
were not readily available at most treatment centers. The commenter 
concluded that Glucarpidase is a highly effective pharmacologic rescue 
that can be readily delivered to patients at high risk of or 
experiencing a life threatening complication of cancer therapy, that 
there is no other comparable pharmacologic intervention available, and 
that Glucarpidase is superior to less reliable, invasive measures. 
Another commenter stated that when Voraxaze[supreg] is used in a timely 
fashion, it can improve severe MTX-induced toxicity, prevent the need 
for dialysis and other invasive procedures, and can be lifesaving. The 
commenter believed that Voraxaze[supreg] is a unique medication, which 
can treat a rare and life-threatening complication of methotrexate 
therapy which has no alternative mediation. The commenter believed that 
alternative supportive care to Voraxaze[supreg], including 
hospitalization and dialysis, is exceptionally expensive.
    Another commenter who also supported new technology add-on payments 
for the Voraxaze[supreg] believed that Voraxaze[supreg] is a drug that 
can provide life-saving reversal of toxic levels of methotrexate. The 
commenter further stated that patients with toxic levels of 
methotrexate are hospitalized and receive the drug during an inpatient 
admission. However, due to its high cost, the commenter explained that 
many hospitals are reluctant to stock Voraxaze[supreg] in the pharmacy 
or use it at all due to the lack of reimbursement available when used 
as an inpatient medication. The commenter continued by stating that the 
alternative is to provide Leucovorin rescue and vigorous hydration, 
which often is effective and significantly cheaper. However, the 
commenter noted that this approach results in prolonged hospital stays, 
which have their own costs (to the system at large) and expose the 
patient to potential iatrogenic complications. If a new technology add-
on payment is available, the commenter believed that Voraxaze[supreg] 
would become the standard of care for methotrexate toxicity and enable 
a more rapid discharge of the patient from the inpatient setting. 
Another commenter stated that it believed ``certain new biologic agents 
that prevent toxicity but have high drug acquisition costs are 
underused because of financial disincentives,'' and cited this 
technology as an example. The commenter noted that this technology 
``can reduce the need for dialysis, reduce morbidity and decrease the 
length of hospital stay,'' and cited this background as an oncologist 
for support.
    Response: After reviewing the totality of the evidence and the 
public comments we received, we agree that Voraxaze[supreg] represents 
a substantial clinical improvement for Medicare beneficiaries. It 
appears that Voraxaze[supreg] is less time intensive and allows select 
patient populations to avoid risks associated with current treatment 
options. Also, Voraxaze[supreg] is able to treat patients who have 
toxic MTX concentrations in a more effective and rapid way than 
existing treatment options in certain situations, and provides 
protection to eligible patient populations against potential harm 
associated with current treatment options. Specifically, the applicant 
provided the results from a study of 23 patients diagnosed with MTX-
induced renal dysfunction treated with Voraxaze[supreg]. Based on the 
clinical trial data, the administration of Voraxaze[supreg] lowered 
toxic MTX concentrations in patients within 15 minutes after the 
administration by more than 98 percent. Therefore, we believe that 
Voraxaze[supreg] represents a substantial clinical improvement for 
Medicare beneficiaries. However, we remain interested in seeing 
clinical endpoints that show that reduction in methotrexate levels 
leads to improved renal function.
    Voraxaze[supreg] has met all three criteria for new technology add-
on payments and is eligible for new technology add-on payments in FY 
2013. Cases of Voraxaze[supreg] will be 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.
b. DIFICIDTM (Fidaxomicin) Tablets
    Optimer Pharmaceuticals, Inc. submitted an application for new 
technology add-on payments for FY 2013 for the use of 
DIFICIDTM (Fidaxomicin) tablets. In the proposed rule, we 
summarized this application and stated that the applicant asserts that 
Fidaxomicin is a major clinical advancement in the options available to

[[Page 53351]]

treat Clostridium difficile-associated diarrhea (CDAD).
    Clostridium difficile (C. Diff.) is a bacterium that can cause 
infection with symptoms that range from diarrhea to life-threatening 
inflammation of the colon, and is also commonly referred to as CDAD. 
The symptoms associated with CDAD can be treated by stopping 
administration of an antibiotic because often antibiotics can alter the 
native intestinal microflora and thus trigger CDAD. For mild cases of 
CDAD, this step may be sufficient to relieve the associated symptoms. 
However, many patients who have been diagnosed with more severe cases 
of CDAD require further treatment. Further treatment options include 
prescribing antibiotics such as Metronidazole or Vancomycin, 
prescribing probiotics administered in conjunction with antibiotics, 
and performing surgery using a fecal transplant to restore healthy 
intestinal bacteria by placing donor stool in the colon. According to 
the applicant, about one-fourth of the patients diagnosed with CDAD 
experience a recurrence of these associated symptoms.
    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 asserts 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 asserts 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 asserts that Fidaxomicin 
does not alter this native intestinal microflora.\27\
---------------------------------------------------------------------------

    \27\ Koo, Garey et al. Future novel therapeutic agents for 
Clostridium difficile infection. Expert Opin Investig Drugs., 
2010;19(7):825-836.
     Tannock, Munro et al., A new macrocyclic antibiotic, 
fidaxomicin (OPT-80), causes less alteration to the bowel microbiota 
of Clostridium difficile-infected patients than does vancomycin. 
Microbiology. 2010 Nov;156(Pt 11):3354-9.
---------------------------------------------------------------------------

    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. Fidaxomicin was commercially available on 
the market within 7 weeks after the FDA's approval was granted. 
Currently, there are not any ICD-9-CM diagnosis or procedure codes that 
exist to uniquely identify the use of Fidaxomicin, or any oral drug, as 
a procedure. Optimer submitted a request to the ICD-9-CM Coordination 
and Maintenance Committee for a new ICD-9-CM procedure code, which was 
discussed at the committee's meeting on March 5, 2012. For further 
information regarding the code proposal, we refer readers to the CMS 
Web site at: http://www.cms.hhs.gov/Medicare/Coding/ICD9ProviderDiagnosticCodes/ICD-9-CM-C-and-M-Meeting-Materials.html.
    In the proposed rule, we stated that we believe that under our 
current new technology add-on payment policy, eligibility for 
consideration for new technology add-on payments is limited to new 
technologies associated with procedures described by ICD-9-CM codes. In 
the FY 2002 IPPS final rule, we established the framework for our 
current policy (66 FR 46907 through 46915). The discussion of 
technologies in that rule focuses on those technologies identifiable by 
ICD-9-CM codes. We also discuss in response to comments the feasibility 
and appropriateness of HCPCS codes and V-codes. Similar to ICD-9-CM 
codes, HCPCS codes are also a procedure-based system and identify 
procedures. We noted in that rule that V-codes would not be appropriate 
to use for identification of new technology because they are not a 
substitute for procedure coding. Volume 3 of ICD-9-CM contains codes 
that describe inpatient procedures (65 FR 50325). In other words, we 
have not considered drugs that are only taken orally to 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).
    As we stated in the proposed rule, this interpretation is also 
consistent with other Medicare payment policies. For example, when 
drugs taken orally are given as part of an outpatient encounter, they 
would likely be considered self-administered drugs under the Hospital 
Outpatient Prospective Payment System (OPPS). If a Medicare beneficiary 
who has outpatient status were to be provided a self-administered drug 
by a hospital or wholly-owned or wholly-operated entity of that 
hospital and that beneficiary were subsequently admitted to that 
hospital for a related reason within three days, the hospital may not 
include these self-administered drugs on the inpatient bill (under the 
3-day payment window policy), because self-administered drugs are not 
covered under the OPPS. However, they would be required to include 
nondiagnostic services related to admission and all other diagnostic 
services on the inpatient bill (under the 3-day payment window).
    We invited public comment on our interpretation of our policy 
regarding drugs that are only self-administered for consideration for 
new technology add-on payments. Further, we invited public comment on 
whether or not Fidaxomicin meets the newness criterion.
    Comment: A number of public commenters, including the applicant, 
stated that the technology meets the newness criterion. Specifically, 
commenters discussed: (1) The ICD-9-CM coding for this technology, (2) 
the statutory authority for the policy in relation to the coding of 
oral therapies, (3) CMS' current policy and practices regarding coding, 
(4) CMS' practices with regard to establishing new codes to implement 
payment policies, (5) the use of V-codes in the ICD-9-CM system for 
oral drugs, and (6) the non-ICD-9-CM options for coding this technology 
for the new technology add-on payments. We summarize each issue, in 
turn, in the following comments and responses below.
    Response: We appreciate the commenters' supporting rationale for 
how this technology meets the newness criterion under the new 
technology add-on payment policy. We respond to each of the six points, 
in turn, below. We note that, as a result of our analysis of the public 
comments we received, in our responses below, we, in this final rule, 
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. This change will be 
effective for payments for discharges occurring on or after October 1, 
2012. We note that this does not preclude CMS from using additional 
ICD-9-CM procedure or diagnosis codes to identify cases for this new 
technology in conjunction with NDCs. In particular, for this 
technology, we established a methodology to identify cases for new 
technology add-on payments by using the NDC for the drug (52015-0080-
01) and ICD-9-CM diagnosis code 008.45, Intestinal infection due to 
Clostridium difficile. Furthermore, we establish that the beginning of 
the newness period for this technology is its FDA approval date of May 
27, 2011.
    Comment: The applicant submitted a public comment asserting that it 
believed that an ICD-9-CM procedure

[[Page 53352]]

code would be the ``best option'' and noted that this should be limited 
to the ``sole purpose of tracking use of the product'' for new 
technology add-on payments. The applicant indicated that it did not 
believe this created a precedent for inpatient procedure coding.
    Response: With regard to use of an ICD-9-CM procedure code for this 
technology, subsequent to and as recommended by CMS at the March 12, 
2012 ICD-9-CM Coordination and Maintenance (C&M) Committee meeting, no 
new ICD-9-CM procedure code for the administration of this technology 
was created. Public comments received during and subsequent to the 
public meetings opposed the establishment and addition of codes for 
self-administered drugs. The commenters stated that this type of 
service has never been included in ICD-9-CM procedure codes. Other 
commenters believed that such an addition to the ICD-9-CM system would 
be setting a major new precedent. Hospitals currently code and report 
procedures and more invasive services such as surgeries, infusion of 
drugs, and specialized procedures such as cardiac catheterizations. 
Hospitals do not code nor report self-administered drugs. While we 
appreciate the commenters' belief that a new ICD-9-CM procedure code 
should be created and that this code could be limited to new 
technological procedures and would thus not create a precedent for 
inpatient procedure codes, we disagree for the reasons stated above and 
described in more detail below. While the ICD-9-CM procedure coding 
system has been used to create codes for categories of service not 
previously coded for the purpose of new technology add-on payments, 
these new codes have been limited to inpatient procedures associated 
with their respective technologies. The commenters cited, as an 
example, the creation of procedure code 00.11, Infusion of drotrecogin 
alfa (activated) [Xigris], as an example of where CMS has ``created 
unique new ICD-9-CM codes in categories of service that did not 
previously exist.'' We note that infusions of drugs have been part of 
the ICD-9-CM inpatient procedure coding system since it was created in 
1979. Infusion of drugs requires specialized health care personnel to 
administer the infusion procedure. Patients taking self-administered 
drugs do not require the use of hospital or health care personnel to 
perform a procedure. Since the inception of the ICD-9-CM coding system, 
drugs given to a patient through use of an infusion have been 
considered procedures described by ICD-9-CM codes. The identification 
of a patient taking a self-administered drug has never been described 
by ICD-9-CM codes because it was not deemed to be a hospital procedure. 
This technology is an orally administered drug and, as noted by the 
applicant in its public comment, ``must be administered orally to 
effectively treat CDAD''. Orally-administered drugs require no 
inpatient procedure to administer. Therefore, we believe it would be 
inappropriate to establish an ICD-9-CM procedure code for their 
administration, even for the purpose of new technology add-on payments.
    Comment: One commenter asserted that the statutory authority exists 
for new technology add-on payments for oral therapies with no inpatient 
procedure (that is, infusion). The commenter reiterated our statement 
in the proposed rule that, ``we believe that under our current new 
technology add-on payment policy, eligibility * * * is limited to new 
technologies associated with procedure codes described by ICD-9-CM 
codes'' (77 FR 27939). Similarly, another commenter stated that, ``CMS 
asked whether DIFICID\TM\ could qualify under the statute and 
regulations for new technology because it is an oral therapy.'' Both 
commenters stated that the proposed rule ``does not assert that there 
is any corresponding statutory or regulatory bar to granting a [new 
technology add-on payment] to an oral therapy, and indeed there is 
none.'' Another commenter stated that, while self-administered drugs 
are not covered by Part B, they are covered by Part A. Another 
commenter stated that, ``the fact that DIFICID\TM\ must be administered 
orally to effectively treat [clostridium dificile associated disease] 
should not preclude it from being considered under the [new technology 
add-on] policy.'' Commenters pointed out that the statute ``require[s] 
that the agency `shall' establish a mechanism to recognize costs of new 
medical services or technologies * * * which `shall' provide for 
additional payment when such services are used.'' Another commenter 
further stated that it believed that ``the Congressional intent was 
explicit'' and stated that the statute ``allow[s] `any code such as 
ICD-9-CM and its subsequent revision' (emphasis added [in the public 
comment]).'' Another commenter stated that, ``the FY2002 [final rule on 
the new technology add-on payment] exemplifies CMS' authority and 
flexibility to use codes broadly for [the new technology add-on 
payment], if needed.'' Another commenter recognized that the statute 
explicitly points out the use of ICD-9-CM codes, but reminded the 
agency that they believed that ``the regulation permits administrative 
flexibility.'' Additionally, the commenter described the application 
form, and noted that, ``this policy document includes 5 specific 
questions not necessarily reflected directly in statute or 
regulation.'' Of the five items pointed out by the commenter, four 
refer to FDA approval, and one to ICD-9-CM procedure coding.
    Response: With regard to the question of whether or not statutory 
authority exists to allow new technology add-on payments for oral 
medications without inpatient procedures (that is, infusion), we note 
that, as the commenters pointed out, in the proposed rule, we did not 
assert that such statutory authority did not exist. We believe that 
under our current new technology add-on payment policy, eligibility for 
new technology add-on payments is limited to new technologies 
associated with procedure codes described by ICD-9-CM codes (77 FR 
27939). We believe that the statute could be interpreted in a manner 
that does not preclude new technology add-on payments for oral 
medications that have no inpatient procedure (that is, infusion) 
insofar as such an oral medication meets the other aspects of the 
newness criterion in addition to meeting the cost and substantial 
clinical improvement criteria. We interpret our current policy as 
limiting new technology add-on payments to technologies associated with 
inpatient procedures, as described in the FY 2002 final rule on CMS' 
new technology add-on payment policy (66 FR 46915). We note that this 
technology is the first application we have received for a technology 
that is an oral medication where no inpatient procedure is associated. 
In light of public comments we received, we are revising our policy to 
allow for the use of an alternative code set to identify oral 
medications where no inpatient procedure is associated for the purposes 
of new technology add-on payments. We are establishing the use of NDCs 
as the alternative code set for this purpose and describe our rationale 
for this particular code set in response to comments below. This change 
will be effective for payments for discharges occurring on or after 
October 1, 2012. We note that this does not preclude CMS from using 
additional ICD-9-CM procedure or diagnosis codes to identify cases for 
this new technology in conjunction with this alternative code set. We 
also agree with the comment that these oral medications for which no 
inpatient procedure is

[[Page 53353]]

associated may be considered self-administered drugs under Part B and 
are not payable under the outpatient prospective payment system (OPPS). 
We remind hospitals that, although hospitals are required to bundle 
related therapeutic services within the 3 days prior to and on the day 
of inpatient admission on the inpatient claim, hospitals may not 
include services that are not payable under the OPPS within the 3 days 
prior to and on the day of inpatient admission as part of the inpatient 
claim (42 CFR 412.2(c)(5)).
    Comment: Commenters reviewed our current policy and practice with 
regard to identification of new technologies for new technology add-on 
payments. They reiterated statements from the FY 2002 final rule on 
CMS' new technology add-on payment policy, while one commenter pointed 
out that, ``CMS considered several coding options to track new 
procedures and technologies * * * and discussed use of ICD-9-CM V-
codes, HCPCS Level II codes, and G codes to classify new 
technologies.'' Another commenter stated that CMS has in the past 
created ICD-9-CM codes for new technology add-on payments, and cited as 
an example the creation of procedure code 00.11, Infusion of 
drotrecogin alfa (activated) [Xigris], as an example of where CMS has 
``created unique new ICD-9 codes in categories of service that did not 
previously exist.''
    Response: With regard to our current policy and practice on the use 
of code sets to identify new technologies for new technology add-on 
payments, we appreciate the commenters' input. As we stated in response 
to other public comments, we interpret our current policy as limiting 
new technology add-on payments to technologies associated with 
inpatient procedures, as described in the FY 2002 final rule on the new 
technology add-on payment policy. We note that this technology is the 
first application we have received for a technology that is an oral 
medication with no inpatient procedure. Also, as we stated in response 
to other comments, we point out that the example the commenters cite, 
procedure code 00.11, Infusion of drotrecogin alfa (activated) 
[Xigris], is for an infusion and that infusion can be an inpatient 
procedure.
    Comment: Commenters reviewed our practice with regard to 
establishing new codes to implement Medicare policies. Specifically, 
they mentioned the creation of a claim modifier to reflect the use of 
surgical devices that CMS created to ``implement claims processing of a 
new policy'' and also the creation of policy claim codes MX (wrong 
surgery on patient), MY (wrong surgery on body part), and MZ (surgery 
on wrong patient) to identify claims to implement a national coverage 
decision regarding certain never events. They asserted that CMS is able 
to establish new codes to implement policies.
    Response: With regard to the examples of CMS' practices of 
establishing new codes to implement Medicare policies, we appreciate 
the commenters' responses. We agree that from time to time CMS will 
implement, as needed, new codes and processes to implement Medicare 
policies, including payment and coverage policies. The examples 
provided by the commenters do not specifically address the new 
technology add-on payment policy, instead, they address other Medicare 
payment policies and national coverage decisions.
    Comment: One commenter pointed out that V-codes currently exist for 
oral drugs. Specifically, the commenter cited code V58.66 for long term 
(current) use of aspirin and code V58.68 for long-term (current) use of 
bisphosphonates. The commenter also pointed out that three codes in 
subcategory V07.5 for the use of agents affecting estrogen receptors 
and estrogen levels have inclusion notes for multiple medications, some 
of which are oral.
    Response: With regard to the existence of V-codes for oral drugs, 
we agree with the commenters that V-codes exist that capture the long 
term use of certain drugs, including those that may be orally 
administered. V-codes are used to capture additional information about 
factors influencing health status and contact with health services. The 
codes for long-term (current) drug use were created to assist in 
following patients who use certain drugs over a long period of time. 
The codes do not necessarily indicate that a patient received the 
specific drug during the current health care encounter. The patient may 
be taking the drug based on a prescription received during a prior 
health care encounter and did not receive it during the current 
encounter.
    However, we have not adopted the use of V-codes for use in the new 
technology add-on payment policy. Currently, the new technology add-on 
payment policy is based on the use of ICD-9-CM procedure codes, which 
indicate that a procedure or service is provided during the hospital 
stay. The long-term (current) drug use V-codes described do not provide 
this information. As indicated earlier, the V-codes indicate the 
patient has been on certain drugs on a long-term basis, and do not 
necessarily indicate that the patient received the drug during the 
current health care encounter. We continue to believe that V-codes are 
not appropriate for new technology add-on payments because we do not 
believe the nature of these codes appropriately identifies new 
technologies; they indicate that some circumstance or problem is 
present which influences the person's health status, but is not in 
itself a current illness or injury. Common V-codes are status codes, 
history codes, aftercare codes, and follow-up codes. In addition, V-
codes do not identify items related to current resource use for an 
inpatient stay. For the most part, V-codes do not impact the DRG, and 
they are not taken into consideration when forming DRG assignment and, 
thus, are not used in setting relative weights for the IPPS. However, 
we note that we continue to explore the usefulness of these and other 
alternatives, such as those available in ICD-10, for coding and 
identifying technologies for the purposes of new technology add-on 
payments.
    Comment: One commenter described non-ICD-9-CM alternatives for 
coding this technology for the purposes of the new technology add-on 
payment policy. One option described by the commenter was the use of a 
value code and condition code to identify this technology. The 
commenter pointed out that a value code, value code 77, currently 
exists to identify when a new technology add-on payment is being 
claimed. The commenter noted that value codes are used with condition 
codes, and suggested that an option could be for CMS to submit a 
request to the National Uniform Billing Committee (NUBC) for a ``unique 
Condition Code to describe DIFICIDTM administration.'' A 
second option described by the commenters was to use a national drug 
code (NDC) on the claim to identify the technology for the purposes of 
new technology add-on payments. The commenter described two ways to 
implement such an option, one where the NDC would be used in isolation 
(as product information in Box 80 of the UB-04 claims form) and one 
where it would be used in combination with ICD-9 diagnosis code 008.45, 
Intestinal infection due to Clostridium difficile (where the NDC would 
be reported on the UB-04 in Box 43 and the diagnosis code reported on 
the UB-04 in Box 65). The commenter pointed out that using the NDC in 
isolation may require hospitals to ``make changes to their billing 
systems'' and that using the NDC in combination with a diagnosis code 
may require hospitals to ``make substantial reprogramming to their 
systems.'' Because of the possibility that hospitals may need to make 
changes,

[[Page 53354]]

the commenter stated that they believed that other options would be 
preferable and that an ICD-9-CM code is the ``best option.''
    Response: With regard to the non-ICD-9-CM options for identifying 
this technology and new technologies for new technology add-on 
payments, we appreciate the commenters' suggestions. The commenters 
first discussed a value code or condition code option for identifying 
new technologies. We agree that currently value code 77 is used to 
identify claims for new technology add-on payments. Commenters 
suggested that CMS could request a condition code from the NUBC to be 
used in conjunction with this value code to identify this new 
technology. While we appreciate the commenters' suggestion, we believe 
that this unnecessarily subjects eligibility for new technology add-on 
payments to a non-CMS claims identifier field. Furthermore, we note 
that even on an expedited basis, it is not likely that the NUBC process 
would necessarily result in the timely creation of a condition code to 
identify this technology. Therefore, we disagree with the commenters 
that this is a feasible option for coding and identifying technologies 
for the purposes of new technology add-on payments. Commenters then 
discussed two ways to use the NDC to identify this technology. We agree 
that NDCs can be used to identify drugs and that, in the instance where 
no inpatient procedures are associated with a drug, the NDC could be 
used to identify an oral drug for new technology add-on payments. While 
commenters stated that they believed this may require hospitals to 
change their ``billing practices'' or ``make substantial reprogramming 
to their systems,'' we believe that these changes, insofar as they 
might be needed, would not represent a large burden for hospitals. We 
note that currently the NDC code is used on outpatient claims for the 
ESRD-PPS to identify oral equivalent ESRD drugs. We further note that 
the hospital would be required to report the NDC code for the purposes 
of new technology add-on payments so that it could receive a new 
technology add-on payment which, by definition, is an increase relative 
to the payment they would have received in the absence of such an add-
on payment. Specifically, the commenter discussed using the NDC in Box 
43 in conjunction with the diagnosis code 008.45 (Intestinal infection 
due to Clostridium difficile) or using the NDC as product information 
in Box 80. We agree with the applicant and the other commenters that it 
is important to identify cases for new technology add-on payments using 
the diagnosis code 008.45. Because the NDC can specifically identify 
this technology, and other technologies that are oral drugs where no 
inpatient procedure is associated, we believe it can be used to 
identify these technologies for purposes of new technology add-on 
payments. We continue to believe our current policy to recognize new 
technologies associated with inpatient procedures through ICD-9-CM 
coding is appropriate and, in response to public comments we received, 
are expanding our policy prospectively for discharges occurring on or 
after October 1, 2012, to recognize oral medications where no inpatient 
procedure can be associated through the coding of NDCs. In the case of 
this application, we agree with the commenter that the NDC code of 
52015-0080-01 can be used in conjunction with diagnosis code 008.45 to 
identify the use of this technology, and establish that the use of both 
codes will identify this technology for the purposes of new technology 
add-on payments. We discuss our broader policy change to allow NDCs as 
an alternative code set to identify oral drugs where no inpatient 
procedure is associated in response to other comments.
    With regard to the cost criterion, Optimer researched the FY 2010 
MedPAR file for cases that would be eligible for treatment with 
Fidaxomicin to determine if it would qualify for the cost criterion for 
new technology add-on payments. Based on its analysis, the applicant 
identified cases in which a patient had been diagnosed with CDAD by 
searching the MedPAR file for claims that included ICD-9-CM diagnosis 
code 008.45 (Intestinal infection due to Clostridium difficile) as a 
principal diagnosis or secondary diagnosis. Optimer provided three 
examples of how the results of the analyses of different MS-DRGs 
demonstrate that it meets the cost criterion.
    Under the first analysis, the applicant researched the FY 2010 
MedPAR file for cases that included ICD-9-CM diagnosis code 008.45 as a 
principal or secondary diagnosis across all MS-DRGs. The applicant 
found 162,310 cases within 536 MS-DRGs, and determined a case-weighted 
average standardized charge per case (excluding charges for the cost of 
Fidaxomicin) of $50,136. Using a factor of 6.5 percent to inflate the 
charges to 2012 rates based on the Medical Consumer Price Index (CPI), 
the applicant determined a case weighted standardized charge per case 
that equals $53,394. The applicant then added the charges related to 
the technology to the inflated charges. Finally, the applicant 
determined a final case-weighted average standardized charge per case 
of $58,994, which exceeds the case-weighted threshold of $43,673. 
Because the final case-weighted average standardized charge per case 
for the applicable MS-DRGs exceeds the case-weighted threshold amount 
in this first analysis, the applicant maintains that Fidaxomicin meets 
the cost criterion for new technology add-on payments.
    Under the second analysis, the applicant researched the FY 2010 
MedPAR file for cases that included ICD-9-CM diagnosis code 008.45 only 
as a principal diagnosis, which mapped to MS-DRGs 371 (Major 
Gastrointestinal Disorders and Peritoneal Infections with MCC), 372 
(Major Gastrointestinal Disorders and Peritoneal Infections with CC), 
and 373 (Major Gastrointestinal Disorders and Peritoneal Infections 
without CC/MCC). The applicant found 55,410 cases, and determined a 
case-weighted average standardized charge per case (excluding charges 
for the cost of Fidaxomicin) of $28,007. Using a factor of 6.5 percent 
to inflate the charges to 2012 rates based on the Medical CPI, the 
applicant determined a case-weighted standardized charge per case that 
equals $29,828. The applicant then added the charges related to the 
drug to the inflated charges. The applicant then determined a final 
case-weighted average standardized charge per case of $35,428, which 
exceeds the case-weighted threshold of $34,730. Because the final case-
weighted average standardized charge per case for the applicable MS-
DRGs exceeds the case-weighted threshold amount in this second 
analysis, the applicant maintains that Fidaxomicin meets the cost 
criterion for new technology add-on payments.
    Under the third analysis, the applicant again researched the FY 
2010 MedPAR file for cases that included ICD-9-CM diagnosis code 008.45 
as a principal or secondary diagnosis across all MS-DRGs. The applicant 
then narrowed the results of the analysis to include only the top 37 
MS-DRGs (in volume of cases), which accounted for 75 percent of all 
cases. The applicant's methodology resulted in 121,748 cases, and the 
applicant determined a case-weighted average standardized charge per 
case (excluding charges for the cost of Fidaxomicin) of $45,523. Using 
a factor of 6.5 percent to inflate the charges to 2012 rates based on 
the Medical CPI, the applicant determined a case-weighted standardized 
charge per case that equals $48,482. The applicant then added the 
charges related to the drug to the inflated charges. The applicant then 
determined a final case-

[[Page 53355]]

weighted average standardized charge per case of $54,082, which exceeds 
the case-weighted threshold of $42,452. Because the final case-weighted 
average standardized charge per case for the applicable MS-DRGs exceeds 
the case-weighted threshold amount in this third analysis, the 
applicant maintains that Fidaxomicin meets the cost criterion for new 
technology add-on payments.
    In the three analyses discussed above, the applicant submitted data 
related to the estimated cost and charge of the drug (using a charge 
markup). However, the applicant has not released the cost of the 
technology, asserting that it is proprietary information. The applicant 
converted the cost of the technology to a charge using a charge markup 
(a factor of 6.5 percent based on the Medical CPI) that represented a 
10-day dosage.
    In the proposed rule, we expressed concern that these analyses do 
not take into account situations in which patients would be prescribed 
Fidaxomicin later in the duration of their inpatient stay, and may 
finish the course of Fidaxomicin sometime after being discharged from 
the hospital. In addition, as discussed above, if Fidaxomicin is 
prescribed and self-administered during the 3-day period prior to 
admission to an IPPS hospital for a related encounter, we do not 
believe that this service is payable under the OPPS, and we do not 
believe that charges associated with it can be included on the 
inpatient claim submitted to Medicare because of the 3-day payment 
window policy. Therefore, in the proposed rule, we noted that it may 
not be appropriate to include in the applicant's calculations the full 
charges related to Fidaxomicin and the corresponding proprietary 
charges for the 10-day dose. In addition, in the proposed rule, we 
stated that we believed that it is necessary for the applicant to 
adjust its estimates to remove from the MedPAR file's claims for the 
charges that describe other types of treatment options such as 
Vancomycin, since use of these treatments would preclude use of 
Fidaxomicin. Furthermore, to identify the cases that may be eligible 
for the technology's use, the applicant researched and analyzed claims 
that included ICD-9-CM diagnosis code 008.45 as the principal diagnosis 
or as the principal or secondary diagnosis. We are concerned that this 
baseline for eligible cases may not represent the appropriate universe 
of cases, such as if all MS-DRGs were considered or if a subset of MS-
DRGs were considered.
    We invited public comment on whether or not Fidaxomicin meets the 
cost criterion. In addition, we invited public comment on the 
methodologies used by the applicant in its analyses, in particular the 
assumptions made about the dosage in developing the cost analysis. We 
were also interested in comments about the applicant's selection of 
claims with an ICD-9-CM diagnosis code 008.45 as the principal 
diagnosis or secondary diagnosis, and whether those cases accurately 
represented the Medicare population that may benefit from the 
technology's use.
    Comment: The applicant submitted public comments responding to our 
concerns from the proposed rule. Our first concern was that these 
analyses did not take into account situations in which patients would 
be prescribed Fidaxomicin later in the duration of their inpatient stay 
and may finish the course of Fidaxomicin sometime after being 
discharged from the hospital. The applicant responded by providing a 
sample of claims of patients that received DIFICID \TM\ during their 
inpatient stay to determine the amount of days that DIFICID \TM\ is 
used within the inpatient setting. The applicant collected 116 
inpatient stays across 26 unique MS-DRGs for patients who received 
DIFICID \TM\ during their stay of which, 71 of the claims were Medicare 
fee-for-services (FFS) cases which mapped to 22 unique MS-DRGs. 
Regarding these data (from all 116 cases) the applicant noted the 
following: the average length of stay for all DIFICID \TM\ 
(Fidaxomicin) cases is 13.9 days; on average, patients started DIFICID 
\TM\ (Fidaxomicin) on day 6.7 of their stay; and on average, patients 
received DIFICID \TM\ for 6.2 days of their stay. Using the subset of 
71 Medicare claims also demonstrated that patients received DIFICID 
\TM\ on average of 6.2 days of their stay.
    Using the 116 cases from the sample, the applicant computed a case-
weighted average standardized charge per case of $92,684, which exceeds 
the case-weighted threshold of $45,388. The applicant also conducted a 
similar analysis using the Medicare subset of 71 Medicare cases. The 
applicant computed a case-weighted average standardized charge per case 
of $100,146, which exceeds the case-weighted threshold of $44,980. 
Because the case-weighted average standardized charge per case for both 
scenarios exceeds the case-weighted threshold amount (in both 
scenarios), the applicant maintains that Fidaxomicin meets the cost 
criterion for new technology add-on payments.
    Our second concern was with regard to the 3-day payment window. If 
Fidaxomicin is prescribed and self-administered during the 3-day period 
prior to admission to an IPPS hospital for a related encounter, as we 
noted in the proposed rule, we do not believe that this service is 
payable under the OPPS, and we do not believe that charges associated 
with it can be included on the inpatient claim submitted to Medicare 
because of the 3-day payment window policy. Therefore, it may not be 
appropriate to include in the applicant's calculations the full charges 
related to Fidaxomicin and the corresponding proprietary charges for 
the 10-day dose. The applicant noted that all cases from the sample 
data show that treatment was initiated well after admission to the 
inpatient setting. Even for those patients who presented at admission 
with a clostridium difficile infection (CDI) diagnosis, DIFICID \TM\ 
(Fidaxomicin) began an average of 4.6 days after the patient was 
admitted. The applicant believed that these data address CMS' concern 
over the potential for outpatient administration of DIFICID \TM\ 
(Fidaxomicin) prior to inpatient admission. The applicant asserted that 
to date, utilization patterns of DIFICID \TM\ (Fidaxomicin) show that 
the drug is used primarily in the inpatient setting and that outpatient 
use prior to admission is very limited.
    Our third concern was that the applicant's analyses may not 
represent the appropriate universe of cases, such as if all MS-DRGs 
were considered or if a subset of MS-DRGs were considered. The 
applicant reiterated that it submitted three different types of MedPAR 
analysis, one of which captured all cases where C. Difficile infection 
(CDI) occurred. The applicant added that the first MedPAR analysis 
contained no restrictions on its search for cases of CDI and as such 
should represent the complete universe of patients who may be eligible 
for DIFICID \TM\. The applicant further stated that its data sample of 
116 inpatient claims contains the actual MS-DRGs and standardized 
charges of patients who received DIFICID \TM\ which meets the cost 
criteria.
    The applicant noted that the sample data (of 116 claims) does not 
represent the full universe of eligible DIFICID \TM\ (Fidaxomicin) 
patients for the following reasons: First, because DIFICID \TM\ was 
new, the applicant asserted that hospitals may not have been aware of 
the full benefit of the drug. Second, the applicant asserted that 
hospitals may have believed they were not adequately compensated for 
the cost of DIFICID \TM\ within the existing MS-DRG payment and, 
therefore, may not have considered DIFICID \TM\ for treatment except in 
cases where the patient's costs were

[[Page 53356]]

significantly higher than average and additional outlier payments were 
anticipated. The applicant concluded that it believed that its original 
analysis of the FY 2010 MedPAR data with all patients diagnosed with 
CDI during their inpatient stay represents the full universe of 
potential DIFICID \TM\ cases, and is the most appropriate case scenario 
for purposes of calculating DIFICID \TM\'s (Fidaxomicin's) 
qualifications for the new technology add-on payment cost criterion.
    We were also concerned that it is necessary for the applicant to 
adjust its estimates to remove from the MedPAR file's claims the 
charges that describe other types of treatment options such as 
Vancomycin because use of these treatments would preclude use of 
Fidaxomicin. The applicant replied in its comment that it performed a 
cost criterion estimate with DIFICID \TM\ removed from the inflation-
adjusted weighted average standardized charge. The applicant explored 
additional data analyses to separate Vancomycin charges from the total 
MedPAR charges. However, the applicant asserted that no approach was 
viable due to (1) Lack of distinct coding to identify inpatient cases 
in which Vancomycin was administered, (2) lack of data on Vancomycin 
dosing per case, and (3) lack of data on the appropriate hospital mark-
up applied to Vancomycin costs. Therefore, the applicant stated that it 
believed, in the absence of data to estimate Vancomycin charges 
included in the MedPAR CDI cases, one methodology to approximate this 
was by, removing the inflated adjusted charges for DIFICID \TM\ from 
the case-weighted average standardized charge per case of the first 
scenario. The applicant also noted that, although it determined an 
average use of DIFICID \TM\ for 6.2 days within the inpatient setting 
based on the sample of 116 claims, it recommended that CMS consider 6.5 
days of inpatient administration of DIFICID \TM\. The applicant 
justified this increase based on its belief that hospitals and 
physicians will use it more. In particular, the applicant believed that 
the increased adoption of DIFICID \TM\ would lead to earlier 
prescription of DIFICID \TM\ by physicians for primary CDAD treatment 
in the inpatient setting as opposed to a secondary treatment. Using 
this methodology (of removing inflated adjusted charges for DIFICID 
\TM\ and assuming utilization of DIFICID \TM\ for 6.5 days within the 
inpatient setting), the applicant revised its calculation for the first 
analysis (which included all cases of C. Diff) and determined a case-
weighted average standardized charge per case of $55,214, which exceeds 
the case-weighted threshold of $43,673. Because the case-weighted 
average standardized charge per case exceeds the case-weighted 
threshold amount, the applicant maintains that Fidaxomicin meets the 
cost criterion for new technology add-on payments.
    Response: We appreciate the applicant's response to our concerns 
and believe that the sample of claims the applicant submitted 
substantiates the average use of DIFICID \TM\ within the inpatient 
setting. We agree with the applicant that the appropriate universe of 
cases is the first MedPAR analysis which contained no restrictions on 
its search for cases of CDI and as such should represent the complete 
universe of patients who may be eligible for DIFICID \TM\. However, at 
this time we believe it is appropriate to use an estimate of 6.2 days 
of inpatient administration of DIFICID \TM\ from the sample of claims 
rather than the 6.5 days that the applicant recommended. The estimate 
of 6.2 days is based on actual data while the extra 0.3 days (for a 
total of 6.5 days) is based on projected assumptions by the applicant. 
Therefore, we are revising the applicant's analysis described above of 
the first MedPAR analysis by substituting 6.2 days instead of 6.5 days 
for the administration of DIFICID \TM\ within the inpatient setting. We 
also appreciate the applicant's discussion of the difficulties 
associated in the removing of charges associated with Vancomycin, which 
represents one potential treatment option this technology could 
replace. We do not disagree with the applicant's suggestion to remove 
inflated adjusted charges for DIFICID \TM\ as an alternative. Using 
this methodology (of removing inflated adjusted charges for DIFICID 
\TM\ and assuming utilization of DIFICID \TM\ for 6.2 days within the 
inpatient setting), we determined a case weighted average standardized 
charge per case of $55,130, which still exceeds the case-weighted 
threshold of $43,673. Because the case-weighted average standardized 
charge per case exceeds the case-weighted threshold amount, we believe 
the applicant has met the cost criterion.
    With regard to the substantial clinical improvement criterion, in 
the proposed rule, we stated that the applicant maintained that 
Fidaxomicin represents a substantial clinical improvement to the 
treatment options currently available. According to the applicant, 
Fidaxomicin represents the first major clinical advancement in the 
treatment options available to address CDAD in more than 25 years, and 
it is one of only two agents indicated by the FDA to treat this 
condition. The applicant noted that reports from its clinical trials 
show that a higher proportion of patients achieve positive clinical 
response to treatment with Fidaxomicin as opposed to treatment with 
Vancomycin. The applicant reported that these patients did not 
experience recurrences of associated symptoms for at least 25 days 
after the end of treatment. The applicant asserted that Fidaxomicin has 
longer acting antimicrobial activity and inhibits spore formation in C. 
difficile in vitro. The applicant stated that C. difficile cells 
produce spores when exposed to air; therefore, transmission of 
infection occurs even when the cells themselves are killed.
    The applicant reported on two randomized, double-blinded 
trials.28 29 A non-inferiority design was utilized to 
demonstrate the efficacy of administering Fidaxomicin (200 mg twice 
daily for 10 days) compared to administering Vancomycin (125 mg four 
times daily for 10 days) to adult patients diagnosed with CDAD. The 
demographic profile and baseline CDAD characteristics of the subjects 
enrolled in both trials were similar. These patients had a median age 
of 64 years, were mainly white (90 percent), female (58 percent), and 
inpatients (63 percent).
---------------------------------------------------------------------------

    \28\ Pivotal trial 101.1.C.003: Thomas J. Louie, M.D., Mark A. 
Miller, M.D., Kathleen M. Mullane, D.O., Karl Weiss, M.D., Arnold 
Lentnek, M.D., Yoav Golan, M.D., Sherwood Gorbach, M.D., Pamela 
Sears, Ph.D., and Youe-Kong Shue, Ph.D. for the OPT-80-003 Clinical 
Study Group. Fidaxomicin versus Vancomycin for Clostridium difficile 
Infection. N Engl J Med 2011; 364:422-431February 3, 2011. Attached 
reference: 12--LouieNEJM2011.pdf
    \29\ Crook D, Weiss K, Comely O, Miller M, Esposito R, Gorbach 
8. Randomized Clinical Trial (RCT) in Clostridium difficile 
Infection (CDI) Confirms Equivalent Cure Rate and Lower Recurrence 
Rate of Fidaxomicin (FDX) versus Vancomycin (VCN). 20th European 
Congress of Clinical Microbiology and Infectious Diseases; April 10-
13, 2010; Vienna, Austria.
---------------------------------------------------------------------------

    The applicant reported that the primary efficacy endpoint (for both 
trials) was the clinical response rate at the end of therapy, based 
upon improvement in diarrhea or other symptoms such that, in the 
investigator's judgment, further CDAD treatment was not needed. An 
additional efficacy endpoint was a sustained clinical response 25 days 
after the end of treatment. Sustained response was only evaluated for 
patients who were clinical successes at the end of treatment. Sustained 
response was defined as clinical response at the end of treatment, and 
survival without proven or suspected reoccurrence of a diagnosis of 
CDAD beyond 25 days after

[[Page 53357]]

the end of treatment. The results for clinical response at the end of 
treatment in both trials, which the applicant submitted in the table 
below, indicate that the effects of administering Fidaxomicin is 
noninferior to the effects of administering Vancomycin based on the 95 
percent confidence interval (CI) lower limit being greater than the 
non-inferiority margin of -10 percent.
    The applicant stated that the results for sustained clinical 
response at the end of the follow-up period, also shown in the table 
below, indicate that the effects of administering Fidaxomicin is 
superior to the effects of administering Vancomycin on this endpoint. 
Because clinical success at the end of treatment and mortality rates 
were similar across treatment arms (approximately 6 percent in each 
group), the applicant determined that the differences in sustained 
clinical response were due to lower rates of proven or suspected 
reoccurrence of diagnoses of CDAD in patients during the follow-up 
period. In addition, the applicant asserts that the effects of 
administering Fidaxomicin has minimal impact on normal gut flora due to 
its limited specificity, and could be associated with a lower risk of 
acquisition of VRE if used as a treatment option instead of 
administering Vancomycin.

                                                    Clinical Response Rates at End-of-Therapy and Sustained Response at 25 days Post-Therapy
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                       Clinical response at end of treatment                                              Sustained response at follow-up
                                ----------------------------------------------------------------------------------------------------------------------------------------------------------------
                                    FIDAXOMICIN % (N)         Vancomycin % (N)           Difference (95% CI)          FIDAXOMICIN % (N)       Vancomycin % (N)          Difference (95% CI)
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Trial 1........................  88% (N=289)              86% (N=307)              2.6% (-2.9%, 8.0%)              70% (N=289)             57% (N=307)             12.7% (4.4%, 20.9%)
Trial 2........................  88% (N=253)              87% (N=256)              1.0% (-4.8%, 6.8%)              72% (N=253)             57% (N=256)             14.6% (5.8%, 23.3%)
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

    Based on the analysis described above, the applicant asserts 
Fidaxomicin meets the substantial clinical improvement criterion as a 
treatment option with the potential to decrease hospitalizations and 
physician office visits, as well as to improve the quality of life for 
patients who have been diagnosed with CDAD.
    We expressed concern in the proposed rule that this technology may 
not offer a substantial clinical improvement compared to other 
effective treatment alternatives already available in the treatment of 
patients who have been diagnosed with CDAD. In addition, although the 
applicant maintains that there is no evidence of significant clinical 
resistance developing with the use of this drug, in the proposed rule, 
we expressed concern about the long-term possibility that patients may 
develop resistance to this drug since the applicant provided no data to 
substantiate its claim. We invited public comment on whether or not 
Fidaxomicin meets the substantial clinical improvement criterion based 
on the analysis and results presented by the applicant.
    Comment: Regarding our concern that the technology may not offer a 
substantial clinical improvement, the applicant noted that ``DIFICID 
\TM\ is the only agent proven to provide a superior sustained clinical 
response versus Vancomycin--meaning a higher proportion of patients 
achieve clinical response and remain free of potentially devastating 
recurrences through 25 days after the end of treatment * * * 
Recurrences are a unique challenge in the management of CDAD in large 
part due to the ability of C. difficile to form spores.'' The applicant 
also noted that its technology prevents sporulation while other 
existing medications do not. In addition, the applicant discussed oral 
administration as being ``advantageous in treating CDAD''.
    Regarding our concern about the long-term possibility that patients 
may develop resistance to this drug, the applicant responded with 
several pieces of information. First, the applicant cited advice from 
``antimicrobial stewardship programs, such as those recommended by the 
CDC `Get Smart' program (http://www.cdc.gov/getsmart/) and SHEA/IDSA 
policy (http://www.idsociety.org/StewardshipPolicy/),'' which the 
applicant noted, ``advise utilizing the most narrow spectrum agent to 
treat an infection to help decrease the likelihood of resistant 
development.'' The applicant believed Fidaxomicin ``uniquely fits in 
this profile as, unlike broad spectrum antibacterial drugs, it is 
targeted specifically against C. difficile with minimal impact on other 
bacteria, including the normal flora found in the gastrointestinal 
tract.'' Second, the applicant further stated that, ``The potential for 
resistance to antibacterial agents increases when bacteria are exposed 
to suboptimal drug concentrations at the site of infection. However, 
DIFICID \TM\ has minimal absorption from the intestines and fecal 
concentrations that are >1000 times that required to kill C. 
difficile.'' Third, the applicant also noted that, ``In laboratory 
testing, DIFICID \TM\ exhibited no crossresistance with other classes 
of antibacterial drugs.'' and ``The low potential for patients to 
develop resistance to DIFICID \TM\ was also demonstrated in two pivotal 
phase 3 clinical trials.'' Fourth, the applicant noted that, 
``resistance to treating agents is not an issue with this disease, as 
it has not been reported with the other two commonly used agents, 
Metronidazole and Vancomycin.'' Further, the applicant stated that, 
``Despite Metronidazole and Vancomycin being utilized to treat C. 
difficile infection (CDI) and C. difficile-associated diarrhea (CDAD) 
for over 25 years, resistance has not been reported for either agent.'' 
Fifth, the applicant refers to the SHEA/IDSA guidelines noting that 
these ``specifically state that considering the high fecal 
concentrations achieved with oral Vancomycin, emergence of resistance 
is likely not a concern.'' The applicant then concluded that, 
``Fidaxomicin is similar in this regard given its extremely high fecal 
concentrations.'' and that, ``This indicates that the potential for 
resistance is extremely low when treating CDAD.''
    Response: We appreciate the applicant's response to our concerns 
from the proposed rule. We considered this information in our decision 
below on whether DIFICIDTM meets the substantial clinical 
improvement criterion.
    Comment: Several public commenters stated that Fidaxomicin meets 
the substantial clinical improvement criterion. One commenter noted, 
``In the past year, DIFICIDTM clinically has been invaluable 
in treating some of these more difficult cases. The drug has been well 
tolerated, and we have seen fewer patients with recurrence after 
therapy with DIFICIDTM * * * DIFICIDTM is 
revolutionary because it offers a significant advancement that we have 
not seen in previous CDI therapies: targeted therapy and reduced

[[Page 53358]]

recurrences.'' Another commenter expressed support for the literature, 
research, and data pertaining to the use of DIFICIDTM on its 
patients with C. difficile infections. The commenter added that it has 
had the opportunity to use DIFICIDTM on a few occasions thus 
far and has had very good outcomes, especially regarding the rapid 
improvement in symptoms.
    Response: We appreciate the commenters' input. After reviewing the 
totality of the evidence and the public comments we received, we agree 
with the commenters that DIFICIDTM (Fidaxomicin) represents 
a substantial clinical improvement over existing technologies. We 
believe that DIFICIDTM represents a treatment option with 
the potential to decrease hospitalizations and physician office visits, 
and reduce the recurrence of CDAD, as well as to improve the quality of 
life for patients who have been diagnosed with CDAD.
    Therefore, DIFICIDTM (Fidaxomicin) has met all three 
criteria for the new technology add-on payment policy and is eligible 
for new technology add-on payments in FY 2013. Cases of 
DIFICIDTM (Fidaxomicin) will be identified with ICD-9-CM 
diagnosis code 008.45 in combination with NDC code 52015-0080-01. 
Providers must code 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. Further guidance will be 
issued after this final rule with how to code the NDC code on the 837i 
form. According to the applicant, the cost of DIFICIDTM 
(Fidaxomicin) is $2,800 for a 10-day dosage. The average cost per day 
for DIFICIDTM is $280 ($2,800/10). As discussed above, cases 
of DIFICIDTM (Fidaxomicin) 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). 
We note, as stated above in our discussion of the cost criteria, we are 
not using an average dosage of 6.5 days for DIFICIDTM 
because we prefer to rely on statistical data from the sample of 116 
claims that received DIFICIDTM rather than information based 
on multiple assumptions. However, the applicant is welcome to submit 
additional data for FY 2014 that demonstrate changes to the average 
dosage of 6.2 days (within the inpatient setting). 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 (Fidaxomicin) is $868.
c. Zilver[supreg] PTX[supreg] Drug Eluting Stent
    Cook[supreg] Medical submitted an application for new technology 
add-on payments for the Zilver[supreg] PTX[supreg] Drug Eluting Stent 
(Zilver[supreg] PTX[supreg]) for FY 2013. In the proposed rule, we 
summarized this application. 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 states that an introducer catheter is inserted 
over the wire guide and into the target vessel where the lesion will 
first be treated with an angioplasty balloon to prepare the vessel for 
stenting. The applicant indicates 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 maintains that there are currently no FDA approved 
drug-eluting stents used for superficial femoral arteries. At the time 
of the proposed rule, the applicant expected to receive FDA approval 
for the stent in the second quarter of 2012. However, at the time of 
this final rule, the technology has still not received FDA approval. 
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 invited public comment regarding how the Zilver[supreg] PTX[supreg] 
meets the newness criterion.
    Comment: The applicant stated that it received a letter from the 
FDA indicating that the FDA's Center for Devices and Radiological 
Health considers the device to be ``approvable.'' The applicant added 
that it expects formal FDA approval before September 2012. With FDA 
approval imminent and expected before the implementation date of 
October 1, 2012, the applicant requested that the ``approvable'' letter 
from the FDA's Center for Devices and Radiological Health be allowed to 
serve as a proxy for FDA approval.
    Response: In accordance with Sec.  412.87(c) of the regulations, we 
require 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. Because the 
Zilver[supreg] PTX[supreg] is not approved by the FDA as of such date, 
we cannot consider this application for new technology add-on payments 
for FY 2013. Therefore, the Zilver[supreg] PTX[supreg] does not meet 
the newness criteria.
    With regard to the cost criterion, the applicant believes 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 2009 MedPAR file for cases with a 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), and 440.24 (Atherosclerosis of the extremities with 
gangrene). The applicant found 7,144 cases (or 24.4 percent of all 
cases) in MS-DRG 252; 9,146 cases (or 31.2 percent of all cases) in MS-
DRG 253; and 13,012 cases (or 44.4 percent of all cases) in MS-DRG 254. 
The average charge per case was $78,765 for MS-DRG 252, $63,758 for MS-
DRG 253, and $47,586 for MS-DRG 254, equating to a case-weighted 
average charge per case of $60,236.
    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 nondrug-
eluting peripheral vessel stents and replace them with charges related 
to the Zilver[supreg] PTX[supreg]. The applicant used two methodologies 
to remove the charges of the nondrug-eluting peripheral vessel stents 
and replace them with charges related to the Zilver[supreg] 
PTX[supreg]. Although the applicant submitted data related to the 
estimated cost of the nondrug-eluting peripheral vessel stents and the 
Zilver[supreg] PTX[supreg], the applicant noted that the cost of these 
devices was proprietary information.
    Under the first methodology, the applicant determined the amount of 
stents per case based on the following ICD-9-CM codes on each claim: 
00.45 (Insertion of one vascular stent), 00.46 (Insertion of two 
vascular stents), 00.47 (Insertion of three vascular stents) and 00.48 
(Insertion of four or more vascular stents). If a claim had a code of 
00.48, the applicant assumed a maximum of four stents per case. The 
applicant multiplied the amount of stents used

[[Page 53359]]

per case by the average market price for nondrug-eluting peripheral 
vessel stents and then converted the cost of the stents used per case 
to a charge by dividing the results by the national average CCR of 
0.329 for supplies and equipment (76 FR 51571). The applicant removed 
the appropriate amount of charges per case and then standardized the 
charges per case. Because the applicant used FY 2009 MedPAR data, it 
was necessary to inflate the charges from FY 2009 to FY 2012. Using 
data from the U.S. Department of Labor Bureau of Labor Statistics 
Consumer Price Index, the applicant inflated the average standardized 
charge per case with an inflation factor of 6 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.\30\ 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 nondrug-
eluting peripheral vessel stent typically ranges from 80 mm 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]). Similar to above, the 
applicant 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 national average CCR of 0.329 for supplies and 
equipment. 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 case-weighted average 
standardized charge per case of $60,014. Using the FY 2013 Table 10 
thresholds, the case-weighted threshold for MS-DRGs 252, 253, and 254 
was $52,293 (all calculations above were performed using unrounded 
numbers). Because the case-weighted average standardized charge per 
case for the applicable MS-DRGs exceed the case-weighted threshold 
amount, the applicant maintains that the Zilver[supreg] PTX[supreg] 
meets the cost criterion.
---------------------------------------------------------------------------

    \30\ 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 second methodology was similar to the first methodology 
described above, but the applicant used hospital-specific CCRs from the 
FY 2009 IPPS impact file to convert the cost of the nondrug-eluting 
peripheral vessel stents and the cost of the Zilver[supreg] PTX[supreg] 
to charges. In summary, the applicant determined the amount of nondrug-
eluting peripheral vessel stents used per case based on the ICD-9-CM 
codes on each claim (as discussed above). The applicant multiplied the 
amount of stents used per case by the average market price for nondrug-
eluting peripheral vessel stents and then converted the cost of the 
stents used per case to a charge by dividing by the hospital-specific 
CCR (from the FY 2009 IPPS impact file). The applicant removed the 
appropriate amount of charges per case and then standardized the 
charges per case. Similar to the step described above, because the 
applicant used FY 2009 MedPAR data, it was necessary to inflate the 
charges from FY 2009 to FY 2012. 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 6 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 
(because of the reason stated in the first methodology). 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 2009 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 case-weighted average standardized 
charge per case of $60,339. Using the FY 2013 Table 10 thresholds, the 
case-weighted threshold for MS-DRGs 252, 253, and 254 was $52,293 (all 
calculations above were performed using unrounded numbers). Because the 
case-weighted average standardized charge per case for the applicable 
MS-DRGs exceed the case-weighted threshold amount, the applicant 
maintains that the Zilver[supreg] PTX[supreg] would meet the cost 
criterion.
    We invited public comment on whether or not the Zilver[supreg] 
PTX[supreg] meets the cost criterion. Additionally, we invited public 
comment 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, the number of stents required for 
each case, and the CCRs used in the cost calculation.
    Comment: We received several public comments regarding whether the 
Zilver[supreg] PTX[supreg] meets the cost criterion.
    Response: Because the Zilver[supreg] PTX[supreg] has not yet 
received FDA approval, and therefore, does not meet the newness 
criterion, as discussed above, it is not eligible for the IPPS new 
technology add-on payments for FY 2013. Therefore, we are not 
summarizing the details of these comments nor responding to them in 
this final rule.
    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 asserts that the Zilver[supreg] 
PTX[supreg] meets the substantial clinical improvement because it 
decreases the recurrence of symptoms arising from restenotic SFA 
lesions, the rate of subsequent diagnostic or therapeutic interventions 
required to address restenotic lesions, and the number of future 
hospitalizations.
    The applicant cited a 480-patient, multicenter, multinational 
randomized controlled trial that compared the Zilver[supreg] 
PTX[supreg] to balloon angioplasty; an additional component of the 
study allowed a direct comparison of the Zilver[supreg] PTX[supreg] to 
a bare (uncoated) metal Zilver[supreg] 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).
    The applicant noted that the Zilver[supreg] PTX[supreg] had an EFS 
of 90.4 percent compared to balloon angioplasty, which had an EFS of 
83.9 percent, demonstrating that the Zilver[supreg] PTX[supreg] is as 
safe or safer than balloon angioplasty. 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-

[[Page 53360]]

percent reduction compared to bare metal stents. The 12-month patency 
rate for the Zilver[supreg] PTX[supreg] was 83.1 percent, which 
compared favorably to the balloon angioplasty patency rate of 32.8 
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 (89.9 percent versus 73.0 
percent \1\). 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 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. The applicant stated that 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 added 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.\31\
---------------------------------------------------------------------------

    \31\ 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 invited public comment regarding whether the Zilver[supreg] 
PTX[supreg] meets the substantial clinical improvement criterion.
    Comment: Several commenters commented on whether the Zilver[supreg] 
PTX[supreg] meets the substantial clinical improvement criterion.
    Response: Because the Zilver[supreg] PTX[supreg] has not yet 
received FDA approval, and therefore, does not meet the newness 
criterion, as discussed above, it is not eligible for IPPS new 
technology add-on payments for FY 2013. Therefore, we are not 
summarizing the details of these public comments or responding to them 
in this final rule 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. In the proposed rule, we summarized this application. 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 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.
    The applicant stated that the Zenith[supreg] F. Graft is custom-
made for each patient. It is a modular system consisting of three 
components: a two-part main body graft and one iliac leg. The two-part 
main body of the graft consists of a proximal tubular graft and a 
distal bifurcated graft body. The proximal body graft contains 
precisely located holes (fenestrations) and/or cut-outs from the 
proximal margin (scallops) of the polyester graft material along with a 
bare proximal stent with barbs to provide fixation. The iliac leg 
component, which couples with the main bifurcated body, completes the 
basic fenestrated endograft.
    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. 
The technology is described by ICD-9-CM procedure code 39.78 
(Endovascular implantation of branching or fenestrated graft(s) in 
aorta), which became effective October 1, 2011. While procedure code 
39.78 maps to MS-DRGs 252, 253, and 254 (Other Vascular Procedures with 
MCC, with CC, and without MCC/CC, respectively), the applicant believes 
that MS-DRGs 237 and 238 (Major Cardiovascular Procedures with MCC and 
without MCC, respectively) would be a more appropriate assignment for 
procedure code 39.78. We note that in section III.G.3.b. of this 
preamble, we discuss our final policy which reassigns procedure code 
39.78 from MS-DRG 252, 253, and 254 to MS-DRGs 237 and 238. We invited 
public comment regarding whether the Zenith[supreg] F. Graft meets the 
newness criterion for new technology add-on payment.
    We did not receive any public comments regarding whether the 
Zenith[supreg] F. Graft meets the newness criterion. However, because 
the Zenith[supreg] F. Graft was approved by the FDA on April 4, 2012, 
we believe the Zenith[supreg] F. Graft meets the newness criterion as 
of that date.
    With regard to the cost criterion, the applicant used clinical 
trial data and three separate analyses of FY 2010 MedPAR data to 
demonstrate that the Zenith[supreg] F. Graft meets the cost criteria. 
We note that in the proposed rule the applicant believed that it met 
the cost criteria since it demonstrated that the case weighted average 
charge per case exceeded the threshold for MS-DRGs 252-254 since at 
that time procedure code 39.78 was assigned to MS-DRG 252-254. However, 
as mentioned above, in this final rule we have reassigned procedure 
code 39.78 from MS-DRG 252-254 to MS-DRGs 237-238. Therefore, for this 
final rule, in order for the applicant to meet the cost criteria, it 
must demonstrate that the case weighted average standardized charge per 
case exceeds the thresholds for MS-DRGs 237-238.
    The applicant submitted clinical trial data \32\ which was based on 
173 claims (all Medicare patients except one patient). The applicant 
found that, of the 173 cases, 35 cases (or 20.2 percent of all cases) 
mapped to MS-DRG 252, 86 cases (or 49.7 percent of all cases) mapped to 
MS-DRG 253, and 52 cases (or 30.1 percent of all cases) mapped to MS-
DRG 254, equating to a case-weighted average charge per case of 
$87,733.
---------------------------------------------------------------------------

    \32\ Evaluation of the Safety and Effectiveness of the Zenith(R) 
Fenestrated AAA Endovascular Graft, Zenith Fenestrated AAA 
Endovascular Graft Pivotal Study, Clinicaltrials.gov: identifier 
NCT00875563 and a Physician Sponsored IDE.
---------------------------------------------------------------------------

    The applicant noted that the investigational devices (the bare 
metal renal stents that are used in the procedure and the 
Zenith[supreg] F. Graft) were sold to the trial sites at reduced 
prices. Therefore, the average charge per case cited above contains 
reduced charges for the investigational devices rather than commercial 
charges. As a result, the applicant believes it is necessary to remove 
the reduced charges for the investigational devices and replace them 
with commercial charges, in order to determine the cost of the 
investigational devices for each of the three analyses. Although the 
applicant submitted data related to the estimated cost of the 
investigational devices, the applicant noted that the cost of these 
devices was proprietary information.
    To remove the reduced charges for the investigational devices, the 
applicant searched the clinical trial claims data

[[Page 53361]]

and removed those charges with a revenue code of 0624 (investigational 
device exempt). Because the claims data for the clinical trial ranged 
from 2002 to 2010, it was necessary to inflate the charges. Using data 
from the U.S. Department of Labor Bureau of Labor Statistics (BLS) 
Consumer Price Index, the applicant applied an inflation factor to the 
claim charges ranging from 3 percent to 27 percent, depending on the 
year of the claim. After inflating the charges, the applicant then 
added the commercial charges of the investigational devices to the 
inflated charge per case. To determine the amount of commercial charges 
related to the investigational devices, the applicant divided the cost 
of the investigational devices by the hospital-specific CCR from the FY 
2012 IPPS Final Rule Impact File. After adding the charges of the 
investigational devices to the inflated charges, the applicant then 
standardized the charges on each claim. As a result, the applicant 
determined a final case-weighted average standardized charge per case 
of $122,821. In the proposed rule, the applicant used the FY 2013 Table 
10 thresholds for MS-DRGs 252, 253, and 254 and determined a case-
weighted threshold of $53,869 (all calculations above were performed 
using unrounded numbers). Because the final case-weighted average 
standardized charge per case for MS-DRGs 252, 253, and 254 exceeds the 
case-weighted threshold amount, the applicant maintained that the 
Zenith[supreg] F. Graft met the cost criterion for new technology add-
on payments. As noted above, for this final rule the applicant must 
demonstrate that it meets the cost criteria for MS-DRGs 237 and 238. 
The thresholds for MS-DRGs 237 and 238 are $101,728 and $69,591, 
respectively. If the applicant compared the final case-weighted average 
standardized charge per case of $122,821 (under MS-DRGs 252, 253, and 
254) to the highest threshold for MS-DRGs 237 and 238 ($101,728), it 
would still exceed the threshold in excess of $20,000. Therefore, under 
this analysis the applicant would meet the cost criterion since the 
final case-weighted average standardized charge per case would exceed 
the threshold under MS-DRGs 237 and 238.
    We note that, in addition to the analysis above, the applicant 
conducted a similar cost analysis using drug eluting renal stents 
instead of bare metal renal stents. The applicant noted that the price 
of drug eluting renal stents exceeds the price of bare metal renal 
stents by approximately $2,200 per stent. Therefore, the applicant 
asserted that if the price of drug eluting renal stents is more 
expensive than bare metal renal stents and the Zenith[supreg] F. Graft 
meets the cost criteria with bare metal renal stents, the 
Zenith[supreg] F. Graft also meets the cost criteria when the applicant 
uses drug eluting renal stents in its analysis.
    As mentioned above, the applicant conducted three separate analyses 
using FY 2010 MedPAR data to identify cases eligible for the 
Zenith[supreg] F. Graft to demonstrate that it meets the cost 
criterion. Because procedure code 39.78 was effective October 1, 2011, 
the applicant noted that it was unable to conduct a MedPAR data 
analysis with claims that contained a procedure code of 39.78. 
Therefore, in order to identify cases eligible for the Zenith[supreg] 
F. Graft prior to October 1, 2011, the applicant searched the MedPAR 
file for the following three scenarios. The first analysis searched the 
FY 2010 MedPAR file for cases with procedure code 39.71 (Endovascular 
implantation of graft in abdominal aorta) in combination with a 
diagnosis code of 441.4 (Abdominal aneurysm without mention of 
rupture). Procedure code 39.71 maps to MS-DRGs 237 and 238. The 
applicant found 1,679 cases (or 9.1 percent of all cases) in MS-DRG 237 
and 16,793 cases (or 90.9 percent of all cases) in MS-DRG 238. The 
average charge per case was $122,252 for MS-DRG 237 and $76,883 for MS-
DRG 238, equating to a case-weighted average charge per case of 
$81,006.
    The applicant noted that these MedPAR claims data included charges 
for the existing stent graft but did not include charges for the 
Zenith[supreg] F. Graft. Therefore, the applicant stated that it was 
first necessary to remove the amount of charges related to the existing 
stent graft and replace them with charges for the Zenith[supreg] F. 
Graft. Although the applicant submitted data related to the estimated 
cost of the existing stent graft and the Zenith[supreg] F. Graft, the 
applicant noted that the cost of these devices was proprietary 
information.
    To determine the amount of charges for the existing stent graft, 
the applicant divided the costs for the existing stent graft by the 
national average CCR of 0.329 for supplies and equipment (76 FR 51571). 
The applicant removed the appropriate amount of charges per case from 
the average charge per case. Because the applicant used FY 2010 MedPAR 
data, it was necessary to inflate the charges from FY 2010 to FY 2012. 
Using data from the BLS' Consumer Price Index, the applicant inflated 
the case-weighted average standardized charge per case with an 
inflation factor of 4 percent. The applicant then determined the amount 
of charges for the Zenith[supreg] F. Graft by dividing the costs of the 
Zenith[supreg] F. Graft by the national average CCR of 0.329 for 
supplies. The applicant then added the amount of charges related to the 
Zenith[supreg] F. Graft to the inflated charges and then standardized 
the charges. The applicant determined a final case-weighted average 
standardized charge per case of $80,509. Using the FY 2013 Table 10 
thresholds, the case-weighted threshold for MS-DRGs 237 and 238 was 
$72,512 (all calculations above were performed using unrounded 
numbers). Because the final case-weighted average standardized charge 
per case for the applicable MS-DRGs exceeds the case-weighted threshold 
amount under this first analysis, the applicant maintains that the 
Zenith[supreg] F. Graft meets the cost criterion for new technology 
add-on payment.
    For its second analysis, the applicant searched the FY 2010 MedPAR 
file for cases with procedure code 38.44 (Resection of vessel with 
replacement, aorta) in combination with a diagnosis code of 441.4. 
Similar to the first analysis, the applicant conducted this analysis 
using MS-DRGs 237 and 238 because procedure code 38.44 maps to MS-DRGs 
237 and 238. The applicant found 1,310 cases (or 37.9 percent of all 
cases) in MS-DRG 237 and 2,145 cases (or 62.1 percent of all cases) in 
MS-DRG 238. The average charge per case was $110,708 for MS-DRG 237 and 
$64,095 for MS-DRG 238, equating to a case-weighted average charge per 
case of $81,769.
    The next steps of the applicant's second analysis were similar to 
the steps in the first analysis. The applicant noted that the MedPAR 
claims data included charges for the vascular graft for open procedures 
but did not include charges for the Zenith[supreg] F. Graft. Therefore, 
the applicant indicated that it was first necessary to remove the 
amount of charges related to the vascular graft for open procedures and 
replace them with charges for the Zenith[supreg] F. Graft. Although the 
applicant submitted data related to the estimated cost of the vascular 
graft for open procedures and the Zenith[supreg] F. Graft, the 
applicant noted that the cost of these devices was proprietary 
information.
    To determine the amount of charges for the vascular graft for open 
procedures, the applicant divided the costs for the vascular graft for 
open procedures by the national average CCR of 0.329 for supplies and 
equipment (76 FR 51571). The applicant removed the appropriate amount 
of charges per case

[[Page 53362]]

from the average charge per case. Similar to the first analysis, the 
applicant inflated the case-weighted average charge per case with an 
inflation factor of 4 percent (based on data from the BLS' Consumer 
Price Index). The applicant then determined the amount of charges for 
the Zenith[supreg] F. Graft by dividing the costs of the Zenith[supreg] 
F. Graft by the national average CCR of 0.329 for supplies. The 
applicant then added the amount of charges related to the 
Zenith[supreg] F. Graft to the inflated charges and then standardized 
the charges. The applicant determined a final case-weighted average 
standardized charge per case of $118,774. Using the FY 2013 Table 10 
thresholds, the case-weighted threshold for MS-DRGs 237 and 238 was 
$81,776 (all calculations above were performed using unrounded 
numbers). Because the final case-weighted average standardized charge 
per case for the applicable MS-DRGs exceeds the case-weighted threshold 
amount in this second analysis, the applicant maintains that the 
Zenith[supreg] F. Graft meets the cost criterion for new technology 
add-on payments. In the proposed rule, we noted that while the 
applicant removed charges for the vascular graft for open procedures, 
we were concerned that the applicant did not remove charges for other 
services such as extra operating room time and other possible charges 
that would be incurred during an open procedure but would possibly not 
be incurred during cases when the Zenith[supreg] F. Graft is implanted.
    Comment: In response to our concerns, the applicant took the 
following steps to demonstrate that the Zenith[supreg] F. Graft meets 
the cost criterion under the second analysis. The applicant first 
determined the average hospital length of stay (LOS), ICU time and OR 
time for open AAA repairs versus fenestrated AAA repairs. The applicant 
researched several peer reviewed studies that contain data for OR time, 
LOS and ICU time for open procedures. Based on these studies, the 
applicant calculated a weighted average for each of these measures. The 
weighted average was a LOS of 9.53 days, 4.07 ICU days, and 261 minutes 
of OR time.
    The applicant used clinical trial data to determine the average OR 
time, LOS, and ICU time for AAA fenestrated procedures. Based on Cook's 
clinical trial data,\33\ the applicant determined an average LOS of 3.5 
days and ICU time of 0.5 days for AAA fenestrated procedures. To 
determine the amount of OR minutes, the applicant used literature from 
eight studies including the Cook clinical trial data and determined a 
weighted average of 235 OR minutes. The applicant noted that the 
reported hospital LOS and ICU length of stay for fenestrated procedures 
from outside the United States is significantly longer than those 
experienced in the study in the United States. Because the applicant 
believed that the standard of care related to length of hospital stay 
and ICU stay from European experience are dissimilar to practices 
within the United States, it only used data from the Cook clinical 
trial rather than other clinical trial data (which included data from 
Europe) to determine the average for ICU days and LOS.
---------------------------------------------------------------------------

    \33\ Unpublished results, Evaluation of the Safety and 
Effectiveness of the Zenith(R) Fenestrated AAA Endovascular Graft, 
Zenith Fenestrated AAA Endovascular Graft Pivotal Study, 
Clinicaltrials.gov identifier NCT00875563.
---------------------------------------------------------------------------

    The applicant then calculated the percentage savings or rate of 
savings for the OR time, LOS and ICU time with the following formula: 
(open procedure minutes or days--fenestrated minutes or days)/open 
procedure minutes or days. This resulted in savings of 9.96 percent for 
OR minutes, 87.71 percent for ICU days, and 63.27 percent for LOS days. 
The applicant then applied the savings at a claim level by applying the 
rate of savings to the service charge categories from the MedPAR data 
(rate of savings * open device service charge category). Savings of 
9.96 percent for OR time was applied to Service Category 12 (which 
contains OR charges for revenue centers 36X, 71X and 72X), savings of 
87.71 percent for ICU days was applied to Accommodation Charge Category 
4 (which includes total ICU charges), and savings of 63.27 percent for 
LOS was applied to Accommodation Charge Category 1 (which includes 
standard room charges). To determine the case-weighted average 
standardized charge per case, the applicant deducted the reduced 
charges (savings) from the case-weighted average charge per case 
($81,769), which resulted in a revised case-weighted average charge per 
case of $66,206. The applicant then inflated the revised case-weighted 
average charge per case by 4 percent (based on data from the BLS' 
Consumer Price Index), which resulted in an inflated case weighted 
average charge per case of $68,854. Next, the applicant determined the 
amount of charges for the Zenith[supreg] F. Graft by dividing the costs 
of the Zenith[supreg] F. Graft by the national average CCR of 0.329 for 
supplies. The applicant then added the amount of charges related to the 
Zenith[supreg] F. Graft to the inflated charges and then standardized 
the charges. The applicant determined a final case-weighted average 
standardized charge per case of $106,731. Using the FY 2013 Table 10 
thresholds, the case-weighted threshold for MS-DRGs 237 and 238 was 
$81,776 (all calculations above were performed using unrounded 
numbers). Because the final case-weighted average standardized charge 
per case for the applicable MS-DRGs exceeds the case-weighted threshold 
amount in this revised second analysis, the applicant maintains that 
the Zenith[supreg]F. Graft Meets the Cost Criterion for New Technology 
Add-On Payments.
    Response: We appreciate the applicant's response and submittal of 
this supplemental analysis, which addresses our concerns from the 
proposed rule.
    The third analysis was a combination of the first and second 
analyses discussed above. The applicant searched the FY 2010 MedPAR 
file for cases with a procedure code of 38.44 or 39.71 in combination 
with a diagnosis code of 441.4. Similar to the first and second 
analyses, the applicant conducted this analysis using MS-DRGs 237 and 
238 because both procedure codes map to MS-DRGs 237 and 238. The 
applicant found 2,981 cases (or 13.6 percent of all cases) in MS-DRG 
237 and 18,928 cases (or 86.4 percent of all cases) in MS-DRG 238. The 
applicant removed those cases that had both procedure codes 38.44 and 
39.71 on the claim. The average charge per case was $116,826 for MS-DRG 
237 and $75,298 for MS-DRG 238, equating to a case-weighted average 
charge per case of $80,948.
    The applicant noted that the MedPAR claims data included charges 
for the existing stent graft or vascular graft for open procedures but 
did not include charges for the Zenith[supreg] F. Graft. Therefore, the 
applicant stated that it was first necessary to remove the amount of 
charges related to the existing stent graft or vascular graft for open 
procedures and replace them with charges for the Zenith[supreg] F. 
Graft. Similar to the first and second analyses, to determine the 
amount of charges for the existing stent graft or vascular graft for 
open procedures, the applicant divided the costs for these devices by 
the national average CCR of 0.329 for supplies and equipment (76 FR 
51571). The applicant removed the appropriate amount of charges per 
case from the average charge per case. The applicant inflated the case-
weighted average standardized charge per case with an inflation factor 
of 4 percent (based on data from the BLS' Consumer Price Index). The 
applicant then determined the amount of charges for the Zenith[supreg] 
F.

[[Page 53363]]

Graft by dividing the costs of the Zenith[supreg] F. Graft by the 
national average CCR of 0.329 for supplies. The applicant then added 
the amount of charges related to the Zenith[supreg] F. Graft to the 
inflated charges and then standardized the charges. As a result, the 
applicant determined a final case-weighted average standardized charge 
per case of $86,081. Using the FY 2013 Table 10 thresholds, the case-
weighted threshold for MS-DRGs 237 and 238 was $73,964 (all 
calculations above were performed using unrounded numbers). Because the 
final case-weighted average standardized charge per case for the 
applicable MS-DRGs exceeds the case-weighted threshold amount, the 
applicant maintains that the Zenith[supreg] F. Graft meets the cost 
criterion for new technology add-on payment.
    In the proposed rule, similar to our concerns with the second 
analysis, we were concerned that for this third analysis the applicant 
did not remove charges for other services such as extra operating room 
time and other possible charges that would be incurred during an open 
procedure, but would possibly not be incurred during cases when the 
Zenith[supreg] F. Graft is implanted.
    Comment: The applicant applied the same analysis above and deducted 
the reduced charges (savings) for OR time, LOS, and ICU days from the 
case-weighted average charge per case ($80,948), which resulted in a 
revised case-weighted average charge per case of $39,756. The applicant 
then inflated the revised case-weighted average charge per case by 4 
percent (based on data from the BLS' Consumer Price Index), which 
resulted in an inflated case-weighted average charge per case of 
$41,346. The applicant then determined the amount of charges for the 
Zenith[supreg] F. Graft by dividing the costs of the Zenith[supreg] F. 
Graft by the national average CCR of 0.329 for supplies. The applicant 
then added the amount of charges related to the Zenith[supreg] F. Graft 
to the inflated charges and then standardized the charges. The 
applicant determined a final case-weighted average standardized charge 
per case of $82,497. Using the FY 2013 Table 10 thresholds, the case-
weighted threshold for MS-DRGs 237 and 238 was $73,964 (all 
calculations above were performed using unrounded numbers). Because the 
final case-weighted average standardized charge per case for the 
applicable MS-DRGs exceeds the case-weighted threshold amount in this 
revised second analysis, the applicant maintains that the 
Zenith[supreg] F. Graft meets the cost criterion for new technology 
add-on payments.
    Response: We thank the commenter for submitting this supplemental 
analysis which addresses our concerns from the proposed rule.
    We appreciate the multiple analyses of the FY 2010 MedPAR data 
provided by the applicant and as stated above we believe the commenter 
has addressed our concerns from the proposed rule. Therefore, we 
believe that the Zenith[supreg] F. Graft meets the cost criterion for 
new technology add-on payments.
    The applicant maintains that the technology also meets the 
substantial clinical improvement criterion. The applicant first 
explained that current treatment for those patients who are not 
eligible for standard endovascular AAA devices is an open repair. The 
applicant referenced data from a published series \34\ that 
demonstrated an open repair can lead to a high risk of morbidity and 
increased mortality. The applicant added that an open procedure 
requires suprarenal aortic cross-clamping.\35\ The applicant also noted 
that there is a high risk of blood loss during an open procedure and 
the de-branching of vessels increases the level of surgical risk. The 
applicant further noted that 30 to 40 percent of patients who have an 
infrarenal AAA cannot be treated with current commercial devices 
because of anatomical reasons (for example, insufficient neck length to 
achieve graft adequate seal).\36\ The applicant added that use of 
standard endografts in patients with neck lengths less than 10 mm can 
result in a fourfold increase in an endoleak.\37\
---------------------------------------------------------------------------

    \34\ Wilderman, M. et al. Fenestrated Grafts or Debranching 
Procedures for Complex Abdominal Aortic Aneurysms. Perspectives in 
Vascular Surgery and Endovascular Therapy, March 2009; 21(1): 13-18.
    \35\ Jongkind V, Yeung K, et al. Juxtarenal aortic aneurysm 
repair. Journal of Vascular Surgery 2010 Sept; 29(3) 760-767.
    \36\ Wilderman, M. et al. Fenestrated Grafts or Debranching 
Procedures for Complex Abdominal Aortic Aneurysms. Perspectives in 
Vascular Surgery and Endovascular Therapy, March 2009; 21(1): 13-18.
    \37\ Amiot, S., et al., Fenestrated endovascular grafting: the 
French multicentre experience. Eur J Vasc Endovasc Surg, 2010. 
39(5): p. 537-44.
---------------------------------------------------------------------------

    The applicant also stated that the intended use of the 
Zenith[supreg] F. Graft differs from standard AAA endovascular grafts 
in that the fenestrated device provides physicians the ability to treat 
patients who have infrarenal aortic neck lengths as short as 4 mm, 
where standard endovascular AAA devices require an infrarenal aortic 
neck length of at least 10 to 15 mm. Therefore, the applicant believes 
that the Zenith[supreg] F. Graft offers an additional AAA repair option 
to those patients who have limited surgical treatment options (for 
example, if short infrarenal neck lengths make the patients at too high 
a risk to be candidates for open surgical repair).
    The applicant also stated, for patients who have AAAs and short 
infrarenal neck lengths, the Zenith[supreg] F. Graft offers a less 
invasive treatment option than open surgical repair. The applicant 
referred to several sources of literature to support the following 
endpoints for fenestrated endovascular aortic repair (EVAR) versus open 
repair of the juxtarenal AAA relative to open repair of the juxtarenal 
AAA: reduced peri-operative mortality (2.4 percent (range: 0 to 5.7 
percent)) 38,39,40,41,42,43,44,45,46 reported for 
fenestrated EVAR repairs versus 2.9 percent (range 0 to 7.4 percent) 
47,48 reported for open repair of juxtarenal AAA); reduced 
morbidity by reducing renal failure requiring permanent dialysis (1.9 
percent (pooled average) for fenestrated EVAR repairs versus 3.4 
percent reported for open repair of juxtarenal AAA); shorter hospital 
stay and less operative blood loss to open repair. The applicant 
maintains that fenestrated EVAR repair results in an average length of 
stay of 3.5 days, compared to 14.2 days for open repair of juxtarenal 
AAA, and blood loss

[[Page 53364]]

of 537 ml, compared to 2586 ml for open repair of juxtarenal AAA.
---------------------------------------------------------------------------

    \38\ Nordon, I.M., et al., Modern treatment of juxtarenal 
abdominal aortic aneurysms with fenestrated endografting and open 
repair--a systematic review. Eur J Vasc Endovasc Surg, 2009. 38(1): 
p. 35-41.
    \39\ Verhoeven, E.L., et al., Fenestrated stent grafting for 
short-necked and juxtarenal abdominal aortic aneurysm: an 8-year 
single-centre experience. Eur J Vasc Endovasc Surg, 2010. 39(5): p. 
529-36.
    \40\ Chisci E, Kristmundsson T, de Donato G, et al. The AAA with 
a challenging neck: outcome of open versus endovascular repair with 
standard and fenestrated stent-grafts. J Endovasc Ther 2009;16:137-
146.
    \41\ Amiot, S., et al., Fenestrated endovascular grafting: the 
French multicentre experience. Eur J Vasc Endovasc Surg, 2010. 
39(5): p. 537-44.
    \42\ Kristmundsson T, Sonesson B, Malina M, et al. Fenestrated 
endovascular repair for juxtarenal aortic pathology. J Vasc Surg 
2009;49:568-574.
    \43\ Beck AW, Bos WT, Vourliotakis G, et al. Fenestrated and 
branched endograft repair of juxtarenal aneurysms after previous 
open aortic reconstruction. J Vasc Surg 2009;49:1387-1394.
    \44\ Tambyraja, A.L., et al., Fenestrated aortic endografts for 
juxtarenal aortic aneurysm: medium term outcomes. Eur J Vasc 
Endovasc Surg, 2011. 42(1): p. 54-8.
    \45\ Unpublished results, Evaluation of the Safety and 
Effectiveness of the Zenith(R) Fenestrated AAA Endovascular Graft, 
Zenith Fenestrated AAA Endovascular Graft Pivotal Study, 
Clinicaltrials.gov identifier NCT00875563.
    \46\ Unpublished results, British Society of Endovascular 
Therapy-sponsored GlobalStar Collaborative Study.
    \47\ Jongkind V, Yeung K, et al. Juxtarenal aortic aneurysm 
repair. J. Vasc. Surg. 2010 Sept; 29(3) 760-767.
    \48\ Landry G, Lau I, Liem T, Mitchell E, Moneta G.. Open 
abdominal aortic aneurysm repair in the endovascular era: effect of 
clamp site on outcomes. Arch. Surg., 144 (9) Sep. 2009, 811-6.
---------------------------------------------------------------------------

    In the proposed rule, we noted that the information provided by the 
applicant to evaluate substantial clinical improvement compares this 
technology to open surgical repair. We expressed concern that the 
applicant did not present publicly available information comparing the 
technology to medical management, which the applicant mentions as 
another method for treating patients anatomically unsuited for 
currently approved AAA endovascular grafts. In these comparisons, we 
were also concerned that information regarding the longevity of the 
Zenith[supreg] F. Graft as well as long-term complications and 
secondary interventions or reinterventions has not been presented. In 
terms of the data presented by the applicant, we were concerned that 
these clinical study data were nonrandomized, did not differentiate 
between patients by infrarenal neck length and/or suitability for other 
endovascular grafts, and were of noninferiority. We invited public 
comment on whether or not the Zenith[supreg] F. Graft meets the 
substantial clinical improvement criterion.
    Comment: The applicant responded to our concerns from the proposed 
rule by submitting a public comment with supplemental information. With 
respect to the concern that the applicant did not compare the 
technology to medical management which the applicant listed as a 
treatment option (in addition to an open procedure), the applicant 
cited the FDA indications of the device and noted that while the 
application referred to medical management it was not intended to 
suggest that medical management was a reasonable alternative treatment 
option for AAAs at heightened risk of rupture. Therefore, the applicant 
assumed that medical management had already been maximized in the 
patients' treatment regimen and that some type of surgical intervention 
was necessary to treat the aneurysm and prevent rupture. Additionally, 
the applicant further explained that in its application, prior to the 
Zenith[supreg] F. Graft, surgery was considered the most appropriate 
option for patients who have a suitably large aneurysm. However, 
certain patient factors may prevent surgical intervention including 
anatomical limitations that prevent the use of current endovascular 
stents or the patient's attendant comorbidities may alter the risk/
benefit equation so that surgery is not a viable option. As a result, 
the applicant stated that medical management represented the default 
treatment and at risk of aneurysm rupture but is still considered 
inferior to a definitive surgical intervention. The applicant concluded 
that it is for these patients that the Zenith[supreg] F. Graft was 
developed.
    The applicant also cited clinical data that demonstrated little 
improvement has been achieved in the survival rates of patients who do 
not undergo a surgical intervention for their aneurysm (because the 
aneurysm may rupture) in contrast to the published series on 
fenestrated repair, which has indicated low 30-day mortality rates. 
Therefore, the applicant believed that surgical intervention with the 
Zenith[supreg] F. Graft is considered a suitable treatment for a 
patient population (where a surgical intervention was not an option 
prior to the Zenith[supreg] F. Graft) when considering the potential 
risk and benefit of the procedure.
    The applicant also responded to the concern that there is a lack of 
data on long term complications and secondary interventions or re-
interventions. The commenter noted that Mastracci et al presented at 
the 2012 Society of Vascular Surgery annual meeting on the durability 
of branched and fenestrated endografts reported that 650 patients 
underwent endovascular aortic repair with branched or fenestrated 
devices at the Cleveland Clinic. Approximately one-third of these 
patients underwent a fenestrated AAA repair; the balance were branched 
thoracoabdominal and thoracic aortic aneurysm repairs. Through 9 years 
of follow-up (with a mean of 3 years), secondary procedures were 
performed for 0.6 percent of celiac, 4 percent of SMA, 6 percent of 
right renal, and 5 percent of left renal arteries. The average time to 
reintervention was 237 days and the 30 days, 1 year and 5 year freedom 
from any intervention was 98 percent, 94 percent, and 84 percent, 
respectively. Death resulted from branch stent complications in only 
two patients (related to SMA thrombosis). Mastracci et al concluded 
that branches, following branched or fenestrated aortic repair, appear 
to be durable, and are rarely the cause of patient death; the absence 
of long-term data on the branch patency in open repair precludes 
comparison, yet the lower morbidity and mortality risk coupled with 
longer-term durability data will further alter the balance of repair 
options. The applicant noted that this conclusion is consistent with 
the applicant's conclusion.
    Finally, in response to the concern that the studies conducted were 
non randomized, did not differentiate between patients by infrarenal 
neck length and/or suitability for other endovascular grafts and were 
of non inferiority, the commenter responded that a randomized test was 
not conducted because it was anticipated that the clinical trial 
conducted for FDA registration would primarily enroll high risk 
patients in whom open surgical repair would present an unacceptably 
high risk of operative mortality. The applicant stated that this 
precluded a randomized study design. With regard to the concern about 
not considering other endovascular graft options, the applicant 
explained that the shortest FDA-approved neck length indication of an 
available standard AAA graft is >10 mm (IFU--Medtronic Endurant 
Endovascular Graft). The Zenith[supreg] F. Graft is designed to treat 
neck lengths of >=4 mm, and there is no other endovascular graft 
available in the USA indicated to treat such short neck lengths. The 
applicant also clarified that the study of non-inferiority was for the 
IDE clinical study performed for FDA approval. One of the study's goals 
was to show non-inferiority in 6-month treatment success, comparing 
matched patients treated with a standard Zenith AAA Endovascular Graft 
(used to treat AAAs anatomically suited for treatment) with patients 
treated with a standard endovascular device. The purpose was to 
demonstrate that the Zenith[supreg] F. Graft could offer a treatment 
option to patients with a juxtarenal AAA that was not worse than the 
well-established treatment success experienced with a standard AAA 
endovascular graft when used to treat patients anatomically suited for 
a standard device (not when using a standard AAA graft to treat a 
short-necked, juxtarenal aneurysm). The applicant concluded that for 
this device, this intended patient population, and this comparator a 
non-inferiority design is a valid study design demonstrating non-
inferiority to the high standard of success experienced in standard AAA 
endovascular repair and provides compelling evidence of Zenith[supreg] 
F. Graft's effectiveness.
    Response: We appreciate the applicant's response in regard to our 
concerns presented in the proposed rule. We agree that the 
Zenith[supreg] F. Graft represents a substantial clinical improvement 
over existing technologies because it offers a treatment option to a 
patient population that would otherwise require an open procedure or a 
treatment option to those patients who are ineligible for an open 
procedure. The Zenith[supreg] F. Graft offers a less invasive treatment 
option compared to an open procedure which results in reduced 
mortality, reduced morbidity, shorter hospital stays and less operative 
blood loss.
    Comment: Other commenters were concerned that the Zenith[supreg] F. 
Graft may

[[Page 53365]]

not meet the substantial clinical criterion because of the concerns 
expressed by CMS in the proposed rule.
    Response: As discussed above, the applicant has responded to our 
concerns and we agree that the Zenith[supreg] F. Graft meets the 
substantial clinical improvement criterion.
    Based on the discussion above, the Zenith[supreg] F. Graft meets 
all of the new technology add-on payment policy criteria. Therefore, we 
are approving the Zenith[supreg] F. Graft for new technology add-on 
payments in FY 2013. Cases involving the Zenith[supreg] F. Graft that 
are eligible for new technology add-on payments will be identified by 
ICD-9-CM procedure code 39.78. 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''), we do not believe it is appropriate to include these 
costs in our determination of the maximum cost to determine the 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.

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

A. Background

    Section 1886(d)(3)(E) of the Act requires that, as part of the 
methodology for determining prospective payments to hospitals, the 
Secretary must adjust the standardized amounts ``for area differences 
in hospital wage levels by a factor (established by the Secretary) 
reflecting the relative hospital wage level in the geographic area of 
the hospital compared to the national average hospital wage level.'' In 
accordance with the broad discretion conferred under the Act, we 
currently define hospital labor market areas based on the delineations 
of statistical areas established by the Office of Management and Budget 
(OMB). A discussion of the FY 2013 hospital wage index based on the 
statistical areas, including OMB's revised definitions of Metropolitan 
Areas, appears under section III.B. of this preamble.
    Beginning October 1, 1993, section 1886(d)(3)(E) of the Act 
requires that we update the wage index annually. Furthermore, this 
section of the Act provides that the Secretary base the update on a 
survey of wages and wage-related costs of short-term, acute care 
hospitals. The survey must exclude the wages and wage-related costs 
incurred in furnishing skilled nursing services. This provision also 
requires us to make any updates or adjustments to the wage index in a 
manner that ensures that aggregate payments to hospitals are not 
affected by the change in the wage index. The adjustment for FY 2013 is 
discussed in section II.B. of the Addendum to this final 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 budget neutrality adjustment for 
FY 2013 is discussed in section II.A.4.b. of the Addendum to this final 
rule.
    Section 1886(d)(3)(E) of the Act also provides for the collection 
of data every 3 years on the occupational mix of employees for short-
term, acute care hospitals participating in the Medicare program, in 
order to construct an occupational mix adjustment to the wage index. A 
discussion of the occupational mix adjustment that we are applying 
beginning October 1, 2012 (the FY 2013 wage index) appears under 
section III.F. of this preamble.
    In response to concerns frequently expressed by providers and other 
relevant parties that the current wage index system does not 
effectively reflect the true variation in labor costs for a large 
cross-section of hospitals, two studies were undertaken by the 
Department. First, section 3137(b) of the Affordable Care Act required 
the Secretary to submit to Congress a report that includes a plan to 
comprehensively reform the Medicare wage index applied under section 
1886(d) of the Act. In developing the plan, the Secretary was directed 
to take into consideration the goals for reforming the wage index that 
were set forth by the Medicare Payment Advisory Commission (MedPAC) in 
its June 2007 report entitled ``Report to Congress: Promoting Greater 
Efficiency in Medicare'' and to ``consult with relevant affected 
parties.'' Second, the Secretary commissioned the Institute of Medicine 
(IOM) to ``evaluate hospital and physician geographic payment 
adjustments, the validity of the adjustment factors, measures and 
methodologies used in those factors, and sources of data used in those 
factors.'' Reports on both of these studies recently have been 
released. We refer readers to section IX.B. of this preamble for 
summaries of the studies, their findings, and recommendations on 
reforming the wage index system.

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. In 
accordance with the broad discretion under section 1886(d)(3)(E) of the 
Act, beginning with FY 2005, we define hospital labor market areas 
based on the Core-Based Statistical Areas (CBSAs) established by OMB 
and announced in December 2003 (69 FR 49027). For a discussion of OMB's 
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) 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. For the FY 2013 wage 
index, to be effective October 1, 2012 and before the availability of 
OMB's new area delineations, we proposed to use the same labor market 
areas that we used for the FY 2012 wage index (76 FR 51581).
    We did not receive any public comments on the use of labor market 
areas for the FY 2013 wage index. Therefore, we are finalizing, for FY 
2013, the use of the same labor market areas that we used for the FY 
2012 wage index.

C. Worksheet S-3 Wage Data for the FY 2013 Proposed Wage Index

    The FY 2013 wage index values are based on the data collected from 
the Medicare cost reports submitted by hospitals for cost reporting 
periods beginning in FY 2009 (the FY 2012 wage indices were based on 
data from cost reporting periods beginning during FY 2008).

[[Page 53366]]

1. Included Categories of Costs
    The FY 2013 wage index includes the following categories of data 
associated with costs paid under the IPPS (as well as outpatient 
costs):
     Salaries and hours from short-term, acute care hospitals 
(including paid lunch hours and hours associated with military leave 
and jury duty)
     Home office costs and hours
     Certain contract labor costs and hours (which includes 
direct patient care, certain top management, pharmacy, laboratory, and 
nonteaching physician Part A services, and certain contract indirect 
patient care services (as discussed in the FY 2008 final rule with 
comment period (72 FR 47315))
     Wage-related costs, including 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 2012, the wage 
index for FY 2013 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 FY 
2013 wage index also excludes the salaries, hours, and wage-related 
costs of hospital-based rural health clinics (RHCs), and Federally 
qualified health centers (FQHCs) because Medicare pays for these costs 
outside of the IPPS (68 FR 45395). In addition, salaries, hours, and 
wage-related costs of CAHs are excluded from the wage index, for the 
reasons explained in the FY 2004 IPPS final rule (68 FR 45397).
3. Use of Wage Index Data by Providers Other Than Acute Care Hospitals 
Under the IPPS
    Data collected for the IPPS wage index are also currently used to 
calculate wage indices applicable to other providers, such as SNFs, 
home health agencies (HHAs), and hospices. In addition, they are used 
for prospective payments to IRFs, IPFs, and LTCHs, and for hospital 
outpatient services. We note that, in the IPPS rules, we do not address 
comments pertaining to the wage indices for non-IPPS providers, other 
than for LTCHs. Such comments should be made in response to separate 
proposed rules for those providers.

D. Verification of Worksheet S-3 Wage Data

    The wage data for the FY 2013 wage index were obtained from 
Worksheet S-3, Parts II and III of the Medicare cost report for cost 
reporting periods beginning on or after October 1, 2008, and before 
October 1, 2009. For wage index purposes, we refer to cost reports 
during this period as the ``FY 2009 cost report,'' the ``FY 2009 wage 
data,'' or the ``FY 2009 data.'' Instructions for completing Worksheet 
S-3, Parts II and III are in the Provider Reimbursement Manual (PRM), 
Part II, Sections 3605.2 and 3605.3. The data file used to construct 
the wage index includes FY 2009 data submitted to us as of June 27, 
2012. 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 FY 2013 
proposed wage index, we identified and excluded 32 providers with data 
that were too aberrant to include in the proposed wage index, although 
we stated that if data elements for some of these providers are 
corrected, we intended to include some of these providers in the FY 
2013 final wage index. We have received corrected data for 8 providers, 
and therefore, we are including the data for these 8 providers in the 
FY 2013 final wage index. However, we also have determined that the 
data for 14 additional providers are too aberrant to include in the FY 
2013 final wage index. Thus, in total we are excluding the data of 38 
providers from the FY 2013 final wage index.
    In constructing the FY 2013 proposed wage index, we included the 
wage data for facilities that were IPPS hospitals in FY 2009, inclusive 
of those facilities that have since terminated their participation in 
the program as hospitals, as long as those data did not fail any of our 
edits for reasonableness. We believe that including the wage data for 
these hospitals is, in general, appropriate to reflect the economic 
conditions in the various labor market areas during the relevant past 
period and to ensure that the current wage index represents the labor 
market area's current wages as compared to the national average of 
wages. However, we excluded the wage data for CAHs as discussed in the 
FY 2004 IPPS final rule (68 FR 45397). For the proposed rule, we 
removed 7 hospitals that converted to CAH status between February 15, 
2011, the cut-off date for CAH exclusion from the FY 2012 wage index, 
and February 14, 2012, the cut-off date for CAH exclusion from the FY 
2013 wage index. However, after the issuance of the proposed rule, we 
have learned that one provider which we believed was a CAH actually is 
an IPPS hospital with valid wage data for FY 2013. Therefore, we have 
added that provider's wage data for purposes of the FY 2013 final wage 
index. Accordingly, for this final rule, we removed the data of only 6 
(not 7) hospitals that have converted to CAH status between February 
15, 2011 and February 14, 2012. After removing hospitals with aberrant 
data and hospitals that converted to CAH status, the FY 2013 final wage 
index is calculated based on 3,447 hospitals.
    For the FY 2013 final 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 we allotted such 
hospitals' data in the FY 2012 wage index (76 FR 51591). Table 2 
containing the FY 2013 wage index associated with this final rule 
(available on the CMS Web site) includes separate wage data for the 
campuses of four multicampus hospitals.

E. Method for Computing the FY 2013 Unadjusted Wage Index

    The method used to compute the FY 2013 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).
    As discussed in that 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, 2008, through April 15, 2010, 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 as we 
proposed, we are not making any changes to the usage for FY 2013. The 
factors used to adjust the hospital's data were based on the midpoint 
of the cost reporting period, as indicated below.

[[Page 53367]]

                    Midpoint of Cost Reporting Period
------------------------------------------------------------------------
                                                              Adjustment
                     After                         Before       factor
------------------------------------------------------------------------
10/14/2008....................................   11/15/2008      1.03003
11/14/2008....................................   12/15/2008      1.02786
12/14/2008....................................   01/15/2009      1.02582
01/14/2009....................................   02/15/2009      1.02386
02/14/2009....................................   03/15/2009      1.02199
03/14/2009....................................   04/15/2009      1.02014
04/14/2009....................................   05/15/2009      1.01826
05/14/2009....................................   06/15/2009      1.01635
06/14/2009....................................   07/15/2009      1.01446
07/14/2009....................................   08/15/2009      1.01263
08/14/2009....................................   09/15/2009      1.01086
09/14/2009....................................   10/15/2009      1.00910
10/14/2009....................................   11/15/2009      1.00728
11/14/2009....................................   12/15/2009      1.00539
12/14/2009....................................   01/15/2010      1.00352
01/14/2010....................................   02/15/2010      1.00172
02/14/2010....................................   03/15/2010      1.00000
03/14/2010....................................   04/15/2010      0.99830
------------------------------------------------------------------------

    For example, the midpoint of a cost reporting period beginning 
January 1, 2009, and ending December 31, 2009, is June 30, 2009. An 
adjustment factor of 1.01446 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 2012 IPPS/LTCH PPS 
final rule, the FY 2013 national average hourly wage (unadjusted for 
occupational mix) is $37.4855. The Puerto Rico overall average hourly 
wage (unadjusted for occupational mix) is $15.8643.

F. Occupational Mix Adjustment to the FY 2013 Wage Index

    As stated earlier, section 1886(d)(3)(E) of the Act provides for 
the collection of data every 3 years on the occupational mix of 
employees for each short-term, acute care hospital participating in the 
Medicare program, in order to construct an occupational mix adjustment 
to the wage index, for application beginning October 1, 2004 (the FY 
2005 wage index). The purpose of the occupational mix adjustment is to 
control for the effect of hospitals' employment choices on the wage 
index. For example, hospitals may choose to employ different 
combinations of registered nurses, licensed practical nurses, nursing 
aides, and medical assistants for the purpose of providing nursing care 
to their patients. The varying labor costs associated with these 
choices reflect hospital management decisions rather than geographic 
differences in the costs of labor.
1. Development of Data for the FY 2013 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 2012 IPPS/LTCH PPS final rule (76 FR 51582 
through 51586), the FY 2013 wage index is based on data collected on 
the new 2010 Medicare Wage Index Occupational Mix Survey (Form CMS-
10079 (2010)). The survey is available on the CMS Web site at: http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/index.html?redirect=/AcuteInpatientPPS/WIFN/list.asp 
and through the fiscal intermediaries/MACs. Hospitals were required to 
submit their completed 2010 surveys to their fiscal intermediaries/MACs 
by July 1, 2011. The preliminary, unaudited 2010 survey data will be 
released in early October 2012, along with the FY 2010 Worksheet S-3 
wage data, for the FY 2014 wage index review and correction process.
2. Calculation of the Occupational Mix Adjustment for FY 2013
    For FY 2013, we calculated the occupational mix adjustment factor 
using the same methodology that we used for the FY 2012 wage index (76 
FR 51582 through 51586). As a result of applying this methodology, the 
FY 2013 occupational mix adjusted national average hourly wage is 
$37.4608. The FY 2013 occupational mix adjusted Puerto Rico-specific 
average hourly wage is $15.9019.
    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 FY 2013 wage 
index. For the FY 2010 survey, the response rate was 91.7 percent. In 
the FY 2013 wage index established in this final 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 new 2010 occupational mix 
survey. We instructed fiscal intermediaries/MACs to begin gathering 
this information as part of the FY 2013 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 Occupational Mix Adjustment and 
the FY 2013 Occupational Mix Adjusted Wage Index

1. Analysis of the Occupational Mix Adjustment and the Occupational Mix 
Adjusted Wage Index
    As discussed in section III.F. of this preamble, for FY 2013, we 
apply the occupational mix adjustment to 100 percent of the FY 2013 
wage index. We calculated the final 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 FY 2013 wage index 
results in a national average hourly wage of $37.4608 and a Puerto-Rico 
specific average hourly wage of $15.9019. After excluding data of 
hospitals that either submitted aberrant data that failed critical 
edits, or that do not have FY 2009 Worksheet S-3, Parts II and III, 
cost report data for use in calculating the FY 2013 wage index, we 
calculated the FY 2013 wage index using the occupational mix survey 
data from 3,192 hospitals. Using the Worksheet S-3, Parts II and III, 
cost report data of 3,447 hospitals and occupational mix survey data 
from 3,192 hospitals represents a 92.6 percent survey response rate. 
The FY 2013 national average hourly wages for each occupational mix 
nursing subcategory as calculated in Step 2 of the occupational mix 
calculation are as follows:

 
------------------------------------------------------------------------
                                                          Average hourly
          Occupational mix nursing subcategory                 wage
------------------------------------------------------------------------
National RN............................................     37.435806262
National LPN and Surgical Technician...................     21.779745192
National Nurse Aide, Orderly, and Attendant............     15.334363984
National Medical Assistant.............................     17.232523608

[[Page 53368]]

 
National Nurse Category................................     31.852574284
------------------------------------------------------------------------

    The national average hourly wage for the entire nurse category as 
computed in Step 5 of the occupational mix calculation is 
$31.852574284. 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 43.47 
percent, and the national percentage of hospital employees in the all 
other occupations category is 56.53 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 also compared the FY 2013 wage data adjusted for occupational 
mix from the 2010 survey to the FY 2013 wage data adjusted for 
occupational mix from the 2007-2008 survey. This analysis illustrates 
the effect on area wage indices of using the 2010 survey data compared 
to the 2007-2008 survey data; that is, it shows whether hospitals' wage 
indices are increasing or decreasing under the current survey data as 
compared to the prior survey data. Our analysis shows that the FY 2013 
wage index values for 189 (48.3 percent) urban areas and 14 (29.2 
percent) rural areas will increase. Fifty three (13.6 percent) urban 
areas will increase by 1 percent or more, and no urban areas will 
increase by 5 percent or more. Three (6.3 percent) rural areas will 
increase by 1 percent or more, and no rural areas will increase by 5 
percent or more. However, the wage index values for 199 (50.9 percent) 
urban areas and 34 (70.8 percent) rural areas will decrease using the 
2010 data. Sixty-three (16.1 percent) urban areas will decrease by 1 
percent or more, and no urban areas will decrease by 5 percent or more. 
Three (6.3 percent) rural areas will decrease by 1 percent or more, and 
no rural areas will decrease by 5 percent or more. The largest positive 
impacts using the 2010 data compared to the 2007-2008 data are 4.34 
percent for an urban area and 3.20 percent for a rural area. The 
largest negative impacts are 4.91 percent for an urban area and 2.26 
percent for a rural area. Three urban areas and no rural areas will be 
unaffected. These results indicate that the wage indices of more CBSAs 
overall (53.1 percent) will be decreasing due to application of the 
2010 occupational mix survey data as compared to the 2007-2008 survey 
data to the wage index. Further, a larger percentage of urban areas 
(48.3 percent) will benefit from the 2010 occupational mix survey as 
compared to the 2007-2008 survey than will rural areas (29.2 percent).
    We compared the FY 2013 occupational mix adjusted wage indices for 
each CBSA to the unadjusted wage indices for each CBSA. As a result of 
applying the occupational mix adjustment to the wage data, the wage 
index values for 206 (52.7 percent) urban areas and 34 (70.8 percent) 
rural areas will increase. One hundred fifteen (29.4 percent) urban 
areas will increase by 1 percent or more, and 3 (0.77 percent) urban 
areas will increase by 5 percent or more. Fourteen (29.2 percent) rural 
areas will increase by 1 percent or more, and no rural areas will 
increase by 5 percent or more. However, the wage index values for 185 
(47.3 percent) urban areas and 14 (29.2 percent) rural areas will 
decrease. Eighty-one (20.7 percent) urban areas will decrease by 1 
percent or more, and one urban area will decrease by 5 percent or more 
(0.26 percent). Seven (14.6 percent) rural areas will decrease by 1 
percent or more, and no rural areas will decrease by 5 percent or more. 
The largest positive impacts are 6.68 percent for an urban area and 
2.62 percent for a rural area. The largest negative impacts are 5.26 
percent for an urban area and 3.14 percent for a rural area. No urban 
or rural areas are unaffected. These results indicate that a larger 
percentage of rural areas (70.8 percent) will benefit from the 
occupational mix adjustment than do urban areas (52.7 percent). While 
these results are more positive overall for rural areas than under the 
previous occupational mix adjustment that used survey data from 2007-
2008, almost one-third (29.2 percent) of rural CBSAs will still 
experience a decrease in their wage indices as a result of the 
occupational mix adjustment.
2. Application of the Rural, Imputed, and Frontier Floors
a. Rural Floor
    Section 4410 of Public Law 105-33 provides that, for discharges on 
or after October 1, 1997, the area wage index applicable to any 
hospital that is located in an urban area of a State may not be less 
than the area wage index applicable to hospitals located in rural areas 
in that State. 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 FY 2013 proposed wage index, we estimated that 393 hospitals would 
receive an increase in their FY 2013 proposed wage index due to the 
application of the rural floor. In the FY 2013 final wage index 
associated with this final rule and available on the CMS Web site, 454 
hospitals are receiving an increase in their FY 2013 wage index due to 
the application of the rural floor.
    Comment: We did not make any proposals in the FY 2013 proposed rule 
pertaining to the rural floor. However, several commenters opposed the 
application of the national budget neutrality adjustment for the rural 
floor. The commenters noted our discussion of the impacts of the policy 
in the FY 2013 IPPS/LTCH PPS proposed rule (77 FR 28170 through 28172) 
and, in particular, the table in the Addendum at 77 FR 28171 shows 
Massachusetts would receive significant extra IPPS payments alone for 
FY 2013, due, in part, to this policy. The commenters opined that the 
national rural floor budget neutrality policy ``unfairly skews Medicare 
payments, reducing payments to thousands of hospitals across the nation 
while benefitting a few dozen hospitals in one State.'' The commenters 
requested that CMS reassess the national rural floor budget neutrality 
provision and recommended that CMS reverse the provision.
    Response: As discussed above, the national rural floor budget 
neutrality adjustment for the IPPS is required by section 3141 of 
Public Law 111-148.
b. Imputed Floor and Alternative, Temporary Methodology for Computing 
the Imputed Floor
    In the FY 2005 IPPS final rule (69 FR 49109), 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 2012 IPPS/LTCH PPS final rule and is set to 
expire on September 30, 2013 (we refer readers to the discussion in the 
FY 2012 IPPS/LTCH PPS final rule (76 FR 51593)). There are currently 
two all-urban States, New Jersey and Rhode Island, that have a range of 
wage

[[Page 53369]]

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 current method for 
computing the imputed floor benefits only New Jersey, and not Rhode 
Island.
    The current methodology for computing the imputed floor is 
specified in our regulations at 42 CFR 412.64(h)(4). In computing the 
imputed floor for an all-urban State, we calculate 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 
compare the State's own ratio to the average ratio for all-urban States 
and whichever is higher is multiplied by the highest CBSA wage index 
value in the State--the product of which establishes 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 is equal to its original CBSA wage index value. 
Conversely, New Jersey has 10 CBSAs. Because the average ratio of New 
Jersey and Rhode Island is higher than New Jersey's own ratio, the 
current methodology provides a benefit for New Jersey, but not for 
Rhode Island.
    In the FY 2013 IPPS/LTCH PPS proposed rule (77 FR 27950), for the 
FY 2013 wage index, the final year of the extension of the imputed 
floor policy under Sec.  412.64(h)(4), we proposed an alternative, 
temporary methodology for computing the imputed floor wage index to 
address the concern that the current imputed floor methodology 
guarantees a benefit for one all-urban State with multiple wage indices 
but cannot benefit the other. We proposed that this proposed 
alternative methodology for calculating the imputed floor would be 
established using data from the application of the rural floor policy 
for FY 2013. We proposed that we would first determine 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 proposed rule and 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 would establish the 
State's alternative imputed floor. We proposed to amend Sec.  
412.64(h)(4) to add new paragraphs (v)(A) and (B) to incorporate this 
proposed alternative methodology, and to make conforming references.
    In addition, for the FY 2013 wage index, we did not propose any 
changes to the current imputed floor methodology at Sec.  412.64(h)(4) 
and, therefore, no changes to the New Jersey imputed floor computation 
for FY 2013. Instead, for FY 2013, we proposed a second, alternative 
methodology that would be used in cases where an all-urban State has a 
range of wage indices assigned to its hospitals, but the State cannot 
benefit from the methodology in existing Sec.  412.64(h)(4). 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.
    Comment: A few commenters addressed our proposal for an 
alternative, temporary methodology for calculating the imputed floor. 
Some of the commenters supported the proposal. One commenter also urged 
CMS to adopt the alternative methodology for 3 consecutive fiscal years 
rather than the proposed 1-year period. Another commenter, a State 
hospital association, urged CMS to make the imputed floor a permanent 
policy in the FY 2013 final rule. Two State hospital associations 
opposed the proposal. One association agreed with the rationale that 
CMS had previously provided in the FY 2012 IPPS/LTCH PPS proposed rule 
(76 FR 25878 through 25879) for not proposing to extend the imputed 
floor policy. The association urged CMS to allow the imputed floor 
policy to expire and not to finalize the proposed alternative 
methodology that would allow additional hospitals to benefit from the 
imputed floor. Another association suggested that CMS should provide 
additional information and consider the effects on all States, not just 
the benefits that may apply to one or two specific States. 
Additionally, the national hospital association stated that it would be 
premature for it to comment on the proposal at this time due to its 
ongoing analysis of wage index reform.
    Response: As discussed above and in the FY 2013 IPPS/LTCH PPS 
proposed rule, we proposed the alternative methodology for only the one 
remaining year of the imputed floor policy, which expires on September 
30, 2013. We made no proposal for extending the general imputed floor 
policy beyond FY 2013; therefore, we do not agree with the suggestion 
to adopt a final policy that would extend the alternative, temporary 
policy for 3 years, beyond FY 2013. As proposed, we are adopting as 
final for the FY 2013 wage index the alternative, temporary methodology 
for computing the imputed floor wage index, as well as the proposal to 
amend Sec.  412.64(h)(4) to add new paragraphs (v)(A) and (B) to 
incorporate the alternative methodology. In addition, as we stated 
above, we plan to further evaluate the need, applicability, and 
methodology for the imputed floor policy and will address these issues 
in the FY 2014 proposed rule.
    The wage index and impact tables associated with this FY 2013 final 
rule that are available on the CMS Web site include the application of 
the imputed floor policy at Sec.  412.64(h)(4) and a national budget 
neutrality adjustment for the imputed floor. There are 29 providers in 
New Jersey that will receive an increase in their FY 2013 wage index 
due to the imputed floor policy. The wage index and impact tables for 
this final rule also reflect the application of the second alternative 
methodology for computing the imputed floor, which will benefit four 
hospitals in Rhode Island.
c. 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 a discussion of the implementation of this provision 
in the FY 2011 IPPS/LTCH PPS final rule (75 FR 50160). Four States in 
the FY 2013 wage index are receiving the frontier State wage index: 
Montana, North Dakota, South Dakota, and Wyoming; 45 providers in these 
States are receiving the frontier floor value of 1.0000 in the FY 2013 
wage index associated with this final rule. 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 is greater 
than the frontier floor value (that is, 1.0000) and, therefore, is the 
State's minimum wage index for FY 2013.
    We did not receive any public comments on the frontier floor 
policy.
    The areas affected by the rural, imputed, and frontier floor 
policies for the FY 2013 wage index are identified in Table 4D 
associated with this final rule and available on the CMS Web site.
3. FY 2013 Wage Index Tables
    The wage index values for FY 2013 (except those for hospitals 
receiving wage index adjustments under section 1886(d)(13) of the Act), 
included in

[[Page 53370]]

Tables 4A, 4B, 4C, and 4F, available on the CMS Web site, include the 
occupational mix adjustment, geographic reclassification or 
redesignation as discussed in section III.H. of this preamble, and the 
application of the rural, imputed, and frontier State floors as 
discussed in section III.G.2. of this preamble.
    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 2007, 2008, and 2009 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 2007 and FY 2008 cost reporting 
periods, as well as the FY 2009 period used to calculate the FY 2013 
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 average hourly wages in Tables 2, 3A, 
and 3B, which are available on the CMS Web site, include the 
occupational mix adjustment. The wage index values in Tables 4A, 4B, 
4C, and 4D also include the national rural and imputed floor budget 
neutrality adjustment. The wage index values in Table 2 also include 
the 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 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 of the proximity 
requirements in the FY 2002 IPPS final rule (66 FR 39874 and 39875).) 
The general policies for reclassifications and redesignations that we 
proposed, and are adopting, for FY 2013, 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 2013 MGCRB Reclassifications
a. FY 2013 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 final rule was constructed, the MGCRB had 
completed its review of FY 2013 reclassification requests. Based on 
such reviews, there were 193 hospitals approved for wage index 
reclassifications by the MGCRB for FY 2013. Because MGCRB wage index 
reclassifications are effective for 3 years, for FY 2013, hospitals 
reclassified during FY 2011 or FY 2012 are eligible to continue to be 
reclassified to a particular labor market area based on such prior 
reclassifications. There were 265 hospitals approved for wage index 
reclassifications in FY 2011, and 205 hospitals approved for wage index 
reclassifications in FY 2012. Of all the hospitals approved for 
reclassification for FY 2011, FY 2012, and FY 2013, based upon the 
review at the time of this final rule, 663 hospitals are in a 
reclassification status for FY 2013.
    Under 42 CFR 412.273, hospitals that have been reclassified by the 
MGCRB are permitted to withdraw their applications within 45 days of 
the publication of a proposed rule. 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) and 
the FY 2003 IPPS final rule (67 FR 50065). Additional discussion on 
withdrawals and terminations, and clarifications regarding reinstating 
reclassifications and ``fallback'' reclassifications, were included in 
the FY 2008 IPPS final rule (72 FR 47333).
    Changes to the wage index that result from withdrawals of requests 
for reclassification, terminations, wage index corrections, appeals, 
and the Administrator's review process for FY 2013 are incorporated 
into the wage index values published in this FY 2013 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 2014
    Applications for FY 2014 reclassifications are due to the MGCRB by 
September 4, 2012 (the first working day of September 2012). We note 
that this is also the deadline for canceling a previous wage index 
reclassification withdrawal or termination under 42 CFR 412.273(d). 
Applications and other information about MGCRB reclassifications may be 
obtained, beginning in mid-July 2012, 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. 
Hospitals located in these counties have been known as ``Lugar'' 
hospitals and the counties themselves are often referred to

[[Page 53371]]

as ``Lugar'' counties. The FY 2013 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. Reclassifications Under Section 1886(d)(8)(B) of the Act
    As in the past, hospitals redesignated under section 1886(d)(8)(B) 
of the Act are also eligible to be reclassified to a different area by 
the MGCRB. Affected hospitals were permitted to compare the 
reclassified wage index for the labor market area in Table 4C 
associated with the proposed rule (which was available on the CMS Web 
site) into which they would be reclassified by the MGCRB to the wage 
index for the area to which they are redesignated under section 
1886(d)(8)(B) of the Act. Hospitals could have withdrawn from an MGCRB 
reclassification within 45 days of the publication of the FY 2013 
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 FY 2008 IPPS final rule with 
comment period (72 FR 47337) for a discussion of this policy.)
5. Reclassifications Under Section 508 of Pub. L. 108-173
    Section 508 of Public Law 108-173 allowed certain qualifying 
hospitals to receive wage index reclassifications and assignments that 
they otherwise would not have been eligible to receive under the law. 
Although section 508 originally was scheduled to expire after a 3-year 
period, Congress extended the provision several times, as well as 
certain special exceptions that would have otherwise expired. For a 
discussion of the original section 508 provision and its various 
extensions, we refer readers to the FY 2012 notice, CMS-1442-N, which 
went on public display at the Office of the Federal Register on April 
19, 2012, and was published in the Federal Register on April 20, 2012 
(77 FR 23722). The most recent extension of the provision was included 
in section 302 of the Temporary Payroll Tax Cut Continuation Act of 
2011 (Pub. L. 112-78), as amended by section 3001 of the Middle Class 
Tax Relief and Job Creation Act of 2012 (Pub. L. 112-96), which 
extended certain section 508 reclassifications and special exception 
wage indices for a 6-month period during FY 2012, from October 1, 2011 
through March 31, 2012. Section 508 reclassifications and certain 
special exceptions have not been extended for FY 2013. Therefore, the 
FY 2013 wage index associated with this final rule does not reflect any 
section 508 reclassifications or special exception wage indices.
6. 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 IV.G. of this preamble.)
    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 \49\) 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.
---------------------------------------------------------------------------

    \49\ 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.
7. Cancellation of Acquired Rural Status Due to MDH Expiration
    As we discussed in the FY 2011 IPPS/LTCH PPS final rule (75 FR 
50286 and 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 MDH program from the end of FY 2011 (for discharges occurring 
before October 1, 2011) to the end of FY 2012 (for discharges occurring 
before October 1, 2012). Accordingly, beginning with FY 2013, there 
will no longer be an MDH designation, and those hospitals that were 
formerly MDHs will be paid based solely on the Federal rate.
    Comment: Several commenters requested CMS to permit hospitals to 
revisit any geographic reclassification decisions that would impact 
their ability to qualify for MDH status in the event that the Congress 
extends the MDH program. In particular, in anticipation of the 
September 30, 2012 expiration of the MDH program, the commenters stated 
that some urban hospitals that became rural under section 1886(d)(8)(E) 
of the Act in order to qualify for MDH status had canceled their rural 
status so that they could instead receive their urban area wage index 
or reclassify for a higher wage index under section 1886(d)(10) of the 
Act for FY 2013. The commenters further stated that if the MDH program 
is extended, such hospital would no longer be qualified for MDH status 
because the hospital is no longer a rural provider.
    Response: Although we understand the commenters' concerns, we 
believe it would be imprudent for CMS in this FY 2013 final rule to 
revise existing Medicare regulations and procedural rules around 
actions that the Congress may take in the future. If legislation is 
passed to continue the MDH program, CMS will develop policies and 
procedures to implement the specific provisions of such legislation.

I. FY 2013 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

[[Page 53372]]

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 FY 2013 
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) to have waived the out-migration adjustment, in the FY 2012 
IPPS/LTCH PPS final rule (76 FR 51601 through 51602)). Table 4J, 
available via the Internet on the CMS Web site, lists the out-migration 
adjustments for the FY 2013 wage index.
    We did not receive any public comments on our proposals for the 
out-migration adjustment for FY 2013.

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 2013 wage index were made 
available on October 4, 2011, through the Internet on the CMS Web site 
at: http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/index.html?redirect=/AcuteInpatientPPS/WIFN/list.asp.
    In the interest of meeting the data needs of the public, beginning 
with the proposed FY 2009 wage index, we post an additional public use 
file on our Web site that reflects the actual data that are used in 
computing the proposed wage index. The release of this new file does 
not alter the current wage index process or schedule. We notify the 
hospital community of the availability of these data as we do with the 
current public use wage data files through our Hospital Open Door 
forum. We encourage hospitals to sign up for automatic notifications of 
information about hospital issues and the scheduling of the Hospital 
Open Door forums at the CMS Web site at: http://www.cms.gov/Outreach-and-Education/Outreach/OpenDoorForums/index.html.
    In a memorandum dated September 29, 2011, 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 4, 2011 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 5, 2011. 
Hospitals were notified of this deadline and of all other deadlines and 
requirements, including the requirement to review and verify their data 
as posted on the preliminary wage index data files on the Internet, 
through the September 29, 2011 memorandum referenced above.
    In the September 29, 2011 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 5, 
2011.
    The fiscal intermediaries/MACs notified the hospitals by mid-
February 2012 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 2012. CMS published the proposed 
wage index public use files that included hospitals' revised wage index 
data on February 21, 2012. Hospitals had until March 5, 2012, 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 11, 
2012. 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 18, 2012.
    Hospitals were given the opportunity to examine Table 2, which was 
listed in section VI. of the Addendum to the proposed rule and 
available on the CMS Web site at: http://www.cms.gov. Table 2 contained 
each hospital's adjusted average hourly wage used to construct the wage 
index values for the past 3 years, including the FY 2009 data used to 
construct the proposed FY 2013 wage index. We noted that the hospital 
average hourly wages shown in Table 2 only reflected changes made to a 
hospital's data that were transmitted to CMS by March 2, 2012.
    We released the final wage index data public use files in early May 
2012 on the Internet at: http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/index.html?redirect=/
AcuteInpatientPPS/WIFN/list.asp. The May 2012 public use files were 
made available solely for the limited purpose of identifying any 
potential errors made by CMS or the fiscal intermediary/MAC in the 
entry of the final wage index data that resulted from the correction 
process described above (revisions submitted to CMS by the fiscal 
intermediaries/MACs by April 11, 2012). If, after reviewing the May 
2012 final public use files, a hospital believed that its wage or 
occupational mix data were incorrect due to a fiscal intermediary/MAC 
or CMS error in the entry or tabulation of the final data, the hospital 
had to send a letter to both its fiscal intermediary/MAC and CMS that 
outlined why the hospital believed an error existed and provided all 
supporting information, including relevant dates (for example, when it 
first became aware of the error). CMS and the fiscal intermediaries 
(or, if applicable, the MACs) had to receive these requests no later 
than June 4, 2012.
    Each request also had to be sent to the fiscal intermediary/MAC. 
The fiscal intermediary/MAC reviewed requests upon receipt and 
contacted CMS immediately to discuss any findings.
    After the release of the May 2012 wage index data files, changes to 
the wage and occupational mix data were only made in those very limited 
situations involving an error by the fiscal intermediary/MAC or CMS 
that the hospital could not have known about before its review of the 
final wage index data files. Specifically, neither the fiscal 
intermediary/MAC nor CMS approved the following types of requests:
     Requests for wage index data corrections that were 
submitted too late to be included in the data transmitted to

[[Page 53373]]

CMS by fiscal intermediaries or the MACs on or before April 11, 2012.
     Requests for correction of errors that were not, but could 
have been, identified during the hospital's review of the February 21, 
2012 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 4, 2012) 
were incorporated into the final wage index in this FY 2013 IPPS/LTCH 
PPS final rule, which will be effective October 1, 2012.
    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 2013 payment rates. Accordingly, 
hospitals that did not meet the procedural deadlines set forth above 
will not be afforded a later opportunity to submit wage index data 
corrections or to dispute the fiscal intermediary's (or, if applicable, 
the MAC's) decision with respect to requested changes. Specifically, 
our policy is that hospitals that do not meet the procedural deadlines 
set forth above will not be permitted to challenge later, before the 
Provider Reimbursement Review Board, the failure of CMS to make a 
requested data revision. (See W. A. Foote Memorial Hospital v. Shalala, 
No. 99-CV-75202-DT (E.D. Mich. 2001) and Palisades General Hospital v. 
Thompson, No. 99-1230 (D.D.C. 2003).) We refer readers also to the FY 
2000 IPPS final rule (64 FR 41513) for a discussion of the parameters 
for 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 2012, 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 2013 wage index by August 2012, and the 
implementation of the FY 2013 wage index on October 1, 2012. If 
hospitals availed themselves of the opportunities afforded to provide 
and make corrections to the wage and occupational mix data, the wage 
index implemented on October 1 should be accurate. Nevertheless, in the 
event that errors are identified by hospitals and brought to our 
attention after June 4, 2012, 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 4 deadline for making corrections 
to the wage data for the following fiscal year's wage index. This 
provision is not available to a hospital seeking to revise another 
hospital's data that may be affecting the requesting hospital's wage 
index for the labor market area. As indicated earlier, because CMS 
makes the wage index data available to hospitals on the CMS Web site 
prior to publishing both the proposed and final IPPS rules, and the 
fiscal intermediaries or the MACs notify hospitals directly of any wage 
index data changes after completing their desk reviews, we do not 
expect that midyear corrections will be necessary. However, under our 
current policy, if the correction of a data error changes the wage 
index value for an area, the revised wage index value will be effective 
prospectively from the date the correction is made.
    In the FY 2006 IPPS final rule (70 FR 47385), we revised 42 CFR 
412.64(k)(2) to specify that, effective on October 1, 2005, that is, 
beginning with the FY 2006 wage index, a change to the wage index can 
be made retroactive to the beginning of the Federal fiscal year only 
when: (1) The fiscal intermediary (or, if applicable, the MAC) or CMS 
made an error in tabulating data used for the wage index calculation; 
(2) the hospital knew about the error and requested that the fiscal 
intermediary (or, if applicable, the MAC) and CMS correct the error 
using the established process and within the established schedule for 
requesting corrections to the wage index data, before the beginning of 
the fiscal year for the applicable IPPS update (that is, by the June 4, 
2012 deadline for the FY 2013 wage index); and (3) CMS agreed that the 
fiscal intermediary (or, if applicable, the MAC) or CMS made an error 
in tabulating the hospital's wage index data and the wage index should 
be corrected.
    In those circumstances where a hospital requested a correction to 
its wage index data before CMS calculated the final wage index (that 
is, by the June 4, 2012 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 FY 2013 Wage Index

    Section 1886(d)(3)(E) of the Act directs the Secretary to adjust 
the proportion of the national prospective payment system base payment 
rates that are attributable to wages and wage-related costs by a factor 
that reflects the relative differences in labor costs among geographic 
areas. It also directs the Secretary to estimate from time to time the 
proportion of hospital costs that are labor-related: ``The Secretary 
shall adjust the proportion (as estimated by the Secretary from time to 
time) of hospitals' costs which are attributable to wages and wage-
related costs of the DRG prospective payment rates * * *.'' We refer to 
the portion of hospital costs attributable to wages and wage-related 
costs as the labor-related share. The labor-related share of the 
prospective payment rate is adjusted by an index of relative labor 
costs, which is referred to as the wage index.
    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

[[Page 53374]]

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 resulted in a higher payment.
    In the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 43850 
through 43856), we rebased and revised the hospital market basket for 
operating costs. We established a FY 2006-based IPPS hospital market 
basket to replace the FY 2002-based IPPS hospital market basket, 
effective October 1, 2009. In that final rule, we presented our 
analysis and conclusions regarding the frequency and methodology for 
updating the labor-related share for FY 2010. We also recalculated a 
labor-related share of 68.8 percent, using the FY 2006-based IPPS 
market basket, for discharges occurring on or after October 1, 2009. In 
addition, we implemented this revised and rebased labor-related share 
in a budget neutral manner, but consistent with section 1886(d)(3)(E) 
of the Act, we did not take into account the additional payments that 
would be made as a result of hospitals with a wage index less than or 
equal to 1.0 being paid using a labor-related share lower than the 
labor-related share of hospitals with a wage index greater than 1.0.
    The labor-related share is used to determine the proportion of the 
national IPPS base payment rate to which the area wage index is 
applied. In this FY 2013 final rule, as we proposed, we are not making 
any further changes to the national average proportion of operating 
costs that are attributable to wages and salaries, fringe benefits, 
contract labor, the labor-related portion of professional fees, 
administrative and business support services, and all other labor-
related services (previously referred to in the FY 2002-based IPPS 
market basket as labor-intensive).
    We did not receive any public comments on the application of the 
labor-related share to the wage index for FY 2013. Therefore, for FY 
2013, we are continuing to use a labor-related share of 68.8 percent 
for discharges occurring on or after October 1, 2012. Tables 1A and 1B, 
which are published in section VI. of the Addendum to this final rule 
and available via the Internet, reflect this labor-related share. We 
note that section 403 of Public Law 108-173 amended sections 
1886(d)(3)(E) and 1886(d)(9)(C)(iv) of the Act to provide that the 
Secretary must employ 62 percent as the labor-related share unless this 
employment ``would result in lower payments to a hospital than would 
otherwise be made.'' Therefore, for all IPPS hospitals whose wage 
indices are less than 1.0000, we are applying the wage index to a 
labor-related share of 62 percent of the national standardized amount. 
For all IPPS hospitals whose wage indices are greater than 1.0000, we 
are applying the wage index to a labor-related share of 68.8 percent of 
the national standardized amount.
    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. As we proposed in the FY 2013 proposed rule, we are 
continuing to use a labor-related share for the Puerto Rico-specific 
standardized amounts of 62.1 percent for discharges occurring on or 
after October 1, 2012. This Puerto Rico labor-related share of 62.1 
percent was also adopted in the FY 2010 IPPS/LTCH PPS final rule (74 FR 
43857) at the time the FY 2006-based hospital market basket was 
established, effective October 1, 2009. Consistent with our methodology 
for determining the national labor-related share, we added the Puerto 
Rico-specific relative weights for wages and salaries, fringe benefits, 
contract labor, the labor-related portion of professional fees, 
administrative and business support services, and all other labor-
related services (previously referred to in the FY 2002-based IPPS 
market basket as labor-intensive) to determine the labor-related share. 
Puerto Rico hospitals are paid based on 75 percent of the national 
standardized amounts and 25 percent of the Puerto Rico-specific 
standardized amounts. The labor-related share of a hospital's Puerto 
Rico-specific rate will be either the Puerto Rico-specific labor-
related share of 62.1 percent or 62 percent, depending on which results 
in higher payments to the hospital. If the hospital has a Puerto Rico-
specific wage index of greater than 1.0, we will set the hospital's 
rates using a labor-related share of 62.1 percent for the 25 percent 
portion of the hospital's payment determined by the Puerto Rico 
standardized amounts because this amount will result in higher 
payments. Conversely, a hospital with a Puerto Rico-specific wage index 
of less than 1.0 will be paid using the Puerto 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 
Puerto Rico labor-related share of 62.1 percent for FY 2013 is 
reflected in Table 1C, which is published in section VI. of the 
Addendum to this final rule and available via the Internet.

IV. Other Decisions and Changes to the IPPS for Operating Costs and 
Graduate Medical Education (GME) Costs

A. Hospital Readmissions Reduction Program

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 an 
adjustment factor that accounts for 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 payments, 
and 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).'' 
We are finalizing policies to implement the statutory

[[Page 53375]]

provisions related to the definition of ``base operating DRG payment 
amount'' in this FY 2013 IPPS/LTCH PPS final rule.
    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 
``aggregate payments for excess readmissions'' and ``aggregate payments 
for all discharges'' for an applicable hospital for the applicable 
period. The term ``aggregate payments for excess readmissions'' is 
defined in section 1886(q)(4)(A) of the Act as ``the sum, for 
applicable conditions * * * of the product, for each applicable 
condition, of (i) the base operating DRG payment amount for such 
hospital for such applicable period for such condition; (ii) the number 
of admissions for such condition for such hospital for such applicable 
period; and (iii) the ``Excess Readmission Ratio * * * for such 
hospital for such applicable period minus 1.'' The ``excess readmission 
ratio'' is a hospital-specific ratio based on each applicable 
condition. Specifically, section 1886(q)(4)(C) of the Act defines the 
excess readmission ratio as the ratio of ``risk-adjusted readmissions 
based on actual readmissions'' for an applicable hospital for each 
applicable condition, to the ``risk-adjusted expected readmissions'' 
for the applicable hospital for the applicable condition.
    Section 1886(q)(5) of the Act provides definitions of ``applicable 
condition,'' ``expansion of applicable conditions,'' ``applicable 
hospital,'' ``applicable period,'' and ``readmission.'' The term 
``applicable condition,'' this 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
    As we stated in the FY 2012 IPPS/LTCH PPS final rule, we intend to 
implement the requirements of the Hospital Readmissions Reduction 
Program in the FY 2012, FY 2013, and future IPPS/LTCH PPS rulemaking 
cycles.
    As explained above, the payment adjustment factor set forth in 
section 1886(q) of the Act does not apply to discharges until FY 2013. 
Therefore, we elected to implement the Hospital Readmissions Reduction 
Program over a 2-year period, beginning in FY 2012. 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 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.
    We are providing below a summary of the provisions of section 
1886(q) of the Act that were finalized in the FY 2012 IPPS/LTCH PPS 
final rule.
    Applicable conditions: In the FY 2012 IPPS/LTCH PPS final rule (76 
FR 51665 through 51666), we finalized the applicable conditions for the 
FY 2013 Hospital Readmissions Reduction Program as heart failure (HF), 
acute myocardial infarction (AMI), and pneumonia (PN). Section 
1886(q)(5)(A) of the Act requires that the ``applicable conditions'' be 
conditions or procedures for which readmissions are ``high volume or 
high expenditure'' and that ``measures of such readmissions'' have been 
endorsed by the entity with a contract under section 1890(a) of the Act 
(currently National Quality Forum (NQF)) and such endorsed measures 
have exclusions for readmissions that are unrelated to the prior 
discharge. In the FY 2013 IPPS/LTCH PPS proposed rule (77 FR 27956), we 
proposed to codify this definition of ``applicable conditions'' in the 
regulations we proposed at 42 CFR 412.152.
    Comment: One commenter stated that the Hospital Readmissions 
Reduction Program measures were not reviewed by the Measure Application 
Partnership (MAP) in 2011. The commenter urged CMS to coordinate MAP 
review of the Hospital Readmissions Reduction Program and related 
measures.
    Response: We thank the commenter for the suggestion. The three 
measures

[[Page 53376]]

to be used in the Hospital Readmissions Reduction Program were 
finalized in the FY 2012 IPPS/LTCH Final Rule posted at the Office of 
the Federal Register on August 1, 2011, which pre-dated the requirement 
and establishment of the pre-rulemaking process as described under 
section 3014(b) of the Affordable Care Act, which amended section 1890A 
of the Act. This provision of the Affordable Care Act requires the 
Secretary to submit measures to a multi-stakeholder group, currently 
the Measure Application Partnership (MAP) for pre-rulemaking review. 
CMS established this pre-rulemaking process in December 2011. Because 
the statutory language at section 1886(q)(1) of the Act, as amended by 
section 3025 of the Affordable Care Act, refers to FY 2013 ``and 
subsequent Fiscal Years'' but authorizes expansion of the conditions 
(and hence measures) to be used in the program beginning with FY 2015, 
we believe the statute implies that the measures adopted for use in FY 
2013 would also be used in FY 2014. In the future, if we consider 
proposing any new measures for future expansion of the Hospital 
Readmissions Reduction Program beyond these three measures, which we 
have the authority to do beginning with in FY 2015, we plan to submit 
them to the MAP for pre-rulemaking review.
    Comment: Several commenters expressed concerns that the Hospital 
Readmissions Reduction Program may induce unintended consequences of 
overcrowding hospital emergency departments, as hospitals may believe 
they are compelled to avoid readmitting patients.
    Response: We recognize that performance-based payment penalty or 
incentive programs may have the potential for unintended consequences. 
We are committed to monitoring the measures and assessing unintended 
consequences over time, such as the inappropriate shifting of care, 
increased patient morbidity and mortality, and other negative 
unintended consequences for patients.
    After consideration of the public comments we received, we are 
finalizing our proposal to codify the definition of ``applicable 
condition'' at 42 CFR 412.152 without modification.
    In the FY 2012 IPPS/LTCH PPS final rule, we discussed how each of 
the finalized ``applicable conditions'' for FY 2013 meets these 
statutory requirements. We noted that section 1886(q)(5)(B) of the Act 
allows for the Secretary to expand the conditions for the Hospital 
Readmissions Reduction Program starting in FY 2015.
    Comment: Several commenters addressed the expansion of conditions 
to be included in the program. Some commenters urged that CMS not 
include the hospital-wide readmission measure, currently proposed for 
the Hospital IQR program, in future HRRP program expansion. Commenters 
believed it would result in double counting of AMI, HF, and PN 
patients, and that condition-specific measures were more actionable and 
understandable for hospitals subject to this provision. Other 
commenters encouraged CMS to include the following conditions in future 
program expansions: Atrial fibrillation (as one of other vascular 
conditions); chronic obstructive pulmonary disease; coronary artery 
bypass grafting; and percutaneous transluminal angioplasty. One 
commenter suggested that CMS delay the expansion of the program until 
such time as hospitals gain familiarity with the first three conditions 
used in the program.
    Response: We thank the commenters for these suggestions and will 
take them into consideration when we address the expansion of the 
applicable conditions in future rulemaking.
    Readmission: In the FY 2012 IPPS/LTCH PPS final rule (76 FR 51666), 
we finalized a definition of ``readmission'' as occurring when a 
patient is discharged from an applicable hospital and then admitted to 
the same or another acute care hospital, that is, another applicable 
hospital, within a specified time period (30 days) from the date of 
discharge from the initial index hospitalization. In the FY 2013 IPPS/
LTCH PPS proposed rule (77 FR 27956), we proposed to codify this 
definition of ``readmission'' under the regulations we proposed at 42 
CFR 412.152. As we also discussed in the FY 2012 IPPS/LTCH PPS final 
rule, only one readmission during the 30 days following the discharge 
from the initial hospitalization will count as a readmission for 
purposes of calculating the ratios set forth in section 1886(q)(3) of 
the Act. For any given patient, none of the subsequent readmissions he 
or she experiences within 30 days after discharge would be counted as a 
new ``index'' admission (that is, an admission evaluated for a 
subsequent readmission).
    Comment: Several commenters did not believe that the readmissions 
measures adequately measures quality. Commenters noted that it is 
difficult to determine which readmissions are preventable, and 
questioned whether reducing readmissions is a desirable outcome because 
increased mortality could lead to decreased readmission rates. One 
commenter cited research that higher readmission rates occur in 
communities with more physicians and hospital beds and in areas with 
high poverty and large minority or older populations to demonstrate 
that it is unclear whether readmissions always reflect poor quality.
    Response: We believe that risk-standardized readmission rates 
provide an important quality indicator to hospitals, CMS, patients, 
policymakers, and insurers. Readmission of patients who were recently 
discharged after hospitalization with AMI, HF, or pneumonia represents 
an important, expensive, and often avoidable adverse outcome. The risk 
of readmission can be avoided by improving the quality and type of care 
provided to these patients. There is ample evidence \50,51,52\ that 
hospitals can reduce their readmission rates through such efforts as 
ensuring patients are clinically ready at discharge, reducing risk of 
infection, reconciling medications, improving communication with 
community providers participating in transitions of care, educating 
patients adequately upon discharge, and assuring patients understand 
follow-up care upon discharge. These interventions are aligned with 
efforts to improve mortality and are not at odds with the goal of 
survival. Moreover, the results of public reporting of the measures 
indicate that hospitals can do well on both mortality and readmission 
rates.
---------------------------------------------------------------------------

    \50\ Jack BW, Chetty VK, Anthony D et al. A reengineered 
hospital discharge program to decrease rehospitalization: a 
randomized trial. Ann Intern Med. Feb 3, 2009;150(3):178-187.
    \51\ Coleman EA, Perry C, Chalmers S, Min SJ. The care 
transitions intervention: results of a randomized controlled trial. 
Arch Intern Med. Sep 25 2006;166(17):1822-1828.
    \52\ Hernandez AF, Greiner MA, Fonarow GC, et al. Relationship 
between early physician follow-up and 30-day readmission among 
Medicare beneficiaries hospitalized for heart failure. JAMA, May 5 
2010:303(17):1716-1722.
---------------------------------------------------------------------------

    Comment: One commenter recommended a 7-day to 15-day readmission 
timeframe instead of 30 days, stating that a 30-day measure may be 
appropriate for assessing a community's ability to work together to 
provide the best care and services for patients, but may attribute more 
responsibility to the hospital than might otherwise be warranted.
    Response: In the FY 2012 IPPS/LTCH PPS final rule, we finalized 30 
days as the time period specified from the date of discharge for the 
purpose of defining readmission for the Hospital Readmissions Reduction 
Program. The 30-day time period meets the requirement set forth in 
section 1886(q)(5)(E) of the Act that the time period specified by the 
Secretary for

[[Page 53377]]

defining a readmission be consistent with the time period specified for 
the endorsed measures. Furthermore, the timeframe of 30 days is a 
clinically meaningful period for hospitals to collaborate with their 
communities in an effort to reduce readmissions.
    Comment: One commenter expressed specific concerns that the list of 
planned readmissions in the AMI measure does not account for all 
planned readmissions. Specifically, the commenter recommended the 
inclusion of AMI codes with ``0'' in the fifth digit, indicating 
``episode of care unspecified.'' The commenter noted that if the 
episode of care is unspecified, it could be outside the 30-day 
readmission timeframe. The commenter added that under the ICD-9-CM 
guidelines, the ICD-9-CM codes 410.XX for AMI are used for ``acute'' 
condition for up to 8 weeks duration.
    Response: We thank the commenter for the suggestion. However, the 
AMI ICD-9-CM codes described by the commenter are used to identify 
index hospitalizations, not readmissions. The measures only identify 
the index admissions based on the use of the principal discharge 
diagnosis, which should represent the reason the patient was admitted 
to the hospital. Therefore, despite the use of the word 
``unspecified,'' in most cases the AMI will have been the primary 
reason for admission and appropriately included as an index case.
    Comment: One commenter stated the 30-day timeframe may be 
appropriate for assessing a community's ability to collaborate and 
provide the best care and services for discharged patients, but 30 days 
is too long a timeframe to fairly assess the attribution of the 
hospital's direct care of a patient.
    Response: The 30-day time period that we finalized in the FY 2012 
IPPS/LTCH PPS final rule (76 FR 51666) meets the requirement set forth 
in section 1886(q)(5)(E) of the Act that the time period specified by 
the Secretary for defining a readmission be consistent with the time 
period specified for the endorsed measures. We disagree with the 
commenter that a much shorter timeframe is fairer, and believe that the 
timeframe of 30 days is a clinically meaningful period for hospitals to 
collaborate with their communities in an effort to reduce readmissions. 
This approach would ensure patients are clinically ready at discharge, 
reducing risk of infection, reconciling medications, improving 
communication with community providers participating in transitions of 
care, educating patients adequately upon discharge, and assuring 
patients understand follow-up care upon discharge.
    Comment: One commenter requested clarification whether transfers 
from short-term acute care hospitals to LTCHs are excluded from the 
definition of readmissions.
    Response: As defined in section 1886(q)(5)(E) of the Act, and 
finalized in the FY 2012 IPPS/LTCH PPS final rule, only readmissions to 
a subsection (d) hospital or a hospital that is paid under section 
1814(b)(3) [of the Act] will be counted as readmissions. Readmissions 
to LTCHs will not be counted as readmissions.
    After consideration of the public comments we received, we are 
finalizing our proposal to codify the definition of ``readmission'' at 
42 CFR 412.152 without modification.
    Measures for applicable conditions: As finalized in the FY 2012 
IPPS/LTCH PPS final rule (76 FR 51666 and 51667), we will use three 
NQF-endorsed, hospital risk-standardized readmission measures for FY 
2013, which are currently in the Hospital IQR Program: Acute Myocardial 
Infarction 30-day Risk Standardized Readmission Measure (NQF 
0505); Heart Failure 30-day Risk Standardized Readmission 
Measure (NQF 0330); and Pneumonia 30-day Risk Standardized 
Readmission Measure (NQF 0506). The measures, as endorsed by 
the NQF, include the 30-day time window, risk-adjustment methodology, 
and exclusions for certain readmissions.
    As finalized in the FY 2012 IPPS/LTCH PPS final rule (76 FR 51673), 
we will use the risk-standardized readmission ratio of the NQF-endorsed 
readmission measures as the excess readmission ratio. The ratio is a 
measure of relative performance. If a hospital performs better than an 
average hospital that admitted similar patients (that is, patients with 
the same risk factors for readmission such as age and comorbidities), 
the ratio will be less than 1.0. If a hospital performs worse than 
average, the ratio will be greater than 1.0.
    Measure methodology: In the FY 2012 IPPS/LTCH PPS final rule (76 FR 
51668 through 51669), we finalized the methodology of the measures and 
are summarizing it briefly below.
    Index hospitalizations included in the measure calculation: We 
finalized the definition of ``index hospitalization'' consistent with 
the NQF-endorsed definition. The measures define an index 
hospitalization as a hospitalization evaluated in the measure for a 
possible readmission within 30 days after discharge (that is, a 
hospitalization included in the measure calculation). The measures 
exclude as index hospitalizations patients who died during the first 
admission, patients who have not spent at least 30 days post-discharge 
enrolled in Medicare fee-for-service (FFS), patients who are discharged 
against medical advice, and patients who are under the age of 65.
    Comment: Several commenters suggested exclusions from the index 
hospitalizations included in the measures, which included exclusions 
for patients under ``extreme circumstances'' such as transplants, end-
stage renal disease, burn, trauma, psychosis and substance abuse.
    Response: We appreciate the concern expressed by the commenters 
that patients of these ``extreme circumstances'' clinically could be 
sicker and more likely to be readmitted. The measures address clinical 
differences in hospitals' case-mix through risk adjustment rather than 
through excluding patients from the measure as suggested by the 
commenter. The goal in developing outcomes measures is to create a 
clinically cohesive cohort that includes as many patients as possible 
admitted with the given condition. Greatly expanding our list of 
exclusions would result in a measure that was less useful and 
meaningful, because it would reflect the care of fewer patients. In 
addition, we believe that by excluding patients with significant 
comorbidities, the measure would not assess of the quality of care for 
those patients. To fairly profile hospitals' performance, it is 
critical to place hospitals on a level playing field and account for 
their differences in the patients that present for care. This is 
accomplished through adequate risk-adjustment for patients' clinical 
presentation rather than exclusion of patients.
    Risk adjustment: The three measures, as endorsed by the NQF and 
finalized in the FY 2012 IPPS/LTCH PPS final rule, adjust for key 
factors that are clinically relevant and have strong relationships with 
the outcome (for example, patient demographic factors, patient 
coexisting medical conditions, and indicators of patient frailty). 
Under the current NQF-endorsed methodology, these covariates are 
obtained from Medicare claims extending 12 months prior to, and 
including, the index admission. This risk-adjustment approach adjusts 
for differences in the clinical status of the patient at the time of 
the index admission as well as for demographic variables. A complete 
list of the variables used for risk adjustment and the clinical and 
statistical process for selecting the variables for each NQF-endorsed 
measure, as proposed, is

[[Page 53378]]

available at the Web site: http://qualitynet.org/dcs/ContentServer?c=Page&pagename=QnetPublic%2FPage%2FQnetTier4&cid=1219069855841.
    Comment: Several commenters suggested that the readmission measures 
include adjustments for socioeconomic status and other factors that are 
either outside the hospitals' immediate control or that may adversely 
affect certain types of hospitals more than others. Suggestions for 
variables to include in either the patient level or the hospital-level 
model included: patient race, ethnicity, language, income, lifestyle, 
health literacy, dual-eligible status (that is, eligibility for both 
Medicare and Medicaid), insurance status, functional status, cognitive 
impairment, post-discharge care support structure, and access to 
primary care. Two commenters suggested stratification of the hospital 
calculations by the percentage of dual-eligible patients. Other 
commenters suggested accounting for societal factors such as housing 
stability, food scarcity, and chronic unemployment.
    Response: We have continued to consider and evaluate stakeholder 
concerns regarding the influence of patient socioeconomic status on 
readmission rates. In our analyses (http://cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/HospitalQualityInits/Downloads/HospitalChartBook2011.pdf), we consistently find that 
hospitals that care for large proportions of patients of low 
socioeconomic status are capable of performing well on readmission 
measures. Many safety-net providers and teaching hospitals do as well 
or better on the measures than hospitals without substantial numbers of 
patients of low socioeconomic status. The measures include rigorous 
risk-adjustment for differences in patient illness, and this likely 
incorporates some of the patient differences due to socioeconomic 
status (to the extent that patients of low socioeconomic status present 
to the hospital with greater level of disease). The risk adjustment for 
clinical factors likely captures much of the variation due to 
socioeconomic status, thus leading to more modest impact of 
socioeconomic status on hospital readmissions than stakeholders expect. 
We note that the goal of risk adjustment is to account for factors that 
are inherent to the patient at the time of admission, such as severity 
of disease, so as to put hospitals on a level playing field. The 
measures should not be risk-adjusted to account for differences in 
practice patterns that lead to lower or higher risk for patients to be 
readmitted. The measures aim to reveal differences related to the 
patterns of care. Furthermore, the statutory language in section 
1886(q)(5)(A)(ii)(I) of the Act requires that the measures included in 
the Hospital Readmissions Reduction Program be consistent with measures 
that are NQF-endorsed. A change in the risk-adjustment methodology of 
the measures as they are currently endorsed by the NQF would take time 
and necessitate additional rulemaking to adopt such measures. The 
measures also do not adjust for socioeconomic status because the 
association between socioeconomic status and health outcomes can be 
due, in part, to differences in the quality of health care received by 
groups of patients with varying socioeconomic status. The measures do 
not adjust for socioeconomic status, or other patient factors such as 
race, both because we do not want to hold hospitals to different 
standards for the outcomes of their patients of low socioeconomic 
status (which would definitely occur if calculations were stratified by 
percent dual-eligible patients as suggested by two of the commenters), 
and because our analyses demonstrate that patient socioeconomic status 
does not determine hospital performance on the readmission measures. 
Finally, we do not want to mask potential disparities or minimize 
incentives to improve the outcomes of disadvantaged populations. This 
approach is also consistent with the guidance from the NQF, which 
states that risk models should not obscure disparities by adjusting for 
factors associated with inequality in case (such as race or 
socioeconomic status) as well as with the methodology finalized in the 
FY 2012 IPPS/LTCH PPS final rule (76 FR 51660 through 51676). However, 
we are committed to tracking this issue and will continue to evaluate 
disparities in care and the impact of the Hospital Readmissions 
Reduction Program on providers of vulnerable populations, including 
teaching and safety-net hospitals.
    Comment: Two commenters supported CMS' decisions not to risk-adjust 
for socioeconomic status and urged CMS to resist making any changes to 
the Hospital Readmissions Reduction Program based on socioeconomic 
status, because the same care protocols that work with a different 
population may also work with patients of lower socioeconomic 
circumstances. One commenter appreciated the justification for the 
continued exclusion of patient-level socioeconomic status covariates--
that doing so would impose different performance expectations based on 
the income distribution of patients and would also result in 
overfitting the risk adjustment models, in that it would result in an 
overly complex and possibly multicollinear model that yields inaccurate 
predictions.
    Response: We thank the commenters for their support of our approach 
to risk-adjustment.
    Comment: One commenter believed that the risk adjustment variables 
used to calculate readmission rates are not transparent to hospitals 
and urged CMS to ensure they are publicly and easily accessible.
    Response: The risk adjustment variables that will be used to 
calculate readmission rates can be found in the readmission measure 
methodology reports found on the Web site at: http://qualitynet.org/dcs/ContentServer?c=Page&pagename=QnetPublic%2FPage%2FQnetTier4&cid=1219069855841. Some of the patient risk factors are grouped using the CMS 
Condition Categories (CC) classification. A crosswalk of CCs to ICD-9-
CM codes is available at: http://qualitynet.org/dcs/ContentServer?c=Page&pagename=QnetPublic%2FPage%2FQnetTier4&cid=1219069856694.
    Comment: One commenter stated that the comorbidities included in 
the risk-adjustment variables may not all be consistently coded at the 
present time.
    Response: We have validated the 30-day readmission measures with 
models that use medical record-abstracted data for risk adjustment. 
This validation supported the use of the administrative claims data on 
comorbidities and demonstrated that the estimates of hospitals' risk-
standardized readmission rates (RSRRs) based on administrative data are 
very similar to the rates estimated by models based on medical record 
data. This high level of agreement in the results based on the two 
different approaches supports the use of the administrative claims-
based models for public reporting. Our approach to gathering risk 
factors for patients also mitigates the potential limitations of claims 
data. Because not every diagnosis is coded at every visit, we use 
inpatient, outpatient, and physician claims data for the 12 months 
prior to admission, and secondary diagnosis codes during the index 
admission, for risk adjustment.
    Data sources: The finalized measures use Medicare inpatient claims 
data for Medicare FFS patients 65 years and older to identify index 
hospitalizations and readmissions. For risk adjustment, the measures 
use Part A and Part B claims for the 12 months prior to the index 
hospitalization as well as index hospitalization claims.

[[Page 53379]]

    Exclusion of certain readmissions: The NQF-endorsed measures of 
readmissions finalized in the FY 2012 IPPS/LTCH PPS final rule include 
exclusions of readmissions consistent with the statutory requirement 
that all measures exclude certain readmissions that are unrelated to 
the prior discharge, such as transfers to other acute care facilities 
and planned readmissions.
    Comment: Some commenters urged CMS to identify and exclude planned 
readmissions for the AMI, HF, and PN readmission measures. The 
commenters stated that failure to do so may encourage providers to 
delay necessary follow-up procedures. Two commenters urged CMS to 
explore common reasons for planned readmissions, bring them to the NQF 
for review for continued endorsement for the AMI, HF, and PN measures, 
and use these planned readmissions for the measures in subsequent 
rulemaking. A few commenters recommended that CMS also consider 
implementing codes that hospitals can use to designate when a 
readmission is planned so that these cases can be excluded from the 
readmission measure, and recommended using the NUBC Committee's 
proposed discharge status codes to identify planned readmissions.
    Response: Our contractor engaged multiple clinical experts to 
develop a list of planned readmissions which was made part of a 
hospital-wide readmission measure that recently obtained NQF 
endorsement. During the development of this hospital-wide readmission 
measure, there was a 2-week informal public comment period in order to 
receive feedback on the measure and its planned readmission algorithm. 
The list of planned readmissions also underwent a 2-week informal 
public comment period when the hospital-wide readmission measure was 
evaluated at the NQF.
    We maintain the measures annually and submit the updates to NQF for 
review. In response to stakeholder input, we intend to update the 
condition-specific measures to permit more planned readmissions for the 
condition-specific measures, which would not be counted as 
readmissions. Any NQF-approved changes to the measures will then be 
proposed for the Hospital Readmissions Reduction Program through future 
rulemaking. We are aware of the NUBC's intention to propose discharge 
status code on claims to identify planned readmissions. We would 
analyze its reliability, validity, and usability for identifying 
planned readmissions prior to considering the adoption of such a code 
for use in the readmission measures in the future.
    Comment: Some commenters suggested that CMS exclude readmissions 
that occur for reasons such as transplants and device implantation, 
trauma, psychoses, substance use, end-stage renal disease, maternity 
and neonatal readmissions, rehabilitation, sepsis, natural disease or 
treatment progression, acute decompensated heart failure, the result of 
nonhospital community factors, and disaster relief.
    Response: We thank the commenters for these suggestions. Many of 
these suggestions are among the planned readmission updates we intend 
to submit for the AMI, HF and PN measures as part of annual maintenance 
review by NQF. We perform measure maintenance reviews which include 
consideration of public comments, exploration and identification of any 
other exclusions for the measures; in this case, other types of 
readmissions, that would be excluded from the measures as planned 
readmissions would be considered during the maintenance review. If we 
determine certain readmissions should be excluded from the measures, we 
will revise the measures, present them to NQF for endorsement, and 
update the Hospital Readmissions Reduction Program in future 
rulemaking.
    Comment: Several commenters urged CMS to differentiate between 
related and unrelated readmissions. One suggestion to define ``related 
readmissions'' as any readmission for which the patient's primary 
diagnosis falls within the same MS-DRG or as the diagnosis for the 
initial admission, or to use the AHRQ CCs as a way to group diagnoses 
and procedure codes into clinically meaningful groups.
    Response: We do not seek to differentiate between related and 
unrelated readmissions, or to identify preventable readmissions or 
``necessary'' readmissions for several reasons. First, from the patient 
perspective, an unplanned readmission for any reason is likely to be an 
undesirable outcome of care after an acute hospitalization. Second, 
readmissions not directly related to the index condition may still be a 
result of the care received during the index hospitalization. For 
example, a patient hospitalized for heart failure who develops a 
hospital-acquired infection may ultimately be readmitted for sepsis. It 
would be inappropriate to treat this readmission as unrelated to the 
care the patient received during the index hospitalization. 
Furthermore, the range of potentially avoidable readmissions also 
includes those not directly related to the initial hospitalization, 
such as those resulting from poor communication at discharge or 
inadequate follow-up. As such, creating a comprehensive list of 
potential complications related to the index hospitalization would be 
arbitrary, incomplete, and, ultimately, impossible to implement. The 
measures are not meant to suggest that the appropriate readmission rate 
is zero, but rather to identify hospitals that have a higher rate of 
readmissions than would be expected given their case mix.
    Minimum number of discharges for applicable conditions: Section 
1886(q)(4)(C)(ii) of the Act allows the Secretary discretion to 
determine the minimum number of discharges for the applicable 
condition. We finalized a policy in the FY 2012 IPPS/LTCH PPS final 
rule that the minimum number of discharges for applicable conditions is 
25 for each condition for the FY 2013 Hospital Readmissions Reduction 
Program.
    Comment: Several commenters urged CMS to raise the minimum case 
threshold to qualify for the Hospital Readmissions Reduction Program to 
improve the reliability of the measures.
    Response: We determined the 25-case threshold for public reporting 
based on a reliability statistic that is calculated from the 
intercluster correlation, a parameter of the model. We are maintaining 
the minimum 25-case threshold that we adopted through rulemaking last 
year.
    Applicable period: 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. In the FY 2012 IPPS/LTCH PPS final rule, we 
finalized our policy to use 3 years of claims data to calculate the 
proposed readmission measures. Specifically, we finalized the policy to 
use claims data from July 1, 2008, to June 30, 2011, to calculate the 
excess readmission ratios and to calculate the FY 2013 Hospital 
Readmissions Reduction Program payment adjustment. As we discussed in 
section IV.A.3.d. of the preamble of the FY 2013 IPPS/LTCH PPS proposed 
rule (77 FR 27957), the excess readmission ratios used to model our 
proposed methodology to calculate the Hospital Readmissions Reduction 
Program payment adjustment were based on the 3-year time period of July 
1, 2007 to June 30, 2010. However, we indicated that, for the final 
rule, we intended to use excess readmission ratios based on the 
applicable period of July 1, 2008 to June 30, 2011, as finalized in the 
FY 2012 IPPS/LTCH PPS final rule. In the FY 2013 IPPS/LTCH PPS proposed 
rule, we proposed to codify the definition of ``applicable period'' at 
42 CFR 412.152

[[Page 53380]]

as the 3-year period from which data are collected in order to 
calculate excess readmission ratios and adjustments for the fiscal 
year.
    Comment: Several commenters urged CMS to consider a shorter 
timeframe for measuring performance for readmissions such as a 1-year 
or 2-year period. The commenters believed that hospitals should not be 
assessed on readmissions that occurred during 2008, long before the 
policy addressing this provision was passed in the Affordable Care Act.
    Response: In the FY 2012 IPPS/LTCH PPS final rule, we finalized 3 
years as the applicable period for the FY 2013 payment adjustment. We 
use a 3-year period of index admissions to increase the number of cases 
per hospital used for measure calculation, which improves the precision 
of each hospital's readmission estimate. Although this approach 
utilizes older data, it also identifies more variation in hospital 
performance and still allows for improvement from one year of reporting 
to the next. We are maintaining the 3-year period as previously 
adopted.
    Comment: One commenter stated that, although data from across a 3-
year period helps to identify significant improvements over time, there 
is a huge lag in the end of the 3-year period and the commencements of 
penalties (approximately 15 months).
    Response: We decided to use the current timeframe because it 
balances the needs for the most recent claims and for sufficient time 
to process the claims data and calculate the measures to meet the 
program implementation timeline. We will continue to explore the 
feasibility of using more up-to-date data sources.
    After consideration of the public comments we received, we are 
finalizing our proposal to codify our definition of ``applicable 
period'' under the regulations at 42 CFR 412.152 without modification.
    Excess Readmission Ratio Calculation: In the FY 2012 IPPS/LTCH PPS 
final rule (76 FR 51673 through 51676), we finalized the excess 
readmission ratio pursuant to section 1886(q)(4)(C) of the Act. We 
established the excess readmission ratio as the risk-adjusted 
readmission ratio from the NQF-endorsed measures. The ratio is 
calculated using hierarchical logistic regression. The method adjusts 
for variation across hospitals in how sick their patients are when 
admitted to the hospital (and therefore variation in hospital patients' 
readmission risk) as well as the variation in the number of patients 
that a hospital treats to reveal difference in quality. The method 
produces an adjusted actual (or ``predicted'') number in the numerator 
and an ``expected'' number in the denominator. The expected calculation 
is similar to that for logistic regression--it is the sum of all 
patients' expected probabilities of readmission, given their risk 
factors and the risk of readmission at an average hospital.
    For each hospital, the numerator of the ratio used in the NQF-
endorsed methodology (actual adjusted readmissions) is calculated by 
estimating the probability of readmission for each patient at that 
hospital and summing up over all the hospital's patients to get the 
actual adjusted number of readmissions for that hospital. 
Mathematically, the numerator equation can be expressed as:
[GRAPHIC] [TIFF OMITTED] TR31AU12.013

    The denominator of the risk-standardized ratio (excess readmission 
ratio) under this NQF-endorsed methodology sums the probability of 
readmission for each patient at an average hospital. This can be 
expressed mathematically as:

[[Page 53381]]

[GRAPHIC] [TIFF OMITTED] TR31AU12.014

    Thus, the ratio compares the total adjusted actual readmissions at 
the hospital to the number that would be expected if the hospital's 
patients were treated at an average hospital with similar patients. 
Hospitals with more adjusted actual readmissions than expected 
readmissions will have a risk-standardized ratio (excess readmission 
ratio) greater than one. In summary, in the FY 2012 IPPS/LTCH PPS final 
rule, we defined the ``excess readmission ratio'' as the risk-
standardized readmission ratio of the NQF-endorsed readmission 
measures. More in-depth detail surrounding the methodology of excess 
readmission ratio calculation can be accessed on the Web site at: 
http://qualitynet.org/dcs/ContentServer?c=Page&pagename=QnetPublic%2FPage%2FQnetTier4&cid=1219069855841.
    In the FY 2013 IPPS/LTCH PPS proposed rule (77 FR 27958), we 
proposed to codify the definition of ``excess readmission ratio'' under 
the regulations we proposed at 42 CFR 412.152 as a hospital-specific 
ratio for each applicable condition for an applicable period, which is 
the ratio (but not less than 1.0) of (1) risk-adjusted readmissions 
based on actual readmissions for an applicable hospital for each 
applicable condition to (2) the risk-adjusted expected readmissions for 
the applicable hospital for the applicable condition.
    Comment: Two commenters indicated that almost no hospitals are 
statistically significantly different from the U.S. average because the 
hierarchical logistic regression model shrinks the coefficients of 
small hospitals towards the mean. One commenter expressed concern that 
the methodology relies excessively on the ability of the model to 
correct for hospital-specific characteristics and may be at odds with 
the observed rate. Another commenter suggested that alternatives to the 
current method could include looking at more conditions over several 
years which would increase the sample size, reduce random variation, 
and reduce the need to shrink estimates toward the national mean.
    Response: The modeling of the readmission rates takes into account 
hospitals' case-mix as well as the sample size of the hospital. For 
both of these reasons, the risk-standardized rate may appropriately 
differ from the observed rates. These differences are important in 
leveling the playing field for hospitals and accounting for uncertainty 
in small volume estimates. The hierarchical logistic regression model 
that we use to calculate the 30-day measures allows the inclusion of 
hospitals with relatively few observations but takes into account the 
uncertainty associated with sample size.
    Comment: One commenter believed that the statute requires that CMS 
calculate an Observed-to-Expected (O/E) ratio for each readmission 
condition by hospital and to use that ratio to determine the payment 
penalty. The commenter requested that CMS revise its methodology so 
that it calculates hospital-specific observed and expected readmission 
rates and reports them on Hospital Compare.
    Response: We disagree with the commenter's assessment that the 
statute requires that we use an observed to expected ratio. Rather, the 
statute at section 1886(q)(4)(C) of the Act defines the excess 
readmission ratio as the ratio of ``the risk adjusted readmissions 
based on actual readmissions,'' and ``the risk adjusted expected 
readmissions'' as ``determined consistent with a readmission 
methodology that has been endorsed'' by an entity with a contract under 
section 1890(a) of the Act (currently the NQF). The readmission 
measures that we are using for the Hospital Readmissions Reduction 
Program have numerators and denominators consistent with these 
definitions. The measures have been endorsed by the NQF, and we 
finalized use of these NQF-endorsed readmission measures in the FY 2012 
IPPS LTCH PPS final rule.
    Comment: One commenter asked for clarification on the calculation 
of the readmission rates for multiple readmissions, particularly where 
one or more readmissions might be unrelated to the index admission.
    Response: As finalized in the FY 2012 IPPS/LTCH PPS final rule, the 
readmissions measures are designed to measure whether a patient 
experienced at least one readmission within 30 days of an initial (or 
``index'') discharge as a single binary (yes/no) event, rather than 
counting the number of readmissions experienced within 30 days of 
discharge as a separate readmissions. For any given patient, only one 
readmission during the 30 days following the discharge from the initial 
hospitalization will count as a readmission for purposes of calculating 
the ratios set forth in section 1886(q) of the Act. For any given 
patient, none of the subsequent readmissions he or she experiences 
within 30 days after discharge would be counted as a new ``index'' 
admission within the same measure (that is, an admission evaluated in 
the measure for a subsequent readmission). Any eligible admission after 
the 30-day time period will be considered a new index admission. For

[[Page 53382]]

example, if a patient's index admission was for heart failure and the 
patient was readmitted with a primary diagnosis of pneumonia, that 
hospitalization could count as both a readmission for the health 
failure measure and an index admission for the pneumonia measure.
    We do not seek to differentiate between related and unrelated 
readmissions, or to identify preventable readmissions or ``necessary'' 
readmissions for several reasons. First, from the patient perspective, 
a readmission for any reason is likely to be an undesirable outcome of 
care after an acute hospitalization. Second, readmissions not directly 
related to the index condition may still be a result of the care 
received during the index hospitalization.
    After consideration of the public comments we received, we are 
finalizing our proposal to codify the definition of ``excess 
readmission ratio'' under the regulations at 42 CFR 412.152 without 
modification.
3. FY 2013 Proposed and Final Policies for the Hospital Readmissions 
Reduction Program
a. Overview
    In this final rule, we are addressing the provisions in section 
1886(q) of the Act that are related to the Hospital Readmissions 
Reduction Program payment adjustment, as well as any other provisions 
in section 1886(q) of the Act that were not addressed in the FY 2012 
IPPS/LTCH PPS final rule that are effective for discharges beginning on 
or after October 1, 2012. Specifically, in this final rule (as we did 
in the FY 2013 IPPS/LTCH PPS proposed rule), we are addressing 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 and submit corrections.
b. Base Operating DRG Payment Amount, Including Special Rules for SCHs 
and MDHs and Hospitals Paid Under Section 1814 of the Act
(1) Definition of Base Operating DRG Payment Amount (Sec.  412.152)
    Under the Hospital Readmissions Reduction Program at section 
1886(q) 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 an ``adjustment factor'' that 
accounts for excess readmissions for the hospital for the fiscal year, 
for discharges beginning on or after October 1, 2012. Specifically, 
section 1886(q)(1) of the Act requires the Secretary to base payments 
for a discharge on an amount equal to the product of ``the base 
operating DRG payment amount'' and ``the adjustment factor'' for the 
hospital in a given fiscal year. The ``base operating DRG payment 
amount'' is defined under section 1886(q)(2) of the Act 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) of section 1886 of the Act refer to outlier payments, 
indirect medical education (IME) payments, disproportionate share (DSH) 
payments, and low-volume hospital payments, respectively.
    In general, ``the payment amount that would otherwise be made under 
subsection (d) * * * for a discharge'' (that is, the discharge payment 
amount made under section 1886(d) of the Act) determined without 
consideration of the adjustments to payments made under the Hospital 
VBP Program (section 1886(o) of the Act) or under the Hospital 
Readmissions Reduction Program (section 1886(q) of the Act) is 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 cost-of-living adjustment (COLA) for hospitals 
located in Alaska and Hawaii), which is often referred to as the 
``wage-adjusted DRG operating payment.'' This payment amount may then 
be further adjusted if the hospital qualifies for an IME adjustment 
(under section 1886(d)(5)(B) of the Act), a DSH payment adjustment 
(under section 1886(d)(5)(F) of the Act), and/or a low-volume payment 
adjustment (under section 1886(d)(12) of the Act), or if the discharge 
qualifies for an outlier payment (under section 1886(d)(5)(A) of the 
Act). Furthermore, certain discharges may qualify for an additional 
payment for new medical services or technologies under section 
1886(d)(5)(K) of the Act (often referred to as a ``new technology add-
on payment'').
    Consistent with section 1886(q)(2) of the Act, in the FY 2013 IPPS/
LTCH PPS proposed rule (77 FR 27959), under the regulations we proposed 
at 42 CFR 412.152, we proposed to define 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, we stated that 
the proposed 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)(B), 
(d)(5)(F), (d)(5)(A), 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 we proposed at 42 CFR 412.152, we proposed to 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). We proposed that, under Sec.  
412.154(b)(1), to account for excess readmissions, an applicable 
hospital's base operating DRG payment amount would be adjusted for each 
discharge occurring during the fiscal year. The payment adjustment for 
each discharge is determined by subtracting the product of the base 
operating DRG payment amount for such discharge and the hospital's 
readmission payment adjustment factor for the fiscal year from the base 
operating DRG payment amount for such discharge.
    Under this proposal, consistent with section 1886(q)(2)(B)(i) of 
the Act and proposed Sec.  412.154(b)(2), for SCHs that receive 
payments based on their hospital-specific payment rate, we also 
proposed to exclude the difference between the hospital's applicable 
hospital-specific payment rate and the Federal payment rate from the 
definition of ``base operating DRG payment amount.'' We noted that, 
under the Hospital Readmissions Reduction Program at section 1886(q) of 
the Act, the proposed definition of ``base

[[Page 53383]]

operating DRG payment amount'' would be used to calculate both the 
``aggregate payments for excess readmissions'' and ``aggregate payments 
for all discharges'' under sections 1886(q)(4)(A) and (B) of the Act, 
which would then be used to determine the readmission adjustment factor 
that accounts for excess readmissions under section 1886(q)(3) of the 
Act (as discussed in greater detail in section IV.A.3.c. of the 
preamble of the proposed rule and this final rule), and would also be 
used to determine which payment amounts will be adjusted to account for 
excess readmissions. (We note that, as discussed in section IV.G. of 
the preamble of the proposed rule and this final rule, under current 
law, the MDH program expires at the end of FY 2012 (that is, the MDH 
program is currently only applicable to discharges occurring before 
October 1, 2012). Therefore, due to the expiration of the MDH program 
beginning with FY 2013, we did not include MDHs in the discussion of 
our proposals regarding the base operating DRG payment amount in the 
proposed rule.)
    Comment: Commenters supported the proposed definition of the base 
operating DRG payment amount. Commenters also supported our proposal to 
exclude IME, DSH, outliers, low-volume adjustment, and additional 
payments made due to status as an SCH from the definition of the base 
operating DRG payment amount.
    Commenters both supported and opposed our proposed inclusion of new 
technology payments in the definition of the base operating DRG payment 
amount. Commenters recommended that CMS exclude the new technology 
payment from the definition of ``base operating DRG payment amount'' 
because, like payment adjustments for IME and DSH, it is extrinsic to 
the base rate. In addition, without any known association between the 
use of new technology and the quality and efficiency of care provided 
by a hospital, one commenter did not believe there was justification to 
incorporate the use of new technology into the structure of a quality 
program. Some commenters asserted that the inclusion of the new 
technology payments in the base DRG operating payment definition for 
the determination of payment reduction adjustments conflicts with the 
primary principle of identifying and ensuring adequate payment for new 
medical services and technologies for a brief 2- to 3-year period and 
should not be altered by our other required initiatives.
    Response: We believe the statute is specific with regards to the 
definition of base operating DRG payment amount at section 1886(q)(2) 
of the Act, which explicitly specifies that any additional payments for 
IME, DSH, outliers, and low-volume hospitals provided for under 
sections 1886(d)(5)(B), (d)(5)(F), (d)(5)(A), and (d)(12) of the Act, 
respectively, are to be excluded. Section 1886(q)(2) of the Act does 
not specify an exclusion for new technology payments made under section 
1886(d)(5)(K) of the Act, and therefore, we do not believe we have the 
flexibility to exclude new technology payments in the definition of 
base operating DRG payment amount under the Hospital Readmissions 
Reduction Program. We are finalizing our definition of ``base operating 
DRG payment,'' as proposed, without modification.
    Comment: One commenter stated that cases that receive transfer 
adjustments when determining their payment should be accounted for in 
the proposed definition of base operating DRG payment amount. The 
commenter specified that the base operating DRG payment amount should 
also include any payment reductions for patients covered under the 
transfer policy as it applies to both post-acute and short-stay acute 
hospitals.
    Response: We are clarifying that the base operating DRG payment 
amount accounts for any applicable transfer adjustment for cases that 
are paid under as either an acute care transfer or post-acute care 
transfer. In other words, if a case is paid as a transfer in accordance 
with our transfer payment policy at 42 CFR 412.4(f), resulting in a 
reduced IPPS payment, the reduced transfer-adjusted payment amount is 
also reflected in the base operating DRG payment amount. For the FY 
2013 IPPS/LTCH PPS proposed rule, the data used to model the proposed 
readmission payment adjustment factors actually reflected transfer 
adjusted base operating DRG payment amounts, where applicable. As 
discussed earlier, the ``base operating DRG payment amount'' would be 
used to calculate both the ``aggregate payments for excess 
readmissions'' and ``aggregate payments for all discharges'' under 
sections 1886(q)(4)(A) and (q)(4)(B) of the Act, which would then be 
used to determine the readmissions payment adjustment, and would also 
be used to determine which payment amounts will be adjusted to account 
for excess readmissions. We are finalizing that the definition of 
``base operating DRG payment amount'' includes any applicable payment 
adjustments for transfer cases under 42 CFR 412.4(f). In addition, in 
this final rule, we are revising the definition of ``wage-adjusted DRG 
operating payment'' in the regulations we proposed at 42 CFR 412.152 to 
specify that any applicable payment adjustment for transfers under 
Sec.  412.4(f) is included. Accordingly, we are finalizing the 
definition of ``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). This 
amount includes an applicable payment adjustment for transfers under 
Sec.  412.4(f).
    Comment: Commenters recommended that the proposed definition of 
base operating DRG payment should be refined to account for the special 
payment status of MDHs that are paid under the hospital-specific rate 
should the MDH payment status be extended under legislation. In 
addition, commenters suggested that CMS make a proposal to exclude the 
difference between the hospital's applicable hospital-specific payment 
rate and the Federal payment rate from its definition of ``base 
operating DRG amount'' for MDHs, similar to our proposal made for SCHs, 
which can also be paid under the hospital-specific payment rate.
    Response: As stated earlier, under current law, the MDH program 
expires at the end of FY 2012 (that is, the MDH program is currently 
only applicable to discharges occurring before October 1, 2012). MDHs 
are paid the sum of the Federal payment amount plus 75 percent of the 
amount by which their hospital-specific rate exceeds the Federal 
payment amount. As discussed later in this section, we had proposed to 
exclude hospital-specific payments from the definition of base 
operating DRG payments in the calculation of a hospital's readmission 
payment adjustment factor. Specifically, we stated that because we are 
using historical data to determine the base operating DRG payments to 
calculate the adjustment factor, we proposed to model their base 
operating DRG payment amount as they would have been paid under the 
Federal standardized amount, rather than using the information on the 
claim (which may represent a payment either made under the hospital-
specific rate or the Federal rate) so that their payments are 
consistent with our proposed definition of ``base operating DRG 
payment.''
    For MDHs, the payment difference between the payment made under the 
hospital-specific rate and the payment made under the Federal rate is 
not included in the base operating DRG payment amount to determine the

[[Page 53384]]

readmissions adjustment factor; that is, it is neither included in the 
numerator of the aggregate dollars for excess readmissions nor in the 
denominator of the aggregate dollars for all discharges.
    Furthermore, we are clarifying that the difference between the 
applicable hospital-specific payment rate and the Federal payment rate 
for both SCHs and for MDHs, should the MDH provision be extended beyond 
FY 2012, is excluded from base operating DRG payment amount for these 
hospitals. This means that, for an SCH or an MDH, the readmissions 
payment adjustment under Hospital Readmissions Reduction Program for 
each discharge will be calculated by multiplying the SCH's or MDH's 
readmission payment adjustment factor by the base-operating DRG payment 
amount that is exclusive of the amount by which the hospital-specific 
rate payment exceeds the Federal payment rate, where applicable. The 
resulting payment adjustment will then be subtracted from the 
hospital's payment for the discharge, regardless of whether the 
hospital is paid based on the Federal rate or its hospital-specific 
rate.
    After consideration of the public comments we received, we are 
finalizing the proposed definition of ``base operating DRG payment 
amount'' at 42 CFR 412.152, noting that it includes any applicable 
payment adjustments for transfer cases under 42 CFR 412.4(f). In 
addition, we are revising the definition of ``wage-adjusted DRG 
operating payment'' in the regulations we proposed at 42 CFR 412.152 to 
specify that any applicable payment adjustment for transfers under 
Sec.  412.4(f) is included.
(2) Special Rules for Certain Hospitals: Hospitals Paid Under Section 
1814(b)(3) of the Act (Sec.  412.154(d))
    Although 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, certain Maryland hospitals), 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 
the provision.
    In the FY 2013 IPPS/LTCH PPS proposed rule (77 FR 27960), we 
proposed to establish criteria for evaluation of an annual report to 
CMS to determine whether Maryland should be exempted from the program 
each year. Accordingly, we proposed to evaluate a report submitted by 
the State of Maryland documenting how its program (described below) 
meets those criteria. Based on the information in the report, we 
proposed to determine whether or not Maryland's readmission program met 
our criteria to be exempt from the Hospital Readmissions Reduction 
Program for FY 2013. We noted that our proposed 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. We 
proposed to codify this requirement at Sec.  412.154(d) of the 
regulations.
    Based on preliminary discussions with the State, we understand 
that, effective July 1, 2011, Maryland has established the Admission-
Readmission Revenue (ARR) Program. The State has described its program 
as a voluntary program for acute care hospitals, of which 30 out of the 
46 acute care hospitals in the State are currently enrolled. Under the 
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). Unlike the 
Hospital Readmissions Reduction Program under section 1886(q) of the 
Act, which is currently based on measures for three conditions (HF, 
AMI, and PN) for the Medicare FFS population and only adjusts the IPPS 
operating payments, Maryland's program applies to all conditions for 
all patients. In addition, while the Hospital Readmissions Reduction 
Program considers a readmission to be a subsequent admission to either 
the original acute care hospital from where the patient was initially 
discharged or an admission to another acute care hospital, currently 
Maryland only tracks readmissions to the same acute care hospital (or 
linked hospital system) from which the patient was originally 
discharged. The State had noted that, under its ARR program, the 
readmission rates for the hospitals participating in the ARR program 
for the first quarter of its fiscal year compared to the first quarter 
of its previous fiscal year decreased from 9.86 percent to 8.96 
percent.
    In the FY 2013 IPPS/LTCH PPS proposed rule, we proposed to evaluate 
Maryland's ARR program based on whether the State could demonstrate 
that cost savings under its program achieved or exceeded the savings to 
the Medicare program due to the Hospital Readmissions Reduction Program 
under section 1886(q) of the Act. We also proposed to evaluate whether 
Maryland's program could demonstrate similar results in reducing 
unnecessary readmissions among hospitals in the State, as described in 
more detail below. With specific regard to Maryland's demonstration of 
cost savings, we proposed to evaluate whether Maryland's ARR program 
could demonstrate savings to the Medicare program that are at least 
similar to those expected under the Hospital Readmissions Reduction 
Program. As discussed in this proposed 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 has 
indicated that it believes it can 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.
    In addition, we indicated in the proposed rule that we plan to 
propose, in future rulemaking, to evaluate whether Maryland's ARR 
program can meet or exceed health outcomes that we expect to improve 
under the Hospital Readmissions Reduction Program. Because the Hospital 
Readmissions Reduction Program is not effective until October 1, 2012, 
we indicated that we do not yet have measured health outcomes against 
which we can evaluate Maryland's ARR program. However, we intend to 
have outcomes data in the future with which to evaluate Maryland's ARR 
program. We anticipate that, under the Hospital Readmissions Reduction 
Program, hospitals will experience a reduction in unnecessary

[[Page 53385]]

readmissions. Therefore, in future rulemaking, we intend to propose to 
evaluate whether Maryland's ARR program can demonstrate similar 
decreases in potential preventable readmissions among hospitals in the 
State. Furthermore, in the FY 2013 IPPS/LTCH PPS proposed rule, we 
proposed that the State's annual report and request for exemption from 
the Hospital Readmissions Reduction Program must be resubmitted and 
reconsidered annually in accordance with the statute and as proposed at 
Sec.  412.154(d)(2).
    Based on preliminary information provided by Maryland, the State 
believes that its program can meet our evaluation criteria and 
demonstrate that its program achieves or surpasses the measured results 
in terms of health outcomes and cost savings. We indicated in the 
proposed rule that we are reviewing whether the Maryland's ARR program, 
which currently cannot monitor readmissions to other hospitals and 
provide a financial reward for hospitals that reduce within-hospital 
readmissions, but provides for an across-the-board 0.3 percent 
reduction to the annual rate update to account for comparable savings 
to the Hospital Readmissions Reduction Program, meets the criteria to 
exempt Maryland hospitals from the Hospital Readmissions Reduction 
Program. We welcomed public comments on whether the Maryland ARR 
program meets the requirements for exemption from the Hospital 
Readmissions Reduction Program set forth in section 1886(q)(2)(B)(ii) 
of the Act.
    Comment: Commenters requested that Maryland hospitals be exempt 
from the Hospital Readmissions Reduction Program. Commenters contended 
that Maryland's readmissions program meets the criteria for Maryland 
hospitals to be waived from the Hospital Readmissions Reduction 
Program. One commenter stated that Maryland has already demonstrated 
successful reductions in readmissions as a result of the Admission-
Readmission Revenue (ARR) and Total Patient Revenue (TPR) programs. The 
commenter described the TPR program as a global budget payment program, 
designed to reduce overall volumes and, thus, reduce readmissions. ARR 
hospitals have seen a 7.1 percent reduction in Medicare readmissions 
since the inception of the program; TPR hospitals have experienced a 
6.4 percent decline in readmissions from FY 2009 to FY 2011. The 
commenter sought more information on how CMS plans to measure 
Maryland's performance relative to the nation prior to implementation 
in order to ensure that Maryland's hospitals are prepared to meet our 
expectations, and can make the appropriate adjustments in advance of 
submitting an exemption request.
    Commenters acknowledged that the ARR program provides a financial 
incentive for hospitals to reduce readmissions and improve the quality 
of care and that the ARR program established a 30-day episode of care 
payment instead of a payment per admission, so a hospital that reduces 
readmissions keeps the same revenue and increases profits by reducing 
costs. However, one commenter suggested that savings are generated by 
reducing inter-hospital readmissions and outpatient visits. The 
commenter stated that the TPR program generates savings by restricting 
revenues and, therefore, providing an incentive for hospitals to reduce 
volumes. The commenter stated that this mechanism allows participating 
hospitals to focus on patient care and improved outcomes, rather than 
generating volume. Furthermore, the commenter pointed out that 
Maryland's Health Services Cost Review Commission reduced hospitals' FY 
2013 rate update by 0.58 percentage points to guarantee readmissions 
savings.
    Finally, the State of Maryland also commented that, in future 
years, it will work with us to demonstrate cost savings and improved 
outcomes, over a multiyear period.
    Response: We appreciate the commenters' requests to exempt Maryland 
from the Hospital Readmissions Reduction Program for FY 2013. In the FY 
2013 IPPS/LTCH PPS proposed rule (77 FR 27959), we proposed to 
establish an annual process by which to evaluate Maryland's readmission 
program to determine whether the State's program meets or exceeds 
measured results in terms of health outcomes and cost savings as 
compared to the Hospital Readmissions Reduction Program. For FY 2013, 
we indicated that the Hospital Readmissions Reduction Program would 
result in an estimated savings of $300 million (-0.3 percent), and we 
proposed to evaluate whether Maryland's program could have comparable 
savings. As commenters acknowledged, Maryland's readmissions program 
provides a financial incentive, not penalty, to hospitals that reduce 
their readmissions. Furthermore, commenters acknowledged that the State 
has guaranteed savings by reducing the FY 2013 rate by 0.58 percent. We 
understand that this is a uniform rate reduction for all hospitals, 
regardless of an individual hospital's performance on readmissions. We 
understand that the acute care hospitals in Maryland are included 
either in the ARR program or the TPR program, which provides incentives 
for hospitals to reduce readmissions.
    With respect to health outcomes, we proposed that since this is the 
first year of the Hospital Readmissions Reduction Program, we do not 
have a measured health outcomes by which to evaluate Maryland against. 
Thus, for the first year, we would not evaluate Maryland's program with 
respect to health outcomes. In the future, we intend to have national 
outcomes data to evaluate Maryland's program, and we will work with the 
State to measure those outcomes. Similarly, after considering the 
commenters' comments, we believe it would be premature to evaluate 
Maryland's readmissions program on cost savings, as it is the first 
year of the Hospital Readmissions Reduction Program, and Maryland's ARR 
Program just completed its first year. As such, we are finalizing to 
not evaluate Maryland's ARR Program on measureable health outcomes and 
cost savings for the first year. For FY 2013, we are exempting 
hospitals paid under section 1814(b)(3) of the Act from the Hospital 
Readmissions Reduction Program under our authority under section 
1886(q)(2)(B)(ii) of the Act. We are finalizing, as proposed, our plan 
to evaluate whether Maryland's readmissions program can demonstrate 
similar decreases in potential preventable readmissions and similar 
cost savings on an annual basis. However, that evaluation will not 
begin until FY 2014. We intend to work with Maryland next year as the 
State develops its readmissions programs to be able to measure health 
outcomes and to have demonstrable savings. We are finalizing, as 
proposed, our requirement that the State's annual report and request 
for exemption from the Hospital Readmissions Reduction Program be 
resubmitted and reconsidered annually in accordance with the statute, 
as finalized at Sec.  412.154(d)(2).
    Comment: Commenters sought clarification as to whether an exemption 
for Maryland hospitals from the payment requirements under the Hospital 
Readmissions Reduction Program would apply to all section 1814(b) 
hospitals in Maryland or all of Maryland's acute care hospitals. The 
commenters requested that the waiver be applied to all Maryland acute 
care hospitals.
    Response: Section 1886(q)(2)(B)(ii) of the Act allows the Secretary 
to exempt hospitals paid under the ``waiver'' provided by section 
1814(b)(3) of the

[[Page 53386]]

Act, that is, those hospitals that would otherwise have been paid by 
Medicare under the IPPS, absent the provision. Accordingly, we are 
finalizing that, for FY 2013, all acute care hospitals in Maryland, 
which are the hospitals that are paid under the waiver at section 
1814(b)(3) of the Act, that otherwise would have been paid under the 
IPPS, are exempt from the Hospital Readmissions Reduction Program.
    Comment: One commenter asked for a definition of base operating DRG 
payment for Maryland hospitals, considering that Maryland hospitals 
paid under section 1814(b)(3) of the Act are paid at 94 percent of 
their charges.
    Response: In the FY 2013 IPPS/LTCH PPS proposed rule, we did not 
make a proposal regarding the definition of base operating DRG payment 
amount with regard to Maryland hospitals. Because we are finalizing our 
proposal to exempt Maryland hospitals from the Hospital Readmissions 
Reduction Program for FY 2013, we intend to revisit the definition of 
base operating DRG payment amount for Maryland hospitals in future 
rulemaking.
    Comment: Commenters asked that there be a combined exemption 
request for Maryland hospitals for the Hospital Readmissions Reduction 
Program, the HAC program, and the Hospital VBP Programs in order to be 
more efficient and to reduce the administrative burden at the State and 
Federal level.
    Response: The Hospital Readmissions Reduction Program and the 
Hospital VBP Program, effective in FY 2013, are separate hospital 
payment programs with different purposes and policy goals. For example, 
the Hospital Readmissions Reduction Program reduces payments to 
hospitals for excess readmissions, while the Hospital VBP Program 
redistributes reductions made to the base operating DRG payment amount, 
based on certain performance measures. Because of the varying nature of 
these two programs, at this time, we do not believe it is appropriate 
for the State to submit one exemption request to determine whether 
certain Maryland hospitals should be waived from the requirements under 
both the Hospital Readmissions Reduction Program and the Hospital VBP 
Program. Because the HAC Program, established under section 1886(p) of 
the Act, is not effective until FY 2015, we believe it is premature to 
consider the process by which the State can request an exemption from 
the requirements of this Program.
    For the purposes of modeling the impacts of our proposal, we 
modeled under the assumption that Maryland hospitals will not have 
Hospital Readmissions Reduction Program adjustment factors applied to 
them. Although the adjustment factors do not apply to these hospitals 
under our models, Maryland hospitals have excess readmission ratios, 
consistent with the definition of excess readmission ratio. Any 
readmission to a Maryland hospital from a subsection (d) hospital in 
another State is still considered a readmission for purposes of the 
original hospital in another State. This is consistent with the 
definition of readmissions in section 1886(q)(5)(E) of the Act, which 
includes admissions to the same or another ``applicable hospital.'' As 
discussed above, we interpret the definition of ``applicable hospital'' 
under section 1886(q)(5)(C) of the Act to include both subsection (d) 
hospitals and hospitals paid under section 1814(b)(3) of the Act that 
would, absent the provisions of section 1814(b)(3) of the Act, be paid 
under subsection (d).
    Although we are exempting Maryland hospitals from the Hospital 
Readmissions Reduction Program, Maryland hospitals are still considered 
an ``applicable hospital.'' As such, we are finalizing, as proposed, 
that we are calculating excess readmission ratios for Maryland 
hospitals, consistent with the definition of excess readmission ratio. 
In addition, any readmission to a Maryland hospital from a subsection 
(d) hospital in another State is still considered a readmission for 
purposes of the original hospital in another State, and we are 
finalizing, as proposed, to include data from Maryland hospitals in the 
calculation of the excess readmission ratios for all applicable 
hospitals.
c. Adjustment Factor (Both the Ratio and Floor Adjustment Factor) 
(Sec.  412.154(c))
    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 proposed rule 
(77 FR 27960), we proposed to codify 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 proposed to codify the floor adjustment factor at Sec.  
412.154(c)(2) of the regulations.
    For FY 2013, under proposed Sec.  412.154(c), we proposed that an 
applicable hospital would receive an adjustment factor that is either 
the greater of the ratio described in section IV.A.3.d. of the preamble 
of the proposed rule or a floor adjustment factor of 0.99. We proposed 
that the ratio would be rounded to the fourth decimal place, consistent 
with the calculation of other IPPS payment adjustments such as the wage 
index, DSH adjustment, and the IME adjustment. In other words, a 
hospital included in this program can have an adjustment factor that is 
between 1.0 and 0.9900 for FY 2013. Consistent with section 1886(q)(3) 
of the Act, under proposed Sec.  412.154(c), we proposed that, for FY 
2013, the hospital will receive an adjustment factor under the Hospital 
Readmissions Reduction Program that is the greater of the ratio or the 
floor of 0.99. Consistent with this proposal, under the regulations we 
proposed at 42 CFR 412.152, we proposed to define the ``floor 
adjustment factor'' as the value that the readmissions adjustment 
factor cannot be less than for a given fiscal year. As noted above, the 
floor adjustment factor is set at 0.99 for FY 2013, 0.98 for FY 2014, 
and 0.97 for FY 2015 and subsequent fiscal years.
    Comment: Commenters supported our proposed calculation of the 
adjustment factor as 1 minus the ratio of the hospital's aggregate 
payments for excess readmissions for applicable conditions to the 
hospital's aggregate payments for all discharges for applicable 
conditions. Commenters also supported our proposal to determine a 
hospital's actual payment adjustment factor as the higher of its 
calculated factor or 0.99, resulting in a maximum reduction of 1 
percent of base operating DRG payments for FY 2013.
    Response: We thank the commenters for their support of these 
proposals.
    In this final rule, we are finalizing our proposal to establish an 
applicable hospital's adjustment factor as the higher of a ratio or the 
floor adjustment factor of 0.99 for FY 2013. We are finalizing, as 
proposed, that the ratio will be rounded to the fourth decimal place. 
We also are finalizing our proposal to codify these policies in 
regulation at Sec.  412.154(c) without modification.

[[Page 53387]]

d. Aggregate Payments for Excess Readmissions and Aggregate Payments 
for All Discharges (Sec.  412.152)
    As discussed earlier, 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 proposed rule (77 FR 27961), we 
set forth proposals to define 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.'' We 
proposed to include this definition of ``aggregate payments for excess 
readmissions'' under the regulations we proposed at 42 CFR 412.152.
    We did not receive any public comments on the proposed definition 
of ``aggregate payments for excess readmissions'' and are finalizing 
our definition as proposed under the regulations at 42 CFR 412.152 
without modification.
    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 proposed rule, we proposed to 
include this definition of ``aggregate payments for all discharges'' 
under the regulations we proposed at Sec.  412.152.
    We did not receive any public comments on the proposed definition 
of ``aggregate payments for all discharges'' and are finalizing our 
definition as proposed under the regulations at 42 CFR 412.152 without 
modification.
    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.''
    We discussed above our proposed definition of ``base operating DRG 
payment amount.'' When determining the base operating DRG payment 
amount for an individual hospital for such applicable period for such 
condition, we proposed to use Medicare inpatient claims from the MedPAR 
file with discharge dates that are within the same applicable period 
that was finalized in the FY 2012 IPPS/LTCH PPS final rule (76 FR 
51671) to calculate the excess readmission ratio. We proposed to 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 2013, we 
proposed to use data from MedPAR claims with discharge dates that are 
on or after July 1, 2008, and no later than June 30, 2011, the 
applicable period finalized in the FY 2012 IPPS/LTCH PPS final rule. We 
proposed to 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, as described in greater detail below). These are the 
same MedPAR files that are used in the annual IPPS rulemaking for each 
Federal fiscal year.
    In the FY 2013 IPPS/LTCH PPS proposed rule, for FY 2013, we 
proposed to use the March 2009 update of the FY 2008 MedPAR file to 
identify claims within FY 2008 with discharges dates that are on or 
after July 1, 2008, the March 2010 update of the FY 2009 MedPAR file to 
identify claims within FY 2009, the March 2011 update of the FY 2010 
MedPAR file to identify claims within FY 2010, and the December 2011 
update of the FY 2011 MedPAR file to identify claims within FY 2011 
with discharge dates no later than June 30, 2011. For the FY 2013 IPPS/
LTCH PPS final rule, we proposed to use the March 2012 update of the FY 
2011 MedPAR file to identify claims within FY 2011, as these would be 
the most recently available FY 2011 claims data used for FY 2013 
rulemaking. These MedPAR data files are used each year in other areas 
of the IPPS, including calculating the IPPS relative weights, budget 
neutrality factors, outlier thresholds, and the standardized amount. 
Accordingly, we believe it is appropriate to use these same data files 
for the purpose of calculating the readmission adjustment factors. The 
FY 2008 through FY 2011 MedPAR data files can be purchased from CMS. 
Use of these files will allow 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:
    Mailing address 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.

[[Page 53388]]

    Mailing address 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.
    In the proposed rule, we proposed 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, 2008, and no later than June 30, 2011, which is the applicable 
period finalized in the FY 2012 IPPS/LTCH PPS final rule. However, we 
noted in the proposed rule, that for the purposes of modeling, we used 
excess readmission ratios based on an older performance period of July 
1, 2007 to June 30, 2010. As we stated in the proposed rule, for this 
final rule, we are using both the excess readmission ratios and MedPAR 
claims data to calculate aggregate payments for excess readmissions and 
aggregate payments for all discharges based on the applicable period 
finalized in the FY 2012 IPPS/LTCH PPS final rule (July 1, 2008 to June 
30, 2011).
    Comment: Commenters supported the use of MedPAR claims data to 
determine base operating DRG payment amounts. However, several 
commenters opposed CMS' proposal to use 3 years of data from the period 
July 1, 2008 through June 30, 2011, for calculating hospital 
readmissions adjustment factors for FY 2013. The commenters stated that 
using older data did not reflect current practices of a hospital, and 
recommended that CMS use a 1-year period from July 1, 2010 to June 30, 
2011, to accurately reflect a hospital's performance on readmissions.
    Response: We appreciate the commenters' support for using the 
MedPAR data to determine base operating DRG payment amounts to 
calculate the readmission payment adjustment factors.
    In the FY 2013 IPPS/LTCH PPS proposed rule (77 FR 27961), we 
proposed to calculate the readmission payment adjustment factor using 
the same applicable period that is used to calculate the excess 
readmission ratios, as finalized in the FY 2012 IPPS/LTCH PPS final 
rule. The statute references ``applicable period'' in both the 
calculation of the readmissions measures and the readmission payment 
adjustment factor, such that it requires that the same time period be 
used for both the calculation of the measures and the adjustment 
factor. As finalized in the FY 2012 IPPS/LTCH PPS final rule, we use 3 
years of data to calculate the readmissions measures (that is, for FY 
2013, we are using discharge data from July 1, 2008 through June 30, 
2011), and therefore, we are using data from the same time period to 
calculate the aggregate payments for excess readmissions and aggregate 
payments for all discharges. Using 3 years of claims data increases 
precision for the calculation of excess readmission ratios and the 
calculation of the readmissions payment adjustment factors.
    In this final rule, we are finalizing our proposal to use MedPAR 
data from July 1, 2008 through June 30, 2011, and we are finalizing our 
proposal to use the March 2009 update of the FY 2008 MedPAR file to 
identify claims within FY 2008 with discharges dates that are on or 
after July 1, 2008, the March 2010 update of the FY 2009 MedPAR file to 
identify claims within FY 2009, the March 2011 update of the FY 2010 
MedPAR file to identify claims within FY 2010, and the March 2012 
update of the FY 2011 MedPAR file to identify claims within FY 2011 
with discharge dates no later than June 30, 2011.
    Comment: One commenter asked CMS to ensure that outlier payments 
are correctly excluded from the base operating DRG amount using the 
MedPAR data source.
    Response: We have ensured that we are correctly excluding outlier 
payments in the calculation of the base operating DRG amount using our 
MedPAR data source.
    In order to identify the admissions for each condition for an 
individual hospital for calculating the aggregate payments for excess 
readmissions, we proposed 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 listed in the 2010 Measures Maintenance 
Technical Report: Acute Myocardial Infarction, Heart Failure, and 
Pneumonia 30-Day Risk-Standardized Readmission Measures. They also are 
posted on the Web site at: http://www.QualityNet.org> Hospital-
Inpatient > Readmission Measures >methodologies.
    In order to identify the applicable conditions to calculate the 
aggregate payments for excess readmissions, we proposed 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. Furthermore, we proposed to only identify Medicare 
FFS claims that meet the criteria (that is, claims paid for under Part 
C, Medicare Advantage, would not be included in this calculation), 
consistent with the methodology to calculate excess readmission ratios 
based on readmissions for Medicare FFS patients. The tables below list 
the ICD-9-CM codes we proposed to use to identify each applicable 
condition to calculate the aggregate payments for excess readmissions 
under this proposal. These ICD-9-CM codes will also 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.

               ICD-9-CM Codes To Identify Pneumonia Cases
------------------------------------------------------------------------
             ICD-9-CM Code                     Description of code
------------------------------------------------------------------------
480.0..................................  Pneumonia due to adenovirus.
480.1..................................  Pneumonia due to respiratory
                                          syncytial virus.
480.2..................................  Pneumonia due to parainfluenza
                                          virus.
480.3..................................  Pneumonia due to SARS-
                                          associated coronavirus.
480.8..................................  Viral pneumonia: pneumonia due
                                          to other virus not elsewhere
                                          classified.
480.9..................................  Viral pneumonia unspecified.
481....................................  Pneumococcal pneumonia
                                          [streptococcus pneumoniae
                                          pneumonia].
482.0..................................  Pneumonia due to klebsiella
                                          pneumoniae.
482.1..................................  Pneumonia due to pseudomonas.
482.2..................................  Pneumonia due to hemophilus
                                          influenzae [h. influenzae].
482.30.................................  Pneumonia due to streptococcus
                                          unspecified.
482.31.................................  Pneumonia due to streptococcus
                                          group a.
482.32.................................  Pneumonia due to streptococcus
                                          group b.
482.39.................................  Pneumonia due to other
                                          streptococcus.
482.40.................................  Pneumonia due to staphylococcus
                                          unspecified.
482.41.................................  Pneumonia due to staphylococcus
                                          aureus.
482.42.................................  Methicillin Resistant Pneumonia
                                          due to Staphylococcus Aureus.
482.49.................................  Other staphylococcus pneumonia.
482.81.................................  Pneumonia due to anaerobes.
482.82.................................  Pneumonia due to escherichia
                                          coli [e.coli].
482.83.................................  Pneumonia due to other gram-
                                          negative bacteria.

[[Page 53389]]

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

    Comment: Several commenters requested that, in the calculation of 
aggregate payments for excess readmissions, CMS remove admissions for 
the applicable conditions that were not considered admissions for the 
purposes of the calculation of the excess readmission ratio. 
Specifically, commenters requested that CMS remove admissions for (1) 
Index admissions for beneficiaries who die in the hospital; (2) 
admissions for beneficiaries who were transferred to another acute care 
hospital; (3) admissions for beneficiaries who were discharged against 
medical advice; (4) admissions for beneficiaries without at least 30 
days post-discharge enrollment in Medicare Part A fee-for-service; and 
(5) multiple admissions within 30 days of a prior index admission. 
Commenters argued that these trims are made for the readmissions 
measures, and accordingly, they should also be made when determining 
which admissions are included in the calculation of aggregate payments 
for excess readmissions. One commenter recognized that not all of these 
trims can be identified in our proposed data source, MedPAR, so the 
commenter requested that CMS estimate an ``additional exclusions 
factor'' for the exclusions that we cannot account for based on data 
from the Measures Maintenance Technical Report, which lists the 
percentage of admissions that are removed by exclusion. The commenter 
suggested that the ``additional exclusions factor'' for each exclusion 
that cannot be accounted for in our proposed data source be removed for 
every hospital. By not excluding these admissions, the commenters 
believed that CMS is erroneously inflating the calculation of aggregate 
payments for excess readmissions.
    Response: In our proposal to calculate the excess payments for 
readmissions, we proposed to identify admissions for each condition for 
an individual hospital for calculating the aggregate payments for 
readmissions by using the same ICD-9-CM codes used to identify the 
applicable conditions to calculate the excess readmissions ratios. We 
proposed 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 calculation of the excess readmission 
ratios. Similarly, we proposed to limit our admissions to Medicare FFS 
claims, consistent with the methodology to calculate the excess 
readmission ratios.
    As finalized in the FY 2012 IPPS/LTCH PPS final rule (76 FR 51669), 
the readmissions conditions of AMI, HF, and PN account for certain 
exclusions of admissions from being considered as an index admission. 
The NQF-endorsed readmission measures exclude from the group of index 
admission: (1) Hospitalizations for patients with an in-hospital death; 
(2) hospitalizations for patients without at least 30 days post 
discharge enrollment in Medicare FFS; (3) hospitalizations for patients 
discharged against medical advice; (4) transfers; and (5) multiple 
admissions within 30 days of a prior index admission. In addition, for 
AMI, same day discharges are excluded as an index

[[Page 53390]]

admission. Furthermore, we limit admissions to include Medicare Part A 
FFS enrollees who are 65 years or older.
    We agree with the commenters that the index admissions that are not 
considered admissions for the purpose of the readmissions measures, 
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. 
Accordingly, we are modifying our methodology to identify the 
admissions included in the calculation of ``aggregate payments for 
excess readmissions.'' For this final rule, using our MedPAR data 
source, we will identify admissions for the purposes of calculating 
aggregate payments for excess readmissions as follows:
     We will exclude admissions that are identified as an 
applicable condition based on the ICD-9-CM code listed as the primary 
diagnosis, but where the patient had died, as identified by the 
discharge status code on the MedPAR claim.
     We will exclude admissions identified as an applicable 
condition based on the ICD-9-CM code listed as the primary diagnosis, 
but where the patient was transferred to another applicable hospital, 
as identified by the discharge status code on the MedPAR claim.
     We will eliminate admissions identified as an applicable 
condition based on the ICD-9-CM code listed as the primary diagnosis, 
but where the patient was discharged against medical advice as 
identified by the discharge status code on the MedPAR claim.
     We will 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 on the MedPAR 
claim.
     For conditions identified as AMI, we will exclude claims 
that are same day discharges, as identified by the admission date and 
discharge date on the MedPAR claim.
    As the commenters acknowledged, the MedPAR proposed data set that 
we are using to calculate the aggregate payments for excess 
readmissions cannot identify all of the exclusions included in the 
readmissions measures. Specifically, at this time, we cannot identify 
directly multiple admissions within 30 days of a prior index admission 
and patients without at least 30 days post discharge enrollment in 
Medicare FFS in the MedPAR data. However, the suggestion that we 
develop an ``additional exclusions factor'' to apply to the calculation 
of the readmissions payment adjustment factor is not within the 
statutory authority under section 1886(q) of the Act. We do not believe 
we have the authority to calculate an ``additional exclusions factor,'' 
which would be in lieu of the exclusion of admissions from the 
calculation of the aggregate payments for excess readmissions, and then 
uniformly applied that amount to all applicable hospitals. We believe 
that with the exclusions to the data for the scenarios discussed 
earlier, we will have accounted for nearly all of the admissions 
excluded in the calculation of the excess readmission ratios. We intend 
to work towards modifying our systems to identify these claims for the 
two additional scenarios, and we will propose in future rulemaking to 
what extent we can include those exclusions from the calculation of the 
aggregate payments for excess readmissions.
    For FY 2013, we are finalizing a methodology to calculate aggregate 
payments for excess readmissions, using MedPAR claims from July 1, 2008 
to June 30, 2011, to identify applicable conditions based on same ICD-
9CM codes used to identify the conditions for the readmissions measures 
and to apply the exclusions for the types of admissions discussed 
above, which are currently identifiable on the claim in MedPAR.
    Comment: One commenter stated that a claim that the Recovery Audit 
Contractor (RAC) determines should have been provided in the outpatient 
setting and subsequently is denied as an inpatient should not be 
included in the calculation of a hospital's readmissions adjustment. 
The commenter sought clarification on whether the Common Working File 
(CWF) has been updated for RAC denials. The commenter stated that if a 
claim was subsequently denied for inpatient status, it should be 
removed from inpatient claims data set used for calculation of a 
hospital's readmission adjustment.
    Response: In the FY 2013 IPPS/LTCH PPS proposed rule, we proposed 
to use the MedPAR claims data as our data source to calculate the 
excess payments for readmissions and payments for all discharges. 
Specifically, we proposed to use MedPAR data for discharges from July 
1, 2008 through June 30, 2011, and we proposed to use the March 2009 
update of the FY 2008 MedPAR file to identify claims within FY 2008 
with discharges dates that are on or after July 1, 2008, the March 2010 
update of the FY 2009 MedPAR file to identify claims within FY 2009, 
the March 2011 update of the FY 2010 MedPAR file to identify claims 
within FY 2010, and the March 2012 update of the FY 2011 MedPAR file to 
identify claims within FY 2011. We proposed to use these MedPAR 
updates, as it is consistent with the inpatient claims data set used in 
IPPS ratesetting.
    The RACs have up to 3 years to review claims to determine whether a 
claim was inappropriately billed as inpatient when it should have been 
an outpatient claim. If a claim is denied as an inpatient stay, the 
claim is adjusted through the standard Medicare claims processing 
systems, going through the CWF and MedPAR. However, given the timing of 
the RAC audits and the updates of the MedPAR used to calculate the 
readmissions payment adjustments, it is not certain that all denied 
claims will be reflected in MedPAR at the time of our analysis. To the 
extent that those RAC determinations are made within the timeframe of 
the updates of MedPAR, those denied inpatient claims will not be 
included in the MedPAR or in the calculation of the readmissions 
payment adjustment. We believe that using the updates of the MedPAR 
used in annual IPPS rate setting allows for us to use a complete 
inpatient claims data set and allows for transparency for the public to 
obtain this dataset to replicate our calculations.
    In this final rule, we are finalizing our proposal to use MedPAR to 
calculate the readmissions payment adjustment factors without 
modification.
    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 (d)(5)(A), (d)(5)(B), (d)(5)(F), 
and (d)(12) of section 1886 refer to outlier payments, IME payments, 
DSH payments, and payments for low-volume hospitals, respectively.
    As discussed earlier in section IV.A.3.b.(1) of the preamble of the 
proposed rule, we proposed to define ``base operating DRG payment 
amount'' under the Hospital Readmissions Reduction Program as the wage-
adjusted DRG operating payment plus any new technology add-on payments. 
Thus, in order to calculate the base operating DRG payment amount for 
such condition for such hospital, we proposed to identify the base 
operating DRG payment amount for such conditions based on the payment

[[Page 53391]]

amounts in the MedPAR files on the claims identified to meet those 
conditions based on their ICD-9-CM code.
    As discussed in section IV.A.3.b. of the preamble of the proposed 
rule, applicable hospitals in the Hospital Readmissions Reduction 
Program include SCHs and current MDHs (whose status is set to expire at 
the end of FY 2012), as these hospitals meet the definition of 
subsection (d) hospitals. SCHs are paid in the interim (prior to cost 
report settlement) on a claim-by-claim basis at the amount that is the 
higher of the payment based on the hospital-specific rate or the IPPS 
Federal rate based on the standardized amount. At cost report 
settlement, the fiscal intermediary or MAC determines whether the 
hospital would receive higher IPPS payments in the aggregate using the 
hospital-specific rate (on all claims) or the Federal rate (on all 
claims). MDHs are paid the sum of the Federal payment amount plus 75 
percent of the amount by which their hospital-specific rate exceeds the 
Federal payment amount. Although MDH status is set to expire at the end 
of FY 2012, because we are using historical data to determine the base 
operating DRG payments to calculate adjustment factor, the payments 
reflected on claims for current MDHs may be based on the hospital-
specific rate. For SCHs and current MDHs, we proposed to model their 
base operating DRG payment amount as they would have been paid under 
the Federal standardized amount, rather than using the information on 
the claim (which may represent a payment either made under the 
hospital-specific rate or the Federal rate) so that their payments are 
consistent with our proposed definition of base operating DRG payment. 
As such, the payment difference between the payment made under the 
hospital-specific rate and the payment made under the Federal rate is 
not included in the base operating DRG amount to determine the 
readmission adjustment factor; that is, it is neither included in the 
numerator of the aggregate dollars for excess readmissions nor in the 
denominator of the aggregate dollars for all discharges.
    We did not receive public comments on our proposal for current MDHs 
and SCHs to model the ``base operating DRG payments'' as they would 
have been paid under the Federal standardized amount, rather than using 
the information on the claim in MedPAR (which may represent a payment 
either made under the hospital-specific rate or the Federal rate) to 
calculate their ``aggregate payments for excess readmissions, so that 
their payments are consistent with our definition of base operating DRG 
payment.
    As discussed earlier, we proposed to use data from the MedPAR files 
that contain claims from the 3-year applicable period of July 1, 2008, 
to June 30, 2011, for FY 2013 to calculate aggregate payments for 
excess readmissions (the numerator of the ratio). To calculate 
aggregate payments for excess readmissions, we proposed to calculate 
the base operating DRG payment amounts for all the claims in the 3-year 
applicable period that list each applicable condition as the principal 
diagnosis (as described above). Once we have calculated the base 
operating DRG payment amounts for all the claims that list each 
condition as the principal diagnosis, we proposed to sum the base 
operating DRG payment amounts by each condition, resulting in three 
summed amounts, one amount for each of the three applicable conditions. 
We then proposed to multiply each amount for each condition by their 
respective excess readmission ratio minus 1. The methodology for the 
calculation of the excess readmission ratio was finalized in the FY 
2012 IPPS/LTCH PPS final rule (76 FR 51673). We proposed that the 
excess readmission ratios for each condition used to calculate the 
numerator of this ratio are excess readmission ratios that had gone 
through the proposed review and correction process described in the FY 
2013 IPPS/LTCH PPS proposed rule. Each product in this computation 
represents the payment for excess readmissions for that condition. We 
proposed to then sum the resulting products, which represent a 
hospital's proposed ``aggregate payments for excess readmissions'' (the 
numerator of the ratio).
    If a hospital has an excess readmission ratio that is greater than 
1 for a condition, that hospital has performed, with respect to 
readmissions for that applicable condition, worse than the average 
hospital with similar patients. As such, it will have aggregate 
payments for excess readmissions. If a hospital has an excess 
readmission ratio that is less than (or equal) to one, that hospital 
has performed better (or on average), with respect to readmissions for 
that applicable condition, than an average hospital with similar 
patients. As such, that hospital would not be considered to have 
``aggregate payments'' for excess readmissions, and its payments would 
not be reduced under section 1886(q) of the Act. As described in 
section 1886(q)(4)(C) of the Act, and finalized in the FY 2012 IPPS/
LTCH PPS final rule, the excess readmission ratio used cannot be less 
than 1 because the hospital will not have aggregate payments for excess 
readmissions and will not be subject to a readmission payment 
adjustment, as the hospital will have performed equal to or better than 
average. Because this calculation is performed separately for the three 
conditions, a hospital's excess readmission ratio must be less than or 
equal to 1 on each measure to avoid aggregate payments for excess 
readmissions.
    Section 1886(q)(4)(B) of the Act defines ``aggregate payments for 
all discharges'' (the denominator of the ratio) 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.'' In the FY 2013 IPPS/LTCH PPS proposed rule, we 
proposed to use the same MedPAR files to calculate the denominator as 
we proposed to use to calculate the numerator, for the 3-year 
applicable period of July 1, 2008 to June 30, 2011, for FY 2013. We 
proposed to calculate base operating DRG payments in the same manner as 
we calculate base operating DRG payments for the numerator. We proposed 
to sum the base operating DRG payment amounts for all Medicare FFS 
claims for such hospital during the 3-year applicable period. We also 
proposed that we would model base operating DRG payment amount for SCHs 
and current MDHs as they would have been paid under the Federal 
standardized amount, rather than using the information on the claim (as 
described above).
    We did not receive any public comments regarding our proposed 
calculation of ``aggregate payments for all discharges'' and we are 
finalizing it as proposed without modification.
    We proposed that the ratio described in section 1886(q)(3)(B) of 
the Act is 1 minus the ratio of the numerator and denominator described 
above. In addition, we proposed that the readmission adjustment for an 
applicable hospital is the higher of this ratio under section 
1886(q)(3)(B) of the Act or the floor of 0.99 for FY 2013. Consistent 
with this proposal, under the regulations we proposed at 42 CFR 
412.152, we proposed to define ``readmissions adjustment factor'' as 
equal to the greater of: (i) 1 minus the ratio of the aggregate 
payments for excess readmissions to aggregate payments for all 
discharges or (ii) the floor adjustment factor.
    For the proposed rule, for the purpose of modeling the proposed 
aggregate payments for excess readmissions and the proposed 
readmissions adjustment

[[Page 53392]]

factors, we used excess readmission ratios for the applicable hospitals 
from the 3-year period of July 1, 2007 to June 30, 2010, because the 
underlying data from this period had already been available to the 
public on the Hospital Compare Web site (as of July 2011). The data 
from the 3-year applicable period for FY 2013 of July 1, 2008 to June 
30, 2011, had not been through the review and correct process required 
by section 1886(q)(6) of the Act (as discussed below). As we stated in 
the proposed rule, for this final rule, we are using excess readmission 
ratios based on discharges for the finalized applicable period of July 
1, 2008 to June 30, 2011, to calculate the aggregate payments for 
excess readmissions and, ultimately, to calculate the readmission 
adjustment factors. Applicable hospitals had the opportunity to review 
and correct these data before they were made public under our proposal 
set forth below regarding the reporting of hospital-specific 
readmission rates, consistent with section 1886(q)(6) of the Act.
[GRAPHIC] [TIFF OMITTED] TR31AU12.015

    Comment: Several commenters supported our methodology to calculate 
the readmissions payment adjustment factor. Commenters supported 
calculating the adjustment factor as 1 minus the ratio of the 
hospital's aggregate payments for excess readmissions for applicable 
conditions to the hospital's aggregate payments for all discharges for 
applicable conditions. Commenters supported determining the hospital's 
aggregate payments for all discharges for applicable conditions based 
on our proposed definition of the base operating DRG payment amount, 
and commenters supported our proposal to determine the hospital's 
aggregate payments for excess readmissions by multiplying the 
hospital's aggregate payments for all discharges for an applicable 
condition by 1, minus the hospital's excess readmissions ratio.
    Some commenters stated that it is unclear why the proposed 
numerator of the readmission payment adjustment factor, or the 
calculation of the excess payments for readmissions, is based on total 
admissions for each condition, when the purpose of the Hospital 
Readmissions Reduction Program is to reduce only preventable 
readmissions. Commenters stated that our proposed methodology to 
calculate the readmission payment adjustment factor should amend the 
legislative language in the formula for calculating the readmissions 
adjustment factor. The formula as proposed stipulated that the amount 
of aggregate payments due to excess readmission is calculated by 
multiplying the number of admissions for the condition times the 
average base DRG payment for the condition and the ``excess readmission 
ratio.'' The excess readmissions ratio is defined as the ratio of the 
number of actual readmissions as compared to the number of expected 
readmissions for the clinical condition. However, commenters contended 
that the formula should specify that the calculation should be based on 
the number of expected readmissions in each condition, not the total 
number of admissions. They urged that we replace the words ``number of 
admissions'' with ``number of expected readmissions'' so that the 
formula for the aggregate payments for excess readmissions calculates 
the number of expected readmissions for each condition and not the 
total number of admissions.
    One commenter believed that the proposed formula produces penalties 
that are higher than Medicare payments for excess readmissions, 
although the full impact is mitigated because of the proposed maximum 
penalty for FY 2013 of 1 percent of base operating DRG payments. The 
commenter believed that our proposed methodology to calculate the 
readmissions payment adjustment factors conforms to the statute. 
However, the commenter suggested long-term changes to the formula to be 
more proportionate to the cost of readmissions, such as examining the 
issue of shrinking excess readmission computations towards the national 
mean and appropriate changes to account for excess payments for 
readmissions.
    Commenters believe that our proposed methodology to calculate the 
readmissions payment adjustment overestimates the excess payments for 
readmissions resulting in an excessive readmission payment adjustment 
and is not consistent with Congressional intent. Commenters believed 
our proposed readmissions payment adjustments are excessive as evident 
by the Congressional Budget Office (CBO) score for the provision at 
$100 million while our estimates of the Hospital Readmissions Reduction 
Program published in the FY 2013 IPPS/LTCH PPS proposed rule (77 FR 
28172) was approximately $300 million.
    Response: We believe that the statute is prescriptive with respect 
to the calculation of ``aggregate payments for excess readmissions'' 
where the statute

[[Page 53393]]

specifies that the ``aggregate payments for excess readmissions'' is 
the sum for each condition of the product of ``the operating DRG 
payment amount for such hospital for such applicable period for such 
condition'' and ``the number of admissions for such condition'' and 
``the excess readmission ratio'' minus one. We believe that section 
1886(q)(4)(A) of the Act requires us to include all admissions for a 
condition in the calculation of ``aggregate payments for excess 
readmissions.''
    Our estimate of $300 million in savings associated with the 
Hospital Readmissions Reduction Program published in the FY 2013 IPPS/
LTCH PPS proposed rule was based on different data that were not 
available to the CBO at the time of the CBO estimate. Furthermore, we 
potentially used different assumptions in our methodology to estimate 
the savings of this Hospital Readmissions Reduction Program as compared 
to CBO. Our proposed readmission payment adjustment factors were 
calculated using excess readmission ratios based on hospitals' 
readmissions performance from July 1, 2007 to June 30, 2010, which was 
not available at the time of the CBO estimate. In addition, our 
calculation for ``aggregate payments for excess readmissions'' and 
``aggregate payments for all discharges'' were based on MedPAR claims 
data from July 1, 2007 to June 30, 2010, which was also not available 
at the time of the CBO estimate. Finally, we applied the proposed 
readmission payment adjustment factor to our estimated FY 2013 IPPS 
base operating DRG payments to determine the savings associated with 
the Hospital Readmissions Reduction Program and our FY 2013 IPPS base 
operating DRG payments were likely based on different assumptions than 
the CBO's estimate published in 2010. Therefore, it is difficult to 
assess the precise differences between our estimate of this provision 
and the CBO's estimate. Nonetheless, we believe that we are 
implementing the provision as required by law.
    Comment: Several commenters requested that CMS make additional 
adjustments to the calculation of the readmissions payment adjustment 
factor to account for differences in the readmissions payment 
adjustment factors for hospitals that treat a high proportion of 
patients of low socioeconomic status. Commenters made a number of 
suggestions as to how to modify the readmissions payment adjustment 
factors. One commenter suggested that CMS and Congress could apply a 
uniform percentage reduction to all hospitals' expected readmission 
rates, which the commenter believed would be a budget neutral change. 
The commenter urged CMS and Congress to intervene somehow to correct an 
inequity affecting the nation's most vulnerable hospitals and Medicare 
beneficiaries.
    Another commenter suggested that CMS offer a one-time opportunity 
to waive the payment reduction for safety net and other hospitals that 
serve a higher-than-average proportion of patients of low socioeconomic 
status and are found to be at risk of experiencing a payment reduction. 
In return, the commenter suggested that these hospitals would be 
required to submit a comprehensive and aggressive preventable 
readmission rate improvement plan that centers on collaboratively 
engaging with the patients, their families, consumer organizations and 
community supports, to address the various factors that are causing 
preventable readmissions in their local community. The commenter stated 
that this approach should have a time limit (for example, 6 months) on 
how long the hospital would have for submitting and implementing the 
plan and another well-defined (for example 6 months) timeframe for 
monitoring and reporting results to CMS.
    Some commenters requested that CMS postpone implementation of the 
Hospital Readmissions Reduction Program until it has made adjustments 
to the measures to account for socioeconomic status. One commenter 
requested postponing the application of the readmissions payment 
reduction to safety net hospitals that serve a vulnerable population 
while these hospitals develop programs to reduce readmissions.
    Commenters suggested that CMS make an adjustment to the readmission 
payment adjustment factors to account for a hospital's proportion of 
dual-eligible patients. Commenters contended that dual-eligible status 
is a better predictor of readmission rates because it reflects Medicare 
beneficiaries, which is what the readmissions measures are based on.
    In addition, commenters suggested that CMS make a hospital-level 
adjustment based on DSH. Commenters asserted that because the number of 
hospitals that will receive the maximum penalty in the first year jumps 
sharply between the sixth and seventh deciles for hospital's DSH 
Patient Percentage, the commenters suggested that any hospital-level 
adjustment based on DSH be applied to the top four deciles.
    Response: We thank the commenters for their suggestions on 
modifying the readmission payment adjustment to account for differences 
in the socioeconomic status of patients treated by hospitals. As stated 
earlier, we continue to believe that we need to examine the 
relationship of patient socioeconomic status and readmissions as it 
applies to the readmissions measures. As we have stated earlier, the 
readmissions measures, as endorsed by the NQF, do not include risk 
adjustments for socioeconomic status. Currently, the NQF does not 
support risk adjustments based on socioeconomic status, as the NQF 
believes it can create different standards of quality for hospitals 
that treat a higher proportion of patients with low socioeconomic 
status. Risk adjusting the readmissions measures for socioeconomic 
status can obscure differences in the quality of health care. 
Similarly, applying an adjustment to the readmissions payment 
adjustment factors can also create different standards of quality for 
hospitals based on the socioeconomic status of the patients treated. 
Applying an adjustment to the readmissions payment adjustment factors 
at this point to account for socioeconomic status rather than 
determining whether a risk adjustment for socioeconomic status would be 
appropriate for the readmissions measures could appear as circumventing 
the NQF's position on the application of a risk adjustment for 
socioeconomic status on the readmissions measures. We note that, to the 
extent that dual eligible patients or patients of low socioeconomic 
status have higher readmission rates because they are sicker or have 
more comorbidities, we already account for comorbidities in the risk 
adjustment for the excess readmission ratios. Since, we believe that 
all hospitals should be working towards the goal of reducing 
readmissions, on an ongoing basis, regardless of their patient 
population, we believe that we do not need to postpone the 
implementation of the readmission payment adjustments in order to 
provide additional time to hospitals to implement readmission reduction 
programs. While we are not incorporating any special adjustments for 
SES in the readmissions reduction program at this time, we remain 
concerned about the impact of this provision on hospitals that serve a 
high proportion of low income patients. We will continue to monitor the 
issue of the relationship of a patient's socioeconomic status and a 
hospital's readmission performance, and how it affects payments to 
hospitals.
    Comment: One commenter recommended that CMS apply the

[[Page 53394]]

readmissions adjustment in a manner that norms the calculation of the 
adjustment factor on the risk-adjusted readmission rate that is 
achieved by at least 25 percent of hospitals rather than on the average 
readmission rate.
    Response: The excess readmission ratio, finalized in the FY 2012 
IPPS/LTCH PPS final rule (76 FR 51673), measures a hospital's 
performance on readmissions for a specified condition relative to the 
national average. The methodology to calculate the excess readmission 
ratio is endorsed by the NQF, as required at section 1886(q)(5)(C) of 
the Act. We did not propose any changes to the methodology to calculate 
the excess readmission ratio. Accordingly, we are not modifying the 
methodology to calculate the excess readmission ratio to compare a 
hospital's performance on readmissions relative to the 25th percentile 
of national performance, as opposed to the average.
    Comment: One commenter questioned the statistical difference in the 
excess readmission ratio for a hospital that has an excess readmission 
ratio slightly above 1 and thus, subject to the payment penalty, versus 
a hospital that has an excess readmission ratio slightly below 1, and 
not subject to the penalty. The commenter asked that CMS consider the 
equitability of this policy approach and recommended the remunerative 
framework account for the confidence intervals surrounding the 
estimated Risk Standardized Readmission Rates and Ratios in determining 
future penalties for excess readmissions. The commenters believed that 
omitting a control for statistical significance exposes a large number 
of hospitals to financial penalties based on random variation. They 
recommended that CMS account for the confidence intervals surrounding 
the estimated Risk Standardized Readmission Rates and Ratios in 
determining future penalties for excess readmissions.
    Response: We thank the commenter for raising the issue of 
statistical reliability of the excess readmission ratio and for 
recommending the use of confidence intervals in determining whether or 
not to use a hospital's excess readmission ratio in the calculation of 
a hospital's readmission payment adjustment factor. We finalized our 
methodology of the calculation of the excess readmission ratio in the 
FY 2012 IPPS/LTCH PPS final rule, which results in the use of the point 
estimate as a hospital's excess readmission ratio.
    We will consider the role, if any, of confidence intervals in 
determining a hospital's excess readmission ratio. We recognize that 
because the excess readmission ratio is a statistical measure, there 
may be some degree of variation. However, there are other Medicare 
programs, not limited to the Hospital Readmissions Reduction Program, 
that use statistical measures as part of their program, so any 
consideration to confidence intervals made with respect to the Hospital 
Readmissions Reduction Program may have implications for other 
programs. We will evaluate this concern and address it in a future 
rulemaking, if needed.
    Comment: Several commenters suggested that CMS take into 
consideration a hospital's improvement on readmissions in the 
calculation of the readmissions payment adjustment factor. One 
commenter noted that because measurement is based on 3 years' worth of 
data, it will be difficult for low performing hospitals to move out of 
being penalized, and the Hospital Readmissions Reduction Program does 
not reward for improvement as the Hospital VBP Program does, but only 
measures achievement. The commenter noted that this could result in low 
performing hospitals being unable to ever get out of the penalty phase.
    Response: We appreciate the concerns raised by the commenters. The 
Hospital Readmissions Reduction Program is structured to apply a 
payment reduction to hospitals with excess readmissions, as measured by 
having worse performance on readmissions for certain conditions 
compared to the average hospital. The readmission payment adjustment 
under section 1886(q)(1) of the Act does not allow for us to provide a 
reward for quality improvement, which is allowed under section 1886(p) 
of the Act for the Hospital VBP Program. We believe that hospitals do 
have the opportunity to not be subject to a reduction to payments due 
to excess readmissions if they can perform better than the average 
hospital in the future. We update the data annually with the most 
recently available 3 years of data, and we use 3 years of data in order 
to have sufficient data to reliably measure a hospital's performance.
    Comment: Commenters sought clarification on how the readmissions 
payment adjustment factors would be applied to a hospital's base 
operating DRG payment amount. Commenters asked whether the readmissions 
payment adjustment factors would be applied on a per claim basis or at 
cost report settlement. Commenters asked how the IME, DSH, and outlier 
payments would not be affected by the readmissions payment adjustment 
factor when the IME, DSH and outlier payments are adjustments currently 
determined from the base operating DRG payment amount, and the 
readmissions payment adjustment factor reduces the base operating DRG 
payment amount. Commenters asked if there would be changes to the cost 
report and to the PS&R to account for the implementation of the payment 
adjustment for excess readmissions. In addition, commenters noted that 
the effective date of the Hospital Readmissions Reduction Program is 
October 1, 2012, which straddles the cost reporting period for many 
hospitals, and asked for clarification on how that would be accounted 
for with respect to the Medicare hospital cost report.
    Commenters also stated that the statutory intent of the 
readmissions payment adjustment factor is that the factor should not be 
applied to payments for all admissions, but rather to payments for 
initial admissions with at least one readmission. Commenters requested 
clarification whether the readmissions payment adjustment factors will 
apply to only Medicare discharges for AMI, PN or HF; or whether the 
readmissions payment adjustment factor will apply to all discharges. 
The commenters believed that the readmissions payment adjustment factor 
should only be applicable to the specific populations included in the 
program rather than the entire Medicare population.
    Response: We are clarifying that, for FY 2013, a hospital's 
payments will be reduced by the amount of the product of the 
readmissions payment adjustment factor and the base operating DRG 
payment amount (as defined as the wage-adjusted DRG payment amount), on 
a per-claim basis for all Medicare FFS discharges occurring on or after 
October 1, 2012. In other words, the payment amount the hospital would 
otherwise receive in FY 2013 in absence of the Hospital Readmission 
Reduction Program will be reduced by the an amount for excess 
readmissions (determined as the product of the readmissions payment 
adjustment factor and the base operating DRG payment amount). Section 
1886(q)(1) of the Act specifies that ``the Secretary shall make 
payments * * * in an amount equal to the product of (A) the base 
operating DRG payment amount for the discharge; and (B) the adjustment 
factor * * *.'' Therefore, it requires us to apply the readmissions 
payment adjustment factor to all discharges, not just discharges for 
initial admissions with a readmission or admissions for the applicable 
conditions. We note that the readmissions payment adjustment factor is 
inversely proportional to the

[[Page 53395]]

aggregate payments for all discharges (in the formula determining the 
excess readmissions ratio) so the adjustment factor appropriately 
reflects the relation between payments for excess readmissions and 
aggregate payments for all discharges.
    In addition, we intend to modify the Medicare hospital cost report 
and the corresponding cost reporting instructions, effective for FY 
2013, to account for the reductions to payments under the Hospital 
Readmission Reduction Program required by section 1886(q) of the Act 
(that is, the payment adjustment for excess readmissions). The current 
calculation of the additional payments for IME, DSH, outliers, and low-
volume hospitals will remain unchanged consistent with the statutory 
requirement that payments for outliers, IME, DSH, and low-volume 
adjustments are not affected by the adjustments made under the Hospital 
Readmissions Reduction Program.
    Currently, the cost report includes the base operating DRG payment 
for the cost reporting period and we use that line to determine add-on 
payments including payments for indirect medical education and 
disproportionate share hospital payments. This line will remain 
unchanged and will continue to be used to determine IPPS add-on 
payments, consistent with our policy that add-on payments for outliers, 
IME, DSH, and low-volume adjustments are not affected by the 
adjustments made under the Hospital Readmissions Reduction Program. We 
intend to modify the Medicare hospital cost report to include lines for 
base operating DRG payments by Federal fiscal year. For example, we 
will have a line that represents base operating DRG payments prior to 
October 1, 2012 and a line that represents base operating DRG payments 
after October 1, 2012. In addition, we intend to modify the Medicare 
hospital cost report with lines for the readmissions payment adjustment 
factor by Federal fiscal year and lines with the readmissions payment 
amount by Federal fiscal year that would be deducted from a hospital's 
Medicare payments. The readmissions payment amounts would be determined 
by applying the readmission payment adjustment factor to the base 
operating DRG payment amount by Federal fiscal year. We intend to 
modify the cost reporting instructions to account for these new 
calculations. In addition, for FY 2013, we will ensure that the cost 
reporting instructions account for the readmissions adjustment to only 
be made to base operating DRG payments for discharges on or after 
October 1, 2012. We intend to modify the PS&R to account for these 
changes as well.
    Comment: One commenter sought clarification as to whether the 
Hospital Readmissions Reduction Program is intended to replace the 
existing readmission review at Internet Only Manual (IOM) 100-04, 
Chapter 3, Section 40.2.5, or if both policies will exist together.
    Response: The Hospital Readmissions Reduction Program is not 
intended to replace the existing readmission review under IOM 100-04, 
Chapter 3, Section 40.2.5. IOM 100-04, Chapter 3, Section 40.2.5 of the 
Inpatient Claims Processing Manual provides guidance on appropriate 
billing practices for repeat admissions. In accordance with the manual, 
``a patient who requires follow-up care or elective surgery may be 
discharged and readmitted or may be placed on a leave of absence. 
Hospitals may place a patient on a leave of absence when readmission is 
expected * * * and providers may not use the leave of absence billing 
procedure when the second admission is unexpected.'' If a hospital uses 
the leave of absence billing code, two inpatient stay claims for the 
original admission and the repeat admissions are bundled as one 
inpatient claim with one DRG payment. These claims can be reviewed by a 
fiscal intermediary or MAC and referred to the QIOs. This is a separate 
billing procedure from the Hospital Readmissions Reduction Program and 
will continue to exist.
    During the FY 2012 IPPS rulemaking cycle, we received public 
comments expressing concern that hospitals that treat a larger 
proportion of patients of lower socioeconomic circumstances may have 
higher readmission rates and could be unfairly penalized under the 
Hospital Readmissions Reduction Program. The table below shows, based 
on the excess readmission ratios and the proposed methodology to 
calculate the readmissions adjustment factor discussed in the proposed 
rule, the estimated distribution of the readmission adjustment factors 
among hospitals ranked by their DSH patient percentage (DPP). The DPP 
is used as a proxy for low-income patients and is the sum of the 
hospital's Medicare fraction and Medicaid fraction. The Medicare 
fraction is computed by dividing the number of a 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. The DPP is used to determine a hospital's Medicare DSH 
payment adjustment. Thus, hospitals with higher percentages of Medicare 
patients entitled to SSI and higher percentages of Medicaid patients 
have higher DPPs. In the table, the hospitals are ranked by their 
estimated DPP and categorized into deciles. The table shows the number 
of hospitals within each decile that are subject to no proposed 
readmission payment adjustment, the -1 percent floor readmission 
payment adjustment, and a readmission payment adjustment that is less 
than the -1 percent floor. We invited public comment on this analysis.

             Distribution of Hospitals Readmission Adjustment Factor by DSH Patient Percentage (DPP)
----------------------------------------------------------------------------------------------------------------
                                                                 Payment
                                              Number of       adjustment of   -1 percent floor   No readmission
                 Decile                       hospitals       less than -1       adjustment        adjustment
                                                                 percent                             factor
----------------------------------------------------------------------------------------------------------------
Lowest DPP..............................               339               156                38               145
Second..................................               339               164                57               118
Third...................................               339               168                44               127
Fourth..................................               339               170                48               121
Fifth...................................               339               182                42               115
Sixth...................................               339               171                43               125
Seventh.................................               339               187                44               108
Eighth..................................               339               182                43               114
Ninth...................................               339               179                58               102

[[Page 53396]]

 
Highest DPP.............................               342               185                61                96
                                         -----------------------------------------------------------------------
    Total...............................             3,393             1,744               478             1,171
----------------------------------------------------------------------------------------------------------------

    In addition, we examined the estimated distribution of the proposed 
readmissions adjustment factor based on the excess readmission ratios 
in this proposed rule (determined using the 2007-2010 data discussed 
above). The table below shows the number and percentage of hospitals 
ranked by the percent reduction received under the Hospital 
Readmissions Reduction Program. The table shows that about 71 percent 
of hospitals would receive either no adjustment or a readmission 
adjustment factor that would reduce their base operating DRG payments 
by less than 0.5 percent.

             Distribution of Readmission Adjustment Factors
------------------------------------------------------------------------
                                          Number of        Percent of
          Percent reduction               hospitals         hospitals
------------------------------------------------------------------------
No Adjustment.......................             1,171              34.5
Up to -.09 Percent..................               347              10.2
-0.1 Percent to -0.19 Percent.......               280               8.3
-0.20 Percent to -0.29 Percent......               228               6.7
-0.30 Percent to -0.39 Percent......               196               5.8
-0.40 Percent to -0.49 Percent......               180               5.3
-0.50 Percent to -0.59 Percent......               129               3.8
-0.60 Percent to -0.69 Percent......               118               3.5
-0.70 Percent to -0.79 Percent......               110               3.2
-0.80 Percent to -0.89 Percent......                77               2.3
-0.90 Percent to -0.99 Percent......                76               2.2
-1.0 Percent........................               481              14.2
                                     -----------------------------------
    Total...........................             3,393             100.0
------------------------------------------------------------------------

    Comment: Several commenters addressed the Medicare DSH analysis 
that was presented in the proposed rule. Several commenters could not 
replicate the DSH analysis and produce the same results presented in 
the proposed rule. Some commenters presented different results where 
they found that high DSH hospitals are, in fact, subject to higher 
readmission penalties. In addition, several commenters contended that 
DSH was not a good proxy to determine socioeconomic status. Commenters 
indicated that it is not uncommon for hospitals in areas with 
relatively affluent Medicare beneficiaries to qualify for DSH 
reimbursement due to the high volume of labor and delivery services 
provided to non-resident aliens. One commenter asked why CMS did not 
present a comparison table of the impacts to the DSH hospitals 
(approximately 1,882 hospitals) instead of the entire hospital 
population.
    Commenters indicated that hospitals with high disproportionate 
share patient percentages have higher excess readmission ratios. 
Commenters presented other analyses showing that hospitals with high 
DSH have higher readmission penalties. Commenters provided analyses 
where the results indicate that high DSH hospitals (defined as 
hospitals in the top 25th percentile for the DSH percentage) and 
hospitals located in large urban areas (defined as those Metropolitan 
Statistical Areas with more than one million population) are much more 
likely to receive a readmission penalty under the CMS proposal. The 
commenter found that high DSH hospitals located in large urban areas 
are 1.9954 times more likely to be penalized for heart attack than 
other hospitals, 2.5849 times more likely for heart failure, and 2.1915 
times more likely for pneumonia.
    Response: In the proposed rule, we used the proposed readmissions 
payment adjustment factors and the DSH disproportionate patient 
percentage (DPP) reported in the FY 2012 IPPS/LTCH PPS final rule 
Impact file, as it was the most recently available data at the time of 
our analysis. We note that, for hospitals that have a missing DPP, we 
assigned them a DPP of zero. We believe that may have been one 
potential source for differences in the results.
    We understand that there are several ways to measure socioeconomic 
status of a hospital's patient population and as we continue to monitor 
the issue of the relationship of a patient's socioeconomic status and a 
hospital's readmission performance, and how it affects payments to 
hospitals, we also can explore different measures of socioeconomic 
status, such as dual-eligible status. To the extent differences in 
readmission rates among hospitals treating a significant number of 
patients with low socioeconomic status are determined to 
inappropriately affect their readmission payment adjustment, we can 
work with NQF to explore options for improving the readmissions 
measures to promote high quality care, as appropriate.
    We understand that there have been different conclusions drawn from 
review of these data, and we will continue to work with MedPAC and 
other stakeholders to complete a more sophisticated analysis.
    Comment: One commenter suggested that CMS provide a level of 
statistical significance for our DSH analysis, as well as correlation 
factors between hospitals' actual DSH patient percentage

[[Page 53397]]

(as opposed their national decile) and the likeliness of receiving a 
readmissions adjustment, the magnitude of a readmissions adjustment, 
and the likeliness of reaching the maximum readmissions penalty.
    Response: At this time, we are unable to produce a rigorous 
analysis showing the relationship of a hospital's actual DSH patient 
percentage and their likeliness of receiving a readmissions adjustment, 
the magnitude of a readmissions adjustment, and the likeliness of 
receiving the maximum adjustment of -1.0 percent. However, we will 
research these issues in the upcoming year and, if significant, we will 
present our findings in future rulemaking.
e. Applicable Hospitals
    An ``applicable hospital,'' is defined at section 1886(q)(5)(C) of 
the Act as (1) ``a subsection (d) hospital or (2) a hospital that is 
paid under section 1814(b)(3).'' Specifically, hospitals subject to the 
Hospital Readmissions Reduction Program are hospitals paid under the 
IPPS and hospitals paid under the authority of section 1814(b)(3) of 
the Act. We are interpreting this 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. 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.'' The term subsection (d) hospital does not 
include hospitals located in the Territories or hospitals located in 
Puerto Rico. Section 1886(d)(9)(A) of the Act separately defines a 
``subsection (d) Puerto Rico hospital'' as a hospital that is located 
in Puerto Rico and that ``would be a subsection (d) hospital * * * if 
it were located in one of the 50 States.'' Therefore, Puerto Rico 
hospitals are not considered applicable hospitals under the Hospital 
Readmissions Reduction Program. An Indian Health Services hospital 
enrolled as a Medicare provider meets the definition of a subsection 
(d) hospital and, therefore, is considered an applicable hospital under 
the Hospital Readmissions Reduction Program, even if it is not paid 
under the IPPS. In addition, hospitals that are SCHs and current MDHs, 
although they may be paid under a hospital-specific rate instead of 
under the Federal rate under the IPPS, are subsection (d) hospitals 
and, therefore, are included in the definition of an applicable 
hospital under the Hospital Readmissions 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, and 
IPFs, and, therefore, these hospitals are not considered ``applicable 
hospitals.'' CAHs are not ``applicable hospitals'' because they do not 
meet the definition of a ``subsection (d) hospital,'' as they 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. 
Therefore, in the FY 2013 IPPS/LTCH PPS proposed rule (77 FR 27966), 
consistent with the statute, we proposed to define ``applicable 
hospital'' under the regulations at 42 CFR 412.152 to include both (1) 
subsection (d) hospitals, that is, hospitals paid under the IPPS and 
(2) hospitals in Maryland 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.
    The term ``applicable hospital'' is also referenced in the 
definition of readmission in section 1886(q)(5)(E) of the Act, which 
defines ``readmission'' as ``in the case of an individual who is 
discharged from an applicable hospital, the admission of the individual 
to the same or another applicable hospital within a time period 
specified by the Secretary from the date of such discharge.'' In the FY 
2012 IPPS/LTCH PPS final rule (76 FR 51666), we finalized the 
definition of readmission as ``occurring when a patient is discharged 
from the applicable hospital and then is admitted to the same or 
another acute care hospital within a specified time period from the 
time of discharge from the index hospitalization.'' Furthermore, we 
finalized the time period specified for these readmission measures as 
30 days. With our proposal to define an applicable hospital as a 
subsection (d) hospital or certain Maryland hospitals described above, 
we also proposed to refine the definition of readmission to only 
include admissions and readmissions occurring from an applicable 
hospital (that is, a subsection (d) hospital or certain Maryland 
hospitals) to the same or another applicable hospital (again, a 
subsection (d) hospital or certain Maryland hospitals) (proposed Sec.  
412.152). Accordingly, excess readmission ratios calculated for the 
purpose of the Hospital Readmissions Reduction Program would include 
only admissions and readmissions to ``applicable hospitals.''
    We note that because the Hospital Readmissions Reduction Program 
only includes admissions and readmissions to ``applicable hospitals'' 
to calculate the excess readmission ratios used under section 1886(q) 
of the Act, these excess readmission ratios will differ from the 
readmission rates reported on Hospital Compare for the purpose of the 
Hospital IQR Program. The excess readmission ratios for the purpose of 
the Hospital IQR Program were determined based on admissions and 
readmissions to all hospitals, not just hospitals specified in sections 
1886(d) and 1814(b)(3) of the Act. Therefore, as discussed above, the 
excess readmission ratios used in the proposed rule used a subset of 
the claims used to calculate the readmission rates reported on Hospital 
Compare for the purpose of the Hospital IQR Program and are limited to 
admissions and readmissions to ``applicable hospitals'' and are based 
on the period of June 30, 2007 to July 1, 2010. In the proposed rule, 
we used these excess readmission ratios, as they were based on the most 
recent data available and would allow the public to replicate our 
methodology to understand how the readmission adjustment factor is 
calculated. We believe that the differences between these proposed 
excess readmission ratios and those excess readmission ratios currently 
published on Hospital Compare under the Hospital IQR Program are 
minimal, and it was helpful for hospitals to see the impact of our 
proposed methodology to calculate the readmission adjustment using 
excess readmission ratios calculated under our methodology finalized in 
the FY 2012 IPPS/LTCH PPS final rule. As we stated in the proposed 
rule, for this final rule, we are using excess readmission ratios based 
on the applicable period of June 30, 2008 to July 1, 2011, as finalized 
in the FY 2012 IPPS/LTCH PPS final rule, and hospitals have had the 
opportunity to review and correct their data related to their excess 
readmission ratios prior to the publication of those excess readmission 
ratios.
    We specifically invited public comment on our readmissions 
proposal, including our proposed definition of base operating DRG 
payment, our proposed methodology to calculate the readmission 
adjustment factor, the minimum number of cases, and our proposed 
definition of applicable hospital.
    Comment: Commenters urged CMS to align the Hospital Readmissions 
Reduction Program with the clinical quality measure requirements of the 
Hospital IQR Program.

[[Page 53398]]

    Response: As discussed above, the excess readmission ratios for the 
purpose of the Hospital IQR Program were determined based on admissions 
and readmissions to all hospitals, not just hospitals specified in 
sections 1886(d) and 1814(b)(3) of the Act. Therefore, the excess 
readmission ratios used in the final rule use a subset of the claims 
used to calculate the readmission rates reported on Hospital Compare 
for the purpose of the Hospital IQR Program and would be limited to 
admissions and readmissions to ``applicable hospitals.'' We have 
aligned the methodology for readmission measures in the Hospital IQR 
Program and the Hospital Readmissions Reduction Program as much as is 
allowed by statutory requirements.
    Comment: Some commenters supported our proposal to include 
subsection (d) hospitals and Maryland hospitals in our definition of 
``applicable hospital'' for the Hospital Readmissions Reduction 
Program. One commenter asked CMS to waive the requirements of the 
Hospital Readmissions Reduction Program for hospitals that participate 
in an accountable care organization (ACO) under the Medicare Shared 
Savings Program or the Pioneer ACO Model. The commenter argued that 
hospitals that participate in ACOs are already subject to incentives to 
reduce hospital readmissions, are already measured for their 
performance on all conditions for readmissions; therefore, to include 
these hospitals in the Hospital Readmissions Reduction Program is 
redundant. The commenter argued that CMS has the authority to waive 
Title XVIII requirements, including the requirements of the Hospital 
Readmission Reduction Program, for these hospitals under the waivers 
provided under sections 1115A(d)(1) and 1899(f) of the Act.
    Response: We appreciate the suggestion submitted by the commenters 
to exempt hospitals from the Hospital Readmissions Reduction Program if 
they already participate in an ACO under the Medicare Shared Savings 
Program or the Pioneer ACO Model. We agree that ACOs are encouraged to 
improve quality of care and reduce the rate of growth in expenditures. 
We also agree that avoidable readmissions is an area in which we 
believe an ACO's coordination of care and accountability can have a 
significant impact in improving patient care. To that end, we finalized 
an all-condition readmission quality measure in the Medicare Shared 
Savings Program Final Rule. This measure is also used to assess quality 
of care furnished by ACOs participating in the Pioneer ACO Model. 
However, the waivers under sections 3021 and 3022 of the Affordable 
Care Act permit us to waive provisions of Title XVIII only to the 
extent that such a waiver may be ``necessary'' in order to carry out 
those sections. In this case, because the incentives of the Hospital 
Readmissions Reduction Program and the Medicare ACO initiatives are 
aligned, we see no need to waive the requirements of the Hospital 
Readmissions Reduction Program in order to carry out either the 
Medicare Shared Savings Program or to test the Pioneer ACO Model.
    Indeed, because the incentives of the two programs are aligned, we 
believe that hospitals successful in reducing avoidable readmissions 
could be important allies for ACOs who share similar goals. Because it 
is unlikely that the beneficiaries assigned to ACO will use only a 
single inpatient facility, ACOs will need to work effectively with all 
local hospitals that their Medicare FFS beneficiaries choose to use.
    Finally, as we gain experience with the Shared Savings Program and 
other new payment incentives in the Medicare FFS program, we will 
monitor their interactions with the Hospital Readmissions Reduction 
Program and continue our efforts to align measures and incentives to 
achieve the best outcomes for our patients and the program.
    Comment: One commenter requested clarification regarding how 
hospitals participating in the Rural Hospital Community Demonstration 
Program will be impacted by the Hospital Readmissions Reduction 
Program.
    Response: As described, the applicable hospital is defined as a 
subsection (d) hospital or certain Maryland hospitals. Hospitals 
participating in the Rural Hospital Community Demonstration Program are 
subsection (d) hospitals and, thus, will be included in the Hospital 
Readmissions Reduction Program. Accordingly, we have calculated excess 
readmission ratios and readmissions payment adjustment factor for 
hospitals in the Rural Hospital Community Demonstration Program. If 
hospitals in the Rural Hospital Community Demonstration Program are 
subject to a readmissions payment reduction, the reduction will be 
applied to their base operating DRG amount as if they were paid under 
the IPPS. At cost report settlement, the readmissions payment amount 
subtracted from the hospital's base operating DRG amount will be 
reduced from the payments received under the demonstration.
    We are finalizing as proposed our definition of applicable 
hospitals under the regulations at 42 CFR 412.152 to include both (1) 
subsection (d) hospitals, that is, hospitals paid under the IPPS and 
(2) hospitals in Maryland 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. Furthermore, we note that 
the Hospital Readmissions Reduction Program only includes admissions 
and readmissions to ``applicable hospitals'' to calculate the excess 
readmission ratios used under section 1886(q) of the Act.
4. Limitations on Review (Sec.  412.154(e))
    Section 1886(q)(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 determination of base operating DRG payment amounts.
     The methodology for determining the adjustment factor, 
including the excess readmissions ratio, aggregate payments for excess 
readmissions, and aggregate payments for all discharges, and applicable 
periods and applicable conditions.
    In the FY 2013 IPPS/LTCH PPS proposed rule (77 FR27966), we 
proposed to include under proposed Sec.  412.154(e) that the provisions 
listed above will not be subject to administrative or judicial review, 
consistent with section 1886(q)(7) of the Act. We note that section 
1886(q)(6) of the Act requires that the Secretary ``make information 
available to the public regarding readmissions rates of each subsection 
(d) hospital under the [Hospital Readmissions Reduction Program]'' and 
also requires the Secretary to ``ensure that a subsection (d) hospital 
has the opportunity to review and submit corrections for, the 
information to be made public.'' Our proposal for reporting hospital-
specific information, including a hospital's opportunity to review and 
submit corrections, consistent with section 1886(q)(7) of the Act, is 
discussed below.
    We did not receive any public comments on our proposals regarding 
the Limitations for Review; therefore, we are finalizing our proposals 
without modification, including the regulatory text at Sec.  
412.154(e).

[[Page 53399]]

5. Reporting Hospital-Specific Information, Including Opportunity To 
Review and Submit Corrections (Sec.  412.154(f))
    Section 1886(q)(6)(A) of the Act requires the Secretary to ``make 
information available to the public regarding readmissions rates of 
each subsection (d) hospital under the [Hospital Readmissions Reduction 
Program]''. Section 1886(q)(6)(B) of the Act also requires the 
Secretary to ``ensure that a subsection (d) hospital has the 
opportunity to review, and submit corrections for, the information to 
be made public with respect to the hospital.'' In addition, section 
1886(q)(6)(C) of the Act requires the Secretary to post the hospital-
specific readmission information for each subsection (d) hospital on 
the Hospital Compare Web site in an easily understood format.
    As we stated in the proposed rule, for purposes of the Hospital 
Readmissions Reduction Program for FY 2013, we will calculate excess 
readmission ratios for each of the three conditions, AMI, HF, and PN, 
using the previously finalized 3-year applicable period for the FY 2013 
payment determination that spans from July 1, 2008 through June 30, 
2011 (76 FR 51671), data sources, and the minimum number of discharges 
previously finalized in the FY 2012 IPPS/LTCH PPS final rule for each 
applicable hospital (76 FR 51671 through 51672). We stated that we 
intended to make these excess readmission ratios available to the 
public, consistent with the requirements of section 1886(q)(6)(B) of 
the Act, as part of the FY 2013 rulemaking process, in addition to 
posting this information on the Hospital Compare Web site in a 
subsequent release.
    In the FY 2012 IPPS/LTCH PPS final rule, we indicated that we would 
provide hospitals an opportunity to review and submit corrections using 
a process similar to what is currently used for posting results on 
Hospital Compare. We currently provide hospitals with the data elements 
necessary to verify the accuracy of their readmission rates for the 
Hospital IQR Program prior to posting their rates on Hospital Compare. 
Because we believe it is important to provide hospitals with relevant 
information available to hospitals for assessing payment impacts for 
purposes of the Hospital Readmissions Reduction Program, as we stated 
in the proposed rule, we plan to make the excess readmission ratios 
used for the Hospital Readmissions Reduction Program adjustment factor 
calculation available during the rulemaking cycle. As a result, the 
timeline and details of this process must accommodate the rulemaking 
timeline in addition to posting on Hospital Compare. In the proposed 
rule, we set forth the following details regarding the process for 
hospitals to review and submit corrections to their excess readmission 
ratios prior to making this information available to the public in 
rulemaking and on Hospital Compare.
    For FY 2013, we proposed to deliver confidential reports and 
accompanying confidential discharge-level information to applicable 
hospitals as defined in section IV.A.2. of this preamble, which contain 
their excess readmission ratios for the three applicable conditions by 
June 20, 2012. These reports will 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 (we 
discuss this practice in more detail later).
    The discharge-level information accompanying the excess readmission 
ratios would include the risk-factors for the discharges that factor 
into the calculation of the excess readmission ratio, as well as 
information about the readmissions associated with these discharges 
(such as dates, provider numbers, and diagnosis upon readmission). Our 
intent in providing this information is twofold: (1) to facilitate 
hospitals' verification of the excess readmission ratio calculations we 
provide during the review and correction period based upon the 
information CMS had available at the time our data extract was created; 
and (2) to facilitate hospitals' quality improvement efforts with 
respect to readmissions.
    We proposed to provide hospitals with a period of 30 days to review 
and submit corrections for their excess readmission ratios for the 
Hospital Readmissions Reduction Program. This 30-day period would begin 
the day hospitals' confidential reports and accompanying discharge-
level information are posted to their QualityNet accounts. Based on 
previous experience with public reporting of measures under the 
Hospital IQR program, including the 30-day risk standardized 
readmission rates, we believe this 30-day period would allow enough 
time for hospitals to review their data and notify CMS of calculation 
errors, and for CMS to incorporate appropriate corrections to the 
excess readmission ratio calculations prior to the publication of the 
final rule, at which time the excess readmission ratios would be made 
available to the public in a table to be cited in the final rule and 
available via the Internet on the CMS Web site. During the review and 
correction period, hospitals should notify CMS of suspected errors in 
their excess readmission ratio calculations using the technical 
assistance contact information provided in their confidential reports. 
In order to meet the timelines for this program, we delivered these 
confidential reports and discharge-level data files to hospitals for 
the review and correction period on June 20, 2012.
    The review and correction process we proposed for the excess 
readmission ratios above would not allow hospitals to submit additional 
corrections related to the underlying claims data we used to calculate 
the ratios, or allow hospitals to add new claims to the data extract we 
used to calculate the ratios. 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 excess readmission 
ratios 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 CMS. However, in using claims data to calculate 
measures for this program, we proposed 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, 2011, we would create the data extract 
on September 30, 2011 (90 days later), and use that data to calculate 
the ratios for that applicable period. Hospitals would then receive the 
excess readmission ratio calculations in their confidential reports and 
accompanying discharge-level information and they would have an 
opportunity to review and submit corrections for the calculations. As 
we stated above, hospitals would not be able to submit corrections to 
the underlying data that were extracted on September 30, 2011, and 
would also not be able to add claims to the data set. Therefore, we 
would consider hospitals' claims data to be complete for purposes of 
calculating the excess readmission ratios for the Hospital Readmissions

[[Page 53400]]

Reduction Program at the conclusion of the 90-day period following the 
last date of discharge used in the applicable period.
    We considered a number of factors in determining that a 90-day 
``run-out'' period is appropriate for purposes of calculating claims 
based measures. First, we seek to provide timely quality data to 
hospitals for the purpose of quality improvement and to the public for 
the purpose of transparency. Next, we seek to make payment adjustments 
to hospitals based on their performance on measures as close in time to 
the performance period as possible. Finally, with respect to claims-
based measures, we seek to have as complete a data set as possible, 
recognizing that hospitals have up to one 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 Hospital Readmissions 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 date. We believe 
this would create an unacceptably long delay both for hospitals and for 
CMS to deliver timely calculations to hospitals for quality improvement 
and transparency, and ultimately timely readmission adjustment factors 
for purposes of this program. Therefore, we proposed to extract the 
data needed to calculate the excess readmission ratios 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.
    During the 30-day review and correction process for the excess 
readmission ratios, if a subsection (d) hospital suspects that such 
discrepancies exist in the CMS application of the measures' 
methodology, it should notify CMS 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 excess readmission ratios, we would strive to correct the 
calculations, issue new confidential reports to subsection (d) 
hospitals, and then publicly report the corrected excess readmission 
ratios through the rulemaking process, and subsequently on Hospital 
Compare. However, if the errors take more time than anticipated to 
correct, not allowing for publication of the corrected ratios in the 
final rule, we would notify hospitals in the final rule that corrected 
ratios will be made available after the final rule through delivery of 
confidential reports followed by a second 30-day review and correction 
period, subsequent publication, and posting on Hospital Compare. In 
addition, we proposed that any corrections to a hospital's excess 
readmission ratios would then be used to recalculate a hospital's ratio 
under section 1886(q)(4)(B) of the Act in order to determine the 
hospital's adjustment factor in accordance with section 1886(q)(3) of 
the Act.
    We believe that this proposed process would fulfill the statutory 
requirements at section 1886(q)(6)(A), section 1886(q)(6)(B), and 
section 1886(q)(6)(C) of the Act. We further believe that the proposed 
process would allow hospitals to review and correct their excess 
readmission ratios. 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 excess readmission ratios 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 excess readmission ratios ends at 
the conclusion of the review and correction period. We welcomed public 
comments on the proposed review and corrections process for the 
Hospital Readmissions Reduction Program.
    Comment: One commenter disagreed with the use of the Common Working 
File (CWF) to calculate the readmission measures, stating that it does 
not contain final-action claims for all of the discharges eligible to 
be used to calculate excess readmission ratios.
    Response: The excess readmission ratios are calculated using only 
the final action claims (that is, we do not include canceled/edited 
claims) from the CWF available as of September 30, which are published 
in the Inpatient Standard Analytic File (SAF). Calculations include 
claims processed by CMS as of the following dates: June 26, 2009 for 
July 1, 2007 through June 30, 2008 claims; June 25, 2010 for July 1, 
2008 through June 30, 2009 claims; June 24, 2011 for July 1, 2009 
through June 30, 2010 claims; and September 30, 2011 for July l, 2010 
through June 30, 2011 claims. Claims and corrections processed after 
these dates are not reflected in the calculations. Thus data between 
2008 and 2010 include more than 6 months of run-out period, and 2011 
data contain a 3-month run-out period to allow as many corrected and 
final-action claims to be incorporated. These are the most recent final 
action data that can be used to meet the timeline of the program need. 
We encourage hospitals to submit claim corrections as early as possible 
and to ensure the quality of the data they submitted for 
reimbursements. If CMS waits for final-action claims for all eligible 
discharges to be included in the data, then the excess readmission 
ratios will be based on old data, which will limit its usefulness for 
hospitals to review and improve their care delivery processes. 
Therefore, we have encouraged hospitals to submit claim corrections as 
early as possible and to ensure the quality of the data they submitted 
for reimbursements. We will continue to research and seek public 
comments on alternative data sources that might provide measure results 
that are as accurate and are more timely than the CWF. The CWF will be 
used for the calculation of excess readmission ratios for the Hospital 
Readmissions Reduction Program as finalized in the FY 2012 IPPS/LTCH 
final rule (76 FR 51671 through 51672).
    Comment: One commenter appreciated the release of additional 
hospital specific data and ``excess readmission rates'' data prior to 
the implementation of the program, as well as the readmission 
information and patient's risk factors.
    Response: We thank the commenter for the recognition and we are 
committed to foster transparency, provide accurate data to hospitals 
for quality improvement, and, ultimately, timely calculate readmission 
adjustment factors for base operating DRG payments.
    Comment: One commenter thanked CMS for the 30-day review and 
correction period while one commenter

[[Page 53401]]

requested the review and correction period be extended to 60 days.
    Response: We appreciate the commenter's support of the 30-day 
review period. We note that, in the FY 2012 IPPS/LTCH PPS final rule 
(76 FR 51672 through 51673), we adopt the same preview and correction 
process and timeframe used for subsection (d) hospitals for the rates 
calculated for the Hospital Readmissions Reduction Program. That is, we 
provide hospitals with an opportunity to preview their readmission 
rates for 30 days prior to posting on the Hospital Compare webs site. 
This process meets the statutory requirement in section 1886(q)(6)(B) 
of the Act which requires the Secretary to ensure that a subsection (d) 
hospital has the opportunity to review and submit corrections before 
the information to be made public with respect to the hospital * * * 
prior to such information being made public.
    Aside from the statutory requirements, we also considered hospital 
experience with the measure and data production timeline in proposing 
the 30-day preview period. In terms of hospital experience with the 
measures, while the Hospital Readmissions Reduction Program is new, 
subsection (d) hospitals are already familiar with the three 30-day 
risk-standardized readmission measures that the Program uses to 
determine payment adjustment. In particular, these three measures were 
first publicly reported by the former Reporting of Hospital Quality 
Data for Annual Payment Update (RHQDAPU) program (currently known as 
the Hospital IQR Program), back in 2009. The measure results have been 
reported annually since then and have recently been updated in July 
2012. To help hospitals understand the methodology for these measures 
and the calculation and interpretation of measure results, we have made 
publicly available the latest version of the methodology reports, a 
Frequently-Asked-Question list, a mock hospital-specific report, and a 
mock discharge-level data file for these measures on the QualityNet Web 
site. The measures methodology for the Hospital Readmissions Reduction 
Program is the same as that for the Hospital IQR Program. Because 
hospitals are working with measures in which they have prior experience 
from the Hospital IQR Program, we believe that a 30-day preview period 
is sufficient for hospitals to review and correct their excess 
readmission ratios.
    In terms of data production timeline, due to the complexity of 
these measures and the need for bootstrapping in measure calculations, 
a significant amount of programming resources is needed. It took 
several months to complete the production and extensive quality 
assurance procedures for the results for more than 3,500 hospitals. As 
a result, we will not be able to begin the preview period earlier than 
late June. Also, we will not be able to extend the preview period to 
more than 30 days. This is because if hospitals find data problems that 
we determine to be attributable to our calculation or programming 
errors, we will need adequate time between mid-July and the end of 
September to: (1) Recalculate the excess readmission ratios; (2) 
regenerate and redisseminate corrected results to hospitals in time for 
payment adjustment in early October (the beginning of the subsequent 
fiscal year); and (3) publicly report the excess readmission ratios on 
the Hospital Compare Web site in mid-October to meet the statutory 
reporting requirements under section 1886(q)(6) of the Act. Based on 
the above reasons, we cannot change the review and correction timeframe 
to 60 days.
    Comment: One commenter requested that, for self-validation 
purposes, CMS provide each hospital with a downloadable database 
containing all of the claims data used to calculate the hospital's 
readmission rates. One commenter recommended that CMS provide hospitals 
with additional claim information documenting the first physician/
licensed independent practitioner visit post index discharge and prior 
to readmit (days from discharge to first visit). The commenter stated 
that the first follow-up provider information is critical to decreasing 
readmissions. Another commenter was concerned that limited access to 
the claims data will impair hospitals' ability to self-validate our 
results.
    Response: We considered several factors in deciding the amount of 
information that CMS provides to hospitals for the review and 
correction process. These factors are: Confidentiality of information, 
our resources, and feasibility for hospital providers to process the 
data.
    For the purposes of the Hospital Readmissions Reduction Program 
data, we have decided to provide as much of the claims-based 
information that is pertinent to the calculation of the excess 
readmission ratio so that hospitals can verify the accuracy of these 
calculations and engage in outreach and coordination with readmitting 
hospitals. Providing the entire raw claims history for index admissions 
and for subsequent services after discharge would provide more 
information than would be necessary in hospitals' effort to review 
their excess readmission ratios. To protect sensitive patient 
information, and to avoid burden and confusion to hospitals, we are 
careful not to include data elements that are not relevant for the 
review and correction process.
    Furthermore, providing all subsection (d) and Maryland hospitals 
with all the claims data will require a large amount of resources, 
infrastructure changes and exert significant financial burden on these 
hospitals and on taxpayers. We have already provided supplemental 
discharge-level data to hospital providers to review qualified 
individual readmissions, including primary diagnosis at index and 
readmission stays, where the patient was readmitted, dates of index and 
readmission stays, and individual risk factors, and instructions for 
replicating their excess readmission ratios.
    Additionally, we have also set up a Help Desk for hospitals to 
inquire about their results. This Help Desk has access to all the 
claims data used for the calculation of the hospitals' excess 
readmission ratios, and is highly experienced in assisting hospitals 
with the results of the 30-day risk-standardized readmission measures. 
Therefore, we believe that the proposed review correction policies are 
adequate. We are working to identify new methods to provide hospitals 
with accurate and timely data to improve their care delivery processes 
to reduce readmission rates. We encourage hospitals and other 
healthcare providers to provide us with recommendations for this 
effort.
    After consideration of the public comments received, for the review 
and correction process, we are finalizing the policies of providing 
applicable hospitals with: (1) a period of 30 days to review and submit 
corrections for their excess readmission ratios for the Hospital 
Readmissions Reduction Program; and (2) confidential reports and 
accompanying confidential discharge-level information (this includes 
the excess readmission ratios, the risk-factors for the discharges that 
factor into the calculation of the excess readmission ratio, as well as 
information about the readmissions associated with these discharges).

B. Sole Community Hospitals (SCHs) (Sec.  412.92)

1. Background
    Section 1886(d)(5)(D)(iii) of the Act defines a sole community 
hospital (SCH) generally as a hospital that is located more than 35 
road miles from another hospital or that, by reason of factors such as 
isolated location,

[[Page 53402]]

weather conditions, travel conditions, or absence of other like 
hospitals (as determined by the Secretary), is the sole source of 
inpatient hospital services reasonably available to Medicare 
beneficiaries. The regulations at 42 CFR 412.92 set forth the criteria 
that a hospital must meet to be classified as a SCH. For more 
information on SCHs, we refer readers to the FY 2009 IPPS/LTCH PPS 
final rule (74 FR 43894 through 463897).
2. Reporting Requirement and Clarification for Duration of 
Classification for Hospitals Incorrectly Classified as Sole Community 
Hospitals (Sec.  412.92(b)(3)(iv))
    The regulations at Sec.  412.92(b)(2) and (b)(3) address the 
effective dates of a classification as an SCH and the duration of this 
classification. Currently, a hospital's SCH classification status 
remains in effect without the need for reapproval unless there is a 
change in the circumstances under which the classification was 
approved. Section 412.92(b)(3) requires a hospital to notify the fiscal 
intermediary or Medicare administrative contractor (MAC) within 30 days 
of a change that could affect its classification as an SCH. 
Specifically, the regulations require an SCH to notify its fiscal 
intermediary or MAC if any of the following changes specified in 
Sec. Sec.  412.92(b)(3)(ii)(A) through (b)(3)(ii)(E) occur:
     The opening of a new hospital in its service area.
     The opening of a new road between itself and a like 
provider within 35 miles.
     An increase in the number of beds to more than 50, if the 
hospital qualifies as an SCH under Sec.  412.92(a)(1)(ii).
     Its geographic classification changes.
     Any changes to the driving conditions that result in a 
decrease in the amount of travel time between itself and a like 
provider if the hospital qualifies as an SCH under Sec.  412.92(a)(3).
    As discussed in the FY 2007 IPPS final rule (71 FR 48060), in the 
context of CMS becoming aware of several hospitals that had been paid 
based on SCH status, even after the original circumstances of the 
classification changed, CMS determined that an SCH's classification 
status would generally end 30 days after CMS notifies the SCH that it 
no longer meets the requirements to be classified as an SCH. However, 
if a hospital does not report when any one of the changes listed above 
occurs, CMS will cancel the hospital's SCH classification effective 
with the date that the hospital no longer met the criteria for SCH 
classification, subject to the reopening rules at 42 CFR 405.1885 
(Sec.  412.92(b)(3)(i)).
    For any change that is not listed under Sec.  Sec.  
412.92(b)(3)(ii)(A) through (b)(3)(ii)(E) that affects an SCH's 
classification status, CMS requires a hospital to report that change to 
the fiscal intermediary or MAC if it ``becomes aware'' of the change. 
If a hospital does not report a change, other than those listed under 
Sec. Sec.  412.92(b)(3)(ii)(A) through (b)(3)(ii)(E), and it becomes 
known to CMS that the hospital had knowledge of that change, CMS will 
cancel the hospital's SCH classification effective with the date the 
hospital became aware of the event. Specifically, Sec.  
412.92(b)(3)(iii) states that ``a sole community hospital must report 
to the fiscal intermediary if it becomes aware of any change that would 
affect its classification as a sole community hospital beyond the 
events listed in paragraph (b)(3)(ii) of this section within 30 days of 
the event. If CMS determines that a sole community hospital has failed 
to comply with this requirement, CMS will cancel the hospital's 
classification as a sole community hospital effective with the date the 
hospital became aware of the event that resulted in the sole community 
hospital no longer meeting the criteria for such classification, 
consistent with the provisions of Sec.  405.1885 of this chapter.'' 
(Emphasis added.)
    The existing language at Sec.  412.92(b)(3)(iii) only refers to a 
hospital becoming aware of a ``change,'' because it deals specifically 
with a situation where a hospital was appropriately classified as an 
SCH because it had previously met the requirements to become an SCH. We 
believe that this requirement was not intended to preclude situations 
where a hospital was incorrectly classified as an SCH. However, the 
regulations did not explicitly address the situation where a hospital 
never met the requirements to be classified as an SCH, but was 
incorrectly classified as an SCH. Therefore, we believe it would be 
prudent to explicitly address this situation in the regulations.
    In the FY 2013 IPPS/LTCH PPS proposed rule (77 FR 27968 and 27969), 
we proposed to add a new paragraph (b)(3)(iv) to Sec.  412.92 to 
clarify our current authority that if CMS determines that the hospital 
was incorrectly classified as an SCH, SCH status could be cancelled 
retroactively, consistent with the provisions at Sec.  405.1885. We 
proposed that any factor or information, not only a change or an event 
that could have affected a hospital's initial SCH classification must 
be reported by the SCH to its fiscal intermediary or MAC.
    Our proposed regulation stated explicitly our current authority 
that if a determination is subsequently made that, in fact, a hospital 
did not ever qualify as an SCH, the withdrawal of SCH status could be 
made retroactively to revoke payments associated with the incorrect SCH 
classification for the entire time period, consistent with the 
reopening rules at Sec.  405.1885.
    Comment: Many commenters contended that a hospital should not be 
accountable for any errors it made inadvertently and is unaware of or 
for any errors made by CMS or the Medicare contractor. Commenters 
requested confirmation and clarification regarding a number of issues, 
such as: (1) The circumstances under which the reporting obligation is 
triggered; (2) the timeframe involved in making a report to CMS; and 
(3) what factor or information must be reported.
    Response: We realize that a hospital could have been incorrectly 
classified as an SCH based on an inadvertent error by the hospital, 
CMS, or the contractor. However, an error is not adequate justification 
to maintain a hospital's SCH status and to provide higher payments 
under the Medicare program. However, in light of the public comments, 
we are modifying our proposed change in this final rule so that, 
effective October 1, 2012, if a hospital reports any factor or 
information that could have affected its initial classification as an 
SCH, and CMS determines that, based on the additional information, the 
hospital should not have qualified for SCH status, we will only revoke 
SCH status prospectively, effective 30 days from CMS' date of 
determination. We note that this reopening limitation does not apply to 
situations where there was fraud involved. If a hospital knowingly 
misled CMS or deliberately submitted incorrect information in its 
initial classification, different procedures would apply. These 
procedures would include recouping incorrect payments associated with 
the fraudulently awarded SCH classification.
    This policy, as revised in this final rule, will allow a hospital 
that reports to CMS any factor or information that could have affected 
its initial classification as an SCH to have its SCH classification 
removed prospectively only. A hospital is only required to report to 
CMS any available information that would have affected its initial 
classification as an SCH under the regulations that were effective at 
that time. We are not requiring hospitals to

[[Page 53403]]

continuously monitor subsequent year data from other hospitals such as 
changes in patient origin data. However, information that could have 
affected its classification as an SCH at the time of its initial SCH 
determination is required to be reported to CMS.
    For example, if hospital A is classified as an SCH and the distance 
between itself and hospital B is such that it may have been classified 
as an SCH in error, hospital A would be required to report this to CMS. 
If the hospital reports this issue to CMS, and CMS determines in fact 
that the distance between hospital A and hospital B would have 
precluded hospital A from being classified as an SCH using the 
qualification criteria that were in place at the time of its initial 
classification, we would remove the hospital's SCH status effective 30 
days from the date that CMS determines that Hospital A should not have 
qualified for SCH status. However, if hospital A does not report to CMS 
that hospital B's proximity to hospital A may have been overlooked in 
its initial classification as an SCH, and CMS finds that hospital A 
should never have qualified as an SCH, CMS has the discretion to recoup 
the overpayments associated with erroneous SCH status, in accordance 
with cost reporting reopening rules at Sec.  405.1885, that is, for 
cost reporting periods that are within the 3-year reopening period. We 
believe this distinction between the effective date for hospitals that 
do and do not notify CMS of the possible error will encourage self-
reporting of possible errors. In cases where hospitals fail to report, 
CMS would have the discretion to reopen back to the earliest date 
possible in accordance with Sec.  405.1885. Such discretion would be 
available to rectify situations where hospitals were paid as SCHs even 
though they never initially met the classification standards for such 
status, and never reported the error to CMS.
    Accordingly, if a hospital suspects that it should not have 
qualified as an SCH at the time of its initial classification and the 
hospitals comes to CMS and requests that CMS determine whether it meets 
all of the requirements for SCH status, if CMS confirms that suspicion 
and the hospital in fact should never have been approved as an SCH, CMS 
will remove SCH status effective 30 days from CMS' date of 
determination.
    We note that this policy, as revised, is in addition to the 
requirements already in place in the regulations at Sec. Sec.  
412.92(b)(3)(i) through (b)(3)(iii) that require a hospital to notify 
CMS (that is, the fiscal intermediary or MAC servicing the hospital) of 
any changes that would affect its SCH status.
    Comment: Several commenters were concerned that our proposal could 
potentially revoke SCH status from a hospital's initial classification 
as an SCH, which could potentially span a few decades. One commenter 
suggested that CMS establish a ``look back'' period on which hospitals 
can rely and that CMS not reopen a prior SCH classification more than 3 
years after the initial determination simply because there is an open 
cost report due to an appeal or delayed payment. Many commenters 
objected to the retroactive cancellation of SCH classification claiming 
that this would be punitive.
    Response: We understand and appreciate the need to establish a 
limit to how far back CMS may rescind SCH status. Our proposal clearly 
stated that the withdrawal of SCH status could be made retroactively, 
consistent with the provisions at Sec.  405.1885, meaning that we may 
withdraw SCH status for cost reporting periods that are within the 3-
year reopening period only. Therefore, if a hospital was incorrectly 
approved as an SCH and the effective date of the original 
classification is still within the 3-year cost report reopening period, 
we could withdraw SCH status for all those periods in which it was paid 
incorrectly as an SCH starting with its initial date of classification. 
However, if the effective date of the original classification as an SCH 
was not within the 3-year cost report reopening period, we could only 
withdraw SCH status and any payments associated with that SCH status 
for those cost reporting periods subject to the reopening period. This 
is consistent with our reopening rules, and applies to any open cost 
report, regardless of the reason the report is still in an open cost 
reporting period. We note that our ordinary reopening rules do not 
distinguish the period available for reopening based on why a cost 
report may still be open. Finally, as stated above, CMS would have the 
discretion to reopen to the earliest date possible, consistent with 
Sec.  405.1885.
    Comment: Some commenters contended that the proposal undermines 
CMS' longstanding principle favoring prospective policy and that a 
hospital would never have total certainty that it qualifies as an SCH.
    Response: While we appreciate the commenters' concerns, we also 
believe that overpaying hospitals based on an erroneous classification 
that should never have been awarded undermines a payment system, and 
could even encourage attempts at misclassification. Our reopening rules 
have always provided authority to revoke overpayments associated with 
an erroneous SCH classification retroactively and in accordance with 
the cost report reopening rules. Our clarification in the regulation is 
merely codifying this already existing authority. We are simply making 
explicit what is already implicit in our authority and is not 
introducing a change in policy.
    Comment: Several commenters asserted that CMS' proposed regulation 
is unfair in that it would impose an unfair and burdensome obligation 
to continuously monitor data that may not be within a hospital's 
control. Other commenters suggested that CMS modify the proposed 
regulation to make it more consistent with the regulations at 
Sec. Sec.  412.92(b)(3)(ii) and (b)(3)(iii) which describe the way CMS 
handles the cancellation of SCH for a hospital where there was a change 
in circumstances under which the classification was approved.
    Response: We are not requiring hospitals to continuously monitor 
data nor are we requiring hospitals to report data that may not be 
within their control. A hospital would only be required to report any 
factor or information that would have affected its initial 
classification. We note that this policy is in addition to the 
requirements already in place in the regulations at Sec. Sec.  
412.92(b)(3)(i) through (b)(3)(iii) that require a hospital to notify 
CMS (that is, the hospital's fiscal intermediary or MAC) of any changes 
that would affect its SCH status. The information in question is data 
that are germane to the information on which the SCH classification was 
based. The factors and information that a hospital must report are a 
limited universe of data that was used during the hospital's initial 
classification.
    The modifications that we have made to the proposed regulation in 
this final rule would make the final regulation consistent with our 
existing regulations at Sec. Sec.  412.92(b)(3)(i) and (b)(3)(ii) where 
CMS cancels SCH classification in accordance with our reopening rules 
when the SCH fails to disclose a change in circumstance.
    Comment: Several commenters requested classification as to (1) 
whether the proposed regulation would apply to hospitals that were 
classified as SCHs before the implementation of IPPS; and (2) which 
standards and criteria would be used by CMS to determine whether or not 
the hospital qualified as an SCH in its initial classification.
    Response: We note that there are a few types of SCHs that have been 
classified as such under different sets of requirements:
    (1) A hospital that was granted SCH status and was granted an 
exemption

[[Page 53404]]

from cost limits pre-IPPS. Our regulations at Sec.  412.92(b)(5) state 
that a hospital that has been granted an exemption from the hospital 
cost limits before October 1, 1983, or whose request for the exemption 
was received by the appropriate intermediary before October 1, 1983, 
and was subsequently approved, is automatically classified as an SCH. 
In the September 1, 1983 final rule (48 FR 39780), we stated that a 
hospital would be classified as an SCH for purposes of the IPPS if the 
hospital has an approved exemption from hospital cost limits as an SCH 
prior to October 1, 1983, and that the hospital would retain SCH status 
unless there was a change in the circumstances affecting this 
classification under the cost limits.
    (2) A hospital that was classified as an SCH before the change in 
the law under section 6003(e)(3) of the Omnibus Budget Reconciliation 
Act of 1989 (Pub. L. 101-239). In the August 18, 2006 final rule (71 FR 
48061), we discussed that changes in criteria for being eligible for 
SCH status that were made by section 6003(e)(3) of Public Law 101-239. 
The law changed SCH criteria by reducing the number of miles between 
providers from 50 to 35 and by requiring the Secretary to establish a 
criterion that takes into consideration the travel time between two 
providers. Section 6003(e)(3) of Public Law 101-239 exempted hospitals 
that already had SCH status from meeting either of these requirements. 
In other words, any hospital that was correctly an SCH in 1989 is 
protected under this grandfathering provision from the new mileage 
criterion and whether or not it meets the new criterion for 
classification concerning travel time at Sec.  412.92(a)(3). However, 
we noted that this grandfathering provision is limited to these two 
circumstances. Hospitals with SCH designations in effect prior to 1989 
can lose SCH status if they fail to meet any of the other eligibility 
criteria.
    (3) A hospital that was designated as an EACH prior to October 1, 
1997. Under the regulations at Sec.  412.109, a hospital designated as 
an EACH is paid as an SCH as long as the hospital continues to comply 
with the terms, conditions, and limitations that were applicable at the 
time of designation.
    These hospitals are grandfathered in and are protected against 
later changes to SCH criteria or new interpretations of those criteria. 
Accordingly, these grandfathered SCHs would maintain their SCH status 
as long as they continue to meet the criteria under which they 
classified for payments as SCHs.
    In this final rule, we also are clarifying that we would apply the 
standards and regulations that were in effect at the time the hospital 
was initially classified as an SCH. That is, when CMS determines that a 
hospital never met the requirements to be classified as an SCH, we are 
referring to the requirements that were in place during the hospital's 
initial classification as an SCH. However, we note that the criteria 
for SCH classification have not been modified since we made changes to 
implement section 6003(e)(3) of the Omnibus Budget Reconciliation Act 
of 1989 (Pub. L. 101-239). Since that time, we have issued minimal 
reinterpretations in the actual criteria for classification. Therefore, 
we are confirming that we would not apply SCH criteria, standards, or 
interpretations that were not effective at the time of initial SCH 
classification to any hospital.
    Comment: Some commenters argued that the proposed regulation change 
is irreconcilable with our existing regulation which states that a 
hospital retains SCH status unless there is a change in the 
circumstances under which the classification was approved.
    Response: The commenters' argument is based on an incorrect 
assumption about the applicability of the existing regulations. That 
is, the existing regulations only address situations where a hospital 
was correctly classified as an SCH. The regulations were silent on 
hospitals that were initially classified incorrectly. If a hospital was 
classified as an SCH in error, clearly it would not take a ``change in 
circumstances'' to revoke SCH status.
    After consideration of the public comments we received, we are 
finalizing our proposed codification of our current authority to recoup 
any overpayments associated with incorrect SCH classification, 
consistent with cost report reopening rules at Sec.  405.1885. We also 
are making one modification to specify that, effective October 1, 2012, 
if a hospital subsequently reports any factors or information to CMS 
that could have affected its initial classification as an SCH and CMS 
determines that, based on the additional information, the hospital 
should not have qualified for SCH status, CMS will cancel SCH status 
effective 30 days from CMS' date of determination.
    As stated above, we also note that reopening limitation does not 
apply to situations where there was fraud involved. If a hospital 
knowingly misled CMS or deliberately submitted incorrect information in 
its initial classification, CMS will recoup incorrectly paid amounts 
from the date of the hospital's initial SCH classification.
3. Change to Effective Date of Classification for MDHs Applying for SCH 
Status Upon the Expiration of the MDH Program (Sec.  412.92(b)(2)(v))
    Under existing regulations at Sec.  412.92(b)(2), an SCH's status 
is generally effective 30 days after CMS's written notification of 
approval. It has come to our attention that there may be a number of 
hospitals currently classified as MDHs, under Sec.  412.108 of the 
regulations, that intend to apply for classification as SCHs, under 
Sec.  412.92 of the regulations, upon the expiration of the MDH program 
provision on September 30, 2012. Those hospitals may be reluctant to 
apply for SCH classification status well before the expiration of their 
MDH status because they would prefer to maintain their MDH status for 
as long as possible. Conversely, if those hospitals were to wait to 
apply for SCH classification status after expiration of their MDH 
status, they could experience a financial hardship if there were a 
delay in the approval for SCH classification status. In order to 
facilitate a seamless transition for hospitals that are currently 
classified as MDHs and that will qualify as SCHs, in the FY 2013 IPPS/
LTCH PPS proposed rule (77 FR 27969), we proposed to add an exception 
to the effective dates of SCH classification by adding a new paragraph 
(v) under Sec.  412.92(b)(2). We proposed that for any MDH that applies 
for SCH classification status at least 30 days prior to the expiration 
of the MDH program provision and requests that SCH classification 
status be effective with the expiration of the MDH program provision, 
and the MDH is approved for SCH classification status, the effective 
date of the hospital's classification as an SCH would be the day 
following the expiration date of the MDH program provision (that is, 
October 1, 2012). For example, Hospital A is an MDH that would like to 
maintain its MDH status for as long as possible and be classified as an 
SCH only after its MDH status expires. In order to seamlessly 
transition from MDH status to SCH status, Hospital A must apply for SCH 
status by August 31, 2012, and must request that, if approved, SCH 
classification status be effective with the expiration of the MDH 
program provision. If CMS determines that Hospital A qualifies for SCH 
status, the effective date of its SCH classification will be October 1, 
2012.
    Comment: Commenters supported the proposal to provide for a 
seamless transition for MDHs than can qualify as SCHs, in anticipation 
of the expiration

[[Page 53405]]

of the MDH program. Commenters also requested that CMS provide 
hospitals with the ability to, in turn, rescind their new SCH status 
retroactively and reinstate their MDH status in a seamless manner if a 
retroactive extension to the MDH program is made.
    Response: We appreciate the commenters' support. The commenters' 
request that CMS make provisions for hospitals to transition from SCH 
status back to MDH status depends on legislation being passed for the 
MDH program. We typically do not create policy around actions that 
Congress may take in the future. However, if legislation is passed to 
continue the MDH program, we will develop policy to implement the 
specific provisions of such legislation.
    After consideration of the public comments received, we are 
finalizing our proposed change to the effective date of SCH status for 
MDHs losing their MDH status with the expiration of the MDH program. In 
order for an MDH to receive SCH status effective October 1, 2012, 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, 2012. 
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, 
MDH must request that the SCH status, if approved, be effective October 
1, 2012, immediately after its MDH status expires with the expiration 
of the MDH program at the end of FY 2012, on September 30, 2012.

C. Rural Referral Centers (RRCs): Annual Update to Case-Mix Index (CMI) 
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 national median CMI 
value for FY 2013 includes data from all urban hospitals nationwide, 
and the regional values for FY 2013 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 values are based on discharges occurring during FY 2011 (October 
1, 2010 through September 30, 2011), and include bills posted to CMS' 
records through March 2012.
    In the FY 2013 IPPS/LTCH PPS proposed rule (77 FR 27969), we 
proposed that, in addition to meeting other criteria, if rural 
hospitals with fewer than 275 beds are to qualify for initial RRC 
status for cost reporting periods beginning on or after October 1, 
2012, they must have a CMI value for FY 2011 that is at least--
     1.5378; 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. (We refer readers to the table set forth 
in the FY 2013 IPPS/LTCH PPS proposed rule at 77 FR 27970.)
    The final CMI criteria for FY 2013 are based on the latest 
available data (FY 2011 bills received through March 2012). In addition 
to meeting other criteria,, if rural hospitals with fewer than 275 beds 
are to qualify for initial RRC status for cost reporting periods 
beginning on or after October 1, 2012, they must have a CMI value for 
FY 2011 that is at least--
     1.5378; 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 final median CMI values by region are set forth in the 
following table:

[[Page 53406]]

------------------------------------------------------------------------
                                                         Case-mix index
                        Region                                value
------------------------------------------------------------------------
1. New England (CT, ME, MA, NH, RI, VT)...............            1.3146
2. Middle Atlantic (PA, NJ, NY).......................            1.3744
3. South Atlantic (DE, DC, FL, GA, MD, NC, SC, VA, WV)            1.4640
4. East North Central (IL, IN, MI, OH, WI)............            1.4533
5. East South Central (AL, KY, MS, TN)................            1.4045
6. West North Central (IA, KS, MN, MO, NE, ND, SD)....            1.4899
7. West South Central (AR, LA, OK, TX)................            1.5855
8. Mountain (AZ, CO, ID, MT, NV, NM, UT, WY)..........            1.6461
9. Pacific (AK, CA, HI, OR, WA).......................            1.5298
------------------------------------------------------------------------

    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 update the 
regional standards based on discharges for urban hospitals' cost 
reporting periods that began during FY 2010 (that is, October 1, 2009 
through September 30, 2010), which would normally be the latest cost 
report data available at the time of the development of this final 
rule. However, due to a transition in our data system, in lieu of a 
full year of FY 2010 cost report data, we needed to use a combination 
of FY 2009 and FY 2010 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, cost reports with fiscal 
year begin dates of May 1, 2010 through September 30, 2010 were not 
accessible on our system for analysis at the time of the development of 
this final rule. Therefore, in order to have a complete fiscal year of 
cost report data, we utilized FY 2009 cost report data for providers 
with fiscal years beginning on or after May 1, 2010 and by September 
30, 2010, in addition to the FY 2010 cost report data for providers 
with fiscal years beginning on or after October 1, 2009 and before May 
1, 2010.
    In the FY 2013 IPPS/LTCH PPS proposed rule (77 FR 27970), we 
proposed that, in addition to meeting other criteria, a hospital, if it 
is to qualify for initial RRC status for cost reporting periods 
beginning on or after October 1, 2012, must have, as the number of 
discharges for its cost reporting period that began during FY 2010 
(based on a combination of FY 2009 and FY 2010 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. (We refer readers to 
the table set forth in the FY 2013 IPPS/LTCH PPS proposed rule at 77 FR 
27970.)
    Based on the latest discharge data available at this time (that is, 
based on a combination of FY 2009 and FY 2010 cost report data as 
explained earlier in this section), the final median number of 
discharges for urban hospitals by census region are set forth in the 
following table:

------------------------------------------------------------------------
                                                            Number of
                        Region                             discharges
------------------------------------------------------------------------
1. New England (CT, ME, MA, NH, RI, VT)...............             8,159
2. Middle Atlantic (PA, NJ, NY).......................            11,448
3. South Atlantic (DE, DC, FL, GA, MD, NC, SC, VA, WV)            11,755
4. East North Central (IL, IN, MI, OH, WI)............             8,749
5. East South Central (AL, KY, MS, TN)................             7,234
6. West North Central (IA, KS, MN, MO, NE, ND, SD)....             8,129
7. West South Central (AR, LA, OK, TX)................             6,232
8. Mountain (AZ, CO, ID, MT, NV, NM, UT, WY)..........             9,336
9. Pacific (AK, CA, HI, OR, WA).......................             8,745
------------------------------------------------------------------------

    We note that the median number of discharges for hospitals in each 
census region is greater than the national standard of 5,000 
discharges. Therefore, 5,000 discharges is the minimum criterion for 
all hospitals under this final rule.
    We reiterate that, if an osteopathic hospital is to qualify for RRC 
status for cost reporting periods beginning on or after October 1, 
2012, the hospital would be required to have at least 3,000 discharges 
for its cost reporting period that began during FY 2010 (based on a 
combination of FY 2009 and FY 2010 cost report data as explained 
earlier in this section).

D. Payment Adjustment for Low-Volume Hospitals (Sec.  412.101)

1. Expiration of the Affordable Care Act Provisions for FYs 2011 and 
2012
    For FYs 2011 and 2012, 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. Beginning with FY 2013, 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. We discuss the payment policies for FY 2013 in 
section IV.D.4. of this preamble.
2. Background
    Section 1886(d)(12) of the Act, as added by section 406(a) of 
Public Law 108-173, provides for a payment adjustment to account for 
the higher

[[Page 53407]]

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 ``in 
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 payment amount is based on total per discharge 
payments made under section 1886 of the Act, including capital, DSH, 
IME, and outliers. For SCHs and MDHs, the low-volume payment amount is 
based 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 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 adjustment 
implemented in FY 2005. Therefore, the low-volume adjustment of an 
additional 25 percent continues to be provided for qualifying hospitals 
with less than 200 discharges.
3. Affordable Care Act Provisions for FYs 2011 and 2012
    Sections 3125 and 10314 of the Affordable Care Act amended section 
1886(d)(12) of the Act, modifying the definition of a low-volume 
hospital and the methodology for calculating the payment adjustment for 
low-volume hospitals, effective only for discharges occurring during 
FYs 2011 and 2012. Beginning with FY 2013, the preexisting low-volume 
hospital qualifying criteria and payment adjustment, as implemented in 
FY 2005, will resume.
    Sections 3125(3) and 10314(1) of the Affordable Care Act amended 
the qualifying criteria for low-volume hospitals under section 
1886(d)(12)(C)(i) of the Act to make it easier for hospitals to qualify 
for the low-volume adjustment. Specifically, the provision specifies 
that, for FYs 2011 and 2012, a 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 section 
3125(4) and amended by section 10314 of the Affordable Care Act, 
provides that the payment adjustment (the applicable percentage 
increase) is to be determined ``using a continuous linear sliding scale 
ranging from 25 percent for low-volume hospitals with 200 or fewer 
discharges of individuals entitled to, or enrolled for, benefits under 
Part A in the fiscal year to 0 percent for low-volume hospitals with 
greater than 1,600 discharges of such individuals in the fiscal year.''
    In the FY 2011 IPPS/LTCH PPS final rule (75 FR 50238 through 50275 
and 50414), we revised our regulations at 42 CFR 412.101 to reflect the 
changes to the qualifying criteria and the payment adjustment for low-
volume hospitals according to the provisions of the Affordable Care 
Act. In addition to changing the regulations to conform them to the 
Affordable Care Act changes, we also defined, at Sec.  412.101(a), the 
term ``road miles'' to mean ``miles'' as defined at Sec.  412.92(c)(i). 
The definition of ``road miles'' continues to apply even after the 
Affordable Care Act provisions expire at the end of FY 2012. We also 
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 (75 FR 50240).
4. Payment Adjustment for FY 2013 and Subsequent Fiscal Years
    As we discussed in the FY 2013 IPPS/LTCH PPS proposed rule (77 FR 
27971 through 27973), in accordance with section 1886(d)(12) of the 
Act, beginning with FY 2013, 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. Therefore, as specified under the existing 
regulations at Sec.  412.101, effective for FY 2013 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. As discussed above, the statute specifies that 
a low-volume hospital must have less than 800 discharges during the 
fiscal year, but also requires that the applicable percentage increase 
for qualifying low-volume hospitals be 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.'' Based on an analysis we conducted for 
the FY 2005 IPPS final rule (69 FR 49099 through 49102), a 25-percent 
low-volume adjustment to all qualifying hospitals with less than 200 
discharges was found to be most consistent with the statutory 
requirements set forth in section 1886(d)(12)(B) of the Act to provide 
relief for low-volume hospitals where there is empirical evidence that 
higher incremental costs are associated with low numbers of total 
discharges. (Under the policy we established in that same final rule, 
hospitals with between 200 and 799 discharges do not receive a low-
volume hospital adjustment.)
    As described above, for FYs 2005 through 2010 and FY 2013 and 
subsequent years, the discharge

[[Page 53408]]

determination is 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 
payment adjustment in the current year (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 and 2012, CMS 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.
    For FY 2013 and subsequent fiscal years, in addition to a discharge 
criterion, the eligibility for the low-volume payment adjustment is 
also dependent upon the hospital meeting the mileage criterion 
specified at Sec.  412.101(b)(2)(i). Specifically, to meet the mileage 
criterion to qualify for the low-volume payment adjustment for FY 2013 
and subsequent fiscal years, a hospital must be located more than 25 
road miles from the nearest ``subsection (d) hospital.'' As mentioned 
above, we define, at Sec.  412.101(a), the term ``road miles'' to mean 
``miles'' as defined at Sec.  412.92(c)(i) (75 FR 50238 through 50275 
and 50414).
    As discussed in the FY 2011 IPPS/LTCH PPS final rule (75 FR 50238 
through 50275 and 50414), we discussed the process for requesting and 
obtaining the low-volume hospital payment adjustment. In order to 
qualify for the low-volume hospital payment adjustment, a hospital must 
provide to its fiscal intermediary or MAC sufficient evidence to 
document 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.
    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 mileage criterion. The use 
of a Web-based mapping tool, such as MapQuest, as part of documenting 
that the hospital meets the mileage criterion for low-volume hospitals, 
is acceptable. The fiscal intermediary or MAC will determine if the 
information submitted by the hospital, such as the name and street 
address of the nearest hospitals, location on a map, and distance (in 
road miles, as defined in the regulations at Sec.  412.101(a)) from the 
hospital requesting low-volume hospital status, is sufficient to 
document that it meets the mileage criterion. If not, the fiscal 
intermediary or MAC will follow up with the hospital to obtain 
additional necessary information to determine whether or not the 
hospital meets the low-volume mileage criterion. In addition, the 
fiscal intermediary or MAC will refer to the hospital's most recently 
submitted cost report to determine whether or not the hospital meets 
the discharge criterion. A hospital should refer to its most recently 
submitted cost report for total discharges (Medicare and non-Medicare) 
in order to decide whether or not to apply for low-volume hospital 
status for a particular fiscal year. As noted previously, a hospital 
must continue to meet the qualifying criteria at Sec.  412.101(b)(2)(i) 
as a low-volume hospital (that is, the discharge criterion and the 
mileage criterion) in order to receive the payment adjustment in that 
year; that is, low-volume hospital status is not based on a ``one-
time'' qualification.
    In order to be a low-volume hospital in FY 2013 and subsequent 
fiscal years, in accordance with our previously established procedure, 
a hospital must make its request for low-volume hospital status in 
writing to its fiscal intermediary or MAC by September 1 immediately 
preceding the start of the Federal fiscal year for which the hospital 
is applying for low-volume hospital status in order for the 25 percent 
low-volume add-on payment adjustment to be applied to payments for its 
discharges for the fiscal year beginning on or after October 1 
immediately following the request (that is, the start of the Federal 
fiscal year). For a hospital whose request for low-volume hospital 
status is received after September 1, 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 add-on payment adjustment to determine payment for the 
hospital's discharges for the fiscal year, effective prospectively 
within 30 days of the date of the fiscal intermediary's or MAC's low-
volume status determination.
    Specifically, for FY 2013, a hospital must make its request for 
low-volume hospital status in writing to its fiscal intermediary or MAC 
by September 1, 2012, in order for the 25-percent low-volume add-on 
payment adjustment to be applied to payments for its discharges 
beginning on or after October 1, 2012 (through September 30, 2013). If 
a hospital's request for low-volume hospital status for FY 2013 is 
received after September 1, 2012, 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 add-on payment adjustment to determine the payment for the 
hospital's FY 2013 discharges, effective prospectively within 30 days 
of the date of the fiscal intermediary's or MAC's low-volume status 
determination. For additional information on our established 
application process for the low-volume hospital payment adjustment, we 
refer readers to the FY 2011 IPPS/LTCH PPS final rule (75 FR 50274 
through 50275), Transmittal 2060 (Change Request 7134; October 1, 
2010), and the FY 2012 IPPS/LTCH PPS final rule (76 FR 51680).
    In the FY 2011 IPPS/LTCH PPS final rule (75 FR 50238 through 50275 
and 50414), in addition to implementing the Affordable Care Act 
provisions affecting low-volume hospitals for FYs 2011 and 2012, we 
also implemented changes to the regulations at 42 CFR 412.101 to 
conform them to the statutory requirements to require that, beginning 
with FY 2013, the low-volume hospital qualifying criteria and payment 
adjustment methodology will return to that which was in effect prior to 
the amendments made by the Affordable Care Act (that is, the low-volume 
hospital payment policy in effect for FYs 2005 through 2010). 
Therefore, no further revisions to the policy or to the regulations at 
Sec.  412.101 are required to conform them to the statutory requirement 
that the low-volume hospital policy in effect prior to the Affordable 
Care Act returns for FY 2013 and subsequent years.
    Comment: A few commenters expressed concern about the financial 
impact of the expiration of the temporary expansion of the low-volume 
hospital payment adjustment provided for by the Affordable Care Act. 
Some commenters encouraged CMS to promote legislative action that would 
continue the Affordable Care Act's modification of the low-volume 
hospital payment adjustment. Other commenters urged CMS to mitigate the 
impact of the expiration of the 2-year enhancement of the low-volume 
hospital payment

[[Page 53409]]

adjustment provided for by the Affordable Care Act by using the 
existing statutory authority to make the low-volume adjustment to 
qualifying hospitals that have up to less than 800 total discharges 
rather than only to qualifying hospitals that have less than 200 total 
discharges. The commenters provided no data analysis in support of 
their comments to expand the low-volume hospital adjustment to 
qualifying hospitals that have up to less than 800 total discharges.
    Response: To implement the original low-volume hospital provision, 
and as mandated by statute, we developed an empirically justified 
adjustment based on the relationship between costs and total discharges 
of hospitals with less than 800 total (Medicare and non-Medicare) 
discharges. Specifically, we performed several regression analyses to 
evaluate the relationship between hospitals' costs per case and 
discharges, and found that an adjustment for hospitals with less than 
200 total discharges is most consistent with the statutory requirement 
to provide for additional payments to low-volume hospitals where there 
is empirical evidence that higher incremental costs are associated with 
lower numbers of discharges (69 FR 49101 through 49102). Based on these 
analyses, we established a low-volume hospital policy where qualifying 
hospitals with less than 200 total discharges receive a payment 
adjustment of an additional 25 percent. (Section 1886(d)(12)(B)(iii) of 
the Act limits the applicable percentage increase adjustment to no more 
than 25 percent.) We may, in the future, reevaluate the low-volume 
hospital adjustment policy, that is, the definition of a low-volume 
hospital and the payment adjustment. However, because we did not make 
any proposals regarding the low-volume hospital payment adjustment for 
FY 2013, we are not making any changes to the low-volume hospital 
payment adjustment policy in this final rule. As discussed above, the 
low-volume hospital definition and payment adjustment methodology will 
revert back to the policy established under statutory requirements that 
were in effect prior to the amendments made by the Affordable Care Act, 
which is currently implemented in the existing regulations at Sec.  
412.101.

E. Indirect Medical Education (IME) Payment Adjustment (Sec.  412.105)

1. IME Adjustment Factor for FY 2013
    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 2013, the 
formula multiplier is 1.35. We estimate that application of this 
formula multiplier for the FY 2013 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.
    Comment: One commenter supported the continuation of the IME 
adjustment factor because IME payments are an important part of 
guaranteeing a strong general surgery workforce in which there is 
currently a growing shortage. Another commenter stated that it 
supported the Nation's teaching hospitals and, therefore, supported 
continuation of the IME adjustment factor. A third commenter stated 
that, because of its commitment to GME, academic medicine, and 
residency training in cardiothoracic surgery, it supported the 
continuation of the IME adjustment factor. The commenter stated that 
IME payments are an important part of guaranteeing a strong 
cardiothoracic surgery workforce ``* * * which is currently 
experiencing a growing shortage as cited in the report Shortage of 
Cardiothoracic Surgeons is Likely by 2020, published in the journal 
Circulation, July 27, 2009.''
    Response: We appreciate the commenters' support. We note that the 
IME formula multiplier is set by Congress.
    We are finalizing our proposal that the IME formula multiplier for 
FY 2013 be set at 1.35, which we estimate will result in an increase in 
IPPS payments of 5.5 percent for every approximately 10-percent 
increase in the hospital's resident-to-bed ratio.
2. Timely Filing Requirements under Fee-for-Service Medicare
a. IME and Direct GME
    The Balanced Budget Act of 1997 (Pub. L. 105-33) amended sections 
1886(d) and 1886(h) of the Act by adding paragraphs (d)(11) and 
(h)(3)(D), respectively, to establish payment provisions for IME and 
direct GME costs to hospitals providing services to Medicare+Choice 
(now Medicare Advantage) enrollees. Sections 1886(d)(11) and 
1886(h)(3)(D) of the Act specify that the Secretary shall provide for 
an ``additional payment amount'' for services furnished to individuals 
who are enrolled in a Medicare Advantage plan under Medicare Part C. To 
implement sections 1886(d)(11) and 1886(h)(3)(D) of the Act, we issued 
two final rules in the Federal Register that specifically addressed IME 
and direct GME payments to teaching hospitals for services provided to 
Medicare Advantage enrollees (the FY 1997 IPPS final rule (62 FR 46003) 
and the FY 1998 IPPS final rule (63 FR 26341)). Subsequent to the FY 
1998 IPPS final rule, we (then HCFA) issued a Program Memorandum (PM), 
A-98-21, in July 1998, which outlined fiscal intermediary and standard 
system changes needed to process requests for IME and direct GME 
supplemental payments for services provided to Medicare Advantage 
enrollees. The PM explained that hospitals must submit their Medicare 
claims to the fiscal intermediary in UB-92 format in order for the 
standard system to process the claims so that hospitals may be paid the 
supplemental IME and direct GME payments for services provided to 
Medicare Advantage enrollees. It was always our intent that the claims 
filing requirements under 42 CFR Part 424, including the time limits at 
42 CFR 424.44, fully applied to these claims submissions.
    Existing Sec.  424.44 of the regulations contains the time limits 
for filing all Medicare claims. In the FY 2013 IPPS/LTCH PPS proposed 
rule (77 FR 27973), we again included a clarification that the 
regulations governing time limits for filing claims at Sec.  424.44 
apply to claims submitted for IME and direct GME payments associated 
with services provided to Medicare Advantage enrollees. The process 
that was established by PM A-98-21 is within the same framework of the 
preexisting methodology for submitting claims under Medicare Part A. 
Therefore, because IME and direct GME payments for services provided to 
Medicare Advantage enrollees are also made under Medicare Part A, the 
same timely filing requirements that apply to other Part A claims for 
payments also apply to claims for IME and direct GME payments for 
services provided to Managed Advantage enrollees. We also clarified 
once again in the proposed rule

[[Page 53410]]

that when hospitals submit claims for services provided to Medicare 
Advantage enrollees for additional IME and direct GME payments, the 
hospitals must comply with the regulations governing time limits for 
filing claims at Sec.  424.44.
b. Nursing and Allied Health Education
    Section 541 of the Balanced Budget Refinement Act (BBRA) of 1999 
(Pub. L. 106-113) further amended section 1886 of the Act by adding 
subsection (l) to provide for additional payments to hospitals that 
operate nursing or allied health education programs and incur costs 
associated with services provided to Medicare+Choice (now Medicare 
Advantage) enrollees. Section 512 of the Benefits Improvement and 
Protection Act (BIPA) (Pub. L. 106-554) changed the formula for 
determining the additional payment amount paid to hospitals that 
operate nursing or allied health education programs and incur costs for 
services provided to Medicare+Choice (now Medicare Advantage) 
enrollees. We issued several PMs (Transmittals A-00-86 on November 22, 
2000, and A-03-043 on May 23, 2003) to implement section 541 of the 
BBRA and section 512 of the BIPA. We also issued related Transmittal A-
03-007 on February 3, 2003, and Transmittal A-03-045 on May 30, 2003, 
to instruct hospitals that operate a nursing or allied health education 
program and that qualify for additional payment related to services 
provided to Medicare Advantage enrollees to also submit those claims 
for processing as no-pay bills in the UB-92 format. These transmittals 
also instructed hospitals that are not paid under the IPPS, hospitals 
with rehabilitation and psychiatric units, and hospitals that operate 
approved nursing or allied health education programs (but may not have 
approved GME residency programs) to submit claims for services provided 
to Medicare Advantage enrollees to their fiscal intermediary in UB-92 
format with specific condition codes present. In the FY 2013 IPPS/LTCH 
PPS proposed rule (77 FR 27973), we clarified that the regulations 
governing the time limits for filing claims at Sec.  424.44 also apply 
to claims submitted for nursing or allied health education program 
payments for services provided to Medicare Advantage enrollees.
c. Disproportionate Share Hospital (DSH) Payments
    On July 20, 2007, we issued Change Request 5647 instructing 
applicable hospitals to submit no pay bills for their Medicare 
Advantage patients for FY 2007 forward in order for these days to be 
captured in the DSH calculation. Because we issued this request in the 
middle of FY 2007, we extended the deadline for submission of FY 2007 
and FY 2008 no pay Medicare Advantage bills to August 31, 2010.
    In the FY 2013 IPPS/LTCH PPS proposed rule (77 FR 27973), we 
proposed to adopt a policy that hospitals that are required to submit 
no pay bills for services furnished on a prepaid capitation basis by a 
Medicare Advantage organization, or through cost settlement with either 
a health maintenance organization (HMO), a competitive medical plan 
(CMP), a health care prepayment plan (HCPP), or a demonstration, for 
the purpose of calculating the DSH patient percentage (DPP) must also 
do so within the time limits for filing claims specified at Sec.  
424.44. In the FY 2011 IPPS/LTCH PPS final rule (75 FR 50282), we 
changed our methodology for calculating the SSI fraction of the DSH 
adjustment, in part, by using claims information that is updated 15 
months after the close of each Federal fiscal year. We believed that 
allowing for a 15-month run-out period would more closely align the 
timing of the match process with the requirements for the timely 
submission of claims. As we stated in that final rule, hospitals may 
not have an incentive to submit no pay bills in as timely a manner as 
they would for fee-for-service claims. In order to ensure that no pay 
claims are properly incorporated into the DSH calculation, in the FY 
2013 IPPS/LTCH PPS proposed rule (77 FR 27973), we proposed to extend 
our rules regarding the timely submission of claims to no pay bills 
submitted for the purposes of calculating the DPP.
    We proposed to revise the regulations at Sec.  424.30 to (1) 
clarify our existing policy that hospitals must file timely claims in 
order to receive supplemental IME, direct GME, and/or nursing or allied 
health education payments for Medicare Advantage enrollees and (2) 
propose that hospitals that are required to submit no pay bills for the 
purpose of calculating the DPP must also follow the time limits for 
filing claims.
d. Summary of Public Comments, Our Responses, and Final Policies
    Comment: Two commenters stated that, although it is more time 
consuming to submit no pay bills, it is reasonable to apply the same 
timely filing requirements to no pay bills for supplemental direct GME, 
IME, nursing and allied health education, and DSH payments that are 
applied to other Medicare Part A claims.
    Response: We appreciate the commenters' support.
    Comment: Several commenters specifically addressed the 
clarification concerning the timely filing requirements that need to be 
met to receive supplemental IME and direct GME payments for Medicare 
Advantage enrollees. The commenters asked that CMS recognize that there 
are nuances related to shadow billing and that ``inherent 
complexities'' can delay the processing of these claims. The commenters 
requested CMS to include in the final rule ``* * * an estimate of the 
administrative and cost burdens to hospitals that result from the 
requirement to file a second shadow bill for each Medicare managed care 
discharge.'' The commenters also urged CMS to recognize that the policy 
related to GME payments is a new rule rather than a clarification of 
existing policy.
    Response: We do not agree with the commenters that the 
clarification related to the timely filing requirements for 
supplemental direct GME and IME payments is a new rule as opposed to a 
clarification. As noted earlier in this preamble and in the proposed 
rule (77 FR 27973), to implement sections 1886(d)(11) and 1886(h)(3)(D) 
of the Act, which provide for an ``additional payment amount'' for 
services furnished to individuals who are enrolled in a Medicare 
Advantage plan under Medicare Part C, we issued two final rules in the 
Federal Register that specifically addressed IME and direct GME 
payments to teaching hospitals for services provided to Medicare 
Advantage enrollees (the FY 1997 IPPS final rule (62 FR 46003) and the 
FY 1998 IPPS final rule (63 FR 26341)). In addition, in July 1998, we 
(then HCFA) issued a Program Memorandum (PM), A-98-21, which outlined 
fiscal intermediary and standard system changes needed to process 
requests for IME and direct GME supplemental payments for services 
provided to Medicare Advantage enrollees. The PM explained that 
hospitals must submit their Medicare claims to the fiscal intermediary 
in UB-92 format in order for the standard system to process the claims 
so that hospitals may be paid the supplemental IME and direct GME 
payments for services provided to Medicare Advantage enrollees. All 
claims submitted in UB-92 format are subject to the timely filing 
regulations at Sec.  424.44. Therefore, in accordance with PM A-98-21, 
UB-92 claims submitted on behalf of Medicare Advantage enrollees have 
always been subject to the timely filing regulations at Sec.  424.44. 
In this final rule, as we did in the proposed rule, we are clarifying 
that in

[[Page 53411]]

order for a hospital to receive supplemental direct GME, IME, and/or 
nursing and allied health payments for Medicare Advantage enrollees, it 
must follow the regulations governing time limits for filing claims at 
Sec.  424.44.
    In response to the commenters who requested an estimate of the 
administrative and cost burden associated with the submission of a no 
pay bill for Medicare Advantage enrollees, the requirement for 
hospitals to follow the timely filing requirements in order to receive 
supplemental direct GME, IME, and/or nursing and allied health 
education payments for Medicare Advantage enrollees is a clarification 
and not a new policy proposal. Because we are clarifying this 
requirement rather than implementing a new requirement, we have 
concluded that there is no new cost or administrative burden associated 
with this requirement.
    Comment: One commenter asserted that the policy of treating the 
submission of Part C claims for purposes of calculating direct GME and 
IME payments as subject to the Part A regulations regarding timely 
filing constituted a substantive rule, rather than an interpretive 
rule. As a result, the commenter stated that CMS could not have imposed 
this requirement without first undertaking rulemaking, and, thus, it 
was inappropriate for CMS to attempt to clarify this policy in the FY 
2013 IPPS/LTCH PPS proposed rule. The commenter noted that this 
argument had also been raised in Loma Linda v. Sebelius (D.D.C. 
(2010)).
    Response: We disagree. As a preliminary matter, we note that this 
issue was not addressed directly in the court's decision in Loma Linda 
v. Sebelius because the case was decided on other grounds. Furthermore, 
as discussed in more detail above, IME and direct GME payments for 
services provided to Medicare Advantage enrollees are made under 
Medicare Part A. It has always been CMS' intent that the claims filing 
requirements under 42 CFR part 424, including the time limits at 42 CFR 
424.44, apply to those claims. Thus, we continue to believe it was 
appropriate for CMS to characterize the discussion in the proposed rule 
as a clarification of an existing policy, rather than as a new 
proposal.
    After consideration of the public comments we received, in this 
final rule, we are restating our clarifications that when hospitals 
submit claims for services provided to Medicare Advantage enrollees for 
additional IME and direct GME payments, and for claims for nursing or 
allied health education program payments, the hospital must comply with 
the regulations governing time limits for filing claims at Sec.  
424.44. In addition, we are finalizing our proposal that hospitals that 
are required to submit no pay bills for the purpose of calculating the 
DPP must also follow the time limits for filing claims, and the 
proposed amendments to the regulations at Sec.  424.30 to incorporate 
these requirements. Further, in this final rule, we are making minor 
technical revisions to the regulations at Sec.  424.30 in order to 
further clarify the claims submission requirements.
3. Other Related Policy Changes
    In sections IV.F. and IV.I. of the preamble of the FY 2013 IPPS/
LTCH PPS proposed rule, we present other proposed policy changes 
relating to determining labor and delivery bed counts for purposes of 
the DSH payment adjustment and relating to determining FTE resident 
caps for direct GME and IME payment purposes that would have an effect 
on the IME payment adjustment. We refer readers to these same two 
sections of the preamble of this final rule where we address any public 
comments received and present the final policies.

F. Payment Adjustment for Medicare Disproportionate Share Hospitals 
(DSHs) and Indirect Medical Education (IME) (Sec. Sec.  412.105 and 
412.106)

1. Background
    For the most recent background discussion regarding the Medicare 
payment adjustment for subsection (d) hospitals that serve a 
significantly disproportionate number of low-income patients, we refer 
readers to the FY 2012 IPPS/LTCH PPS final rule (76 FR 51681).
    As we did in the FY 2012 IPPS/LTCH PPS final rule, we are 
combining, under section IV.F.2. of this preamble, our discussion of FY 
2013 proposed and final changes to the policies for counting beds in 
relation to the calculations for the IME adjustment at Sec.  412.105(b) 
and the DSH payment adjustment at Sec.  412.106(a)(1)(i) because the 
underlying concepts are similar, and we believe they should generally 
be interpreted in a consistent manner for both purposes.
2. Policy Change Relating to Treatment of Labor and Delivery Beds in 
the Calculation of the Medicare DSH Payment Adjustment and the IME 
Payment Adjustment
a. Background
    Medicare's policy with respect to the treatment of labor and 
delivery services in the calculation of the Medicare DSH payment 
adjustment has undergone a number of changes over the years. (We refer 
readers to the background discussion regarding these policy changes in 
the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 43899 through 
43901)). The most recent change in policy was adopted in the FY 2010 
IPPS/RY 2010 LTCH PPS final rule. Prior to FY 2010, our policy was to 
exclude from the count of inpatient days, for purposes of the Medicare 
DSH calculation, labor and delivery patient days associated with beds 
used for ancillary labor and delivery services when the patient did not 
occupy a routine bed prior to occupying an ancillary labor and delivery 
bed. This policy applied whether the hospital maintained separate labor 
and delivery rooms and postpartum rooms, or whether it maintained 
``maternity suites'' in which labor, delivery, and postpartum services 
all occurred in the same bed. However, in the latter case, patient days 
were counted proportionally based on the proportion of (routine/
ancillary) services furnished. (We refer readers to the example 
provided in the FY 2004 IPPS final rule (68 FR 45420) that describes 
how routine and ancillary days are allocated under this policy.)
    In the FY 2010 IPPS/RY 2010 LTCH PPS final rule, we revised our 
regulations to include in the disproportionate patient percentage (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. Our rationale 
for adopting this change was that the costs associated with labor and 
delivery patient days are generally payable under the IPPS. Although we 
adopted this change with respect to labor and delivery patient days, we 
did not make a similar change to our policy for counting hospital beds.
b. Policy Change
    As we stated in the FY 2012 IPPS/LTCH PPS final rule (76 FR 51682), 
our policy for counting hospital beds is to include bed days available 
for IPPS-level acute care hospital services. In the FY 2004 IPPS final 
rule (68 FR 45417), we stated that beds in a particular unit would be 
considered available for IPPS-level acute care hospital services if the 
services furnished in that unit were generally payable under the IPPS. 
Moreover, as stated above, our policy for counting patient days with 
respect to

[[Page 53412]]

the Medicare DSH payment adjustment is to include patient days in units 
that provide services that are generally payable under the IPPS. Under 
our current policy, the services furnished to a labor and delivery 
patient are considered to be generally payable under the IPPS (74 FR 
43900).
    We recognize that, under our current policy, while the services 
furnished to a labor and delivery patient are considered to be 
generally payable under the IPPS, under Sec.  412.105(b)(4), the bed 
where the services are furnished is not considered to be available for 
IPPS-level acute care hospital services.
    As we discussed in the FY 2013 IPPS/LTCH PPS proposed rule (77 FR 
27974 through 27975), upon further examination of our existing 
policies, we believe that if a patient day is counted because the 
services furnished are generally payable under the IPPS, the bed in 
which the services were furnished should also be considered to be 
available for IPPS-level acute care hospital services. Accordingly, we 
believe it is appropriate to extend our current approach of including 
labor and delivery patient days in the DPP of the Medicare DSH payment 
adjustment to our rules for counting hospital beds for purposes of both 
the IME payment adjustment and the Medicare DSH payment adjustment. 
Specifically, because we have described labor and delivery patient days 
as being generally payable under the IPPS (74 FR 43900), we believe 
that the bed in which such services are furnished should also be 
considered to be available for IPPS-level acute care hospital services, 
and should be included in the count of beds available for IPPS-level 
acute care hospital services. The rules for counting hospital beds for 
purposes of the IME payment adjustment are codified in the IME 
regulations at Sec.  412.105(b), which are cross-referenced in Sec.  
412.106(a)(1)(i) for purposes of determining the DSH payment 
adjustment.
    In light of the similar policy rationales for determining patient 
days in the calculation of the Medicare DSH payment adjustment, and for 
determining bed days for both the Medicare DSH payment adjustment and 
the IME payment adjustment, we proposed to include labor and delivery 
bed days in the count of available beds used in the IME and DSH 
calculations. Moreover, we stated that our proposal to treat labor and 
delivery patient days and bed days the same is consistent with our 
approach with respect to the observation, swing-bed, and hospice days, 
which are excluded from both the patient day count and the available 
bed count. Accordingly, we proposed to revise the regulations at Sec.  
412.105(b)(4) to remove from the list of currently excluded beds those 
beds associated with ``ancillary labor/delivery services.'' We proposed 
that this regulation change would be effective for cost reporting 
periods beginning on or after October 1, 2012.
    As we noted in the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 
43900), our policy for counting labor and delivery patient days does 
not allow for the inclusion of days of labor and delivery patients who 
are not admitted to the hospital as inpatients. For example, if a woman 
presents at a hospital for labor and delivery services, but is 
determined by medical staff to be in false labor and is sent home 
without ever being admitted to the hospital as an inpatient, any days 
associated with such services furnished by the hospital would not be 
included in the DPP for purposes of the calculation of the Medicare DSH 
payment adjustment. For the same reason, days on which labor and 
delivery beds are used for such services also would be excluded from 
the count of available bed days.
    Comment: A number of commenters stated that the current discrepancy 
in the treatment of labor and delivery for purposes of the patient day 
count and the bed day count is appropriate because labor and delivery 
services are typically not paid for by the Medicare program. The 
commenters further stated that, to the extent Medicare does pay for 
labor and delivery services, the Medicare program only pays for 1 
percent of all births in the United States, as opposed to Medicaid, 
which, according to the National Bureau of Economic Research, pays for 
41 percent of all births in the country. The commenters also stated 
that the low volume of Medicare labor and delivery patients justifies 
excluding labor and delivery beds from a hospital's bed count for 
purposes of determining a hospital's qualification for status as an 
MDH.
    Response: As we stated in the FY 2010 IPPS/RY 2010 LTCH PPS final 
rule (74 FR 43900), we believe that the costs associated with services 
provided in a labor and delivery room are generally payable under the 
IPPS. The volume of labor and delivery services paid under the Medicare 
program, regardless of whether it is as low as asserted by the 
commenters, does not alter the fact that patients receiving these 
services are inpatients who are receiving an IPPS-level of care, 
whether or not paid under the Medicare program. A policy to exclude 
beds from a hospital's number of available beds based on the volume of 
services paid for by Medicare would create unpredictability with 
respect to the DSH and IME payment adjustments and could impose an 
undue burden on the agency and hospitals to monitor the volume of 
individual services to determine appropriate exclusions.
    Comment: Commenters pointed to CMS' current policy with respect to 
nursery days. Specifically, the commenters noted that, under CMS' 
current policy, patient stays in a newborn nursery unit are included in 
the patient day count for purposes of the DSH calculation but are 
excluded from the DSH and IME bed counts. The commenters believed that 
this distinction is appropriate and, therefore, believed it would be 
appropriate for CMS to take a similar approach with respect to labor 
and delivery days.
    Response: As we stated above, we believe inconsistencies between 
the patient day policies and the bed count policies are generally an 
inappropriate approach for implementing the DSH and IME payment 
adjustments. We appreciate the commenters' pointing out the potential 
inconsistency with respect to the treatment of newborn nursery units. 
We will review our current approach to newborn nursery units and will 
consider addressing this issue in future rulemaking.
    Comment: Commenters expressed concern that the Medicare hospital 
cost report and the cost reporting instructions would need to be 
amended to implement the policy proposal. Specifically, the commenters 
noted that the current definition of a labor and delivery bed on the 
cost report is inconsistent with CMS' policy proposal. The commenters 
also stated that the current hospital cost report does not allow for 
hospitals to report excluded labor and delivery bed days such as an 
outpatient bed day in a labor and delivery room.
    Response: We appreciate the commenters' information regarding the 
need for changes to the Medicare hospital cost report and the cost 
reporting instructions. We plan to amend the cost reporting 
instructions to reflect our finalized change in policy and to allow for 
the proper reporting of labor and delivery bed days.
    Comment: A number of commenters requested additional clarity 
regarding beds that would be included in the bed count. Specifically, 
the commenters asked if ``maternity suites'' in which labor, delivery, 
and postpartum services all occur in the same bed would be counted and 
if so whether the bed count would be split in the same manner that 
costs are split for apportionment purposes. The commenters also 
expressed confusion regarding hospitals

[[Page 53413]]

that maintain separate labor and delivery rooms and postpartum rooms. 
The commenters stated that, in these situations, providers are 
concerned that including the ancillary beds would result in a ``double 
counting'' of beds. Additionally, the commenters asked CMS to 
specifically identify whether certain beds, such as triage labor and 
delivery beds used for preadmission evaluation and assessment, are to 
be included in the bed count. In addition to expressing confusion about 
CMS' proposal, the commenters stated that they believed labor and 
delivery beds should not be counted if they are not licensed as routine 
beds.
    Response: As stated above, our policy is to include in the bed 
count the bed days available for IPPS-level acute care services, or 
more specifically, the bed days of a particular unit if the services 
furnished in that unit are generally payable under the IPPS. We do not 
consider whether a bed is licensed under State law as a routine or 
ancillary bed, but rather whether the unit in which the bed is located 
is providing services generally payable under the IPPS. To the extent 
that the beds in a particular unit, whether maternity suite beds or 
ancillary labor and delivery beds, are furnishing services that are 
generally payable under the IPPS, such beds should be included in the 
bed count under our proposal. Furthermore, as stated in the FY 2013 
IPPS/LTCH PPS proposed rule (77 FR 27974 through 27975), the bed days 
of a patient not admitted as an inpatient are not included in a 
hospital's bed count. Because our proposal is intended to align our 
patient day and bed day policies, we also refer readers to our 
discussion in the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 43899 
through 43901) for further information regarding our policy on counting 
labor and delivery patient days.
    We also do not share the commenters' concern regarding the ``double 
counting'' of bed days for the IME and DSH payment adjustments. Under 
our existing policies, we include all beds in a unit that is providing 
services that are generally payable under the IPPS because we believe 
such beds to be available for IPPS-level acute care hospital services. 
Therefore, unoccupied ancillary labor and delivery beds would still be 
included in a hospital's bed count under our proposal because they are 
available for IPPS-level acute care hospital services.
    Comment: Commenters noted that currently the Medicare hospital cost 
report does not allow for labor and delivery patient days to be counted 
in the direct GME patient load. The commenters believed that, because 
these patient days are considered inpatient days, they should be 
considered a patient day for purposes of allocating costs for direct 
GME.
    Response: We thank the commenters for bringing this issue to the 
agency's attention. We will undertake a further review to determine if 
it is necessary to make any changes to the way patient days are 
reported on the cost report, and whether those patient days should be 
included or excluded from the calculation of the Medicare patient load.
    Comment: One commenter requested that CMS begin implementation of 
the Affordable Care Act amendments to the DSH payment adjustment 
provisions of the Act through this rulemaking.
    Response: We believe that this comment is outside of the scope of 
the FY 2013 proposed rule. The statutory changes made by the Affordable 
Care Act relating to the DSH payment adjustment do not go into effect 
in FY 2013 and were not addressed in the FY 2013 proposed rule.
    Comment: Commenters expressed concern about the impact of our 
proposal on the calculation of transitional corridor payments under the 
OPPS for SCHs. The commenters noted that the outpatient hold harmless 
payments are derived by comparing Medicare payments to adjusted 
Medicare costs. Because these payments and costs do not reflect costs 
associated with labor and delivery beds, the commenters stated that 
they believe these costs should not count toward determining whether a 
hospital qualifies for hold harmless payments under the OPPS.
    Response: We agree with the commenters that the revision to the 
regulations at Sec.  412.105(b)(4) to remove from the list of currently 
excluded beds those beds associated with ``ancillary labor/delivery 
services'' could impact the qualification of certain hospitals for hold 
harmless payments under the OPPS, Under section 3002 of the Middle 
Class Tax Relief and Job Creation Act of 2012 (Pub. L. 112-96), 
temporary outpatient hold harmless payments to small rural hospitals, 
small SCHs, and small Essential Access Community Hospitals (EACHs) are 
extended through the end of CY 2012. Under the hold harmless provisions 
at Sec.  419.70(d), hospitals that have 100 or fewer beds, as defined 
in Sec.  412.105(b), may result in bed counts for hospitals currently 
eligible for OPPS hold harmless payments going above the 100-bed limit. 
However, we do not agree with the commenters that labor and delivery 
beds should be excluded from the bed count under Sec.  412.105(b) as it 
applies to the qualification for OPPS hold harmless payments. Rather, 
we believe that it is appropriate to continue to determine hospital 
size with regard to OPPS hold harmless eligibility based on the 
hospital's bed count as determined under Sec.  412.105(b)(4).
    After consideration of the public comments we received, we are 
adopting our proposed policy without modification. In summary, we are 
revising the regulations at Sec.  412.105(b)(4) to remove from the list 
of currently excluded beds those beds associated with ``ancillary 
labor/delivery services.''

G. Expiration of the Medicare-Dependent, Small Rural Hospital (MDH) 
Program (Sec.  412.108)

    Under current law, separate special payment protections are 
provided to a Medicare-dependent, small rural hospital (MDH) under the 
IPPS through the end of FY 2012. (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.) The provisions 
for MDHs at section 1886(d)(5) of the Act expire at the end of FY 2012 
(that is, with discharges occurring on September 30, 2012). As we 
discussed in the FY 2012 IPPS/LTCH PPS final rule, section 3124 of the 
Affordable Care Act extended the MDH program from the end of FY 2011 
(that is, for discharges occurring before October 1, 2011) to the end 
of FY 2012 (that is, for discharges occurring before October 1, 2012). 
Under prior law, as specified in section 5003(a) of Public Law 109-171 
(DRA 2005), the MDH program was to be in effect through the end of FY 
2011 only. Section 3124(a) of the Affordable Care Act amended sections 
1886(d)(5)(G)(i) and 1886(d)(5)(G)(ii)(II) of the Act to extend the MDH 
program and payment methodology from the end of FY 2011 to the end of 
FY 2012, by striking ``October 1, 2011'' and inserting ``October 1, 
2012''. Section 3124(b) of the Affordable Care Act also made conforming 
amendments to sections 1886(b)(3)(D) and 1886(b)(3)(D)(iv) of the Act. 
Section 3124(b)(2) of the Affordable Care Act also amended section 
13501(e)(2) of OBRA 1993 to extend the provision permitting hospitals 
to decline reclassification through FY 2012. 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

[[Page 53414]]

any additional changes to the MDH regulatory text for FY 2012.
    Because the MDH program is not authorized by statute beyond FY 
2012, beginning in FY 2013, all hospitals that previously qualified for 
MDH status will no longer have MDH status and will be paid based on the 
Federal rate. (We note that, in section IV.B.3. of this preamble, we 
are finalizing our proposal to revise our SCH policies to allow MDHs to 
apply for SCH status and be paid as such under certain proposed 
conditions, following expiration of the MDH program.) For the FY 2013 
impact of the expiration of the MDH program at the end of FY 2012, we 
refer readers to section I.G.2.j. of Appendix A to this final rule.
    Comment: Several commenters expressed concern with the expiration 
of the MDH program, citing serious detrimental effects that would 
result to patients, hospitals, and communities. The commenters strongly 
encouraged the continuation of the MDH program.
    Response: The MDH program, which provides special treatment of and 
payment to small, rural, Medicare-dependent hospitals, was authorized 
by statute. In order for the MDH program to continue, or in order to 
reinstate it once it expires, legislation is required. CMS does not 
have the authority, without statutory provision, to continue the MDH 
program.

H. Changes in the Inpatient Hospital Update

1. FY 2013 Inpatient Hospital Update
    In accordance with section 1886(b)(3)(B)(i) of the Act, each year 
we update the national standardized amount for inpatient operating 
costs by a factor called the ``applicable percentage increase.'' Prior 
to enactment of the Affordable Care Act, section 1886(b)(3)(B)(i)(XX) 
of the Act set the applicable percentage increase equal to the rate-of-
increase in the hospital market basket for subsection (d) hospitals 
(hereafter referred to as ``IPPS hospitals'') in all areas, subject to 
the hospital submitting quality information under rules established by 
the Secretary in accordance with section 1886(b)(3)(B)(viii) of the 
Act. For hospitals that did not provide these data, the update was 
equal to the market basket percentage increase less an additional 2.0 
percentage points. The update for the hospital-specific rates for SCHs 
is set by section 1886(b)(3)(B)(iv) of the Act as discussed further 
below.
    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 2013 as equal to the rate-of-increase in 
the hospital market basket for IPPS hospitals in all areas (which is 
currently based on a forecast of the FY 2006-based IPPS market basket), 
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 0.1 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 2013 adjustment of 0.1 percentage point may result in 
the applicable percentage increase being less than zero.
    In the FY 2013 IPPS/LTCH PPS proposed rule (77 FR 27975 and 27976), 
we stated that, 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. We also stated in the proposed rule that, 
for FY 2013, we were not proposing to make any change in our 
methodology for calculating and applying the MFP adjustment. Similar to 
the market basket increase, we are using the most recent data available 
for this final rule to compute the MFP adjustment. Using the 
methodology that we finalized in the FY 2012 IPPS/LTCH PPS final rule 
(76 FR 51690), in accordance with section 1886(b)(3)(B) of the Act, as 
amended by section 3401(a) of the Affordable Care Act, in the FY 2013 
IPPS/LTCH PPS proposed rule (77 FR 27975), based on IHS Global Insight, 
Inc.'s (IGI's) first quarter 2012 forecast of multifactor productivity 
(MFP), we proposed an MFP adjustment (the 10-year moving average of MFP 
for the period ending FY 2013) of 0.8 percent.
    Consistent with current law, and based on IGI's first quarter 2012 
forecast of the FY 2013 market basket increase, we proposed an 
applicable percentage increase to the FY 2013 operating standardized 
amount of 2.1 percent (that is, the FY 2013 estimate of the market 
basket rate-of-increase of 3.0 percent less an adjustment of 0.8 
percentage points for economy-wide productivity (the MFP adjustment) 
and less 0.1 percentage point) for hospitals in all areas, provided the 
hospital submits quality data in accordance with our rules. For 
hospitals that do not submit quality data, we proposed an applicable 
percentage increase to the operating standardized amount of 0.1 percent 
(that is, the FY 2013 estimate of the market basket rate-of-increase of 
3.0 percent, less 2.0 percentage points for failure to submit quality 
data, less an adjustment of 0.8 percentage points for economy-wide 
productivity, and less an additional adjustment of 0.1 percentage 
point). In the proposed rule, we stated that if more recent data are 
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 2013 market basket update and MFP 
adjustment in the final rule.
    We did not receive any public comments on these proposals to 
implement the applicable percentage increase. For this final rule, 
using the most recent data available, consistent with current law, and 
based on IGI's second quarter 2012 forecast of the FY 2013 market 
basket increase, we are finalizing an applicable percentage increase to 
the FY 2013 operating standardized amount of 1.8 percent (that is, the 
FY 2013 estimate of the market basket rate-of-increase of 2.6 percent 
less an adjustment of 0.7 percentage point for economy-wide 
productivity (that is, the MFP adjustment) and less 0.1 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 in accordance with our rules. For 
hospitals that do not submit these quality data, we are finalizing an 
applicable percentage increase to the operating standardized amount of 
-0.2 percent (that is, the FY 2013 estimate of the market basket rate-
of-increase of 2.6 percent, less 2.0 percentage points for failure to 
submit quality data, less an adjustment of 0.7 percentage point for the 
MFP adjustment, and less an additional adjustment of 0.1 percentage 
point).
    In the proposed rule, we proposed to revise the existing 
regulations at 42 CFR 412.64(d)(1)(iv) to reflect the current law for 
the FY 2013 update. Specifically, in accordance with section 
1886(b)(3)(B) of the Act, we proposed to revise paragraph (d)(1)(iv) to 
reflect the applicable percentage increase to the FY 2013 operating 
standardized amount as the percentage increase in the market basket 
index, 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 a multifactor productivity adjustment and, lastly, 
subject to the additional reduction of 0.1 percentage

[[Page 53415]]

point. We did not receive any public comments on this proposal. 
Therefore, in this final rule, we are adopting as final, without 
modification, the proposed changes to Sec.  412.64(d)(1)(iv) to reflect 
current law.
    Section 1886(b)(3)(B)(iv) of the Act provides that the applicable 
percentage increase to the hospital-specific rates for SCHs equals the 
applicable percentage increase set forth in section 1886(b)(3)(B)(i) of 
the Act (that is, the same update factor as for all other hospitals 
subject to the IPPS). Therefore, the update to the hospital-specific 
rates for SCHs is also subject to section 1886(b)(3)(B)(i) of the Act, 
as amended by sections 3401(a) and 10319(a) of the Affordable Care Act. 
Accordingly, in the FY 2013 IPPS/LTCH PPS proposed rule (77 FR 27976), 
we proposed an update to the hospital-specific rates applicable to SCHs 
of 2.1 percent for hospitals that submit quality data or 0.1 percent 
for hospitals that fail to submit quality data. For FY 2013, the 
regulations in Sec. Sec.  412.73(c)(16), 412.75(d), 412.77(e) and 
412.78(e) already 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 did not propose to make 
further changes to these four regulatory provisions to reflect the FY 
2013 update factor for the hospital-specific rates of SCHs. We did not 
receive any public comments on this proposal. Therefore, for this final 
rule, we are finalizing 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. As 
we noted above, for the proposed rule, we used the first quarter 2012 
forecast of the FY 2006-based IPPS market basket with historical data 
through fourth quarter 2011. For this final rule, we used the most 
recent data available, which was the second quarter 2012 forecast of 
the FY 2006-based IPPS market basket with historical data through first 
quarter 2012. Similarly, for the proposed rule, we used IGI's first 
quarter 2012 forecast of MFP. For this final rule, we used the most 
recent data available, which was IGI's second quarter 2012 forecast of 
MFP.
    We note that, as discussed in section IV.G. of this preamble, 
section 3124 of the Affordable Care Act extended the MDH program from 
the end of FY 2011 (that is, for discharges occurring before October 1, 
2011) to the end of FY 2012 (that is, for discharges occurring before 
October 1, 2012). Under prior law, the MDH program was to be in effect 
through the end of FY 2011 only. Absent additional legislation further 
extending the MDH program, the MDH program will expire for discharges 
beginning in FY 2013. Accordingly, we are not including MDHs in our 
update to the hospital-specific rates for FY 2013.
2. FY 2013 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, in 
the FY 2013 IPPS/LTCH PPS proposed rule (77 FR 27976), we proposed an 
applicable percentage increase to the Puerto Rico-specific operating 
standardized amount of 2.1 percent for FY 2013. The regulations at 
Sec.  412.211(c) already 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 for us to make changes to the existing 
regulatory text.
    We did not receive any public comments on this proposal. Therefore, 
for this final rule, we are finalizing an applicable percentage 
increase to the Puerto Rico-specific operating standardized amount of 
1.8 percent for FY 2013. As we noted above, for the proposed rule, we 
used the first quarter 2012 forecast of the FY 2006-based IPPS market 
basket with historical data through fourth quarter 2011. For this final 
rule, we used the most recent data available, which was the second 
quarter 2012 forecast of the FY 2006-based IPPS market basket with 
historical data through first quarter 2012. Similarly, for the proposed 
rule, we used IGI's first quarter 2012 forecast of MFP. For this final 
rule, we used the most recent data available, which was IGI's second 
quarter 2012 forecast of MFP.

I. Payment for Graduate Medical Education (GME) and Indirect Medical 
Education (IME) Costs (Sec. Sec.  412.105, 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.

[[Page 53416]]

    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. 
Section 5503 of the Affordable Care Act added a new section 1886(h)(8) 
to the Act to provide for the reduction in FTE resident caps for direct 
GME under Medicare for certain hospitals training fewer residents than 
their caps, and to authorize the ``redistribution'' of the estimated 
number of excess FTE resident slots to other qualified hospitals. In 
addition, section 5503 amended section 1886(d)(5)(B)(v) of the Act to 
require the application of the section 1886(h)(8) of the Act provisions 
``in the same manner'' to the IME FTE resident caps. The regulations 
implementing section 5503 of the Affordable Care Act were included in 
the November 24, 2010 final rule with comment period (75 FR 72263).
2. Teaching Hospitals: Change in New Program Growth From 3 Years to 5 
Years
    Section 1886(h)(4)(H)(i) of the Act requires CMS to establish rules 
for calculating the direct GME caps of teaching hospitals training 
residents in new programs established on or after January 1, 1995. 
Under section 1886(d)(5)(B)(viii) of the Act, these rules also apply to 
the establishment of a hospital's IME cap. CMS implemented these 
statutory requirements in the August 29, 1997 Federal Register (62 FR 
46005) and in the May 12, 1998 Federal Register (63 FR 26333). 
Generally, under existing regulations at 42 CFR 413.79(e)(1) and 42 CFR 
412.105(f)(1)(vii), if a hospital did not train any allopathic or 
osteopathic residents in its most recent cost reporting period ending 
on or before December 31, 1996, and it begins to participate in 
training residents in a new residency program (allopathic or 
osteopathic) on or after January 1, 1995, the hospital's unweighted FTE 
resident cap (which would otherwise be zero) may be adjusted based on 
the sum of the product of the highest number of FTE residents in any 
program year during the third year of the first new program, for each 
new residency training programs established during that 3-year period, 
and the minimum accredited length for each type of program. The number 
of FTE resident cap slots that a teaching hospital receives for each 
new program may not exceed the number of accredited slots that are 
available for each new program. Once a hospital's FTE resident cap is 
established, no subsequent cap adjustments may be made for new programs 
unless the teaching hospital is a rural hospital. A rural hospital's 
FTE resident caps may be adjusted for participation in subsequent new 
residency training programs. As a reminder, a hospital that did not 
train any allopathic or osteopathic residents in its most recent cost 
reporting period ending on or before December 31, 1996, may only 
receive a permanent FTE resident cap adjustment for training residents 
in a truly ``new'' residency training program; no permanent cap 
adjustment would be given for training residents associated with an 
existing program. That is, if a hospital that did not train any 
allopathic or osteopathic residents in its most recent cost reporting 
period ending on or before December 31, 1996, serves as a training site 
for residents in a program that exists or existed previously at another 
teaching hospital that remains open, that ``new'' teaching hospital 
does not receive a ``new program'' cap adjustment because it is not 
participating in training residents in a truly ``new'' program. 
However, it is possible for that hospital to receive a temporary cap 
adjustment if it enters into a Medicare GME affiliation agreement with 
the existing teaching hospital as specified at 42 CFR 413.79(f) and 
412.105(f)(1)(vi). (For a detailed discussion of the distinctions 
between a new residency program and an existing residency program, we 
refer readers to the August 27, 2009 final rule (74 FR 43908).)
    As stated previously, the existing regulations provide for a 3-year 
period in which a teaching hospital can ``grow'' its programs, for the 
purpose of establishing its FTE resident caps. This 3-year period, 
which we will refer to as the ``3-year window'' for ease of reference, 
starts when the teaching hospital first begins to train residents in 
its first new program, typically on July 1, and it ends when the third 
program year of that first new program ends. For example, assume 
residents begin training in a new program for the first time on July 1, 
2012. The 3-year window begins on July 1, 2012, and ends on June 30, 
2015, the end of the third program year of that (first) new program. At 
this point in time, regardless of the actual accredited length of the 
new program, or the number of new programs started, the teaching 
hospital's FTE resident caps are established permanently and are 
effective beginning with the fourth program year from the date the 
first new program started (using the same example, this would be July 
1, 2015). We note that there are several ``types'' of hospitals that 
can receive a permanent cap adjustment for training FTE residents in a 
new program. A hospital that has never before trained any residents and 
begins training FTE residents in its first new program can receive a 
permanent cap adjustment. A hospital that previously trained FTE 
residents in an existing program(s) and begins training FTE residents 
in its first new program can receive a permanent cap adjustment. A 
rural hospital can always receive a permanent cap adjustment for each 
new program it begins. That is, a rural hospital enters a cap-building 
period for each new residency training program it begins, not just for 
its first new residency training program. Because all of these 
hospitals could qualify to receive a permanent cap adjustment for 
training FTE residents in a new residency training program, we refer to 
these hospitals as ``qualifying'' hospitals throughout the remainder of 
this preamble.
    Prior to issuance of the proposed rule, the provider community 
expressed concerns that 3 years do not provide for a sufficient amount 
of time for a hospital to ``grow'' its new residency programs and to 
establish FTE resident caps that are properly reflective of the number 
of FTE residents that it will

[[Page 53417]]

actually train, once the programs are fully grown. Providers explained 
that 3 years is an insufficient amount of time primarily because a 
period of 3 years is not compatible with program accreditation 
requirements, particularly in instances where the qualifying teaching 
hospital wishes to start more than one new program. For example, we 
understand that a qualifying teaching hospital may not begin all of its 
new programs at the same time because of accreditation prerequisites; 
rather, a qualifying teaching hospital must wait until the first 
program is in place for a specified amount of time before it can begin 
training residents in a second or third program. This potential delay 
means that a qualifying teaching hospital may not be able to 
sufficiently ``grow'' all of its new programs by the end of the ``3-
year window.'' We understand, for example, that the Accreditation 
Council for Graduate Medical Education (ACGME) requires that, for a 
hospital to sponsor an anesthesiology program, the hospital must 
sponsor or be affiliated with at least one internal medicine program 
and one general surgery program. Furthermore, we understand that the 
ACGME can require new residency training programs to pass through an 
``initial'' accreditation period of up to 3 years until they can be 
granted ``continued'' accreditation. During this initial accreditation 
period, a hospital is not allowed to add any additional positions to 
its new program. Therefore, even if a hospital has plans to expand its 
new training program beyond the number of positions for which it is 
initially accredited, it may not be possible for the hospital to 
actually do so until this initial period has expired. Lastly, we were 
made aware that providers may want to stagger the start dates for their 
residency training programs if they plan on training residents in 
several programs because they may want to gain some experience in 
residency training before they begin all of their new programs.
    Given the concerns about teaching hospitals having insufficient 
time to ``grow'' their new residency training programs and to establish 
an appropriately reflective permanent FTE resident cap within a 3-year 
window, in the FY 2013 IPPS/LTCH PPS proposed rule (77 FR 27978), we 
proposed that a teaching hospital will have 5 years, or a ``5-year 
window,'' in which to establish and grow new programs. At the end of 
the fifth program year of the first new program in which the teaching 
hospital participates, the teaching hospital's FTE resident caps would 
be determined, and set permanently, effective with the beginning of the 
sixth program year. We proposed that this change would apply to 
teaching hospitals that begin training residents in new programs for 
the first time on or after October 1, 2012. Although we understand that 
many residency training programs begin July 1 of the calendar year, 
consistent with the proposed effective date of the FY 2013 IPPS 
provisions in the proposed rule, we proposed an effective date for this 
change of October 1, 2012. We proposed to amend the regulations at 
Sec.  413.79(e)(1) to state that if a teaching hospital participates in 
training residents in a new program for the first time on or after 
October 1, 2012, the teaching hospital's FTE resident cap may be 
adjusted based on the product of the highest number of FTE residents 
training in any program year during the fifth year of the first 
program's existence for all new residency training program(s) and the 
number of years in which residents are expected to complete the program 
based on the minimum accredited length for each type of program. We 
proposed that this policy would apply to the establishment of a 
hospital's cap for both direct GME and IME payment purposes. The IME 
regulations at Sec.  412.105(f)(1)(vii) refer to the direct GME 
regulations at Sec.  413.79(e)(1) through (e)(4) for the rules for the 
establishment of a new teaching hospital's cap. As is required under 
existing regulations, the number of cap slots associated with each new 
program cannot exceed the number of accredited slots available to the 
hospital for that new program.
    We note that we did not propose to make any changes to regulations 
governing treatment of the rolling average and the intern and resident-
to-bed (IRB) ratio for new programs. That is, new program FTE residents 
will continue to be exempt from the rolling average and the cap on the 
IRB ratio for the minimum accredited length for the specific type of 
residency training program. These exceptions are discussed in the 
regulations at Sec. Sec.  412.105(a)(1)(i) through (a)(1)(ii) and 
413.79(d)(5). The current cost report instructions for Form CMS-2552-
10, Worksheet E-4, Line 6 (current year unweighted allopathic and 
osteopathic FTE count) instruct hospitals to contact their Medicare 
contractor for instructions on how to complete that line if the 
hospital has a new program for which the period of years is less than 
or greater than 3 years. Similarly, in the case of the proposed policy 
where the exemption from the rolling average for a new program could 
expire prior to the hospital's cap being set in the sixth year of the 
first new program, we stated that we would encourage hospitals to 
contact CMS if they have questions on the method of reporting FTE 
resident counts for FTE residents in new programs that are subject to 
the rolling average but not subject to the cap.
    We also proposed to revise the regulations at Sec.  413.79(e)(1)(i) 
that discuss the methodology used to calculate a qualifying teaching 
hospital's cap adjustment for a new residency training program if 
residents training in the new program are rotating to more than one 
hospital during the 5-year window. We proposed to revise the 
regulations to specify that, in calculating the cap adjustment for each 
new program started within the 5-year window, we would look at the 
highest total number of FTE residents training in any program year 
during the fifth academic year of the first new program's existence at 
all participating hospitals to which these residents rotate and 
multiply that highest FTE resident count by the number of years in 
which residents are expected to complete the program, based on the 
minimum accredited length of the specific program. Furthermore, we 
proposed that, for each new program started within the 5-year window, 
we would take that product and multiply it by each hospital's ratio of 
the number of FTE residents in that new program training over the 
course of the 5-year period at each hospital to the total number FTE 
residents training in that new program at all participating hospitals 
over the course of the 5 years. We believed it was appropriate to 
propose to apportion the overall FTE cap among the hospitals 
participating in training residents in the new program based on the 
percentage of FTE residents each hospital trained over the course of 
the entire 5-year period, rather than the percentage of FTE residents 
each hospital trained only during the fifth academic year, because the 
trend of training over the entire 5 years may reflect more completely 
the patterns in the training in years subsequent to the fifth academic 
year. Otherwise, a hospital's FTE cap adjustment, which is permanent, 
may reflect too heavily the share of training time solely in the fifth 
academic year, which may or may not be beneficial to the hospital. We 
noted that a hospital's cap adjustment could differ, depending on 
whether we look only at the fifth academic year of the first new 
program or look at every available year (up to 5 years) for which 
training occurred to calculate each

[[Page 53418]]

hospital's share of the aggregate cap for a specific program.
    In addition, we proposed to revise the existing regulation text at 
Sec.  413.79(e)(1)(i) to include the phrase ``the number of years in 
which residents are expected to complete the program based on the 
minimum accredited length for the type of program.'' This proposed 
language is consistent with our past, current, and proposed policy. We 
also noted that Sec.  413.79(e)(1) applies in instances where the 
residents in the new program train only at one hospital; Sec.  
413.79(e)(1)(i) applies when residents in the new program train at more 
than one hospital, regardless of whether each of those hospitals are 
hospitals that qualify for a permanent cap adjustment or existing 
teaching hospitals with previously established caps. The example below 
illustrates the methodology we proposed to use to calculate a 
qualifying teaching hospital's cap if we changed the cap-building 
period from 3 years to 5 years. In this example, as explained above, we 
proposed that we would calculate the cap based on what is occurring at 
the qualifying teaching hospital(s) during the fifth academic year of 
the qualifying teaching hospital's first new program (or the fifth 
academic year of the rural teaching hospital's new residency training 
program). The provider community has requested that the cap-building 
period be increased from 3 years to 5 years. Therefore, we proposed 
that we would only look at the training that is occurring during the 
fifth academic year of the first new program to calculate the aggregate 
cap adjustment. However, we proposed that we would look at the FTE 
residents training at the hospital(s) during all 5 years to determine 
how we would distribute the aggregate cap adjustment among the 
participating hospitals. We included the following example in the 
proposed rule:
    Example: Hospital A is a hospital that becomes a new teaching 
hospital by training residents in a new family medicine program in 
academic year 1. Within its 5-year window, it also begins a new surgery 
program in academic year 4 of the first new program, the family 
medicine program. The family medicine program is accredited for 15 
positions, 5 positions per year (the minimum accredited length of a 
family medicine program is 3 years). The surgery program is accredited 
for 20 positions, 4 positions per year (the minimum accredited length 
of a surgery program is 5 years). Residents in both the family medicine 
program and the surgery program also rotate to Hospital B. Hospital B 
is an existing teaching hospital (nonrural) with a cap that is already 
established; therefore, it will not receive any cap adjustments for 
training FTE residents in the new family medicine program or the new 
surgery program. However, because both of these programs are approved 
programs and FTE residents are training at Hospital B for part of the 
time, Hospital B can receive payment for the FTE residents training in 
the family medicine program and the surgery program at its hospital if 
it has room under its caps.
    First, we would determine the cap adjustment that Hospital A will 
receive for training FTE residents in the family medicine program. The 
following table includes the allowable FTE resident counts in the 
family medicine program at both Hospital A and Hospital B during the 5-
year window. These numbers are FTE resident counts because they reflect 
the share of training time spent at Hospital A and Hospital B, and also 
assume for this example that we have excluded some nonallowable time, 
such as the time residents spend training in didactic activities in a 
medical school lecture hall.

                                                   Hospital A
----------------------------------------------------------------------------------------------------------------
             Year 1                     Year 2              Year 3              Year 4              Year 5
----------------------------------------------------------------------------------------------------------------
0.75 PGY 1......................  2.60 PGY 1........  4.00 PGY 1........  4.10 PGY 1........  4.20 PGY 1
0.00 PGY 2......................  2.80 PGY 2........  3.40 PGY 2........  3.40 PGY 2........  3.70 PGY 2
0.00 PGY 3......................  0.00 PGY 3........  2.40 PGY 3........  2.80 PGY 3........  2.80 PGY 3
----------------------------------------------------------------------------------------------------------------
Total 0.75......................  Total 5.40........  Total 9.80........  Total 10.30.......  Total 10.70
----------------------------------------------------------------------------------------------------------------

    Hospital A's 5 year total = 36.95.

                                                   Hospital B
----------------------------------------------------------------------------------------------------------------
             Year 1                     Year 2              Year 3              Year 4              Year 5
----------------------------------------------------------------------------------------------------------------
3.75 PGY 1......................  2.20 PGY 1........  0.90 PGY 1........  0.80 PGY 1........  0.60 PGY 1
0.00 PGY 2......................  2.00 PGY 2........  1.50 PGY 2........  1.50 PGY 2........  1.20 PGY 2
0.00 PGY 3......................  0.00 PGY 3........  2.40 PGY 3........  2.00 PGY 3........  2.00 PGY 3
----------------------------------------------------------------------------------------------------------------
Total 3.75......................  Total 4.20........  Total 4.80........  Total 4.30........  Total 3.80
----------------------------------------------------------------------------------------------------------------

    Hospital B's 5 year total = 20.85.
    Total Hospital A and Hospital B over 5 years = 36.95 + 20.85 = 
57.80 FTEs.
    To calculate the cap adjustment for Hospital A with respect to the 
family medicine program, we need to take the highest number of FTE 
residents training in any program year in this program (that is, FTE 
residents training at both Hospital A and Hospital B) in the fifth year 
of the first new program's existence (which is the family medicine 
program). If we add the PGY 1s, the PGY 2s, and the PGY 3s at both 
hospitals, in year 5, we see that we would use the total number of PGY 
2s to calculate the FTE cap adjustment for the family medicine program, 
because the total number of PGY 2s at both hospitals is 4.90 FTEs (3.70 
+ 1.20), whereas the total number of PGY 1s and PGY 3s is only 4.80. We 
multiply 4.90 by the minimum accredited length of the family medicine 
program to get the total possible cap adjustment for the family 
medicine program (4.90 x 3 = 14.70). The cap adjustment that Hospital A 
receives for the family medicine program will be some number less than 
14.70 based on the ratio of the number of FTEs in the new program 
training over the course of the 5-year period at Hospital A to the 
total number FTE

[[Page 53419]]

residents training at both hospitals over the course of the 5-year 
period.
    To determine this ratio, note that Hospital A's total FTE residents 
in the new family medicine program over the course of 5 years is the 
numerator, 36.95. The total FTE residents at Hospitals A and B in the 
new family medicine program over the course of 5 years is the 
denominator, 57.80 (that is, 36.95 + 20.85). The ratio of training that 
occurred at Hospital A is 36.95/57.80 = 0.64. Therefore, Hospital A's 
cap for its share of the family medicine program is 0.64 x 14.70, or 
9.41. (If Hospital B had been eligible to receive a cap adjustment, its 
ratio of the cap would have been 0.36, that is, (20.85/57.80), and its 
share would have been 5.30 (0.36 x 14.70). If we add 9.41 to 5.30, we 
get 14.71 (we note that 14.71 is ``approximately'' equal to 14.70, the 
total cap determined for the entire family medicine program, with a 
slight difference due to rounding). Thus, we have ensured that, in 
assigning a cap of 9.41 to Hospital A on behalf of its family medicine 
program, the total allowable and accredited number of slots has not 
been exceeded).
    Now we will determine the cap adjustment that Hospital A will 
receive for training FTE residents in the new surgery program that 
began in year 4 of the first new program. The following tables include 
the allowable FTE resident counts in the surgery program at Hospital A 
and Hospital B, respectively, during the hospital's 5-year window. 
Again, assume we have excluded nonallowable time, such as time 
residents spent training in didactic activities in a medical school 
lecture hall.

                                                   Hospital A
----------------------------------------------------------------------------------------------------------------
             Year 1                     Year 2              Year 3              Year 4              Year 5
----------------------------------------------------------------------------------------------------------------
0.00 PGY 1......................  0.00 PGY 1........  0.00 PGY 1........  4.10 PGY 1........  4.20 PGY 1
0.00 PGY 2......................  0.00 PGY 2........  0.00 PGY 2........  0.00 PGY 2........  2.70 PGY 2
0.00 PGY 3......................  0.00 PGY 3........  0.00 PGY 3........  0.00 PGY 3........  0.00 PGY 3
0.00 PGY 4......................  0.00 PGY 4........  0.00 PGY 4........  0.00 PGY 4........  0.00 PGY 4
0.00 PGY 5......................  0.00 PGY 5........  0.00 PGY 5........  0.00 PGY 5........  0.00 PGY 5
----------------------------------------------------------------------------------------------------------------
Total 0.00......................  Total 0.00........  Total 0.00........  Total 4.10........  Total 6.90
----------------------------------------------------------------------------------------------------------------

    Hospital A's 5 year total = 11.00.

                                                   Hospital B
----------------------------------------------------------------------------------------------------------------
             Year 1                     Year 2              Year 3              Year 4              Year 5
----------------------------------------------------------------------------------------------------------------
0.00 PGY 1......................  0.00 PGY 1........  0.00 PGY 1........  1.70 PGY 1........  0.60 PGY 1
0.00 PGY 2......................  0.00 PGY 2........  0.00 PGY 2........  0.00 PGY 2........  1.50 PGY 2
0.00 PGY 3......................  0.00 PGY 3........  0.00 PGY 3........  0.00 PGY 3........  0.00 PGY 3
0.00 PGY 4......................  0.00 PGY 4........  0.00 PGY 4........  0.00 PGY 4........  0.00 PGY 4
0.00 PGY 5......................  0.00 PGY 5........  0.00 PGY 5........  0.00 PGY 5........  0.00 PGY 5
----------------------------------------------------------------------------------------------------------------
Total 0.00......................  Total 0.00........  Total 0.00........  Total 1.70........  Total 2.10
----------------------------------------------------------------------------------------------------------------

    Hospital B's 5 year total = 3.80.
    Total Hospital A and Hospital B over 5 years = 11.00 + 3.80 = 14.80 
FTEs.
    To calculate the cap adjustment for Hospital A with respect to the 
surgery program, we need to take the highest number of FTE residents 
training in this program (that is, FTE residents training at both 
Hospital A and Hospital B) in the fifth year of the first new program's 
existence (which is the family medicine program). Because the surgery 
program only started in Year 4 of the family medicine program, there 
are only PGY 1s and PGY 2s training at both Hospitals A and B in year 
5; thus, we consider the surgery PGY 1s and PGY 2s in year 5 of the 
family medicine program. If we add the PGY 1s and the PGY 2s at both 
hospitals in year 5, we see that we would use the total number of PGY 
1s to calculate the FTE cap adjustment for the surgery program, because 
the total number of PGY 1s is 4.80 FTEs (4.20 + 0.60), whereas the 
total number of PGY 2s is only 4.20. However, because the regulations 
do not permit a hospital to count more FTE residents in each program 
year than what the program is approved for (in this example, 4 FTE 
residents for each program year), we must multiply 4.0 by the minimum 
accredited length of the surgery program to get the total possible cap 
adjustment for the surgery program (4.0 x 5 = 20). That is, because the 
surgery program is only accredited for 20 positions, the overall FTE 
resident cap associated with the surgery program that is to be 
apportioned between Hospital A and Hospital B is limited to a maximum 
of 20. The cap adjustment that Hospital A receives for the surgery 
program will be some number less than 20 and is based on the ratio of 
the number of FTE residents in the new program training over the course 
of the 2-year period at Hospital A to the total number FTEs training at 
both hospitals over the course of the 2-year period.
    To determine this ratio, note that Hospital A's total FTE residents 
in the new surgery program over the course of 2 years is the numerator, 
11.00. The total number of FTE residents at Hospitals A and B in the 
new surgery program over the course of 5 years is the denominator, 
14.80 (that is, 11.00 + 3.80). The ratio of training that occurred at 
Hospital A is 11.00/14.80 = 0.74. Hospital A's cap for its share of the 
surgery program is 0.74 x 20 = 14.80. (If Hospital B had been eligible 
to receive a cap adjustment, its share of the cap would have been 5.20 
((3.80/14.80) x 20) = 5.20. Thus, we have ensured that, in assigning a 
cap of 14.80 to Hospital A on behalf of its surgery program, the total 
allowable and accredited number of slots has not been exceeded).
    Adding together the cap adjustment Hospital A receives for the new 
family medicine program and the cap adjustment it receives for the new 
surgery program, Hospital A's total permanent cap is 24.21 (9.41 + 
14.80 = 24.21).

[[Page 53420]]

    In summary, we proposed to revise the regulations at Sec.  
413.79(e)(1) for the purposes of direct GME and, by reference, Sec.  
412.105(f)(1)(vii) for purposes of IME to state that if a hospital 
begins training residents in a new program for the first time on or 
after October 1, 2012, that hospital's caps may be adjusted based on 
the product of the highest number of FTE residents training in any 
program year during the fifth academic year of the first program's 
existence for all new residency training programs and the number of 
years in which residents are expected to complete the program based on 
the minimum accredited length for the type of program. The cap would be 
applied beginning with the sixth academic year of the first new 
program. We also proposed conforming changes throughout paragraph 
(e)(1) of Sec.  413.79 to correspond with the proposed change to 
increase the length of the cap-building period from 3 to 5 years. In 
addition, we proposed to change the regulation text at Sec.  
413.79(e)(1)(i) to reflect a methodology to calculate a qualifying 
teaching hospital's cap adjustment if the residents in the new training 
program are training at more than one hospital. We proposed that these 
changes would be effective for a hospital that begins training 
residents for the first time on or after October 1, 2012. Lastly, we 
proposed to make a clarification to the existing regulation text at 
Sec.  413.79(e)(1)(i) to insert the missing phrase ``and the number of 
years in which residents are expected to complete the program based on 
the minimum accredited length for the type of program.'' This change is 
consistent with our past, current, and proposed policy.
    Comment: Commenters supported extending the cap-building period for 
a new teaching hospital from 3 years to 5 years. Commenters stated that 
the proposal provided an accurate characterization of challenges that a 
hospital may face with trying to establish a cap within a 3 year 
period. Commenters stated that extending the cap-building period from 3 
years to 5 years would permit new teaching hospitals to meet 
accreditation requirements and grow programs in order to help address 
the country's physician shortage and provide greater flexibility in the 
timeline for starting new programs. Another commenter stated that the 
extension from 3 to 5 years is generally an improvement and provides 
teaching hospitals with time to reach a steady number of FTE residents 
and allows the hospital to find residents that may be a better fit for 
a specific residency training program. The commenters stated they 
believe that 5 years is likely a sufficient period of time because many 
new programs will fill their higher PGY levels by accepting transfer 
residents from other programs rather than just filling up only the PGY1 
level.
    Several commenters supported extending the cap-building period from 
3 to 5 years because creating a new teaching hospital involves 
collaboration among several different participants, for example medical 
schools and nonteaching hospitals, and also requires interactions with 
regulatory bodies and accrediting agencies. The commenters stated that, 
in addition to a 3-year window being a challenge due to the number and 
variety of participants involved in establishing a new teaching 
hospital, 3 years is based on ``* * * an unreasonable and aggressive 
expectation that an organization can establish its desired complement 
of training programs nearly simultaneously in such a period while 
ensuring a high-quality educational experience for residents and 
fellows and a seamless transition from a nonteaching to a teaching 
service care model for Medicare beneficiaries.'' The commenters stated 
it is not appropriate to limit hospitals' access to GME payments based 
on factors that the hospitals cannot control, such as ACGME and 
National Resident Matching Program requirements and timelines. Another 
commenter stated that a cap-building period of 5 years will permit four 
community hospitals that are considering building GME programs in 
Northeast Georgia to grow their programs more fully and with greater 
flexibility. One commenter stated that extending the cap-building 
period to 5 years will aid it in its collaboration with a school of 
medicine to support their efforts of training residents in areas across 
Indiana where no residency training programs previously existed. 
Another commenter stated the proposed change from 3 years to 5 years 
will promote the establishment of needed residency programs by 
establishing caps that reflect the number of FTE residents that a 
hospital will be able to train once the programs have matured and will 
give new teaching hospitals more time to make the necessary initial 
investment of resources. The commenter stated that expanding residency 
training programs will help address the physician shortage in Arizona 
that is expected to grow as a result of an aging population and 
increased insurance coverage under the Affordable Care Act. One 
commenter stated that it supported a 5-year window because it will aid 
in developing new emergency medicine residencies, extending emergency 
medical residencies from 3 years to 4 years, and meeting the needs of 
other specialty residency training programs that want to expand their 
programs to the maximum number of accredited positions. Another 
commenter supported the expansion from a 3-year window to a 5-year 
window and encouraged CMS to revisit this policy in several years to 
confirm that 5 years is an adequate amount of time for the cap-building 
process.
    One commenter stated it understood that, due to accreditation 
rules, it is very difficult for a new teaching hospital to start 
several residency training programs within the current 3-year window. 
The commenter stated that it understood that if a new teaching hospital 
tries to start a second program during its 3-year window, it is almost 
impossible to start that second program before the third year of the 
hospital's 3-year window. The commenter noted that it understood the 
ACGME has a reasonable expectation that new teaching hospitals need to 
gain experience training residents and have a strong educational 
infrastructure in place before they start to train residents in 
specialty residency training programs. The commenter stated that if a 
new teaching hospital is only really provided with one year to start a 
second residency training program, the hospital is forced to be 
aggressive in filling a full cohort of first-year residents, which may 
be neither in the hospital's nor the residents' best interest. The 
commenter stated that extending the cap-building period from 3 years to 
5 years will allow teaching hospitals to build residency training 
programs ``* * * that will best serve the patients in their community 
and provide a strong educational infrastructure for their residents.''
    Response: We appreciate the commenters' support of our proposal to 
expand the cap-building period from 3 years to 5 years. Therefore, we 
are finalizing our proposal to provide qualifying teaching hospitals 
with a 5-year window to grow their cap. The 5-year window will begin 
once the qualifying teaching hospital first starts training residents 
in its first new program and the cap will apply beginning with the 
sixth program year of the first new program. In response to the 
commenters who stated that a 5-year window is a sufficient period of 
time for building a hospital's cap because new programs may accept 
transfer residents from other programs rather than filling only PGY1 
slots, we remind hospitals that filling a program with transfer 
residents from other hospitals' existing

[[Page 53421]]

residency training programs may jeopardize the program's status as 
``new.'' As we explained in the August 27, 2009 Federal Register (74 FR 
43908), one of the factors CMS considers in determining whether a 
residency training program can be considered a new program for Medicare 
GME payment purposes is whether residents entering a program are new 
residents or residents transferring from an existing program(s).
    Comment: Although commenters supported extending the cap-building 
period from 3 years to 5 years, many did not support making the policy 
effective for new teaching hospitals that first begin to train 
residents in their first new program on or after October 1, 2012. 
Commenters requested that the extension of the cap-building period from 
3 to 5 years apply to new teaching hospitals that are currently within 
their 3-year window, new teaching hospitals that started training 
residents for the first time in a new program on or after July 1, 2010, 
or at the very least apply effective July 1, 2012. Commenters stated 
that new teaching hospitals that are currently within the 3-year window 
are facing the same challenges that CMS described in the proposed rule 
and deserve to benefit from a 5-year window. Commenters stated that CMS 
would be able to apply the 5-year window without any additional 
administrative burden on its part. One commenter requested that, 
because a new teaching hospital that begins training residents July 
2010 would begin the third year of its cap-building period July 1, 2012 
and would not have its caps set until July 1, 2013, CMS amend its 
proposed regulation text to apply the 5-year window to a hospital that 
first begins training residents in a new program for the first time on 
or after July 1, 2010. The commenter stated that, if CMS does not agree 
to apply the 5-year window to hospitals that are still within their 3-
year window on October 1, 2012, CMS at least apply the 5-year window to 
new teaching hospitals that had not been training residents as of the 
publication of the proposed rule, that is, effective July 1, 2012. The 
commenter stated that this application would be prospective and would 
result in an even smaller cost than applying the 5-year window to all 
hospitals that are still within their 3-year window for establishing a 
cap. One commenter stated that making the 5-year window effective for 
hospitals that are still within their 3-year window as of October 1, 
2012, would allow it to continue to develop its fellowships in 
geriatrics and palliative care and expand its internal medicine 
program, and that without the possibility of this additional payment, 
it may not be able to support these programs which would increase the 
community's access to primary care and support the future physician 
workforce. Another commenter stated that it is just about to start the 
third year of its new residency program and there is nothing precluding 
CMS from applying the 5-year window to hospitals that are currently 
growing their caps. The commenter stated that, given the likely 
upcoming physician shortage, there is a public health benefit to 
applying the 5-year window as broadly as possible.
    Another commenter stated that the proposal to expand the cap-
building period is long overdue especially due to the fact that in the 
last decade residency training has been expanded to address physician 
shortage and complement new medical schools. The commenter stated that 
two of its member hospitals have recently or currently are establishing 
new programs and will be negatively affected by the 3-year window. 
Therefore, the commenter requested the 5-year window be applied to all 
hospitals currently growing their caps as of October 1, 2012.
    One commenter requested that CMS provide for an exception for 
hospitals that may have had a cap based on very few residency rotations 
but want to be able to train more residents because of a new medical 
school or an expansion of an existing medical school. The commenter 
stated that it has been a leader in Wisconsin in developing a report 
that addresses the potential physician shortage and in establishing a 
task force to address the need to train new physicians. The commenter 
stated that one of its State's medical schools may be able to expand 
into at least one new area in the State and that hospitals that want to 
grow their residency training programs as a result of this expansion 
should be provided with special consideration and an exemption from 
their caps.
    Another commenter stated that it is beginning a family medicine and 
internal medicine program and if it were to have a 5-year window it 
would be able to expand the number of primary care residents that it 
trains. The commenter requested that the 5-year window apply 
retroactively to any hospital that has not yet established a cap.
    Response: We disagree with the commenters who suggested applying 
the 5-year window to hospitals that are still within their 3-year 
window effective October 1, 2012, or to hospitals that begin training 
in July 2012. We believe it is appropriate that the policies included 
in this final rule will be effective with the start date of the next 
fiscal year, in this case, October 1, 2012. Therefore, we are 
finalizing the policy to extend the cap-building period from 3 years to 
5 years, effective for hospitals that first begin to train residents in 
their first new program on or after October 1, 2012.
    Comment: Some commenters supported CMS' proposed methodology for 
calculating a new teaching hospital's cap adjustment if residents in 
the new program are training at more than one hospital (proposed Sec.  
413.79(e)(1)(i)). However, some commenters also expressed concern 
regarding the proposed methodology to consider all 5 years of the cap-
building period for purposes of determining a participating hospital's 
cap adjustment. Commenters stated that considering all 5 years prevents 
nonteaching hospitals from training residents in the new program if it 
wants to establish its own programs in the future. The commenters 
stated that, under the proposed methodology, a new teaching hospital 
could ``lose'' cap slots if it rotated residents in a new program at 
any time during the 5-year window to another hospital, even if by the 
last year of the 5-year window, it would be able to offer all of the 
rotations at its facility. Commenters stated that if a methodology for 
allocating cap slots among participating hospitals is adopted, it 
should only consider the training that is occurring during the fifth 
year after training starts.
    One commenter stated that it is in the process of developing 
residency training programs and is seeking a Trauma designation. The 
commenter stated that until it receives its Trauma designation, it 
plans to send its Emergency Medicine residents to other facilities for 
the program's Trauma rotation. The commenter stated that due to these 
outside rotations, its cap will be reduced and it will not be able to 
receive a cap adjustment for those FTE residents it would have the 
capacity to train later on.
    Commenters stated that while they believe the proposed calculation 
of the total cap is appropriate, the proposed apportionment of FTE 
residents among participating hospitals may result in inappropriate cap 
determinations if the programs were in existence for less than their 
minimum accredited length by the fifth year of the cap-building period. 
One commenter stated ``* * * the result of utilizing a limited data set 
and extrapolating those resident counts to represent the anticipated 
resident rotation activity for the entire program may result in an 
apportionment of

[[Page 53422]]

resident FTEs that is misaligned and varies markedly from the actual 
experience of the training program.'' Commenters stated that while 
existing teaching hospitals may participate in Medicare GME affiliation 
agreements to temporarily adjust their caps, new teaching hospitals are 
not permitted to temporarily lend some of their cap through an 
affiliation agreement and, therefore, it is not feasible for a new 
teaching hospital to use a Medicare GME affiliation agreement to 
alleviate the effects of an inappropriate cap determination. Commenters 
therefore requested that if the new program has been in existence for 
less than its minimum accredited length by the fifth year of the cap 
building period, participating hospitals should be permitted to 
collaborate and submit an attestation certifying a preferred way of 
dividing the cap slots. The commenters stated that the total cap 
adjustment should be calculated as proposed; however the individual cap 
determinations should be adjusted as follows:
     For any program that has operated for a period of time 
less than the number of years equal to the minimum accredited program 
length as of Year 5 (the cap adjustment year), if consensus is reached 
among all of the hospitals participating in the development of the new 
program that the apportionment as determined by the CMS formula does 
not appropriately reflect the anticipated deployment of residents 
across the full program and accordingly advantages or disadvantages one 
or more of the new teaching hospitals, the hospitals may collectively 
recommend, certify, and submit to CMS an alternative apportionment for 
the resident FTE counts that are associated with that particular 
program and that will be assigned to the hospitals.
     For any program that has operated for a period of time 
equal to or greater than the minimum accredited program length by Year 
5, the hospitals will not have an opportunity to recommend an 
alternative apportionment of resident FTEs for cap adjustment purposes.
    Several commenters recommended changing the regulation text at 42 
CFR 413.79(e)(1)(i) by replacing the phrase ``an entire program year 
(or years)'' with ``portions of a program year (or years)'' because it 
more accurately describes the proposed methodology for determining an 
individual hospital's cap adjustment.
    Response: We appreciate the commenters' support of the methodology 
we proposed to use to calculate a qualifying teaching hospital's total 
cap adjustment for a new program. We disagree with commenters who 
stated that it is inappropriate to consider all 5 years of the cap-
building period in determining a specific qualifying teaching 
hospital's cap adjustment for a new program. There may be some merit to 
the commenters' suggestions that it may take several years until a 
program is fully operational so by the end of the 5-year window a 
hospital may be able to have all the rotations occur at its facility. 
However, we believe that considering all 5 years of the cap-building 
period in calculating a qualifying teaching hospital's cap adjustment 
is appropriate, as it provides a more complete picture of the actual 
rotations that will be part of the approved residency training program 
as opposed to just taking into account what is happening in the new 
program during the final year of the cap building period, which may not 
accurately reflect the hospitals' plans for dividing rotations among 
participating hospitals which may fluctuate from year to year. We do 
not believe it would be appropriate to allow participating hospitals to 
submit alternative methodologies for dividing the total cap adjustment 
if they do not agree with the cap calculations that have been 
determined by CMS. The policy used to apportion a total cap adjustment 
among participating hospitals must be a single national policy. 
Permitting hospitals to develop and apply their own methodologies may 
lead to disparate treatment among qualifying teaching hospitals. 
Furthermore, requiring Medicare contractors to apply specific 
individual policies for determining a hospital's cap adjustment, as 
opposed to applying one national policy, would prove to be 
administratively difficult and could significantly delay the 
determination of a hospital's cap.
    After considering the public comments we received on the proposed 
methodology to be used in determining individual cap adjustments for 
qualifying teaching hospitals that participate in training residents in 
a new program, we are finalizing our methodology as proposed. That is, 
in order to determine a qualifying teaching hospital's cap adjustment 
for a new program(s), we will take the sum of the products of three 
factors (limited to the number of accredited slots for each program): 
(1) The highest total number of FTE residents trained in any program 
year, during the fifth year of the first new program's existence at all 
of the hospitals to which the residents in that program rotate; (2) the 
number of years in which residents are expected to complete the 
program, based on the minimum accredited length for each type of 
program; and (3) the ratio of the number of FTE residents in the new 
program that trained at the hospital over the entire 5-year period to 
the total number of FTE residents that trained at all hospitals over 
the entire 5-year period.
    Because we are finalizing the methodology as proposed, we refer 
readers to the examples provided in the proposed rule and also included 
earlier in this preamble for further guidance. We agree with the 
commenters who suggested that we replace the phrase ``an entire program 
year (or years)'' at 42 CFR 413.79(e)(1)(i) with the phrase ``portions 
of a program year (or years)'' and, therefore, are amending this 
regulation text to include this change. We also are amending the 
regulation text at 42 CFR 413.79(e)(1)(i) to more clearly describe that 
an individual hospital's cap adjustment for a new program that rotates 
residents to more than one hospital is based on the product of three 
factors, which are described earlier in this paragraph. Furthermore, in 
this final rule, we are making minor revisions to the regulation text 
at 42 CFR 413.79(e)(2) through (e)(4) for purposes of maintaining 
consistency throughout 42 CFR 413.79(e).
    Comment: Several commenters referred to a statement reiterated in 
the proposed rule (77 FR 27977) that a new teaching hospital can only 
receive a cap adjustment for training residents in a truly ``new'' 
program and to the August 27, 2009 final rule (74 FR 43908) in which 
CMS discussed the requirements that a residency training program must 
meet in order to be considered a new program. The commenters requested 
that CMS clarify the definition of a new residency training program so 
that hospitals can use the 5-year window for building their caps. 
Commenters stated that because of CMS' ``ambiguous criteria'' used to 
define a new program, hospitals hoping to start brand new programs have 
not been able to get a clear opinion from CMS or legal counsel as to 
whether a program is, in fact, new. Commenters stated that this lack of 
clarity leads to financial risks for a hospital and does not provide 
any incentives for hospitals to participate in residency training. 
Commenters stated that hospitals are concerned that if they hire a 
program director with significant experience to meet ACGME 
requirements, their program will not be considered new. Commenters 
requested that CMS develop a bright line policy regarding the 
definition of a new program and suggested that CMS consider a program 
to be new if all PGY 1 residents are new and 90 percent of

[[Page 53423]]

residents in later PGY years are new. Commenters requested CMS clarify 
that prior experience and status of the program director and teaching 
physicians are not relevant in determining whether a program is 
considered new.
    Several commenters referred to CMS' existing policy that when a 
nonteaching hospital starts training residents in a new program, it 
enters a cap-building period and receives a PRA. Commenters stated that 
such a policy hinders the development of GME training at small 
hospitals in rural and underserved areas because the result of a 
resident rotation of short duration is a low PRA and small cap which 
will prevent the hospitals from establishing their own viable residency 
training programs later on. Commenters stated that assigning a cap and 
PRA to a nonteaching hospital that does not have a rotation of long 
duration does not permit these small nonteaching hospitals to determine 
whether residency training would be a viable option for them. 
Commenters requested that CMS consider one or more of the following 
proposals:
     A teaching hospital should be allowed to rotate residents 
for a period equal to or less than 3 months (or a maximum percentage of 
training time) per resident per year without triggering the cap or PRA 
in a nonteaching hospital.
     A new teaching hospital should be allowed to rotate 
residents in high-need specialties (for example, primary care, general 
surgery) without triggering a cap or PRA in a nonteaching hospital.
     Small rural hospitals and hospitals located in remote or 
underserved areas should be allowed to rotate residents to non-teaching 
hospitals without triggering caps or PRAs in those institutions.
    One commenter offered a fourth recommendation to be used if CMS 
continues with its current policy of assigning a PRA and cap to 
nonteaching hospitals that train residents in a new program for a 
rotation of short duration. The commenter stated that if a hospital has 
not had residents rotating to its site for a reasonable period of time 
(the commenter suggested 3 or 5 years), the hospital's cap should 
expire and the hospital should be considered a nonteaching hospital.
    Response: We do not consider these comments to be within the scope 
of the provisions of the FY 2013 IPPS/LTCH PPS proposed rule. In terms 
of the comment regarding the definition of a new residency training 
program, we did not propose to redefine the requirements that a program 
must meet in order to be considered a new program. The discussion cited 
was part of the background discussion of existing policies. These 
public comments may be considered for future rulemaking. In terms of 
the commenters' concerns regarding nonteaching hospitals that receive a 
cap adjustment and PRA for participating in training residents in a new 
program even if the rotation to the nonteaching hospital is of short 
duration, perhaps these concerns could be potential topics for future 
rulemaking because they have ramifications that go beyond the 
establishment of a cap for a new program, for example, for establishing 
the PRA of a ``new'' teaching hospital training residents in an 
existing program. Some commenters seemed to suggest that if an existing 
teaching hospital sends residents to a nonteaching hospital for a 
rotation of very short duration, the existing teaching hospital should 
be able to count the residency training time at the nonteaching 
hospital. We remind readers that a hospital cannot count the residency 
training time that is occurring at another hospital. Therefore, it 
would not be possible for one hospital to count rotations occurring at 
other hospitals even if the rotations are of a short duration.
    Comment: One commenter asked ``when CMS refers to the accredited 
length for the `type' of program, is CMS referring to a specific 
program with a specific accreditation time period, or the average 
accredited time for a type of specialty, such as primary care?'' The 
commenter recommended ``* * * that the minimum length of time for each 
training program is based on the accreditation for a specific program, 
rather than on the average training time for a general type of 
program.'' Another commenter requested that CMS clarify the following 
language included in the proposed rule (77 FR 27979): ``However, 
because both of these programs are approved programs and FTE residents 
are training at Hospital B for part of the time, Hospital B can count 
the FTE residents training in the family medicine program and the 
surgery program at its facility if it has room under its caps to do 
so.'' The commenters stated they believed hospitals should count FTE 
residents regardless of whether the hospital has room under its caps. 
The commenters requested CMS ``* * * clarify whether or not a hospital 
should report all allowable resident FTEs when a hospital does not have 
room under its caps * * *''.
    Response: When we refer to the accredited length of a ``type'' of 
program in the proposed rule and in this final rule, we are referring 
to the minimum accredited length for a specific specialty program, that 
is, the number of years of residency training that a resident must 
complete in order to be board certified in that specialty. For example 
the minimum accredited length for family medicine is 3 years and the 
minimum accredited length for surgery is 5 years.
    In response to the commenter's request that CMS clarify whether a 
hospital should report all allowable FTE residents when a hospital does 
not have room under its caps, if an existing teaching hospital with an 
already established cap participates in training residents in a new 
program, unless it is a rural hospital, it cannot receive a permanent 
cap adjustment for training residents in the new program. If the new 
program is an approved program and the existing teaching hospital is 
training below its caps, the existing teaching hospital can count and 
receive payment for the residents training in the new program at its 
facility up to its caps. The commenter is correct that if the existing 
teaching hospital is training residents in an approved program(s) it 
should report those FTE residents on its cost report regardless of 
whether or not it is training over its caps. However, the existing 
teaching hospital would only be able to receive Medicare payment for 
training residents in the new program up to its cap limit.
    Comment: One commenter requested that CMS provide new teaching 
hospitals with additional flexibility to grow GME programs and provide 
additional investments in GME that will be required to grow and improve 
the geriatrics workforce. One commenter also requested that CMS provide 
GME funding for second year pharmacy residency programs. One commenter 
expressed concern that the policy of assigning a cap and PRA after a 
short rotation to a formerly nonteaching hospital may be a policy that 
is applied to teaching hospital centers, which it believed would have a 
negative effect on the creation of new teaching health centers.
    Response: We consider these public comments to be outside the scope 
of the proposed rule and, therefore, we are not addressing them in this 
final rule.
    In summary, we are finalizing our proposal to increase the cap-
building period from 3 years to 5 years. We also are finalizing the 
proposed methodology used to calculate a cap adjustment for an 
individual hospital if a new program rotates residents to more than one 
hospital (or hospitals). The methodology is based on the sum of the 
products of the following three factors: (1) The highest total number 
of FTE residents trained in any program year, during the

[[Page 53424]]

fifth year of the first new program's existence at all of the hospitals 
to which the residents in that program rotate; (2) the number of years 
in which residents are expected to complete the program, based on the 
minimum accredited length for each type of program; and (3) the ratio 
of the number of FTE residents in the new program that trained at the 
hospital over the entire 5-year period to the total number of FTE 
residents that trained at all hospitals over the entire 5-year period. 
In addition, we are making minor revisions to the regulation text at 42 
CFR 413.79(e)(2) through (e)(4) for purposes of maintaining consistency 
throughout 42 CFR 413.79(e).
3. Policies and Clarification Related to 5-Year Period Following 
Implementation of Reductions and Increases to Hospitals' FTE Resident 
Caps for GME Payment Purposes Under Section 5503 of the Affordable Care 
Act
    As previously discussed, in an attempt to end the implicit 
incentive for hospitals to increase the number of FTE residents, 
Congress instituted a cap on the number of allopathic and osteopathic 
residents a hospital is allowed to count for direct GME and IME 
purposes. Some hospitals have trained a number of allopathic and 
osteopathic residents in excess of their FTE resident caps, while other 
hospitals are training a number of allopathic and osteopathic residents 
at some level below their FTE resident caps. Section 5503 of the 
Affordable Care Act added a new section 1886(h)(8) to the Act to 
provide for reductions in the statutory FTE resident caps for direct 
GME payment purposes under Medicare for certain hospitals that are 
training allopathic and osteopathic residents at a level below their 
FTE resident caps, and to authorize a ``redistribution'' to certain 
hospitals of the estimated number of FTE resident slots resulting from 
the reductions. Section 5503 of the Affordable Care Act also amended 
section 1886(d)(5)(B)(v) of the Act to require application of the 
provisions of section 1886(h)(8) of the Act ``in the same manner'' to 
the FTE resident caps for IME payment purposes.
    Section 1886(h)(8)(A)(i) of the Act provides that, effective for 
portions of cost reporting periods occurring on or after July 1, 2011, 
a hospital's FTE resident cap will be reduced by 65 percent of the 
difference between the hospital's ``otherwise applicable resident 
limit'' and its ``reference resident level,'' if its ``reference 
resident level'' is less than its ``otherwise applicable resident 
limit'' (as defined at section 1886(h)(8)(H) of the Act). (We refer 
readers to the November 24, 2010 final rule with comment period (75 FR 
72155 through 72161) for a discussion of these terms.) Section 
1886(h)(8)(A)(ii) of the Act and the November 24, 2010 final rule with 
comment period (75 FR 72147) describe which hospitals are exempt from a 
cap reduction under section 5503 of the Affordable Care Act, including 
rural hospitals with fewer than 250 acute care inpatient beds.
    Under section 1886(h)(8)(B) of the Act, the Secretary is authorized 
to increase the FTE resident caps for certain categories of hospitals 
for portions of cost reporting periods occurring on or after July 1, 
2011, in the aggregate, by a number that does not exceed the estimated 
overall reduction in FTE resident caps for all hospitals under section 
1886(h)(8)(A) of the Act. In determining which hospitals will receive 
an increase in their FTE resident caps, sections 1886(h)(8)(C) through 
1886(h)(8)(E) of the Act direct us to do all of the following:
     Take into account the demonstrated likelihood of the 
hospital filling the additional positions within the first three cost 
reporting periods beginning on or after July 1, 2011.
     Take into account whether the hospital has an accredited 
rural training track program.
     Distribute 70 percent of the resident slots to hospitals 
located in States with resident-to-population ratios in the lowest 
quartile.
     Distribute 30 percent of the resident slots to hospitals 
located in a State, a territory of the United States, or the District 
of Columbia that are among the top 10 States, territories, or the 
District in terms of the ratio of the total population living in an 
area designated as a health professional shortage area (HPSA), as of 
March 23, 2010, to the total population, and/or to hospitals located in 
rural areas.
    A comprehensive description of the rules implementing the cap slot 
redistribution under section 1886(h)(8) of the Act can be found in the 
November 24, 2010 final rule with comment period (75 FR 72168). Section 
1886(h)(8)(B)(ii) of the Act, as added by section 5503(a)(4) of the 
Affordable Care Act, specifies that a hospital that receives an 
increase in its cap shall ensure, during the 5-year period beginning on 
the date of such increase (July 1, 2011), that certain requirements, 
referred to as the primary care average and the 75-percent threshold, 
are met in order to retain those slots. Otherwise, section 
1886(h)(8)(B)(iii)(I) of the Act authorizes the Secretary to reduce the 
FTE resident caps of the hospital by the same number of FTE residents 
by which the hospital's FTE resident caps were increased if the 
hospital fails to meet either requirement; and section 
1886(h)(8)(B)(iii)(II) of the Act authorizes the Secretary to 
redistribute those positions.
    Specifically, section 1886(h)(8)(B)(ii) of the Act states, ``* * * 
a hospital that receives an increase in the otherwise applicable 
resident limit under this subparagraph shall ensure, during the 5-year 
period beginning on the date of such increase, that--
    (I) The number of full-time equivalent primary care residents, as 
defined in paragraph (5)(H) (as determined by the Secretary), excluding 
any additional positions under subclause (II), is not less than the 
average number of fulltime equivalent primary care residents (as so 
determined) during the 3 most recent cost reporting periods ending 
prior to the date of enactment of this paragraph; and
    (II) Not less than 75 percent of the positions attributable to such 
increase are in a primary care or general surgery residency (as 
determined by the Secretary).
    The Secretary may determine whether a hospital has met the 
requirements under this clause during such 5-year period in such manner 
and at such time as the Secretary determines appropriate, including at 
the end of such 5-year period.''
    In a case where the Secretary determines that a hospital did not 
meet the requirements in a cost reporting year during the 5-year time 
period, section 1886(h)(8)(B)(iii) of the Act states that ``* * * the 
Secretary shall--
    (I) Reduce the otherwise applicable resident limit of the hospital 
by the amount by which such limit was increased under this paragraph; 
and
    (II) Provide for the distribution of positions attributable to such 
reduction in accordance with the requirements of this paragraph.''
    In the November 24, 2010 final rule with comment period (75 FR 
72195 through 72203), we stated that the ``5-year period beginning on 
the date of such increase'' is July 1, 2011 through June 30, 2016, and 
we provided a detailed discussion of what the two requirements under 
sections 1886(h)(8)(B)(ii)(I) and 1886(h)(8)(B)(ii)(II) of the Act 
entail. In that final rule, we noted that section 1886(h)(8)(B)(ii) of 
the Act allows the Secretary to ``determine whether a hospital has met 
the requirements * * * during such 5-year period in such manner and at 
such time as the Secretary determines appropriate, including at the end 
of such 5-year period,'' and section 1886(h)(8)(B)(iii) of the Act 
instructs the Secretary to

[[Page 53425]]

``reduce the otherwise applicable resident limit of the hospital by the 
amount by which such limit was increased * * *.'' We also explained 
that we believe the Secretary has the discretion to consider a 
hospital's performance over more than one year or to review each year 
during the 5 years independently in determining whether or not a 
hospital is in compliance with the primary care average and the 75-
percent threshold, as required (75 FR 72196 and 72197 and 72200 and 
72201). We emphasized that it is within CMS' and the Medicare 
contractors' authority to adjust a hospital's IME and direct GME 
payments as early as it is feasible within a cost report's submission 
and review cycle, and that we need not wait until final settlement to 
do so. We further stated in the November 24, 2010 final rule with 
comment period implementing section 5503 that ``We also understand that 
we should consider that hospitals might not immediately fill all the 
slots they receive, particularly because they are only required to 
demonstrate the likelihood of filling the slots within the first three 
cost reporting periods beginning on or after July 1, 2011'' (75 FR 
72197). However, we gave an example that indicated that, of the section 
5503 FTE slots that the hospital does begin to use, 75 percent of those 
slots must be in primary care or general surgery.
    Since we awarded the section 5503 slots pursuant to section 
1886(h)(8) of the Act, and prior to issuance of the proposed rule, we 
have received questions from hospitals asking if and how CMS would 
enforce the primary care average and the 75-percent threshold 
requirements under sections 1886(h)(8)(B)(ii)(I) and 
1886(h)(8)(B)(ii)(II) of the Act if a hospital does not use any of its 
section 5503 slots until year 4 or year 5 of the 5-year period, or if a 
hospital does not use any of the section 5503 slots until after 
expiration of the 5-year period. We have informed hospitals that the 
75-percent threshold requirement applies once the hospital starts using 
any of the section 5503 slots, and the 3-year primary care average 
requirement applies immediately on July 1, 2011, regardless of whether 
or not the hospital begins to use its additional section 5503 slots in 
year 1 of the 5-year period. This is because the 3-year primary care 
average test applies to the hospital's pre-section 5503 resident 
complement as well, and not exclusively to the additional FTE residents 
associated with slots awarded under section 5503.
    In determining which hospitals applying for slots under section 
5503 will receive slots, section 1886(h)(8)(C)(i) of the Act specifies 
that the Secretary shall take into account the demonstrated likelihood 
of the hospital filling the slots within the first three cost reporting 
periods beginning on or after July 1, 2011. Hospitals included evidence 
supporting the demonstrated likelihood stipulation in their 
applications and we took that into consideration in awarding slots 
under section 5503. We believe that it is inappropriate and in direct 
conflict with a base consideration in the awarding of slots under 
section 5503 for hospitals to refrain from using their section 5503 
slots until after the initial 3 years after the slots have been awarded 
in an attempt to circumvent the primary care average or the 75-percent 
threshold requirements, or both.
    As stated in the November 14, 2010 final rule, CMS reserves the 
right to assess as many times as necessary in the 5-year period whether 
a hospital is meeting the required criteria. The agency also may remove 
the slots awarded to a hospital at any point during the 5-year period 
(75 FR 72196 and 72197 and 72200 and 72201). Because a statutorily 
directed criterion for consideration in awarding slots under section 
5503 included the requirement that hospitals applying for slots 
demonstrate the likelihood of filling the slots within the first three 
cost reporting periods beginning on or after July 1, 2011, and we 
relied on that information in awarding slots, we stated in the proposed 
rule that we believe it is reasonable to expect that hospitals that 
received slots under section 5503 should begin to use their slots 
within the first three 12-month cost reporting periods beginning on or 
after July 1, 2011, of the 5-year period in order to give full effect 
to the requirements under section 1886(h)(8)(B)(ii) of the Act. 
Therefore, in the FY 2013 IPPS/LTCH PPS proposed rule (77 FR 27982), we 
proposed that a hospital must fill at least half of its section 5503 
slots, IME and direct GME respectively, in at least one of the 
following timeframes, or lose its section 5503 slots: (A) In its first 
12-month cost reporting period of the 5-year period; and/or (B) in its 
second 12-month cost reporting period of the 5-year period; and/or (C) 
in its third 12-month cost reporting period of the 5-year period. For 
example, Hospital A and Hospital B both have June 30 fiscal year ends 
(FYEs), and they received 10 slots under section 5503. In its FYE June 
30, 2012, Hospital A filled 8 slots. In its FYE June 30, 2013, Hospital 
A filled 0 slots. In its FYE June 30, 2014, Hospital A filled 5 slots. 
However, Hospital B, in its FYEs June 30, 2012, 2013, and 2014, only 
filled 3 slots respectively in each of the 3 years. Hospital A would 
have complied with our proposed requirement, because it filled at least 
half of its section 5503 slots in either its first, and/or second, and/
or its third 12-month cost reporting period during the 5-year period. 
Hospital B would not have complied with our proposed requirement 
because in neither its first, second, nor third 12-month cost reporting 
period had it filled at least 5 (half of 10) slots.
    We proposed to interpret that a hospital's failure to use slots 
awarded under section 5503 in a timely manner to also be a failure to 
meet the 75-percent threshold. We believe that we have the authority to 
interpret section 1886(h)(8)(B)(ii) of the Act in such a manner and to 
propose this requirement because section 1886(h)(8)(B)(ii) of the Act 
allows the Secretary to ``* * * determine whether a hospital has met 
the requirements under this clause during such 5-year period in such 
manner and at such time as the Secretary determines appropriate, 
including at the end of such 5-year period.'' We reiterated that the 
75-percent threshold applies in the instance where a hospital uses less 
than half, or any amount, of its slots prior to its third 12-month cost 
reporting period during the 5-year period (75 FR 72197). In other 
words, the 75-percent threshold applies throughout the 5-year period, 
as long as the hospital is using some amount of its section 5503 slots 
in the respective cost reporting period. If a hospital is using some of 
its section 5503 slots in a cost reporting period, the 75-percent 
threshold would be enforced; if a hospital is not using any of its 
section 5503 slots in a cost reporting period, the 75-percent threshold 
would not be enforced. However, as stated earlier, we proposed that a 
hospital must use its section 5503 slots no later than the hospital's 
third 12-month cost reporting period (and that at least half of its 
section 5503 slots must be used in either the first, or second, or 
third 12-month cost reporting period).
    We noted in the proposed rule that we did not specify that a 
hospital must use at least half of its section 5503 slots in its third 
12-month cost reporting period of the 5-year period in the November 24, 
2010 final rule with comment period because the possibility that a 
hospital might not begin to use its section 5503 slots for several 
years only came to our attention after July 1, 2011, in response to 
questions raised by hospitals. Furthermore, given the demand for these 
slots (we ran out of slots during the redistribution process and were 
unable to award any slots to hospitals in

[[Page 53426]]

qualifying, but lower ranking, States), and that the slots were slated 
to be distributed in States where there was an acute need for 
additional residents (that is, as sections 1886(h)(8)(D) and 
1886(h)(8)(E) of the Act specify, to States with resident-to-population 
ratios in the lowest quartile, and to States that are among the top 10 
in terms of the HPSA population to total population ratios), we did not 
expect that hospitals that received section 5503 slots would not be 
able to make almost immediate use of the slots. Consequently, in the 
proposed rule, we stated that given the presumed huge need for these 
slots in the States where Congress directed that they be awarded, we 
believe it is appropriate to use our authority to reasonably ensure 
that those slots awarded are used in compliance with section 5503 
(hence, the proposals in the proposed rule), and, if not, are able to 
be redistributed to other hospitals in need of slots as Congress 
intended.
    Section 1886(h)(8)(B)(iii) of the Act states that if the Secretary 
determines that a hospital does not meet either the primary care 
average or the 75-percent threshold, ``the Secretary shall (I) reduce 
the otherwise applicable resident limit of the hospital by the amount 
by which such limit was increased under this paragraph; and (II) 
provide for the distribution of positions attributable to such 
reduction in accordance with the requirements of this paragraph.'' 
Accordingly, we indicated in the proposed rule that we were exercising 
the broad authority that the Secretary is given to determine whether 
the requirements at section 1886(h)(8)(B)(ii) of the Act are met by 
proposing that if a hospital fails to fill at least half of its section 
5503 slots, IME and direct GME respectively, in its first 12-month cost 
reporting period of the 5-year period, and/or in its second 12-month 
cost reporting period, and/or in its third 12-month cost reporting 
period of the 5-year period, this would mean failure to meet the 75-
percent threshold. In the case of such failure, we indicated that CMS 
would instruct the Medicare contractor after audit to permanently 
remove all of the hospital's section 5503 slots from the earliest cost 
reporting period that is subject to reopening and in which it would be 
determined that the hospital did not meet the requirements (in 
accordance with existing Sec.  413.79(n)(2)(iii), which was proposed to 
be redesignated as Sec.  413.79(n)(2)(iv) in the proposed rule), even 
if the hospital had used at least half of its section 5503 slots in its 
fourth or subsequent cost reporting year of the 5-year period. Thus, as 
part of the Medicare contractors' reviews of the hospitals that 
received section 5503 slots, we proposed that the Medicare contractors 
would determine whether a hospital filled at least half of its section 
5503 slots in its first 12-month cost reporting period of the 5-year 
period, and/or in its second 12-month cost reporting period, and/or in 
its third 12-month cost reporting period of the 5-year period. We 
stated in the proposed rule that we believe it is appropriate to remove 
the slots from a hospital that has not filled at least half of its 
slots in any 12-month cost reporting year prior to and including the 
third 12-month cost reporting period so that these slots may be 
redistributed to other hospitals that may have greater success in 
filling the slots and that are located in States that are described in 
sections 1886(h)(8)(D) and 1886(h)(8)(E) of the Act.
    We noted in the proposed rule that, as explained in the November 
24, 2010 final rule with comment period (75 FR 72197), the start and 
end of each year of the 5-year period depend on the fiscal year begin 
date of each hospital's cost reporting periods. Hospitals with fiscal 
year begin dates of July 1 will have five 12-month cost reporting 
periods starting on July 1, 2011, and ending on June 30, 2016, while 
hospitals with fiscal year begin dates of other than July 1 will have a 
partial cost reporting period that includes July 1, 2011, four 12-month 
cost reporting periods, and another partial cost reporting period that 
includes June 30, 2016 (75 FR 72197). We proposed that, for example, if 
Hospital A has a June 30 fiscal year end, its third 12-month cost 
reporting period of the 5-year period would be July 1, 2013, to June 
30, 2014, and Hospital A must fill at least half of its section 5503 
slots, IME and direct GME respectively, in its first 12-month cost 
reporting period of the 5-year period, and/or in its second 12-month 
cost reporting period, and/or in its third 12-month cost reporting 
period of the 5-year period. If Hospital B has a September 30 fiscal 
year end, its cost reporting periods occurring during July 1, 2011 
through June 30, 2016 are as follows:
Year 1--July 1, 2011--September 30, 2011
Year 2--October 1, 2011--September 30, 2012
Year 3--October 1, 2012--September 30, 2013
Year 4--October 1, 2013--September 30, 2014
Year 5--October 1, 2014--September 30, 2015
Year 6--October 1, 2015--June 30, 2016

    Hospital B's third 12-month cost reporting period would be October 
1, 2013, to September 30, 2014, and Hospital B must fill at least half 
of its section 5503 slots, IME and direct GME, respectively, in its 
first 12-month cost reporting period of the 5-year period, and/or in 
its second 12-month cost reporting period, and/or in its third 12-month 
cost reporting period of the 5-year period. As explained in the 
November 24, 2010 final rule with comment period (75 FR 72197), if 
hospitals have other than a June 30 fiscal year end, for their cost 
reports that include July 1, 2011 and June 30, 2016 respectively, we 
consider whether the hospital meets the primary care average and the 
75-percent threshold requirements based on an annualized FTE count. 
Also, if during the period of July 1, 2011 through June 30, 2016, 
hospitals, for whatever reason, actually have less than 12-month cost 
reports, we would consider on a case-by-case basis which cost reports 
we would evaluate for purposes of meeting the proposed requirement of 
filling at least half of the section 5503 slots in its first, second, 
and/or third cost reporting period. As under existing policy, if the 
hospital does begin to fill its section 5503 slots but fails to meet 
the 75-percent threshold, the Medicare contractor would also remove the 
section 5503 slots, effective with the earliest year that the 75-
percent threshold is not met.
    Lastly, considering again that hospitals that received section 5503 
slots had to demonstrate the likelihood of filling the slots within the 
first three cost reporting periods beginning on or after July 1, 2011, 
we proposed to require that hospitals that received section 5503 slots 
must fill all of the slots they received in their final cost reporting 
period beginning during the timeframe of July 1, 2011 through June 30, 
2016 (IME and direct GME respectively), or lose all of their section 
5503 slots after June 30, 2016. As stated above and in the proposed 
rule, we consider it to be appropriate to remove the slots from a 
hospital that has not filled at least half of its slots in any 12-month 
cost reporting period prior to and including the third 12-month cost 
reporting period, so that these slots may be redistributed to other 
hospitals that otherwise qualified to receive slots, but did not 
receive them because the available slots were granted to higher ranking 
hospitals. We also stated that we were interested in commenters' 
recommendations regarding alternative approaches to encouraging 
compliance with the 3-year primary care average requirement and the 75-
percent threshold.

[[Page 53427]]

    In summary, we proposed that a hospital must fill at least half of 
its section 5503 slots, IME and direct GME respectively, in at least 
one of the following timeframes or lose its section 5503 slots: (A) In 
its first 12-month cost reporting period of the 5-year period; and/or 
(B) in its second 12-month cost reporting period of the 5-year period; 
and/or (C) in its third 12-month cost reporting period of the 5-year 
period. We proposed to enforce the 75-percent threshold test once the 
hospital begins to use its section 5503 slots, which we proposed must 
be no later than the hospital's third 12-month cost reporting period 
(and that at least half of its section 5503 slots must be used in 
either the first, or second, or third 12-month cost reporting period). 
In addition, we proposed that a hospital does not meet the 75-percent 
threshold if it fails to fill at least half of its section 5503 slots, 
IME and direct GME, respectively, in one or a combination of the first 
three 12-month cost reporting period of the 5-year period, and upon 
that basis, CMS would instruct the Medicare contractor, after audit, to 
permanently remove all of the hospital's section 5503 slots from the 
earliest cost reporting period that is subject to reopening and in 
which it would be determined that the hospital did not meet the 
requirements (in accordance with existing Sec.  413.79(n)(2)(iii), 
which was proposed to be redesignated as Sec.  413.79(n)(2)(iv) in the 
proposed rule), even if the hospital had used at least half of its 
section 5503 slots in its fourth or subsequent cost reporting year of 
the 5-year period. Thus, as part of the Medicare contractors' reviews 
of the hospitals that received section 5503 slots, we proposed that the 
Medicare contractors would determine whether a hospital filled at least 
half of its section 5503 slots in its first 12-month cost reporting 
period of the 5-year period, and/or in its second 12-month cost 
reporting period, and/or in its third 12-month cost reporting period of 
the 5-year period. Lastly, we proposed to require that a hospital that 
received section 5503 slots must fill all of the slots it received in 
their final cost reporting period beginning during the timeframe of 
July 1, 2011 through June 30, 2016 (IME and direct GME respectively), 
or lose all of its section 5503 slots after June 30, 2016.
    We proposed that these requirements would be effective for a 
hospital's third 12-month cost reporting period occurring during the 5-
year period of July 1, 2011 through June 30, 2016. For example, for 
hospitals with a June 30 fiscal year end, this would be July 1, 2013 
through June 30, 2014. For hospitals with a September 30 fiscal year 
end, this would be October 1, 2013 through September 30, 2014. For 
hospitals with a December 31 fiscal year end, this would be January 1, 
2014 through December 31, 2014. We proposed to make appropriate changes 
to the regulations text at Sec.  413.79(n)(2) to incorporate our 
proposals. The IME regulations regarding section 5503 slots that are at 
existing Sec.  412.105(f)(1)(iv)(C)(2) reference the direct GME 
regulations text at Sec.  413.79(n) and would not require amendments.
    Comment: Many commenters opposed CMS' proposal to require hospitals 
to use at least half of their section 5503 slots in either the first, 
second, or third 12-month cost reporting period of the 5-year period, 
and to use all of their slots by the fifth year. One commenter stated 
that the proposal ``over-reaches'' and the penalty for failure to meet 
the timeline for filling the section 5503 slots is ``too harsh,'' 
unjustly penalizing hospitals. Commenters explained how, given the date 
when CMS announced the section 5503 awards (August 2011, which they 
believed was already too late to recruit resident for the July 1, 2011 
academic year), and the complexity and length of the process for 
receiving accreditation and hiring staff for a new program, a 3-year 
timeframe for filling at least half of the slots is impossible for 
hospitals to meet. Some commenters gave examples of a hospital that is 
using its section 5503 to start a new program, but because of time 
constraints in accrediting and growing the program, by the 5th year, 
the hospital would still only have less than 75 percent of the slots 
filled. They stated that, under CMS' proposal, this hospital would lose 
all 10 of its section 5503 slots.
    Some commenters expressed concern about the proposed timeline for 
filling slots as it relates to longer residencies such as general 
surgery, a 5-year program. These commenters requested that CMS revise 
the proposal to require that 80 percent, rather than 100 percent, of 
the slots are filled by the fifth year. Other commenters recommended 
that CMS remove the requirement that half the slots be filled by the 
third year, and instead either require that half the slots be filled by 
the fifth year, or that hospitals prove that they began to start or 
expand programs before the end of the fifth year, and that they 
received accreditation for the full number of slots they were awarded.
    Another commenter suggested that, if the hospitals can provide 
appropriate documentation from the National Residency Match Program 
(NRMP) or other appropriate match programs that, based on their 
recruitment numbers, they have recruited for all the slots allocated, 
then that hospital should be considered as meeting the 5-year 
requirement. Alternatively, one commenter recommended that if CMS 
insists on an ``interim check'' of the progress of slot-filling, 
instead of using years 1, 2, and 3 of the 5-year evaluation period, CMS 
should use years 2, 3, and 4. The commenter argued that leaving out the 
first year ``seems fair and appropriate,'' considering that the public 
would not have known about CMS' clarification until well into the first 
year and well after the point in time during which residents for the 
following academic year are selected.
    Other commenters suggested that any hospital that received an 
increase for a new program should demonstrate that the program is 
starting within the first three cost reporting periods, as outlined in 
the final regulations published in the November 24, 2010 final rule 
with comment period (75 FR 72168). The same commenters also stated that 
any hospital that received an increase for a new program should submit 
to CMS a 5-year plan on how it plans to fill its slots. The commenters 
stated that this should be done in a similar manner as for hospitals 
that participated in the New York Demonstration, the Utah 
Demonstration, or a Voluntary Residency Reduction Program (VRRP) (as 
outlined in the final regulations published in the November 24, 2010 
final rule with comment period (75 FR 72168)). Commenters argued that, 
because of the tremendous investment required to start a new program, 
it is highly unlikely that a hospital would abandon that effort ``both 
for financial and reputational reasons.''
    Two commenters stated that the ACGME accreditation process for new 
programs is more complex than for expansion of existing programs. The 
commenters asked that CMS acknowledge the effort and time required to 
start a new program, and CMS ``should continue to make a distinction 
between expansions of existing programs and the establishment of new 
programs in the requirements for the use of the redistributed GME 
slots.'' The commenters noted that CMS made this distinction between 
starting new programs and expanding existing programs under 
Demonstrated Likelihood Criterion 1 in the November 24, 2010 final rule 
with comment period (75 FR 72168), where CMS added the option of 
submitting ``documentation demonstrating that it has made a commitment 
to start a new program. One example of such a commitment

[[Page 53428]]

would be for the hospital to provide the minutes from the meeting at 
which the hospital's GME committee gave approval for the hospital to 
proceed with the process of applying to the accrediting agency for 
approval to start a new program. We are not adding a similar option 
under Demonstrated Likelihood Criterion 2 because we understand that 
the process for requesting approval to expand an existing program is 
not as time-consuming and labor-intensive as the process for requesting 
approval for a brand new program.''
    Commenters asked that if CMS does finalize a penalty for hospitals 
that fail to use all of their slots, CMS only remove the slots that the 
hospital did not fill by year 5, and if any removal of slots occurs, it 
should only be prospective (that is, starting with the year after 
failure to meet the 75-percent test). Commenters argued that it is 
``draconian'' for CMS to remove all or any of a hospital's awarded 
slots, if, for example, in the fifth year, the hospital has not filled 
a fraction of the slots.
    One commenter argued that there is no statutory requirement to use 
``all'' the awarded section 5503 slots. The commenter stated that the 
only statutory requirements are to make certain that the hospital 
trains primary care residents at or above its primary care average and, 
also, that 75 percent of the positions attributable to the additional 
slots are in primary care or general surgery training. The commenter 
asserted that this statutory requirement does not suggest a need for 
use of all slots or any particular need to analyze the use of slots, if 
any, for any slots not used for primary care or general surgery. The 
commenter argued that Congress did not place any other requirements on 
the use of the slots and clearly is allowing for 25 percent of the 
slots used to be for nonprimary care training. The commenter gave an 
example where if the primary care average is 12.2 and the hospital was 
awarded 10 section 5503 slots, the commenter believes that, in year 5, 
to determine compliance with the statutory 75-percent requirement and 
primary care average, the only analysis should be whether the hospital, 
in year 5, is training at least 12.2 residents in primary care and also 
at least an additional 7.5 FTEs in primary care or general surgery. The 
commenter believed that it should not matter what, if anything, the 
hospital might be doing with the other 2.5 FTEs of the 10 awarded 
section 5503 slots. The commenter added that it would be difficult to 
determine use of all awarded slots without knowing precisely what 
figure in year 5 will be compared to what figure from another year or 
years.
    Commenters also requested that CMS permit hospitals to choose to 
start the 5-year evaluation period either to be July 1, 2011, or July 
1, 2012. Commenters stated that although section 5503 is effective July 
1, 2011, the section 5503 awards were not announced until after the 
start of the July 1, 2011 academic year, and therefore, unless a 
hospital had already recruited residents to positions during the 2010 
match program, there is no way for any hospital to actually have used 
any of the section 5503 awarded positions for the period of July 1, 
2011 through June 30, 2012.
    Response: We have considered all the public comments we received 
and we are convinced that, with respect to starting a brand new 
program, it is possible that even if a hospital began in earnest the 
process of seeking accreditation for and starting a new program right 
after the section 5503 slots were awarded in August 2011, half of the 
slots may not be filled by the third 12-month cost reporting period of 
the 5-year evaluation period. Nevertheless, we emphasize that our 
proposal that hospitals must fill at least half of their slots in years 
1, 2, or 3 was based on the statutory directive that, in distributing 
the slots, CMS should take into account the demonstrated likelihood of 
the hospital filling the additional slots within the first three cost 
reporting periods beginning on or after July 1, 2011. Arguably, our 
proposal was less restrictive than this directive, in that hospitals 
would have to fill only half of their slots, and not all of the slots, 
and do so in either the first, second, or third 12-month cost reporting 
period of the 5-year evaluation period. However, in this final rule, 
based on consideration of the public comments we received, we are 
finalizing a policy that differs from what we proposed.
    As we explain further below, we will be modifying the hospital cost 
report to require hospitals to report the number of FTE residents that 
they have added because of their section 5503 slots. The hospitals must 
specify on the cost report, of the additional FTEs added because of 
section 5503, the number that are in a new program(s), if any, and the 
new program specialty(ies), and the number that are expansions to an 
existing program(s), if any, and the expanded program's or programs' 
specialty(ies). This information will assist the Medicare contractor in 
determining how many slots are being used and the purpose for which 
they are being used, at least for cost reports that have not yet been 
filed in the 5-year evaluation period. We received many comments 
convincing us of the complexity and devotion of time and resources 
associated with starting a new program, but commenters did not do the 
same regarding the process for expanding existing programs. In fact, 
after noting that the ACGME process for starting a new program is more 
complex than for expanding an existing program, two commenters also 
pointed out that, consequently, CMS has already distinguished between 
new programs and program expansions with regard to the type of 
documentation required in the section 5503 application process (that 
is, the documentation requirements for applications seeking slots to 
start a new program were somewhat less stringent than the documentation 
requirements for expanding existing programs (75 FR 72168)). Those 
commenters asked that CMS continue to distinguish between new programs 
and program expansions, presumably by being less stringent with regard 
to the requirements imposed when slots must be filled for new programs. 
These comments highlighting the differences in the level of difficulty 
between starting a new program and expanding an existing program, and 
the general lack of comments voicing concern over our proposals with 
regard to expanding existing programs, confirm our belief that it is 
much easier for a hospital to expand an existing program than to start 
a new one. Therefore, in this final rule, we are continuing to 
distinguish between new programs and expansions of existing programs, 
and with regard to expansions of existing programs, we believe that a 
hospital should be able to achieve its expansions fully by its fourth 
12-month cost reporting period. With regard to establishing new 
programs, we understand that a new program may not yet be fully grown 
by its final (full or partial) cost report. As we explain further 
below, we are finalizing a policy wherein the Medicare contractor would 
remove from the final cost report the section 5503 slots that are 
unused in a hospital's final (full or partial) cost report in the 5-
year evaluation period. We are concerned that hospitals may seek to 
suddenly expand existing primary care or general surgery programs in 
the final (full or partial) cost report as a means of holding on to 
their section 5503 slots, only to reverse those expansions after June 
30, 2016, and use the section 5503 slots for some other purpose 
inconsistent with the policy goals of section 5503. We believe it is 
reasonable and fair to choose the

[[Page 53429]]

fourth 12-month cost report as the year in which a hospital must have 
achieved its full program expansion(s) because this is one year more 
than the statutory requirement at section 1886(h)(8)(C)(i) of the Act 
that the Secretary shall take into account the demonstrated likelihood 
that a hospital would fill the slots within the first 3 cost reporting 
periods beginning on or after July 1, 2011. We hope that this final 
policy encourages hospitals to achieve the full expansion by their 
fourth 12-month cost report, and to maintain that full expansion in the 
final cost report. We believe that, in this manner, the hospital would 
be demonstrating at least 2 years of commitment to the expanded 
program(s), and as a result, the hospital may be less likely to reverse 
the expansion after June 30, 2016.
    Accordingly, we are finalizing a policy wherein if a hospital uses 
any section 5503 slots for program expansions, the Medicare contractor 
will review those slots used for program expansions and, in determining 
the number of applicable unused slots to remove, compare the number of 
FTEs associated with program expansion in the fourth 12-month cost 
reporting period to that in the final cost report (full or partial). If 
the final cost report indicates a number of FTEs associated with 
program expansion that is more than the number of FTEs associated with 
program expansion in the fourth 12-month cost reporting period, the 
Medicare contractor would ignore the additional expansion in the final 
cost report in calculating the applicable unused slots because, as 
noted above, we believe the full expansion should have been achieved in 
the fourth 12-month cost reporting period. Effective for portions of 
cost reports on or after July 1, 2016, we would remove those additional 
expanded FTEs (thereby reducing the section 5503 award) that are over 
and above the FTEs associated with program expansion in the fourth 12-
month cost reporting period. If the number of FTEs associated with 
program expansion in the final cost report is equal to or less than the 
number of FTEs associated with program expansion in the fourth 12-month 
cost reporting period, the hospital's section 5503 award would be 
reduced by removing any FTE slots that are unused in the final (full or 
partial) cost report, effective for portions of cost reports on or 
after July 1, 2016.
    For example, assume Hospital X was awarded 20 slots under section 
5503. In its fourth 12-month cost reporting period, it has added 16 
FTEs, 10 of which are associated with a new family medicine program, 
and 6 are associated with an expanded surgery program. In its final 
cost report, Hospital X has expanded its internal medicine program by 3 
FTEs, and it continues to train the 6 surgery residents and the 10 
family medicine residents added in its fourth cost reporting period. 
One slot of the 20 section 5503 slots remains unused in the final cost 
report. Because we believe all program expansions should have occurred 
no later than the fourth 12-month cost reporting period, effective July 
1, 2016, the Medicare contractor would remove the three (internal 
medicine) FTE slots. In addition, effective July 1, 2016, the Medicare 
contractor would remove the one unused FTE slot. Therefore, effective 
July 1, 2016, Hospital X's section 5503 cap would be 16, not 20.
    Alternatively, Hospital Y was awarded 20 slots under section 5503. 
In its fourth 12-month cost reporting period, it has added 16 FTEs, 10 
of which are associated with a new family medicine program, and 6 are 
associated with an expanded surgery program. In its final cost report, 
Hospital Y continues to train the 6 surgery residents and add 1 family 
medicine resident, so Hospital Y is training 11 family medicine 
residents. Hospital Y has maintained the same level of program 
expansions in its final cost report as in its fourth 12-month cost 
report (that is, 6 surgery residents). Three slots of the 20 section 
5503 slots are unused in the final cost report. Therefore, the Medicare 
contractor would only remove the 3 FTE unused slots effective for 
portions of cost reporting periods on or after July 1, 2016. Hospital 
Y's section 5503 cap would be 17, not 20, effective for portions of 
cost reporting periods on or after July 1, 2016.
    We are revising the proposed regulations text to conform to the 
final policy regarding reduction of the section 5503 cap awards 
effective for portions of cost reports on or after July 1, 2016, due to 
unused slots. Specifically, we are revising the regulations text at 
Sec.  413.79(n)(2)(ii) to state that if a hospital received a section 
5503 cap award, and does not use all of the award in its final (12-
month or partial) cost report of the 5-year period beginning July 1, 
2011, and ending June 30, 2016, the Medicare contractor will remove the 
applicable unused slots, and the hospital's section 5503 award will be 
reduced for portions of cost reporting periods on or after July 1, 
2016. The number of applicable unused slots is equal to the difference 
between the number of slots awarded and the number of slots used. In 
determining the applicable slots used, the following amounts are added, 
as relevant:
    (1) If a hospital uses the section 5503 slots to expand an existing 
program(s), the used slots are equal to the lesser of the number of 
slots used for an expansion(s) in the fourth 12-month cost report or 
the final cost report.
    (2) If a hospital uses the section 5503 slots to start a new 
program(s), the used slots are equal to the number of slots used for a 
new program(s) in the final cost report.
    (3) The portion, if any, of the section 5503 slots used for cap 
relief, subject to the 75 percent test and the 3-year primary care 
average requirement.
    Because we are directing the contractors to only remove the 
applicable unused slots awarded under section 5503, effective for 
portions of cost reporting periods on or after July 1, 2016, it is 
important to define what we mean by ``used'' versus ``unused'' slots. 
As one commenter argued in great detail, there is no statutory 
requirement to use ``all'' the awarded section 5503 slots. The only 
statutory requirements are to make certain that the hospital trains 
primary care residents at or above its primary care average and, also, 
that 75 percent of the positions attributable to the additional slots 
are in primary care or general surgery training. The commenter asserted 
that it should not matter what, if anything, the hospital might be 
doing with the other 25 percent of its section 5503 slots. The 
commenter argued that Congress did not place any other requirements on 
the use of the slots and clearly is allowing for 25 percent of the 
slots used to be for non-primary care training.
    We believe that the intent of section 5503 was to provide Medicare-
funded slots to hospitals in States that had documented shortages of 
physicians, in primary care or otherwise, and, therefore, the slots are 
intended to pay for additional FTE residents that the hospitals in 
those States were previously not training. That is, the section 5503 
slots were not intended to cover existing residency positions (that is, 
cap relief), but to be used to create new residency positions either 
through starting new programs or expanding existing programs. In fact, 
hospitals were precluded from applying for section 5503 slots for cap 
relief, and no place was provided on the section 5503 application form 
to even apply for cap relief (75 FR 72171, 72173 and 72174). 
Furthermore, in light of the 75-percent requirement, the intent of 
section 5503 is that a sizeable majority of the additional resident 
slots are to be filled with new primary care or general surgery 
residents. Arguably, it is

[[Page 53430]]

acceptable if 25 percent of the remaining 5503 slots are used for 
additional nonprimary care programs, considering that the States that 
were awarded the slots have shortages of multiple kinds of physicians, 
not just primary care and general surgery. Nevertheless, it appears 
that, based on the language in the November 24, 2010 final rule with 
comment period implementing section 5503 (75 FR 72198), hospitals may 
use 25 percent of their section 5503 slots for cap relief.
    While we believe that it is not desirable to use any amount of 
section 5503 slots for cap relief, we are not instructing the 
contractor to automatically disallow the portion of slots used for cap 
relief if the 3-year primary care average and the 75-percent tests are 
met. However, it is important for hospitals to understand that 
application of any amount of section 5503 slots toward cap relief 
constitutes a definite ``use'' of those section 5503 slots; therefore, 
section 5503 slots utilized for cap relief count with respect to the 
determination of whether 75 percent of a hospital's section 5503 slots 
are being used for training additional primary care or general surgery 
residents, and whether the total primary care FTE count equals at least 
the 3-year primary care average number. We emphasize that we are not 
instituting a new policy in this final rule with regard to using slots 
for cap relief. As stated above, it appears that, based on language in 
the November 24, 2010 final rule with comment period implementing 
section 5503, using 25 percent of the slots for cap relief is 
permissible (75 FR 72198). This existing policy would apply to cost 
reports that hospitals have already filed after July 1, 2011 (the 
effective date of section 5503), and certainly applies to cost reports 
that have not yet been filed. For example, assume Hospital A has a cap 
of 100 FTEs, and is training 110 residents. Hospital A has a fiscal 
year end of December 31 and was awarded a total of 20 slots under 
section 5503. On July 1, 2011, Hospital A did add one more primary care 
resident, which equates to .5 FTE on the December 31, 2011 cost report. 
Also, on its December 31, 2011 cost report (Form CMS-2552-10, line 8.01 
of Worksheet E, Part A, and line 4.01 of Worksheet E-4), Hospital A 
reported ``10'' section 5503 slots as its cap increase (that is, half 
of the 20 section 5503 slots applicable to July 1, 2011 through 
December 31, 2011), and it reported 110.5 unweighted FTEs as its 
current year allowable allopathic and osteopathic FTE count (Form CMS-
2552-10, line 10 on Worksheet E, Part A and line 6 Worksheet E-4). In 
effect, Hospital A ``used'' all of its section 5503 slots, which meant 
that the 9.5 FTEs by which Hospital A previously exceeded its cap of 
100 are now covered by 10 of the section 5503 slots, generating payment 
on the December 31, 2011 cost report for an additional 9.5 preexisting 
FTEs (for purposes of simplicity, we have disregarded the effects of 
the rolling average calculation). However, Hospital A has only added 
0.5 of an additional slot in primary care, while 9.5 of the other 
section 5503 slots are used for cap relief. In this example, the 75-
percent test is not met. Thus, in accordance with the regulations at 
Sec.  413.79(n)(2)(iv), all 20 of Hospital A's section 5503 slots would 
be removed.
    Consider the difference in reporting with Hospital B. Hospital B 
also has a cap of 100 FTEs and is training 110 residents. Hospital B 
has a fiscal year end of December 31 and was awarded a total of 20 
slots under section 5503. On July 1, 2011, Hospital B did add one more 
primary care resident, which equates to .5 FTE on the December 31, 2011 
cost report. On its December 31, 2011 cost report (CMS Form 2552-10, 
line 8.01 of Worksheet E, Part A, and line 4.01 of Worksheet E-4), 
Hospital B reported ``0.66'' section 5503 slots as its cap increase. By 
reporting 0.66 FTEs, the hospital would be reporting 0.5 of its section 
5503 cap associated with the 0.5 additional primary care FTE, plus 25 
percent more for cap relief (that is, 0.5 is 75 percent of 0.66, and 
0.16 is 25 percent of 0.66). Hospital B's adjusted cap for FYE 12/31/11 
is 100 + 0.66 = 100.66. Hospital B reported 110.5 unweighted FTEs as 
its current year allowable allopathic and osteopathic FTE count (CMS 
Form 2552-10, line 10 on Worksheet E, Part A and line 6 on Worksheet E-
4). Hospital B would be paid for 100.66 FTEs on its December 31, 2011 
cost report (disregarding the rolling average). Hospital B has 
permissibly ``used'' 75 percent of its section 5503 slots for an 
additional primary care resident and 25 percent for other purposes, 
such as cap relief.
    These examples demonstrate how cap relief constitutes ``use'' of 
section 5503 slots, and also show that in the 5-year evaluation period, 
a hospital should not automatically report (that is, use) all of its 
section 5503 cap increase (on Form CMS-2552-10, line 8.01 of Worksheet 
E, Part A, and on line 4.01 of Worksheet E-4), but should only report 
(that is, use) a portion that at least is equal to the additional 
primary care/general surgery FTEs added, with no more than an 
additional 25 percent allowed to be reported for other purposes. (We 
plan to update the cost report instructions to reflect this directive.) 
We reiterate that a hospital is responsible for meeting the 75-percent 
test based on whatever amount of section 5503 cap increase it reports 
on its cost report (Form CMS-2552-10, line 8.01 of Worksheet E, Part A, 
and line 4.01 of Worksheet E-4) during each year of the 5-year 
evaluation period. If use of slots for cap relief results in the 
hospital using less than 75 percent of the slots in a year for primary 
care and/or general surgery residents, the hospital risks losing all of 
section 5503 slots from the earliest cost reporting period that is 
reopenable in which it would be determined that the hospital did not 
meet the requirements in accordance with Sec.  413.79(n)(2)(iv). For 
example, in year 5 (that is the final cost report), a hospital that was 
awarded 10 slots is training 6 new primary care/general surgery 
residents in a new program. That means in order to meet the 75-percent 
test in year 5, the most that can be used for cap relief or non-primary 
care is 2 FTEs (2 is 25 percent of 8), and an amount of 8 may be 
reported on Form CMS-2552-10, line 8.01 of Worksheet E, Part A, and on 
line 4.01 of Worksheet E-4, and the remaining 2 FTEs would be removed 
by the contractor effective for portions of cost reporting periods on 
or after July 1, 2016. If this hospital had reported all 10 of its 
section 5503 slots on line 8.01 of Worksheet E, Part A, and on line 
4.01 of Worksheet E-4 in year 5, while actually only adding 6 primary 
care/general surgery residents in the new program, this hospital would 
fail the 75 percent test. Under the regulations at Sec.  
413.79(n)(2)(iv), this hospital would lose all 10 of its section 5503 
cap slots, from the earliest cost reporting period that is reopenable 
in which it would be determined that the hospital did not meet the 
requirements.
    In order for the Medicare contractors to determine whether a 
hospital is complying with the 75-percent test and the 3-year primary 
care average requirement, hospitals would have to provide their 
contractors with information as part of the cost report (possibly on 
Worksheet S-2, Part I of the CMS Form 2552-10), the following for IME 
and direct GME separately:
    (1) The baseline FTE count, which is used for determining whether 
FTEs are added in cost reports in the 5-year evaluation period. The 
baseline FTE count is the total unweighted allopathic and osteopathic 
FTE count from the hospital's 12-month cost report that immediately 
precedes the cost report that includes July 1, 2011. (That is, the 
baseline cost report for June 30 providers would be July 1, 2010 
through June 30, 2011; for December 31

[[Page 53431]]

providers, this would be January 1, 2010 through December 31, 2010; for 
September 30 providers, this would be October 1, 2009 through September 
30, 2010). (On the CMS Form 2552-96, the baseline FTE count is on line 
3.08 of Worksheet E, Part A, and on line 3.05 of Worksheet E-3, Part 
IV. On the CMS Form 2552-10, the baseline FTE count is on line 10 of 
Worksheet E, Part, and on line 6 of Worksheet E-4).
    (2) The number of additional FTEs above the baseline FTE count that 
were added in the current cost reporting period, because of the section 
5503 award. (These FTEs are part of the current year FTE count, and 
would be included on CMS Form 2552-10, line 10 of Worksheet E, Part A, 
and line 6 of Worksheet E-4).
    (3) Of the additional FTEs in item 2, specify each new program 
specialty, if any, and the number of FTE residents for each new 
program.
    (4) Of the additional FTEs in item 2, specify each expanded program 
specialty, if any, and the number of FTE residents for each program 
expansion.
    (5) The amount of the section 5503 award that is being used for cap 
relief, if any.
    (6) The current year's total unweighted primary care FTE count 
(excluding obstetrics and gynecology). (The 3-year primary care average 
from the 3 most recent cost reports ending prior to March 23, 2010, 
must already be reported on Worksheet S-2, Part I, line 61).
    In order to determine compliance with the 75-percent test and the 
3-year primary care average, the Medicare contractor would first 
determine the number of ``used'' slots. That is, the Medicare 
contractor would compare the amount on the hospital's section 5503 
award letter to the section 5503 cap line on the Medicare cost report 
(line 8.01 of Worksheet E, Part A, and line 4.01 of Worksheet E-4). 
Then, the Medicare contractor would determine if the hospital reported 
the full amount of its section 5503 cap increase on the section 5503 
cap line of the cost report, or a partial cap increase. The amount of 
the section 5503 cap increase that is reported on the section 5503 cap 
line (line 8.01 of Worksheet E, Part A, and line 4.01 of Worksheet E-4) 
is the amount of the ``used'' slots, and it influences the additional 
number of FTE residents that would be paid for in the current cost 
report. Therefore, while the sum of items 2 and 5 above should equal 
the cap increase amount reported on the section 5503 cap line, 75 
percent of that cap increase amount reported on the section 5503 cap 
line must be used for additional primary care or general surgery FTEs 
added to the baseline number of FTEs.
    If no residents were added on the current year line 10 or line 6 
(item 2 above), but the hospital reported some or all of its section 
5503 cap increase on line 8.01 of Worksheet E, Part A or line 4.01 of 
Worksheet E-4, the section 5503 cap increase is being used for cap 
relief. The 75-percent test would not be met, and all of the section 
5503 cap slots would be removed in accordance with Sec.  
413.79(n)(2)(iv). If no section 5503 cap increase is reported on the 
section 5503 cap line (line 8.01 of Worksheet E, Part A or line 4.01 of 
Worksheet E-4), the contractor would still determine if the primary 
care average requirement is met in the current year. Failure to comply 
with either the 75 percent or 3-year primary care average test means 
permanent removal of all section 5503 slots from the earliest 
applicable cost reporting period under the regulations at Sec.  
413.79(n)(2)(iv).
    With regard to the Medicare contractor's review of a hospital's 
final (full or partial) cost report, if the Medicare contractor 
determines that the hospital complied with the 75-percent test and the 
3-year primary care average requirement, the Medicare contractor would 
assess the number of applicable unused slots, in accordance with the 
revised regulations text at Sec.  413.79(n)(2)(ii). Any amount of 
``unused'' section 5503 award, that is, the portion above 25 percent of 
the total award that is not being used for nonprimary care ``growth'' 
or for cap relief, would be removed permanently by the contractor for 
portions of cost reporting periods on or after July 1, 2016. For 
example, in year 5 (that is, the final cost report), a hospital that 
was awarded 10 slots is training 6 new primary care/general surgery 
residents in a new program. That means the most that can be used for 
cap relief or nonprimary care is 2 FTEs (2 is 25 percent of 8), and an 
amount of 8 may be reported on line 8.01 of Worksheet E, Part A, and on 
line 4.01 of Worksheet E-4, and the remaining 2 FTEs would be removed 
for portions of cost reporting periods on or after July 1, 2016 by the 
contractor. (That is, effective for portions of cost reporting periods 
on or after July 1, 2016, the hospital's section 5503 award would be 
permanently reduced by 2 FTEs). If this hospital had reported all 10 of 
its section 5503 slots on line 8.01 of Worksheet E, Part A, and on line 
4.01 of Worksheet E-4 in year 5, while actually only adding 6 primary 
care/general surgery residents in the new program, this hospital would 
fail the 75 percent test. Under the regulations at Sec.  
413.79(n)(2)(iv), this hospital would lose all 10 of its section 5503 
cap slots, effective with the earliest cost reporting period that is 
reopenable in which it would be determined that the hospital did not 
meet the requirements.
    With regard to the commenters who stated that any hospital that 
received an increase for a new program should submit to CMS a 5-year 
plan on how it plans to fill its slots, we believe that is superfluous. 
Hospitals that received section 5503 slots were already required to 
demonstrate in their initial application a commitment to fill the slots 
within the first three cost reporting periods of receiving the slots. 
Therefore, it would not be helpful to require hospitals to submit 
additional plans for CMS to review. We also do not see the need to 
allow hospitals to choose the start of their 5-year evaluation period 
to be either July 1, 2011 or July 1, 2012. If the 5-year evaluation 
period begins July 1, 2012, that would extend the 5-year period beyond 
June 30, 2016, and we stated in the November 24, 2010 final rule with 
comment period that the 5-year probationary period ends on June 30, 
2016 (75 FR 72200). Because we believe we have modified and 
significantly relaxed our requirements for hospitals with regard to the 
timeframe for filling section 5503 slots, we do not believe it is 
necessary to further prolong the 5-year evaluation period beyond June 
30, 2016.
    Comment: One commenter did not understand CMS' use of ``and/or'' to 
describe the requirement that a hospital must fill at least half of its 
slots in its first 12-month cost reporting period of the 5-year period, 
and/or in its second 12-month cost reporting period of the 5-year 
period, and/or in its third 12-month cost reporting period of the 5-
year period. The commenter believed it would be clearer to state that a 
hospital must fill ``at least half of its section 5503 slots in at 
least one of the following timeframes * * * its second 12-month cost 
reporting period of the 5-year period, or its third 12-month cost 
reporting period of the 5-year period; or its fourth 12-month cost 
reporting period of the 5-year period.'' Another commenter asked that 
CMS clarify its language regarding use of all the slots in the fifth 
year, noting that the proposed preamble states that hospitals would be 
required to ``fill all of the slots they received in their final cost 
reporting period beginning during the timeframe of July 1, 2011 through 
June 30, 2016'' (emphasis added by the commenter), while the proposed 
regulations at 42 CFR 413.79(n)(2)(ii) state that the hospital ``must 
fill all of the slots it received by its final cost reporting

[[Page 53432]]

period beginning during the timeframe of July 1, 2011 through June 30, 
2016'' (emphasis added by the commenter). The commenter asked that CMS 
not measure a hospital's compliance with a rate of usage of section 
5503 slots based on a single year, noting that a hospital might fill 
all of its slots in the fourth year, but for reasons beyond its 
control, may lose one of the residents in the fifth year, putting the 
hospital at risk to lose all of its slots. Yet another commenter noted 
that CMS has not indicated how it would measure compliance with the 
requirement that ``all'' awarded slots be filled in the fifth year of 
the evaluation period. The commenter suggested that CMS establish a 
baseline and indicate whether it is a single year FTE count or an 
average FTE count of more than one year.
    Response: We regret the confusion we caused by using ``and/or'' to 
describe the requirement that a hospital must fill at least half of its 
slots in its first 12-month cost reporting period of the 5-year period, 
and/or in its second 12-month cost reporting period of the 5-year 
period, and/or in its third 12-month cost reporting period of the 5-
year period. In any case, because we are not finalizing that proposal, 
this language is irrelevant and will not be included in the final 
regulations text. Regarding the language in the proposed preamble that 
states that hospitals would be required to ``fill all of the slots they 
received in their final cost reporting period'' (emphasis added by the 
commenter), while the proposed regulations at 42 CFR 413.79(n)(2)(ii) 
state that the hospital ``must fill all of the slots it received by its 
final cost reporting period'' (emphasis added by the commenter), we 
believe that ``in'' and ``by'' may be used interchangeably. The point 
is that Medicare counts and pays for FTEs, not resident positions, as 
reported on the Medicare cost report. We have stated what we mean by 
the 5-year evaluation period, and described that depending on a 
hospital's fiscal year end, some hospitals will have five 12-month cost 
reporting periods (if they have a June 30 FYE), while other hospitals 
would have first a partial cost report, then four 12-month cost 
reports, and then finally a partial cost report, so as not to go beyond 
June 30, 2016, which is 5 years from the effective date of July 1, 2011 
(75 FR 72197 and 77 FR 27983). We also have stated that, for hospitals 
with other than a June 30 FYE, in order to measure compliance with the 
75-percent test and the 3-year primary care average requirement, an 
annualized FTE count in the first and final partial cost reports would 
be employed (75 FR 72197). Thus, the annualized FTE count and the 
annualized FTE resident cap increase in that final full or partial cost 
reporting period will be used to determine compliance with the tests 
and to determine the amount of slots that are ``unused.'' Finally, as 
we stated in response to the previous comment, in this final rule, 
unlike in the proposed rule, we are not requiring that ``all'' awarded 
slots be filled in the fifth year. Rather, we have revised the 
regulation text at Sec.  413.79(n)(2)(ii) to describe when slots would 
be removed, in the event that not ``all'' of them are filled (that is, 
used) by the fifth year. Furthermore, in the previous response, we also 
have defined a base year, or baseline number of FTEs, for the purpose 
of determining ``growth'' of additional FTE slots added in accordance 
with section 5503. However, we are not necessarily measuring a 
hospital's compliance with a rate of usage of section 5503 slots based 
on a single year or an average of years. As stated in the November 24, 
2010 final rule (75 FR 72200 and 72201), CMS could consider an average 
of a hospital's performance over more than 1 year, rather than only 
always reviewing each year during the 5 years independently. Regardless 
of when the Medicare contractor audits a hospital to determine if it is 
meeting the criteria within the 5-year period, a hospital should not 
view this policy as an encouragement to have an ``off'' year where the 
requirements need not be met.
    Comment: One commenter asked how CMS would determine if a hospital 
filled half of its section 5503 slots. For example, if a hospital was 
awarded 10 slots, would CMS or a MAC seek to confirm that the hospital 
is training 3.75 FTEs above its primary care average, because 3.75 is 
75 percent of 5, which is half of the 10 awarded slots? The commenter 
believed such an approach makes sense, ``as it provides for a clear, 
straightforward comparison of primary care/general surgery training in 
a particular year to the known, established 3-year primary care 
average.'' The commenter stated that because up to 25 percent of the 
awarded slots can, at any time, be used for any type of non-primary 
care residency training, it would be very difficult to demonstrate use 
of all 5 slots (that is, half the awarded 10), when 1.25 FTEs could be 
used for any purpose and there would be no clear reference point to 
determine that nonprimary care training is also increased by a specific 
amount (given that there is no nonprimary care historical reference--or 
not one that has been clearly identified for this purpose).
    Response: The commenter's question was asked in the context of the 
proposed policy, which proposed to require hospitals to fill at least 
half of their section 5503 slots in at least one of the first three 12-
month cost reporting periods of the 5-year evaluation period. In this 
final rule, we are finalizing a policy wherein, regardless of whether a 
hospital is starting new programs, expanding programs, or doing a 
combination of both, the Medicare contractor will remove the portion of 
the section 5503 award that is unused in the final cost report. 
(However, as explained earlier, in the case of slots used to expand an 
existing program, if the number of slots associated with a program 
expansion in the final cost report is greater than the number of slots 
associated with a program expansion in the fourth 12-month cost report, 
the Medicare contractor would remove those additional expanded FTEs 
that are over the FTEs associated with program expansion in the fourth 
12-month cost reporting period.) We agree that, of the applicable 
section 5503 cap increase reported on a hospital's cost report in the 
5-year evaluation period, 25 percent of the cap increase amount may be 
used for any purpose. We also have defined a base year, or baseline 
number of FTEs, for the purpose of determining ``growth'' of additional 
FTE slots added in accordance with section 5503. The baseline for 
determining whether FTEs are added in each cost report in the 5-year 
evaluation period is the total unweighted allopathic and osteopathic 
FTE count from the hospital's 12-month cost report that immediately 
precedes the cost report that includes July 1, 2011 (that is, the 
baseline cost report for June 30 providers would be July 1, 2010 
through June 30, 2011; for December 31 providers, this would be January 
1, 2010 through December 31, 2010; for September 30 providers, this 
would be October 1, 2009 through September 30, 2010). (On the CMS Form 
2552-96, the baseline number is the number on line 3.08 of Worksheet E, 
Part A, and on line 3.05 of Worksheet E-3, Part IV. On the CMS Form 
2552-10, the baseline number is the number on line 10 of Worksheet E, 
Part, and on line 6 of Worksheet E-4). We believe this base year 
provides a clear reference point for determining whether both primary 
care/general surgery or nonprimary care training has increased during 
the 5-year evaluation period.
    Comment: A few commenters supported the proposal to require 
hospitals to use at least half of their section 5503 slots in either 
the first, second, or third 12-month cost reporting

[[Page 53433]]

period of the 5-year period, and to use all of their slots by the fifth 
year, stating that the proposed standards appear reasonable and 
consistent with statutory intent. One commenter stated that the 
proposals ``drive earlier implementation of new positions and 
strengthen requirements that institutions fulfill the obligation of the 
statute regarding primary care and general surgery positions.'' With 
regard to the proposed requirement that Medicare contractors determine 
whether a hospital filled at least half of its section 5503 slots in 
any of the first three cost reporting periods, the commenter asked that 
CMS add to this a requirement consistent with Evaluation Criterion 3 of 
the section 5503 application form, which was targeted to primary care 
programs with a ``demonstrated focus'' on residents who pursue careers 
in primary care. Hospitals that received points under Evaluation 
Criterion Three had to ``demonstrate'' that residents graduating from 
their programs actually do practice in primary care, and do not enroll 
in nonprimary care subspecialty programs or work as something other 
than a primary care practitioner. CMS stated that a threshold of 
greater than 50 percent of graduates would be acceptable as a basis to 
demonstrate that a program produces physicians who pursue careers in 
primary care. The commenter stated that, given that Medicare 
contractors will be able to identify which positions are filled with 
primary care positions after the third year, CMS should utilize the 50-
percent threshold and require Medicare contractors to identify the 
number of graduates who remain in primary care practice in the fifth 
year after medical school (2 years after primary care residency 
completion), and remove slots from institutions that do not graduate 
over 50 percent who remain in primary care. The commenter believed that 
this can be accomplished by counting those residents who are not in 
residency or fellowship training in their fifth year, in relation to 
those who are continuing training.
    One commenter that supported the proposal is a hospital that 
consistently trains residents in excess of its caps and that is not 
located in a State with a resident-to-population ratio in the lowest 
quartile or in an area designated as a health professional shortage 
area (HPSA), and therefore was not eligible to receive slots from 
redistribution under section 5503. The commenter stated that if 
hospitals are not using the caps they received, the slots should become 
available to hospitals that will use them. The commenter asserted that 
there is no guarantee that physicians trained in rural, low resident to 
population ratio areas or HPSAs will stay in those areas. Therefore, 
the commenter encouraged CMS to develop a methodology with appropriate 
criteria to redistribute slots not used under section 5503 to those 
hospitals that have consistently trained residents over their cap.
    Response: We appreciate the commenters' support for our proposals. 
However, we have considered the comments in their totality and are 
persuaded by those comments that opposed our proposed policies, and, 
therefore, we are modifying our proposed policy in this final rule 
accordingly. Moreover, we do not believe it would be appropriate to 
adopt the commenter's suggestion of removing slots from hospitals that 
do not graduate over 50 percent of residents who train in primary care. 
We also note that distribution of slots under section 5503 was 
statutorily directed to only certain States.
    Comment: One commenter noted that, as part of the Medicare 
contractors' reviews of the hospitals that received section 5503 slots, 
CMS proposed that the Medicare contractors would determine whether a 
hospital filled at least half of its section 5503 slots in its first 
12-month period, its second 12-month period, and/or its third 12-month 
period. The commenter stated that, for any new requirements finalized 
in the final rule, CMS should provide specific desk review and/or audit 
steps for the contractors to follow. With regard to the hospitals, the 
commenter noted that there is no reporting requirement or mechanism for 
a hospital to report the manner in which it fills its section 5503 FTE 
cap slots, making it difficult for a Medicare contractor to determine 
whether such a hospital is meeting its requirements. On the Medicare 
cost report, a hospital reports its FTE residents in total, with no 
distinction as to whether the FTE residents were added as a result of 
the addition of the section 5503 FTE cap slots. The commenter 
recommended that CMS require hospitals that received Section 5503 slots 
to report how they filled the slots as a separate data submission. 
Because these hospitals received the benefit of additional FTE cap 
slots, the commenter believed it is not unreasonable to require them to 
report how they meet the requirements accompanying this benefit. If the 
hospital is required to report section 5503 information to the Medicare 
contractor, the commenter stated that it is possible that the review 
could be part of the desk review process. However, if the hospital is 
not required to submit information specific to its section 5503 
requirements, the commenter believed that the contractor might have to 
review this information on audit.
    Response: We will provide additional instructions for the Medicare 
contractors to follow in the desk review and audit process. As stated 
in response to the comments above, we also are modifying the cost 
report for hospitals to provide specific information regarding how they 
are using the section 5503 slots. As with other provisions, hospitals 
are required to supply information and documentation to the Medicare 
contractor upon request.
    Comment: One commenter noticed that CMS reiterated in the proposed 
rule (77 FR 27982) the policy finalized in the November 24, 2010 final 
rule with comment period (75 FR 72196 and 72197, and 72200 and 72201), 
that CMS has the right to audit at any time during the 5-year period 
and remove reallocated slots. The commenter expressed concern that this 
policy ``undercuts'' the procedures for assuring that slots are filled. 
The commenter argued that if CMS audits and removes slots in Year 1, 2, 
or 4, and the hospital had not yet filled half or all of the slots, but 
would meet the requirement in Year 3 or Year 5, CMS ``has subverted its 
own rule.'' The commenter pointed out that CMS already has the 
authority to investigate civil or criminal fraud or abuse; therefore, 
the commenter recommended that CMS clarify the circumstances under 
which it could conduct such audits and ``not subject providers to 
undefined second-guessing.''
    Response: Although this comment was made in the context of the 
proposal which we have revised significantly in this final rule, this 
comment prompts us to provide more clarification for those who may be 
unclear about the rules that are applicable during the 5-year 
evaluation period between July 1, 2011 and June 30, 2016. The commenter 
argued that, if CMS audits and removes slots in Year 1, 2, or 4, and 
the hospital had not yet filled half or all of the slots, but would 
meet the requirement in Year 3 or Year 5, CMS ``has subverted its own 
rule.'' It appears that the commenter is saying that by auditing and 
perhaps removing slots for failing to meet the 75 percent test or the 
3-year primary care average requirement in years prior to Year 3 or 
Year 5, CMS is not even giving a hospital a chance to meet CMS' 
proposed rules. However, section 1886(h)(8)(B)(ii) of the Act states 
that a hospital that receives section 5503 slots ``shall ensure, during 
the 5-year period beginning on the date of such increase''

[[Page 53434]]

(emphasis added) that it meets those two requirements. Therefore, 
whether or not a hospital meets CMS' proposed (or even modified final) 
rules regarding by when and how many of the awarded slots must be 
filled is irrelevant if, at any point during the 5-year evaluation 
period, the hospital fails to meet the 75 percent test or the 3-year 
primary care average requirement. As we stated in response to a 
previous comment, regardless of when the Medicare contractor audits a 
hospital to determine if it is meeting the criteria every year within 
the 5-year period, a hospital should not view this policy as an 
encouragement to have an ``off'' year where the requirements need not 
be met. Thus, a contractor could remove all of the slots awarded to the 
hospital in any year of the 5-year evaluation period because either the 
75 percent test or the 3-year primary care average was not met, even if 
the hospital does fill half of its section 5503 slots by its third 12-
month cost report, or fills all of its slots by its final cost 
reporting period (based on the proposed policy). Therefore, we disagree 
with the commenter that we are ``subverting'' our own rules by 
reserving the right to have the Medicare contractors assess as many 
times as necessary during the 5-year period that the hospital is 
meeting the statutory criteria.
    Comment: One commenter asked that CMS clarify whether the analysis 
of whether a hospital meets the primary care average and the 75 percent 
test will be conducted separately for IME and direct GME respectively.
    Response: The primary care average and the 75-percent test are 
conducted separately with respect to IME and direct GME, and many 
hospitals received different award amounts for IME and direct GME.
    In summary, we are finalizing a policy under section 5503 and we 
are revising the regulations text at Sec.  413.79(n)(2)(ii) to state 
that if a hospital received a section 5503 cap award, and does not use 
all of the award in its final (12-month or partial) cost report of the 
5-year period beginning July 1, 2011 and ending June 30, 2016, the 
Medicare contractor will remove the applicable unused slots, and the 
hospital's section 5503 award will be reduced for portions of cost 
reporting periods on or after July 1, 2016. The number of applicable 
unused slots is equal to the difference between the number of slots 
awarded and the number of slots used. In determining the applicable 
slots used, the following amounts are added, as relevant:
    (1) If a hospital uses the section 5503 slots to expand an existing 
program(s), the used slots are equal to the lesser of the number of 
slots used for an expansion(s) in the fourth 12-month cost report or 
the final cost report.
    (2) If a hospital uses the section 5503 slots to start a new 
program(s), the used slots are equal to the number of slots used for a 
new program(s) in the final cost report.
    (3) The portion, if any, of the section 5503 slots used for cap 
relief, subject to the 75 percent test and the 3-year primary care 
average requirement.
    We also clarify that cap relief constitutes ``use'' of section 5503 
slots, and we instruct that, in the 5-year evaluation period, a 
hospital should not automatically report (that is, use) all of its 
section 5503 cap increase (on Form CMS-1-2552-10, line 8.01 of 
Worksheet E, Part A, and on line 4.01 of Worksheet E-4), but should 
only report (that is, use) a portion that at least is equal to the 
additional primary care/general surgery FTEs added, with no more than 
an additional 25 percent allowed to be reported for other purposes. We 
reiterate that a hospital is responsible for meeting the 75-percent 
test based on whatever amount of section 5503 cap increase it reports 
on its cost report (on Form CMS-2552-10, line 8.01 of Worksheet E, Part 
A, and line 4.01 of Worksheet E-4) during each year of the 5-year 
evaluation period. We also reiterate that the 3-year primary care 
average requirement applies immediately on July 1, 2011, regardless of 
when a hospital begins to use its additional section 5503 slots in the 
5-year period. This is because the 3-year primary care average test 
applies to the hospital's pre-section 5503 resident complement as well, 
and not exclusively to the additional FTE residents associated with 
slots awarded under section 5503.
4. Preservation of Resident Cap Positions From Closed Hospitals 
(Section 5506 of the Affordable Care Act)
a. Background
    Under existing regulations at Sec.  413.79(h) for direct GME and 
Sec.  412.105(f)(1)(ix) for IME, a hospital that is training FTE 
residents at or in excess of its FTE resident caps and takes in 
residents displaced by the closure of another teaching hospital may 
receive a temporary increase to its FTE residents caps so that it may 
receive direct GME and IME payment associated with those displaced FTE 
residents. However, those temporary FTE resident caps are associated 
with those specific displaced FTE residents, and the temporary caps 
expire as those displaced residents complete their training program. 
Thus, in the past, if a teaching hospital closed, its direct GME and 
IME FTE resident cap slots would be ``lost,'' because those cap slots 
are associated with a specific hospital's Medicare provider agreement, 
which would be retired upon the hospital's closure. Section 5506 of the 
Affordable Care Act addressed that situation by amending section 
1886(h)(4)(H) of the Act to add a new clause (vi) 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 total number of FTE resident 
cap slots distributed shall be equal to the amount of slots in the 
closed hospital's direct GME and IME FTE resident caps, respectively. 
Under existing regulations at Sec.  489.52 and Sec.  413.79(h), 
``closure of a hospital'' means the hospital terminates its Medicare 
provider agreement. As finalized in the November 24, 2010 final rule 
with comment period (75 FR 72213), we also specified that the FTE 
resident cap slots of the hospital that closed no longer exist as part 
of any other hospital's permanent FTE resident cap.
    Section 1886(h)(4)(H)(vi)(II) of the Act, as added by section 
5506(a) of the Affordable Care Act, specifies that the Secretary shall 
distribute the FTE cap increases in the following priority order, 
``with preference given within each category to hospitals that are 
members of the same affiliated group'' (as defined by the Secretary) as 
the closed hospital:
     First, to hospitals located in the same core-based 
statistical area (CBSA) as, or in a CBSA contiguous to, the hospital 
that closed.
     Second, to hospitals located in the same State as the 
closed hospital.
     Third, to hospitals located in the same region of the 
country as the hospital that closed.
     Fourth, only if the slots are not able to be fully 
distributed under the third priority group, to qualifying hospitals in 
accordance with the criteria established under section 5503 
(``Distribution of Additional Residency Positions'') of the Affordable 
Care Act.
    For a detailed discussion on these ranking categories, we refer 
readers to the November 24, 2010 final rule with comment period (75 FR 
72214 and 72215). In the November 24, 2010 final rule with comment 
period (75 FR 72212 through 72240), we also finalized the following 
Ranking Criteria:
    [ssquf] Ranking Criterion One. The applying hospital is requesting 
the

[[Page 53435]]

increase in its FTE resident cap(s) because it is assuming (or assumed) 
an entire program (or programs) from the hospital that closed, and the 
applying hospital is continuing to operate the program(s) exactly as it 
had been operated by the hospital that closed (that is, same residents, 
possibly the same program director, and possibly the same (or many of 
the same) teaching staff).
    [ssquf] Ranking Criterion Two. The applying hospital was listed as 
a participant of a Medicare GME affiliated group on the most recent 
Medicare GME affiliation agreement of which the closed hospital was a 
member before the hospital closed, and under the terms of that Medicare 
GME affiliation agreement, the applying hospital received slots from 
the hospital that closed, and the applying hospital will use the 
additional slots to continue to train at least the number of FTE 
residents it had trained under the terms of the Medicare GME 
affiliation agreement. If the most recent Medicare GME affiliation 
agreement of which the closed hospital was a member before the hospital 
closed was with a hospital that itself has closed or is closing, 
preference would be given to an applying hospital that was listed as a 
participant in the next most recent Medicare GME affiliation agreement 
(but not one which was entered into more than 5 years prior to the 
hospital's closure) of which the first closed hospital was a member 
before the hospital closed, and that applying hospital received slots 
from the closed hospital under the terms of that affiliation agreement.
    [ssquf] Ranking Criterion Three. The applying hospital took in 
residents displaced by the closure of the hospital, but is not assuming 
an entire program or programs, and will use the additional slots to 
continue training residents in the same programs as the displaced 
residents, even after those displaced residents complete their training 
(that is, the applying hospital is permanently expanding its own 
existing programs).
    [ssquf] Ranking Criterion Four. The applying hospital does not fit 
into Ranking Criterion One, Two, or Three, and will use additional 
slots to establish a new or expand an existing geriatrics residency 
program.
    [ssquf] Ranking Criterion Five. Applying hospital does not meet 
Ranking Criterion One, Two, or Three, is located in a HPSA, and will 
use all the additional slots to establish or expand a primary care or 
general surgery residency program.
    [ssquf] Ranking Criterion Six. Applying hospital does not meet 
Ranking Criterion One, Two, or Three, is not located in a HPSA, and 
will use all the additional slots to establish or expand a primary care 
or general surgery residency program.
    [ssquf] Ranking Criterion Seven. Applying hospital seeks the slots 
for purposes that do not fit into any of the above ranking criteria.
    In determining which hospitals should receive the slots associated 
with the closed hospital, in addition to considering the ranking 
categories and criteria listed above, section 1886(h)(4)(H)(vi) of the 
Act, as added by section 5506(a) of the Affordable Care Act, states 
that the Secretary may only award slots to an applying hospital ``if 
the Secretary determines that the hospital has demonstrated a 
likelihood of filling the positions made available under this clause 
within 3 years.'' ``Within 3 years'' means within the 3 academic years 
immediately following the application deadline to receive slots after a 
particular hospital closes (75 FR 72224). For example, where the 
application deadline is April 1, 2011, the immediately following 
academic year is July 1, 2011; therefore, hospitals must demonstrate 
the likelihood of filling their slots by June 30, 2014.
    Finally, section 5506(d) of the Affordable Care Act specifies that 
``the Secretary shall give consideration to the effect of the 
amendments made by this section on any temporary adjustment to a 
hospital's FTE cap under Sec.  413.79(h) * * * (as in effect on the 
date of enactment of this Act) in order to ensure that there is no 
duplication of FTE slots * * *.'' In distributing slots permanently 
under section 5506, we need to be cognizant of the number of FTE 
residents for whom a temporary FTE cap adjustment was provided under 
existing regulations at Sec.  413.79(h), and when those residents will 
complete their training, at which point the temporary slot associated 
with those displaced residents would be available for permanent 
redistribution.
b. Change in Amount of Time Provided for Submitting Applications Under 
Section 5506 of the Affordable Care Act
    In the August 3, 2010 proposed rule (75 FR 46422), we proposed to 
establish an application process for hospitals to apply to CMS to 
receive an increase in FTE caps based on slots from closed hospitals. 
Section 5506 of the Affordable Care Act did not specify an application 
deadline for hospitals to request an increase to their caps when a 
hospital closes. With respect to the first application process, which 
applied to all teaching hospital closures between March 23, 2008, and 
August 3, 2010, we established an application deadline of April 1, 
2011. For future teaching hospital closures, we finalized a policy 
whereby we would inform the public through an appropriate medium that 
increases to hospitals' FTE resident caps are available for 
distribution due to the closure of a teaching hospital, and the 
application deadline would be 4 months following the issuance of that 
notice to the public (75 FR 72215).
    Prior to issuance of the FY 2013 IPPS/LTCH PPS proposed rule, some 
representatives of the provider community had commented that providing 
hospitals with 4 months following the announcement of a teaching 
hospital closure to apply for slots under section 5506 is longer than 
necessary. They asserted that such a long application period 
unnecessarily delays CMS' review of applications and the resulting 
distribution of resident cap slots from closed hospitals to the 
applicants. The provider representatives suggested that perhaps a 2-
month application window is sufficient and is more practical.
    As we discussed in the FY 2013 IPPS/LTCH PPS proposed rule (77 FR 
27985), we have considered the suggestion of the provider 
representatives, and after our initial experience in implementing 
section 5506 of the Affordable Care Act, we agree that 4 months may be 
more time than is needed for hospitals to properly prepare and submit 
section 5506 applications to CMS. Accordingly, we proposed to set the 
application deadline for future section 5506 applications to be 60 days 
following CMS' public notice of a hospital's closure and the 
availability of resident cap slots increases. We stated that we believe 
that reducing the application submission timeframe from 4 months to 60 
days will shorten the entire process for awarding FTE resident cap 
slots from closed hospitals considerably.
    Comment: Many commenters supported CMS' proposal for a 60-day 
application period as a reasonable timeframe and commended CMS' efforts 
to expedite the process of awarding section 5506 FTE resident cap 
slots. One commenter did not support the shortened application period 
because the commenter believed it may lead to less thoughtful decision-
making and it could have a disproportionately adverse effect on smaller 
hospitals with fewer resources at their disposal when applying for 
additional FTE resident cap slots.
    Another commenter supported the 60-day application period but 
suggested that CMS use the IPPS final rule as a medium to issue the 
public notice of a hospital's closure. The commenter believed that CMS' 
issuance of the

[[Page 53436]]

public notice as part of the IPPS final rule instead of issuing a 
separate public notice would ease an applicant hospital's 
administrative burden in that the hospital would have advance knowledge 
of the forthcoming public notice and could plan accordingly.
    Response: We appreciate the commenters' support for our proposal, 
and at the same time, we also understand the commenter's concerns 
regarding a shortened application period. As noted above, we initially 
implemented a 4 month application period because we believed that 4 
months provided adequate time for hospitals to gather the appropriate 
documentation and prepare a section 5506 application (75 FR 72215). In 
light of the public comments received on our proposed policy to reduce 
the length of the application period to 60 days, and our understanding 
of the efforts required to prepare a section 5506 application, we 
believe an appropriate compromise is to provide for a 90-day 
application period for future section 5506 applications. Therefore, we 
are finalizing a section 5506 application deadline of 90 days following 
CMS' public notice of a hospital's closure and the availability of 
resident cap slots increases.
    With respect to the comment suggesting that we include public 
notice of hospital closures in the IPPS final rule, we believe this 
could unnecessarily delay the section 5506 award process. We prefer to 
have the flexibility to issue public notices of hospital closures at 
other times during the year and not limit the notices to the IPPS final 
rule, and we believe it is in hospitals' best interests to maintain 
such flexibility.
    In summary, after consideration of the public comments we received, 
we are finalizing a section 5506 application period of 90 days 
following CMS' public notice of a hospital's closure and the 
availability of resident cap slots increases.
c. Change to the Ranking Criteria under Section 5506
    In the November 24, 2010 final rule with comment period (75 FR 
72223), we finalized the Ranking Criteria within each of the three 
first statutory priority categories (that is, same or contiguous CBSAs, 
same State, and same region) to be used to rank applications. For each 
application, we assigned slots based on Ranking Criteria, with Ranking 
Criterion One being the highest ranking and Ranking Criterion Seven 
being the lowest. For a complete list of the Ranking Criteria, we refer 
readers to section IV.I.4.a. of this preamble, which discusses the 
background for preservation of resident cap positions from closed 
hospitals under section 5506 of the Affordable Care Act. For a detailed 
discussion of the ranking categories, we refer readers to the November 
24, 2010 final rule with comment period (75 FR 72212 through 72240).
    After reviewing applications from the first section 5506 
application process (those applications that were due to CMS on April 
1, 2011), we observed that the overwhelming majority of applications 
fell under Ranking Criterion Seven, that is, the applying hospital 
seeks the slots for purposes that do not fit into any of Ranking 
Criterion One through Ranking Criterion Six. These applications 
included applications from hospitals that applied for FTE cap slots for 
both primary care and/or general surgery and for nonprimary care 
specialties as well as applications for general cap relief. (A request 
for slots only for primary care and/or general surgery programs would 
qualify under either Ranking Criterion Five or Ranking Criterion Six.) 
The sheer number of applications we received under Ranking Criterion 
Seven indicated a need to further prioritize among the applicants that 
would previously have qualified under Ranking Criterion Seven. 
Therefore, in the FY 2013 IPPS/LTCH PPS proposed rule (77 FR 27985), we 
proposed to replace current Ranking Criterion Seven with the two 
separate proposed Ranking Criteria listed below. We noted that we were 
not proposing to make any changes to Ranking Criteria One through Six. 
We proposed the following two criteria to replace existing Ranking 
Criterion Seven:
     Proposed Ranking Criterion Seven: The program does not 
meet Ranking Criterion One through Six, and the slots for which the 
hospital is applying are for a primary care or a general surgery 
program, but the hospital is also applying for slots under Ranking 
Criterion Eight.
     Proposed Ranking Criterion Eight: Applying hospital seeks 
the slots for purposes that do not fit into any of the above ranking 
criteria.
    The proposal to modify Ranking Criterion Seven is consistent with 
current Medicare policy goals to increase residency training in primary 
care and general surgery, because we proposed to give a higher ranking 
to those applications from hospitals applying for primary care and 
general surgery FTE cap slots, as well as nonprimary care programs. 
Under the current Ranking Criteria, when a hospital applies for 
additional FTE cap slots for primary care and/or general surgery as 
well as nonprimary care programs, we do not distinguish between the 
primary care/general surgery and nonprimary care applications. 
Therefore, because the hospital would be applying for nonprimary 
program(s), all the hospital's applications would fall under proposed 
Ranking Criterion Seven. Under our proposal, although the hospital's 
application that requests FTE cap slots for primary care/general 
surgery would qualify for proposed Ranking Criterion Seven, the 
application for nonprimary care/general surgery would be classified as 
proposed Ranking Criterion Eight.
    Following is an example of how Ranking Criteria Seven and Eight 
would be assigned:
    Hospital A applies for slots from closed Hospital B. Hospital A is 
seeking to expand its internal medicine and dermatology programs. Under 
the current ranking system, both of Hospital A's applications would 
receive consideration under Ranking Criterion Seven. That is, the 
internal medicine application is ranked equally with the dermatology 
application even though internal medicine is a primary care specialty. 
Under the proposed change to the Ranking Criteria, Hospital A's 
internal medicine program would receive consideration under proposed 
Ranking Criterion Seven while the dermatology program would receive 
consideration under proposed Ranking Criterion Eight.
    Comment: One commenter objected to CMS' policy of giving higher 
ranking to hospitals that apply for FTE cap slots for primary care or 
general surgery programs only than to hospitals that apply for FTE cap 
slots for primary care or general surgery as well as for other 
nonprimary care or nongeneral surgery programs. The commenter suggested 
that CMS rank all applications for primary care or general surgery 
programs equally, regardless of the existence or nonexistence of other 
nonprimary care or nongeneral surgery applications. Another commenter 
urged CMS not to advance the creation of primary care or general 
surgery programs at the expense of other essential yet nonprimary care 
or nongeneral surgery specialties such as psychiatry.
    Response: We disagree with the first commenter. We do not believe 
that a hospital that applies for slots under section 5506 for the 
purpose of starting or expanding only programs in primary care and 
general surgery should be ranked equally with a hospital that applies 
for the purpose of starting or

[[Page 53437]]

expanding primary care and/or general surgery programs, and other 
nonprimary care programs as well. We continue to believe that our 
Ranking Criteria, which give a higher ranking to hospitals that apply 
only for primary care or general surgery programs, are consistent with 
the expressed goals of sections 5503 and 5506 of the Affordable Care 
Act, and are in keeping with the important policy objective of 
promoting the growth in the number of primary care and general surgery 
residents, and reducing the shortage of primary care physicians and 
general surgeons. Thus far, Congress has not identified other 
specialties for special treatment. However, we note that under Ranking 
Criteria One, Two, and Three, hospitals can use slots awarded under 
section 5506 for nonprimary care programs because these Ranking 
Criteria do not consider or specify a program type, and instead give 
priority to hospitals that continue to maintain the level and type of 
training that were occurring prior to the hospital closure.
    After consideration of the public comments we received, we are 
finalizing our proposed changes to the Ranking Criteria with some 
modification. As proposed, we are replacing current Ranking Criterion 
Seven with the two separate Ranking Criteria listed below. We also are 
modifying our proposed language for Ranking Criterion Seven in order to 
highlight and clarify how Ranking Criterion Seven differs from Ranking 
Criterion Five and Ranking Criterion Six. A program may only qualify 
for Ranking Criterion Five or Six if the applying hospital will use all 
of its additional slots to establish or expand primary care or general 
surgery programs. Therefore, a hospital that submits several 
applications that include requests for additional FTE slots for 
purposes other than solely to establish or expand primary care or 
general surgery programs may not apply under Ranking Criterion Five or 
Six for additional FTE slots for its primary care or general surgery 
programs. Rather, a hospital that is applying both for the purpose of 
establishing or expanding primary care or general surgery programs, and 
for the purpose of establishing or expanding nonprimary care or 
nongeneral surgery programs and/or for cap relief must submit an 
application requesting additional FTE slots under Ranking Criterion 
Seven for its primary care or general surgery programs. The hospital's 
requests for additional FTE slots to establish or expand a nonprimary 
care or nongeneral surgery program and/or for additional FTE slots for 
cap relief would properly be made under Ranking Criterion Eight. In 
summary, we are finalizing Ranking Criterion Seven as follows:
     Ranking Criterion Seven: The applying hospital will use 
additional slots to establish or expand a primary care or general 
surgery program, but the program does not meet Ranking Criterion Five 
or Six because the hospital is also separately applying under Ranking 
Criterion Eight for slots to establish or expand a nonprimary care or 
non-general surgery program and/or for cap relief.
    In light of the modifications we are making in this final rule to 
the proposed Ranking Criterion Seven, we also believe it is appropriate 
to modify the language of proposed Ranking Criterion Eight to specify 
the types of applications that would properly be made under this 
Ranking Criterion. In the proposed rule, we proposed to replace the 
existing Ranking Criterion Seven with a new Ranking Criteria Seven, and 
create a new Ranking Criterion Eight for situations where an ``applying 
hospital seeks the slots for purposes that do not fit into any of the 
above ranking criteria.'' We are modifying this proposed language and 
finalizing Ranking Criterion Eight as follows:
     Ranking Criterion Eight: The applying hospital will use 
the additional slots to establish or expand a nonprimary care or 
nongeneral surgery program or for cap relief.
    We note that we did not propose, nor are we making, any changes to 
Ranking Criteria One through Six.
d. Effective Dates of Slots Awarded Under Section 5506
    As stated previously, section 5506(d) of the Affordable Care Act 
instructs the Secretary, in pertinent part, `` * * * to ensure that 
there is no duplication of FTE slots * * * .'' Accordingly, in 
distributing slots permanently under section 5506, we need to be 
cognizant of the number of FTE residents for whom a temporary FTE cap 
adjustment was provided under existing regulations at Sec.  413.79(h), 
when those residents will complete their training, and at which point 
the temporary slots associated with those displaced residents would be 
available for permanent redistribution. With that in mind, in the first 
distribution of section 5506 cap slots from hospitals that closed 
between March 23, 2008, and August 3, 2010, we used the following 
several effective dates based on the ranking criterion under which a 
hospital applied:
     Date of hospital closure. This effective date could have 
applied to Ranking Criterion Two. It also could have applied to Ranking 
Criteria One and Three if there were no temporary cap adjustments given 
for any displaced FTE residents.
     Cost reporting period following date of hospital closure. 
This effective date could have been used for awarding slots to 
hospitals that were training displaced FTE residents and qualified for 
Ranking Criterion One or Ranking Criterion Three because they were 
taking over an entire program or part of a program from a closed 
hospital and had received a temporary cap adjustment to train those 
displaced residents under 42 CFR 413.79(h).
     July 1 effective date. This effective date, which could 
have been retroactive, could have been used for awarding slots to 
hospitals that qualified under Ranking Criteria Four through Seven 
where there were temporary cap adjustments made for displaced FTE 
residents that completed training in a program on a specific June 30.
     Date of award announcement (January 30, 2012). This 
effective date could have applied to hospitals that qualified under 
Ranking Criteria Four through Seven either where there were no 
temporary cap increases under 42 CFR 413.79(h), or where there were 
temporary cap increases but those slots associated with the temporary 
cap increases were already accounted for. That is, displaced FTE 
residents graduated prior to a specific July 1, and, therefore, the cap 
slots associated with these FTE residents had already been permanently 
assigned that specific July 1, but the closed hospital still had 
remaining cap slots available for permanent assignment.
    We stated in the FY 2013 IPPS/LTCH PPS proposed rule (77 FR 27986) 
that, based on comments we have received from hospitals that were 
involved in the initial phase of section 5506 implementation (hospitals 
that applied for cap slots from hospitals that closed between March 23, 
2008 and August 3, 2010), we believe we need to clarify certain 
existing policies and propose a change to the effective dates 
associated with several ranking criteria.
    First, we clarified in the proposed rule the effective date of 
slots awarded under section 5506 with respect to Ranking Criterion Two. 
Ranking Criterion Two applies to hospitals that participated in a 
Medicare GME affiliation agreement with the closed hospital (but not 
one that was entered into more than 5 years prior to the hospital's 
closure), received slots from the closed hospital as part of the 
affiliation agreement, and will use any additional awarded slots to 
continue to train at least the same number of FTE

[[Page 53438]]

resident slots it trained as part of the affiliation agreement. For 
hospitals that qualify for additional slots under Ranking Criterion 
Two, we award the 5506 slots effective on a permanent basis with the 
date of the hospital's closure. However, for hospitals that qualify 
under Ranking Criteria One and Three and are already receiving 
temporary cap adjustments for displaced FTE residents under 42 CFR 
413.79(h), we award the 5506 slots effective on a permanent basis with 
the cost reporting period following the date of the hospital's closure. 
Because these hospitals are already receiving temporary cap adjustments 
for their portion of their cost reporting period following the closure, 
for administrative ease, slots became permanent due to the section 5506 
award effective with the cost reporting period following the date of 
the hospital's closure. However, this policy, applicable to hospitals 
that qualify under Ranking Criterion One or Three, is not appropriate 
for hospitals that qualify under Ranking Criterion Two and that 
participated in a Medicare GME affiliation agreement with the closed 
hospital and received cap slots from the closed hospital as part of 
that affiliation agreement. This policy is not appropriate because, in 
this case, there were no displaced FTE residents from the Medicare GME 
affiliation agreement and, therefore, the hospital did not receive a 
temporary cap adjustment. For example, if Hospital A received slots 
from Hospital B as part of an affiliation agreement so that FTE 
residents could train at Hospital A and Hospital B closes, Hospital A 
lost the cap adjustment it received from Hospital B as part of the 
affiliation agreement as of the date of the hospital's closure, and a 
temporary cap adjustment under 42 CFR 413.79(h) is not available to 
Hospital A. In this case, no FTE residents are displaced.
    In the proposed rule and in this final rule, we are clarifying 
that, for hospitals qualifying under Ranking Criterion Two that are 
awarded cap slots from the closed hospital, the award is effective with 
the date of the hospital's closure. This effective date allows a 
hospital applying under Ranking Criterion Two to receive funding for 
training the additional FTE residents it was training as part of the 
Medicare GME affiliation agreement with the closed hospital immediately 
after the closure, without having to wait until the following cost 
reporting period to receive that cap adjustment. We note that, under 
existing regulations at 42 CFR 413.79(d), additional FTEs that a 
hospital receives under the terms of a Medicare GME affiliation 
agreement are subject to the 3-year rolling average. Therefore, 
hospitals that receive permanent assignment of FTE resident cap slots 
under Ranking Criterion Two do not receive an exemption from the 
rolling average. With regard to the IME intern and resident-to-bed 
(IRB) ratio, the existing regulations at 42 CFR 412.105(a)(1)(i) 
indicate that the numerator of the prior year IRB ratio may be adjusted 
to reflect FTEs added under a Medicare GME affiliation agreement. The 
affiliation agreement would terminate when the hospital closes. Thus, 
on the cost report of the hospital that receives slots under Ranking 
Criterion Two, the prior year numerator of the IRB ratio would only be 
adjusted to reflect the portion of the affiliated FTEs that the 
hospital received prior to the other hospital's closure and the 
termination of the affiliation agreement.
    As we did in the proposed rule, we also are clarifying that when 
there are no temporary cap adjustments for displaced FTE residents from 
hospitals that closed, and an applying hospital qualifies under Ranking 
Criterion One or Ranking Criterion Three, the FTE resident cap slots 
are awarded effective with the date of the hospital's closure. This was 
indicated in the November 24, 2010 final rule with comment period (75 
FR 72225), but we understand, based on comments received after the 
initial phase of section 5506 slot awards, that this policy was not 
clearly understood. These slots are also immediately included in 
applying the rolling average and IRB ratio cap.
    We proposed to change the effective date of an award of additional 
FTE caps for hospitals that qualify under Ranking Criterion Four 
through proposed Ranking Criterion Eight where temporary caps were 
given for displaced FTE residents (we refer readers to section 
IV.I.4.b. of this preamble for a discussion of proposed Ranking 
Criteria Seven and Eight). As a general matter, hospitals that apply 
under Ranking Criterion Four through proposed Ranking Criterion Eight 
are applying either to establish or expand a program or to seek cap 
relief. In the proposed rule, we stated that we do not believe that, 
when a hospital receives additional cap slots to establish or expand a 
residency training program, we need to award the cap slots 
retroactively to a previous July 1 effective date. Rather, the awarded 
cap slots are to be used on a prospective basis to allow hospitals to 
expand current programs or establish new ones. We understand that if a 
hospital is applying for cap relief under proposed Ranking Criterion 
Eight (previously Ranking Criterion Seven), the hospital would want its 
cap slots awarded retroactively to the date of the hospital's closure 
or the July 1 after a specific displaced resident has graduated if that 
date is prior to the date of the award announcement. However, we stated 
in the proposed rule that we do not believe such a policy is consistent 
with the spirit of the BBA caps. Furthermore, the purpose of section 
5506 is for hospitals to receive slots from the closed hospital to 
facilitate the continuity of the closed hospital's programs and to 
promote stability in the number of physicians in a community.
    The proposed Ranking Criterion Eight of section 5506 does not serve 
to encourage the continuity of the closed hospital's programs; it 
merely provides Medicare funding for a certain amount of slots in 
excess of the BBA caps. Accordingly, we indicated in the proposed rule 
that we believe that hospitals applying for cap relief under proposed 
Ranking Criterion Eight should only receive their permanent cap slots 
effective on a prospective basis. Therefore, while under the initial 
section 5506 application process, it was possible for an applying 
hospital that qualified under Ranking Criteria Four through Seven to 
receive slots retroactive to the July 1 after a specific displaced FTE 
resident's graduation date, we proposed that, for hospitals that 
qualify under Ranking Criteria Four through Eight for cap slots from a 
closed hospital even where there were temporary caps given for 
displaced FTE residents, the applying hospitals would receive the 
permanent FTE cap slots effective no earlier than the date of the award 
announcement. That is, if an applying hospital that qualified under 
Ranking Criterion Four through proposed Ranking Criterion Eight 
receives cap slots associated with a displaced FTE resident and that 
resident graduated prior to the date of the award announcement, the 
earliest the applying hospital could receive the permanent cap 
adjustment would be the date of the award announcement. If a hospital 
qualified under Ranking Criterion Four through proposed Ranking 
Criterion Eight, and the only available cap slots are temporarily being 
used to train displaced FTE residents that are expected to graduate 
after the date of the award, the applying hospital will receive the 
permanent slots effective the July 1 after those displaced FTE 
residents complete their training. For example, if a hospital closed 
January 1, 2012, and the section 5506 slot awards were announced May 1, 
2013, but

[[Page 53439]]

residents displaced from the closed hospital did not complete their 
training until June 30, 2013, the applying hospital will receive 
section 5506 slots for those displaced residents effective July 1, 
2013, following the completion of training of those displaced 
residents. We did not propose to change the effective date of section 
5506 awards for applying hospitals that qualify under Ranking Criterion 
Four through proposed Ranking Criterion Eight where there were no 
temporary caps given for displaced residents; as described in the 
November 24, 2010 final rule with comment period (75 FR 72227), those 
applying hospitals will continue to receive their section 5506 cap 
slots effective with the date of the award announcement.
    In the proposed rule, we discussed another option to consider for 
the effective date of Ranking Criteria Four through proposed Ranking 
Criterion Seven, which are Ranking Criteria associated with either 
starting a program or expanding a program, would be to award the slots 
in accordance with when the hospital actually needs the slots, as 
asserted in the hospital's section 5506 application. (The proposed 
effective date for proposed Ranking Criterion Eight would still be no 
earlier than the date of the award announcement.) For example, assume a 
hospital applies under Ranking Criterion Five to expand an internal 
medicine program by nine positions. As described in its section 5506 
application, the hospital plans that expansion to occur beginning on 
July 1, 2012, and at that time, the hospital would add three residents, 
on July 1, 2013, the hospital would add another three residents, and on 
July 1, 2014, the hospital would add the last three internal medicine 
residents. Therefore, the effective date of three slots could be July 
1, 2012, the effective date of three additional slots would be July 1, 
2013, and the effective date of the last three slots would be July 1, 
2014. We stated that we were interested in receiving public comments on 
this policy alternative. We still proposed that the effective date for 
proposed Ranking Criterion Eight would be no earlier than date of the 
award.
    Comment: A number of commenters addressed our clarifications and 
proposals of the effective dates for all of the Ranking Criteria. 
Commenters agreed that cap slots received under Ranking Criterion Two 
should be effective with the date of the hospital closure. One 
commenter stated that because the receiving hospital had already been 
using the cap slots from the closed hospital as part of a Medicare GME 
affiliation agreement, there is no reason the slots should be awarded 
any later than the date of the hospital closure. The commenter added 
that it supported making slots received under Ranking Criterion Two 
effective with the date of the hospital closure because there are no 
temporary cap adjustments and exemptions from the rolling average 
applied to these cap slots.
    Other commenters believed cap slots from closed hospitals should be 
awarded on an ``as-needed'' basis. They stated that, therefore, it is 
appropriate that the cap slots received under Ranking Criterion Two be 
awarded when the hospital closes because the receiving hospital would 
need the additional cap slots as of the date of the hospital's closure.
    Response: We agree with the commenters that cap slots received 
under Ranking Criterion Two should be effective with the date of the 
hospital closure because the receiving hospital had already been using 
the cap slots from the closed hospital as part of a Medicare GME 
affiliation agreement, and there are no temporary cap adjustments and 
exemptions from the rolling average applied to these cap slots. 
Therefore, we are finalizing our clarification that, if a hospital is 
awarded cap slots under Ranking Criterion Two, those cap slots are 
effective with the date of the hospital closure.
    Comment: Some commenters specifically addressed our clarifications 
and proposals for the effective dates of Ranking Criteria Four through 
proposed Eight. One commenter did ``not believe that it is appropriate 
for CMS to institute a `one size fits all' policy to determine the 
effective dates for all awards,'' and that the awards should be 
``driven by the reasons for which the slots are being awarded.'' The 
commenter believed that making all awards for program establishment or 
expansion under Ranking Criteria Four through Eight prospectively could 
be appropriate if it was done in a manner consistent with a reasonable 
policy regarding the application of the temporary cap adjustments that 
hospitals have received for taking in displaced residents and it is 
done in a manner that does not ``over manage'' the distribution of the 
slots by doling them out on a slot by slot basis. Another commenter 
encouraged CMS to award section 5506 slots under all ranking criteria 
prospectively.
    Other commenters recommended that the effective date for section 
5506 direct GME and IME positions be the date when the slots are needed 
by the awardee hospital. The commenters believed that assigning 
effective dates based on this principle would avoid confusion and some 
of the problems hospitals encountered under CMS' current system for 
assigning effective dates. Commenters suggested that, for hospitals 
that begin new programs (that is, apply for slots under Ranking 
Criterion Four, Five, or Six), section 5506 slots should become 
effective on the date the hospital's new program begins. The commenters 
recommended that, for administrative simplicity, the effective date 
should be the same for all awarded positions (that is, all slots become 
effective the date the new program begins). For a hospital that starts 
and is awarded slots for a new program that happens to begin in the 
time period between the date it submits an application to CMS and the 
date CMS announces the slot award, the commenters recommended that the 
effective date be retroactive to the date the hospital actually started 
the new program. (The commenters noted that this issue is relevant 
particularly given the large time lags between section 5506 slot 
application deadlines and award announcements.)
    Response: We agree with the commenters that the effective dates of 
the various Ranking Criteria should be driven by the reasons for which 
they are awarded, and by when they are needed. However, while we do not 
want to over-complicate or ``over-manage'' the awarding of the slots, 
as one commenter cautioned against, we do believe that a certain amount 
of discretion and control should be maintained in the timing of the 
effective dates. Some commenters stated that section 5506 slots should 
become effective on the date the hospital's new program begins, and 
that for administrative simplicity, the effective date should be the 
same for all awarded positions (that is, all slots become effective the 
date the new program begins). However, these commenters did not address 
the fact that Ranking Criteria Four through the new Eight are also for 
expansions of existing programs. (The new Ranking Criterion Eight could 
be used for hospitals applying for slots to start or expand nonprimary 
care programs, and/or for cap relief.) The timing of program 
expansions, which may not always require separate approval from the 
accrediting body if the hospital is training below its accredited 
number of positions, may be more challenging to pinpoint. Nevertheless, 
we believe that slots awarded under Ranking Criteria Four through Seven 
(and Eight if the slots are for starting or expanding a nonprimary care 
program) should be

[[Page 53440]]

effective only with the date that they are actually needed, or, if 
applicable, only delayed sufficiently until displaced residents have 
graduated, freeing up those slots for use under Ranking Criteria Four 
through Eight.
    Accordingly, consistent with some commenters' suggestion and our 
assessment that slots awarded under Ranking Criteria Four through Seven 
(and Ranking Criterion Eight if the slots are for starting or expanding 
a nonprimary care program) should be effective only when they are 
actually needed, we are finalizing a policy as follows:
    For hospitals awarded slots under these Ranking Criteria, in the 
hospital's award letter, CMS will specify the program for which slots 
are being awarded, whether those slots are for a new program, or for an 
expansion of a program, the number of FTE slots awarded for that 
program, and the Ranking Criterion under which those slots are awarded. 
The award letter will not specify an effective date, although it may 
indicate that the slots can be used no earlier than a certain date in 
the instance where displaced residents need to graduate in order to 
free up slots. Rather, the slots would be ``pending'' with the Medicare 
contractor, and the hospital would have to contact its Medicare 
contractor and submit documentation proving that it needs a certain 
number of its slots awarded under Ranking Criteria Four through Seven 
(or Ranking Criterion Eight, as applicable, for nonprimary care 
programs) as of a certain date, because the hospital has filled that 
number of positions in the National Resident Match Program (Match) (or 
other applicable recruitment process) as of that date, over the number 
of positions that it had trained in that program in the prior academic 
year.
    For example, for a subsequent section 5506 application process, a 
hospital's award letter would state that it is awarded four slots to 
expand a pediatrics program under Ranking Criterion Six. The hospital 
would not be able to report a cap increase of any of the four FTEs on 
the section 5506 line of its Medicare cost report unless it receives 
permission from its Medicare contractor to do so. Assume that in March 
2014, the awardee hospital documents to the Medicare contractor that in 
the March 2014 Match, it actually filled (not just placed) two more 
positions than it had trained in that program for the academic year 
beginning July 1, 2013. In this manner, because two additional slots 
are actually filled as compared to the preceding July 1, the hospital 
shows the Medicare contractor that effective July 1, 2014, it indeed 
will need two of the section 5506 FTEs that it was awarded under 
Ranking Criterion Six. The Medicare contractor could then release two 
of the four slots awarded for the purpose of expanding a pediatrics 
program effective July 1, 2014, and the hospital could report two FTEs 
(or some prorated amount if the hospital's FYE is other than June 30) 
on the section 5506 line of its Medicare cost report that includes July 
1, 2014. The hospital shall not report the full cap increase of four on 
the section 5506 line of the cost report until it similarly proves that 
it has actually filled the remaining two positions. The documentation 
process would be the same if a hospital is awarded slots for starting a 
new program under Ranking Criteria Four through Seven (or Ranking 
Criterion Eight, as applicable, for nonprimary care programs). That is, 
the hospital would have to prove that it actually has filled slots in 
the Match (or applicable process) associated with the new program for 
the upcoming academic year before the Medicare contractor would release 
the appropriate number of slots for that academic year.
    Comment: Regarding cap slots received under section 5506 for cap 
relief (previously Ranking Criterion Seven, now Ranking Criterion Eight 
in this final rule), commenters stated that those cap slots should be 
awarded effective with the date of the hospital closure. Commenters 
stated that following the principle that cap slots should be assigned 
to receiving hospitals on an ``as-needed'' basis, if a hospital applied 
for cap relief, it would need those cap slots at the time of the 
hospital closure. One commenter disagreed with the proposal to assign 
cap slots for cap relief at the earliest with the date of the award 
announcement. The commenter stated that any teaching hospital that 
applied for cap relief should be awarded cap slots at the earliest 
point they are available. The commenter stated that ``there is no 
justifiable policy reason to withhold a cap increase if the closed 
hospital's slots are available to be awarded and the hospital receiving 
the award, with all due respect to CMS, never claimed in its 
application that it was going to do anything different on a prospective 
basis (for example, expand a program) to justify its need for the 
slots.'' The commenter stated it did not understand CMS' statement that 
retroactive application of cap slots received for cap relief is not 
consistent with the caps. The commenter stated that the intent of 
section 5506 is to redistribute a closed teaching hospital's cap to 
other teaching hospitals, many of them in the same community, and that 
these teaching hospitals' caps are what prevent them from receiving 
additional Medicare funding to support their operations as academic 
centers. The commenter stated that for CMS to delay awarding cap slots 
that they were instructed to award without a policy justification, 
would be ``extremely unfortunate.'' The commenter requested that CMS 
withdraw its proposal related to the awarding of slots for cap relief 
and that the effective date for these cap slots be the date they become 
available.
    Response: We disagree with the commenter who stated there is no 
justifiable policy reason that cap slots awarded for cap relief cannot 
be applied retroactively. When a teaching hospital closes, this 
occurrence may cause a disruption and loss of a GME infrastructure and 
a source of physicians to a community that can be a daunting task to 
rebuild and replace. The purpose of section 5506 is to attempt to 
preempt such disruption and loss by encouraging other hospitals in the 
area to continue the training programs of the closed hospital, not 
merely to use the section 5506 slots for an applicant hospital's own 
financial benefit to cover its unfunded slots. Consistent with the 
purpose of section 5506, we developed Ranking Criteria to give 
preference to those hospitals that take over a closed hospital's entire 
program or part of a program, and to hospitals that participated in a 
Medicare GME affiliation agreement with the closed hospital. These 
hospitals have had a direct relationship with the closed hospital and 
are helping to maintain the residency training program(s) of that 
closed hospital, thereby also minimizing the disruption and loss to the 
community at large. Therefore, because we do not believe that there is 
a justifiable policy reason to award slots for cap relief 
retroactively, we are finalizing a policy that cap slots received under 
Ranking Criterion Eight, specifically for cap relief, are effective the 
later of the date of the award announcement, or a July 1 after 
displaced FTE residents complete their training if the cap slots 
awarded were associated with temporary adjustments made for displaced 
FTE residents.
    Comment: One commenter stated that if, for purposes of the Medicare 
cost report, hospitals that receive cap slots under Ranking Criterion 
Two are treated differently from hospitals that receive cap slots under 
other Ranking Criteria, Medicare contractors must be notified of any 
such distinction. The commenter stated that the distinction would 
affect

[[Page 53441]]

application of the 3-year rolling average and the IRB ratio cap. The 
commenter also stated that Medicare cost report instructions should be 
revised to reflect the difference between Ranking Criterion Two and 
other Ranking Criteria.
    Response: In this final rule, as we explained in response to 
comments above, because we are no longer employing a policy where 
temporary cap increases would be replaced by permanent cap increases on 
the cost report, and the 3-year rolling average and the IRB ratio cap 
exemption would no longer be suspended as a consequence of receipt of 
permanent slots, we believe the cost reporting effect of receipt of 
section 5506 slots is the same, regardless of the Ranking Criteria 
under which the slots are awarded. That is, on the applicable cost 
report that an FTE cap increase is effective, whether retroactive or 
prospective, the hospital will be able to count more residents under 
the increased FTE resident cap in that cost report. Consequently, more 
FTE residents would be drawn into the rolling average for IME and 
direct GME, and more FTE residents would be subject to the IRB ratio 
cap for IME purposes. Therefore, we do not believe there is any 
distinction regarding the effect of reporting section 5506 slots about 
which we need to notify Medicare contractors or hospitals. However, we 
note that, as is the case with the first two rounds of section 5506 
slot awards, a hospital may receive a number of slots with various 
effective dates. Therefore, it is important that a hospital not report 
its full section 5506 cap increase on the section 5506 cap increase 
line (Form CMS-2552-10, Worksheet E, Part A, line 8.02 for IME, and 
Worksheet E-4, line 4.02 for direct GME) on its cost report all at 
once, but, rather, only report the portions of the section 5506 awards 
as they become effective.
    In summary, we are finalizing our clarification that section 5506 
slots awarded under Ranking Criterion Two are effective the date of the 
hospital closure. In response to public comments, we are finalizing a 
policy that the effective date for Ranking Criteria Four through Seven 
is the later of when a hospital can demonstrate to the Medicare 
contractor that the slots associated with a new program or expanded 
program are actually filled and, therefore, are needed as of a 
particular date (usually July 1, possibly retroactive), or the July 1 
after displaced residents complete their training. Regarding Ranking 
Criterion 8, if slots are for starting or expanding a nonprimary care 
program, the effective date is the same as that for Ranking Criteria 
Four through Seven. If the slots are for cap relief, the effective date 
is the date of the CMS award announcement, or the July 1 after 
displaced residents complete their training, whichever date is later.
    Thus far, we have discussed our proposed clarifications regarding 
when various effective dates have been used (that is, the date of 
closure, or the cost reporting period following the date of the 
closure, or a July 1 date), and our proposal to change the effective 
date of Ranking Criteria Four through proposed (now finalized) Ranking 
Criterion Eight when temporary cap adjustments for displaced residents 
were given (to be no earlier than the date of the award announcement). 
However, due to concerns expressed by recipients of slots under the 
first round of section 5506, particularly regarding the interaction 
with the rolling average as the retroactive section 5506 slots become 
effective, in the proposed rule, we solicited public comments on 
alternative approaches to implementing section 5506. While bearing in 
mind that section 5506(d) of the Affordable Care Act instructs the 
Secretary ``* * * to ensure that there is no duplication of FTE slots * 
* *,'' we stated that we would be interested in public comments 
regarding whether to either make the effective dates prospective for 
all section 5506 slots awarded under all ranking criteria, or, in 
certain instances such as when slots are awarded under Ranking Criteria 
One or Three, make the effective dates of the section 5506 slots 
seamless with the expiration of applicable temporary cap adjustments 
under Sec.  413.79(h). We also solicited public comments on whether the 
regulatory temporary cap adjustment for residents displaced from closed 
hospitals under Sec.  413.79(h) is still necessary and appropriate, now 
that there is a provision in the statute that addresses permanent 
reassignment of slots from closed teaching hospitals. Alternatively, we 
stated that we would be interested in comments regarding whether the 
regulatory temporary cap adjustment for displaced residents under Sec.  
413.79(h) should be preserved, but the exemption from the rolling 
average for those displaced FTE residents should be eliminated. We 
indicated that these options should be considered by commenters not 
only in the context of section 5506 slots that have already been 
assigned, but also in the context of future teaching hospital closures, 
and how previously awarded section 5506 slots that have not as yet been 
filled might interact with eligibility for temporary cap adjustments 
for additional displaced residents in the future.
    Comment: Commenters supported the concept of making the effective 
dates of the section 5506 awards under Ranking Criteria One and Three 
seamless with the expiration of applicable temporary cap adjustments 
(that is, at the time when a displaced resident graduates). The 
commenters stated that this would allow the temporary cap adjustment 
and the exemption from the rolling average and IRB ratio cap to apply 
for the duration of time that the displaced residents are in training.
    Response: We appreciate the commenters' support. To accommodate 
seamless awards under Ranking Criteria One and Three, we are modifying 
the CMS Application Form (formerly, the Evaluation Form) to instruct a 
hospital applying under Ranking Criteria One and Three to list the 
names and graduation dates of specific displaced residents whom the 
hospital believes it has seamlessly replaced or will be seamlessly 
replacing with new PGY1 residents upon graduation of the displaced 
residents. Similarly, in the award letters, we will specify whether 
slots are being awarded under Ranking Criterion One or Three, the 
amount of FTEs awarded, and the names and graduation dates of specific 
displaced residents of whom we believe the hospital has proven that it 
has or will be seamlessly replacing. The effective date of these slots 
will be the day after the applicable graduation date(s).
    Comment: One commenter requested clarification on the ``seamless'' 
requirement for Ranking Criterion One and Ranking Criterion Three. The 
commenter stated that under Ranking Criterion One and Ranking Criterion 
Three, a hospital applying for additional cap slots must demonstrate 
that it will continue to train FTE residents in the same program as the 
closed hospital without any lapse in training. The commenter stated, 
for example, that if a hospital applied to take over part of a closed 
hospital's program under Ranking Criterion Three, which means it is 
also training some of the FTE residents that were displaced from that 
closed hospital's program, the applying hospital must be able to 
demonstrate that once those displaced FTE residents graduate on June 
30, it will immediately fill those positions with new FTE residents the 
next day on July 1. The commenter stated that if a teaching hospital 
closes even just a couple of months after the start of the academic 
year (July 1), it is very difficult for a hospital applying under 
Ranking Criterion One or Ranking Criterion Three to fill a slot vacated 
by a

[[Page 53442]]

displaced FTE resident(s) who is graduating June 30 of that academic 
year by July 1 of the following academic year. The commenter stated 
that recruitment for most residency training programs is organized in 
accordance with the National Resident Matching Program schedule. This 
schedule generally requires that the Match quotas for specialty 
programs must be submitted by January 31 and that the Match quotas for 
subspecialty programs be submitted even earlier than the January 
deadline for specialty programs. Therefore, if a hospital took in a 
displaced FTE resident who was scheduled to graduate the upcoming June 
30, it would likely be impossible for the hospital to fill that slot 
vacated by the displaced FTE resident immediately with the following 
July 1. The commenter stated it understands CMS' goal of requiring 
hospitals that apply under Ranking Criterion One or Ranking Criterion 
Three to seamlessly fill slots vacated by displaced FTE residents. 
However, the commenter requested that CMS clarify its policy to state 
that for those hospitals that apply under Ranking Criterion One and 
Ranking Criterion Three, in situations where FTE residents will 
graduate the next June 30, the applying hospital is required to 
demonstrate that it will fill the slots vacated by the displaced FTE 
residents by July 1 of the second academic year following the hospital 
closure.
    Response: We acknowledge that the timeline used by the National 
Resident Match Program or other resident match services can make it 
difficult, if not impossible, to seamlessly fill the slots of a 
displaced resident graduating on June 30 in the instance where a 
teaching hospital closes (or its programs close) after the date (for 
example, January 31) that positions must be placed in the Match for the 
upcoming academic year beginning July 1. However, we are not convinced 
that the same challenge exists even in instances where a hospital 
closes, or the programs close, at any point after ``just a couple of 
months'' following the start of an academic year, as the commenter 
asserted. With regard to allopathic and osteopathic programs, because 
the deadline for submitting the Match quota is approximately the end of 
January, we believe December 31 of the same academic year is a 
reasonable date to use for the purpose of determining the feasibility 
of seamlessly replacing displaced residents who are scheduled to 
graduate on the upcoming June 30. Therefore, we are stating in this 
final rule that, in the instance where a teaching hospital closed after 
December 31 of an academic year, in order for a hospital to qualify 
under Ranking Criterion One or Ranking Criterion Three for cap slots 
associated with displaced FTE residents that will graduate June 30 of 
the academic year in which the applying hospital took in the displaced 
FTE residents, the applying hospital must be able to demonstrate that 
it will fill slots vacated by displaced FTE residents by July 1 of the 
second academic year following the hospital closure. For example, if a 
hospital closes January 1, 2013, an applying hospital must be able to 
demonstrate that it will fill any positions vacated by displaced FTE 
residents who will graduate June 30, 2013, by July 1, 2014. However, in 
the instance where a teaching hospital closed before December 31 of an 
academic year, in order for a hospital to qualify under Ranking 
Criterion One or Ranking Criterion Three for cap slots associated with 
displaced FTE residents that will graduate June 30 of the academic year 
in which the applying hospital took in the displaced FTE residents, the 
applying hospital must be able to demonstrate that it will 
``seamlessly'' fill slots vacated by displaced FTE residents by July 1; 
that is, the day immediately after the June 30 that the displaced FTE 
residents graduate.
    Comment: Commenters stated that even though section 5506 exists to 
permanently redistribute slots from a closed teaching hospital, the 
temporary cap adjustments for displaced residents in the regulations at 
Sec.  413.79(h) must continue to exist. The commenters argued that the 
temporary cap adjustment for displaced residents policy in regulations 
at Sec.  413.79(h) and section 5506 are two provisions that serve 
different purposes and should be viewed independently; section 5506 
should not be viewed as a replacement for the temporary cap adjustment. 
The commenters stated that the temporary cap adjustment addresses an 
immediate crisis situation, protecting displaced residents and 
providing immediate payment to hospitals taking in the displaced 
residents, while section 5506 is intended to address a long-term 
situation, and the entire process can easily take up to 2 years to 
complete. Commenters pointed out that a hospital that takes in 
displaced residents and applies for section 5506 slots has no guarantee 
that it will be awarded permanent slots under the section 5506 program, 
and ``given this lack of certainty, the mere possibility of being 
awarded section 5506 slots is simply not enough of an incentive for the 
hospital to take on displaced residents.'' One commenter stated that 
CMS should exercise ``extreme caution before assuming that section 5506 
can be or should be viewed as a replacement for the temporary cap 
adjustment policy in any meaningful way.''
    Commenters also asserted that if the temporary cap adjustment was 
removed from the regulations, the pool of potential hospitals willing 
to absorb the displaced residents would likely shrink. The commenters 
stated that, for a variety of practical and personal reasons, displaced 
residents are not always able to (and some may not desire to) continue 
their residency training in the same geographic location as the closed 
hospital, and hospitals that are not located in the same state as the 
closed hospital would not be in a position to receive slots permanently 
under section 5506. One commenter noted that significant financial 
barriers still exist for many hospitals despite Medicare's payment 
policies, because the temporary cap adjustment policy only accounts for 
the Medicare share of teaching hospital costs, and not others, such as 
Medicaid, which generally does not have a policy like Medicare's to 
address displaced residents.
    Commenters also opposed the concept raised in the proposed rule of 
maintaining the temporary cap adjustment but of eliminating the 
exemption from the 3-year rolling average. Commenters argued that 
teaching hospitals should not have to face a short-term loss of funding 
due to the immediate application of the 3-year rolling average (and IRB 
ratio cap) when taking in displaced residents. One commenter added 
that, although CMS did not directly ask for comments on the exemption 
from the IRB ratio cap, this exemption is also an important piece of 
the temporary cap adjustment policy and should be preserved.
    Response: After considering the public comments received, we agree 
that the temporary cap adjustment policy in the regulations at Sec.  
413.79(h) and the permanent cap adjustments provided by section 5506 
serve both different and necessary roles. We particularly agree that 
elimination of the temporary cap adjustment may influence the 
willingness of hospitals in states or geographic areas outside the 
state or geographic vicinity of the closed hospital to take in 
displaced residents. Therefore, we are not making any changes to the 
regulations at Sec.  413.79(h), and are preserving the attending 
exemptions from the 3-year rolling average and the IRB ratio cap for 
the duration of a displaced resident's

[[Page 53443]]

training in the program from which he/she was displaced.
    In summary, we are finalizing the policy that the effective dates 
of the section 5506 slots awarded under Ranking Criteria One and Three 
are seamless with the expiration of applicable temporary cap 
adjustments (that is, at the time when a displaced resident graduates). 
To accommodate seamless awards under Ranking Criteria One and Three, we 
are modifying the CMS Application Form (formerly, the Evaluation Form) 
to instruct a hospital applying under Ranking Criteria One and Three to 
list the names and graduation dates of specific displaced residents 
whom the hospital believes it has seamlessly replaced or will be 
seamlessly replacing with new PGY1 residents upon graduation of the 
displaced residents. We also are stating in this final rule that in the 
instance where a teaching hospital closed after December 31 of an 
academic year, in order for a hospital to qualify under Ranking 
Criterion One or Ranking Criterion Three for cap slots associated with 
displaced FTE residents that will graduate June 30 of the academic year 
in which the applying hospital took in the displaced FTE residents, the 
applying hospital must be able to demonstrate that it will fill slots 
vacated by displaced FTE residents by July 1 of the second academic 
year following the hospital closure. Lastly, in this final rule, we are 
not making any changes to the regulations at Sec.  413.79(h), and we 
are preserving the attending exemptions from the 3-year rolling average 
and the IRB ratio cap for the duration of a displaced resident's 
training in the program from which he/she was displaced.
    Following is a chart of the Ranking Criteria and the effective 
dates we are finalizing:

------------------------------------------------------------------------
             Ranking criterion                      Effective date
------------------------------------------------------------------------
One: The applying hospital is requesting     The day after the
 the increase in its FTE resident cap(s)      graduation date(s) of
 because it is assuming (or assumed) an       actual displaced
 entire program (or programs) from the        resident(s).
 hospital that closed, and the applying
 hospital is continuing to operate the
 program(s) exactly as it had been operated
 by the hospital that closed (that is, same
 residents, possibly the same program
 director, and possibly the same (or many
 of the same) teaching staff).
Two: The applying hospital was listed as a   Date of the hospital
 participant of a Medicare GME affiliated     closure.
 group on the most recent Medicare GME
 affiliation agreement of which the closed
 hospital was a member before the hospital
 closed, and under the terms of that
 Medicare GME affiliation agreement, the
 applying hospital received slots from the
 hospital that closed, and the applying
 hospital will use the additional slots to
 continue to train at least the number of
 FTE residents it had trained under the
 terms of the Medicare GME affiliation
 agreement. If the most recent Medicare GME
 affiliation agreement of which the closed
 hospital was a member before the hospital
 closed was with a hospital that itself has
 closed or is closing, preference would be
 given to an applying hospital that was
 listed as a participant in the next most
 recent Medicare GME affiliation agreement
 (but not one which was entered into more
 than 5 years prior to the hospital's
 closure) of which the first closed
 hospital was a member before the hospital
 closed, and that applying hospital
 received slots from the closed hospital
 under the terms of that affiliation
 agreement.
Three: The applying hospital took in         The day after the
 residents displaced by the closure of the    graduation date(s) of
 hospital, but is not assuming an entire      actual displaced
 program or programs, and will use the        resident(s).
 additional slots to continue training
 residents in the same programs as the
 displaced residents, even after those
 displaced residents complete their
 training (that is, the applying hospital
 is permanently expanding its own existing
 programs).
Four: The program does not meet Ranking      The later of when hospital
 Criteria 1, 2, or 3, and the applying        can demonstrate to the
 hospital will use additional slots to        Medicare contractor that
 establish a new or expand an existing        the slots associated with
 geriatrics residency program.                a new program or program
                                              expansion are actually
                                              filled, and therefore, are
                                              needed as of a particular
                                              date (usually July 1,
                                              possibly retroactive), or
                                              the July 1 after displaced
                                              residents complete their
                                              training.
Five: The program does not meet Ranking
 Criteria 1 through 4, the applying
 hospital is located in a HPSA, and will
 use all the additional slots to establish
 or expand a primary care or general
 surgery residency program.
Six: The program does not meet Ranking
 Criteria 1 through 5, and the applying
 hospital is not located in a HPSA, and
 will use all the additional slots to
 establish or expand a primary care or
 general surgery residency program.
Seven: The applying hospital will use
 additional slots to establish or expand a
 primary care or general surgery program,
 but the program does not meet Ranking
 Criterion 5 or 6 because the hospital is
 also separately applying under Ranking
 Criterion 8 for slots to establish or
 expand a nonprimary care or non-general
 surgery program and/or for cap relief.
Eight: The program does not meet Ranking     If slots are for starting
 Criteria 1 through 7, and the applying       or expanding a nonprimary
 hospital will use additional slots to        care program, the
 establish or expand a nonprimary care or a   effective date is same as
 non-general surgery program or for cap       that for Ranking Criteria
 relief.                                      Four through Seven. If
                                              slots are for cap relief,
                                              the effective date is the
                                              effective date of CMS'
                                              award announcement, or the
                                              July 1 after displaced
                                              residents complete their
                                              training, whichever is
                                              later.
------------------------------------------------------------------------

[[Page 53444]]

e. Clarification of Relationship Between Ranking Criteria One, Two, and 
Three
    In the November 24, 2010 final rule with comment period, as part of 
the response to a comment we received requesting that the order of 
Ranking Criterion One (regarding an applicant hospital that assumes an 
entire program from a closed hospital) and Ranking Criterion Two 
(regarding an applicant hospital that received slots under the terms of 
a Medicare GME affiliation agreement from a closed hospital) be 
switched, we stated: ``Furthermore, the commenter need not be concerned 
that hospitals that would fit into Ranking Criterion Two would be at a 
disadvantage and deprived of their fair share of slots to hospitals 
that would fit under Ranking Criterion One. In fact, Ranking Criteria 
One and Two are not competing with each other, and hospitals fitting 
into each category would get their `fair' share of slots. For example, 
assume a hospital with an FTE resident cap of 100 closes. Hospital A 
assumes the entire programs in which 80 FTE residents were training 
when the hospital closed. Hospital B had been receiving 20 FTE slots 
from the closed hospital under the terms of a Medicare GME affiliation 
agreement. Hospital A applies for 80 slots under Ranking Criterion One 
and, all other things being equal, is awarded 80 slots. Hospital A 
could apply for more than 80 slots, but it could only receive 
consideration under Ranking Criterion One for a maximum of 80 slots. 
Therefore, 20 slots would remain for Hospital B to apply for and 
receive under Ranking Criterion Two. Accordingly, we do not believe it 
is necessary to reorder Ranking Criteria One and Two'' (75 FR 72218).
    Prior to the issuance of the proposed rule, we had been made aware 
that it may not always be true that Ranking Criteria One, Two, and even 
Three are not competing with each other. For example, in the case where 
the closed hospital was training residents in excess of its FTE 
resident caps, it is possible for hospitals to apply under Ranking 
Criteria One, Two, and/or Three for more slots than are available. 
However, under the policy expressed in the response quoted above from 
the November 24, 2010 final rule with comment period, because a 
hospital that takes over an entire program from the closed hospital is 
ranked under Ranking Criterion One, and a hospital that received slots 
from a Medicare GME affiliation agreement from the closed hospital is 
ranked under Ranking Criterion Two, all the slots could be assigned to 
the hospital under Ranking Criterion One, leaving no slots for 
hospitals ranked under Ranking Criterion Two or Three. (We note that in 
the first round of section 5506 awards associated with hospitals that 
closed between March 23, 2008, and August 3, 2010, this turned out not 
to be a concern because even in the case where a closed hospital was 
training residents in excess of its FTE caps at the time of closure, 
there were no applicants for the slots that simultaneously qualified 
under Ranking Criteria One, Two, and/or Three). For example, a hospital 
that closed has an FTE resident cap of 10, but when it closed, it was 
training 15 FTEs in an internal medicine program. Hospital A assumes at 
least 90 percent of the internal medicine program; that is, the 
``entire'' program (a hospital that takes on 90 percent of the 
residents training in a particular program at the closed hospital 
within 5 years prior to the hospital's closure or at the time of the 
hospital's closure would be deemed to have assumed an ``entire'' 
program (75 FR 72218)). Ninety percent of the internal medicine program 
is 13.5 FTEs. Because Hospital A took over the ``entire'' internal 
medicine program, it applies for slots under Ranking Criterion One. 
Hospital B applies under Ranking Criterion Three because it assumes the 
other 10 percent of the program, or 1.5 FTEs. However, because the 
closed hospital's FTE resident cap was limited to 10, it would seem 
that all 10 slots would be assigned to Hospital A under Ranking 
Criterion One, leaving no slots for Hospital B under Ranking Criterion 
Three. Conversely, if Ranking Criteria One and Three were ranked as 
equals, the 10 slots could be prorated so that both Hospital A and 
Hospital B each receive a ``fair'' share.
    Another example might be one in which a closed hospital that was 
training residents in excess of its FTE resident cap of 10 ``lent'' 2 
of those 10 cap slots to Hospital C under the terms of a Medicare GME 
affiliation agreement. Although under the terms of the Medicare GME 
affiliation agreement, the hospital's FTE resident cap was reduced from 
10 to 8, the hospital actually trained 9 FTEs, and continued to do so 
until it closed. Hospital D then assumes the 9 FTEs, or the entirety of 
the program that remained at the closed hospital when it closed. Again, 
one policy approach would be to rank the ranking criteria in descending 
order, and assign all 10 slots to Hospital D since Hospital D qualifies 
under Ranking Criterion One. Alternatively, another policy approach 
would be to treat Ranking Criteria One and Two as equals, and then a 
prorata share of the 10 slots could be given each to Hospital C and 
Hospital D.
    After consideration of these scenarios, we stated in the proposed 
rule that we believe that in the case where the closed hospital was 
training residents in excess of its FTE resident caps, prorating among 
hospitals that qualify under Ranking Criteria One, Two, and Three is 
not warranted. This is because we believe that a hospital that assumes 
an entire program from the closed hospital should be ranked highest, as 
it has taken the boldest step to ensuring the continuity of the closed 
hospital's program. As we explained first in the August 3, 2010 
proposed rule (75 FR 46423) and again in the November 24, 2010 final 
rule with comment period (75 FR 72218), ``We note that we are proposing 
this ranking criterion regarding affiliated hospitals as second, after 
the first ranking criterion regarding applying hospitals that assume an 
entire program or programs from the closed hospital because, even 
though section 5506 of the Affordable Care Act directs the Secretary to 
give preference to members of the same affiliated group, we believe 
that a hospital that assumes the responsibility for an entire program 
or programs demonstrates a commitment to maintain the programs to an 
even greater degree than does a hospital that was affiliated with the 
hospital that closed and may only be maintaining a portion of the 
residency program or programs.'' Similarly, we believe that because 
section 5506 of the Affordable Care Act does give preference to members 
of the same affiliated group as the closed hospital, hospitals 
qualifying for Ranking Criterion Two should receive slots first before 
hospitals qualifying for slots under Ranking Criterion Three. While we 
would encourage a hospital to assume a part of a closed hospital's 
program if it does not have the capacity to assume the entire program, 
such a hospital would be ranked under Ranking Criterion Three, still 
receiving preference before all hospitals that did not necessarily have 
any relationship with the closed hospital and that qualify under 
Ranking Criteria Four and below. As we stated in the November 24, 2010 
final rule with comment period (75 FR 72226), ``we would still assign 
the slots to hospitals qualifying under Ranking Criteria One, Two, and 
Three in descending order.'' Therefore, in the instance where a closed 
hospital is training residents in excess of its FTE resident caps when 
it closes, we are clarifying that we would not prorate a closed 
hospital's FTE resident caps among applicant hospitals that qualify

[[Page 53445]]

under Ranking Criteria One, Two, and Three.
    We did not receive any public comments on this clarification 
regarding the relationship between Ranking Criteria One, Two, and 
Three. Therefore, we are finalizing the clarification.
f. Modifications to the Section 5506 CMS Evaluation Form
    In the FY 2013 IPPS/LTCH PPS proposed rule (77 FR 27989), we 
proposed to make numerous changes to the Section 5506 CMS Evaluation 
Form. Most of the changes were not substantive, but were intended to 
clarify the requirements on the form, and therefore, we did not list 
them each individually. In the proposed rule, we indicated that there 
were several proposed changes that were more substantive, and we 
enumerated those. First, we proposed to change the name of the CMS 
Evaluation Form to the CMS Application Form. We believe this is a more 
appropriate name, as it is the form used by hospitals to apply for 
slots under section 5506. Second, we identified several instances on 
the proposed CMS Application Form where we proposed to prompt the 
applicant to specify whether the application is for a particular 
program, or for general cap relief, or for slots associated with a 
Medicare GME affiliation agreement with the closed hospital (which we 
did not do on the preceding form). Third, we proposed to clarify the 
titles of the Demonstrated Likelihood Criteria (DLC). Specifically, the 
proposed title for Demonstrated Likelihood Criterion 1 is 
``Establishing a New Residency Program'', the proposed title for 
Demonstrated Likelihood Criterion 2 is ``Taking Over All or Part of an 
Existing Residency Program from the Closed Hospital, or Expanding an 
Existing Residency Program,'' the proposed title for Demonstrated 
Likelihood Criterion 3 is ``Receiving Slots for General Cap Relief,'' 
and the proposed title for Demonstrated Likelihood Criterion 4 is 
``Receiving Slots by Virtue of Medicare GME Affiliated Group Agreement 
with Closed Hospital.'' Fourth, we proposed to add a category under 
Demonstrated Likelihood Criterion 2 stating that if the hospital 
currently has unfilled positions in a residency program that have 
previously been approved by the ACGME, AOA, or the ABMS, and the 
hospital is now seeking to fill those positions, the hospital must 
attach documentation clearly showing its current number of approved 
positions, and its current number of filled positions (as proof of the 
unfilled positions). Fifth, we proposed to change the wording in 
Ranking Criteria Four, Five, and Six, respectively, from ``The applying 
hospital does not meet Ranking Criteria 1, 2, or 3'' to ``The program 
does not meet Ranking Criterion 1, 2, or 3'' because the latter is more 
accurate. That is, it is possible for a hospital to qualify under 
Ranking Criterion 1, 2, or 3 for a particular program, and also to 
apply for slots separately under Ranking Criterion 4, 5, or 6 for a 
different program. Sixth, we proposed to add a new Ranking Criterion 7: 
The program does not meet Ranking Criteria 1 through 6, and the slots 
for which the hospital is applying are for a primary care or a general 
surgery program, but the hospital is also applying for slots under 
Ranking Criterion Eight. We also proposed to renumber what had been the 
previous Ranking Criterion Seven to be the proposed Ranking Criterion 
Eight. Lastly, in the proposed rule, we included the proposed revised 
CMS Section 5506 Application Form:
    Comment: One commenter supported the proposed changes to the CMS 
Evaluation Form and believed that its use will improve the application 
and review process for section 5506 awards.
    Response: We appreciate the commenter's support, and we are 
finalizing our proposed changes with some modifications. In response to 
public comments on Ranking Criteria One and Three, we are making 
additional changes to the CMS Evaluation Form (finalized as the CMS 
Application Form) under Ranking Criteria One and Three where hospitals 
applying under those Ranking Criteria must list the names and 
graduation dates of specific displaced residents whom, upon their 
graduation, the hospital seamlessly replaces (or intends to seamlessly 
replace) with new residents.
    Following is the finalized revised CMS Section 5506 Application 
Form:

CMS Application Form

As Part of the Application for the Increase in a Hospital's FTE Cap(s) 
under Section 5506 of the Affordable Care Act: Preservation of FTE Cap 
Slots from Teaching Hospitals that Close

    Directions: Please fill out the information below for each 
residency program for which the applicant hospital intends to use the 
increase in its FTE cap(s). If the hospital is applying for general FTE 
cap relief (an increase in the hospital's FTE cap(s) in recognition of 
already training residents in excess of the hospital's cap(s)), that 
application must be submitted separately from an individual program 
request. If the hospital is applying for slots associated with a 
Medicare GME affiliation agreement with a hospital that closed, that 
application must also be submitted separately from an individual 
program request.

NAME OF HOSPITAL:
-----------------------------------------------------------------------

MEDICARE PROVIDER NUMBER (CCN):
-----------------------------------------------------------------------

NAME OF MEDICARE CONTRACTOR:
-----------------------------------------------------------------------

CORE-BASED STATISTICAL AREA (CBSA in which the hospital is physically 
located--write the 5 digit code here):
-----------------------------------------------------------------------

COUNTY NAME (in which the hospital is physically located):
-----------------------------------------------------------------------

    Complete the following, as applicable:

1. Name Of Specialty Training Program:
-----------------------------------------------------------------------

2. General FTE Cap Relief:
-----------------------------------------------------------------------

3. Medicare GME Affiliated Group:
-----------------------------------------------------------------------

(Check one):
    [square] Allopathic Program
    [square] Osteopathic Program

NUMBER OF FTE SLOTS REQUESTED FOR SPECIFIC PROGRAM (OR HOSPITAL OVERALL 
IF SEEKING GENERAL CAP RELIEF OR SLOTS ASSOCIATED WITH A MEDICARE GME 
AFFILIATED GROUP) AT YOUR HOSPITAL:

Direct GME:---------- IME:----------

Section A: Demonstrated Likelihood Criteria (DLC) of Filling the FTE 
Slots

    The applicant hospital must provide documentation to demonstrate 
the likelihood of filling requested slots under section 5506 within the 
3 academic years immediately following the application deadline to 
receive slots after a particular hospital closes. Please indicate the 
specific use for which you are requesting an increase in your 
hospital's FTE cap(s). If you are requesting an increase in the 
hospital's FTE cap(s) for a combination of DLC1, DLC2, or DLC3, you 
must complete a separate CMS Application Form for each DLC and specify 
the distinct criterion from the list below within each Form.

[[Page 53446]]

Demonstrated Likelihood Criterion 1: Establishing a New Residency 
Program

    The hospital does not have sufficient room under its direct GME FTE 
cap or IME FTE cap, or both, and will establish a new residency program 
in the specialty. (The hospital must check at least one of the 
following.)
    [square] Application for approval of the new residency program has 
been submitted to the ACGME, AOA or the ABMS (The hospital must attach 
a copy.)
    [square] The hospital has submitted an institutional review 
document or program information form concerning the new program in an 
application for approval of the new program. (The hospital must attach 
a copy.)
    [square] The hospital has received written correspondence from the 
ACGME, AOA or ABMS acknowledging receipt of the application for the new 
program, or other types of communication from the accrediting bodies 
concerning the new program approval process (such as notification of 
site visit). (The hospital must attach a copy.)
    [square] The hospital has other documentation demonstrating that it 
has made a commitment to start a new program (The hospital must attach 
a copy.).

Demonstrated Likelihood Criterion 2: Taking Over All or Part of an 
Existing Residency Program from the Closed Hospital, or Expanding an 
Existing Residency Program

    The hospital does not have sufficient room under its direct GME FTE 
cap or IME FTE cap, or both, and a) has permanently taken over the 
closed hospital's entire residency program, or b) is permanently 
expanding its own previously established and approved residency program 
resulting from taking over part of a residency program from the closed 
hospital, or c) is permanently expanding its own existing residency 
program. (The hospital must check at least one of the following.)
    Hospitals applying for slots under option a) which correlates to 
Ranking Criterion 1 or b) which correlates to Ranking Criterion 3 must 
list the names and graduation dates of specific displaced residents 
who, upon their graduation, have been or will be seamlessly replaced by 
new residents. This list may be added as an attachment to this 
application.
    [squ] Application for approval to take over the closed hospital's 
residency program has been submitted to the ACGME, AOA, or the ABMS, or 
approval has been received from the ACGME, AOA, or the ABMS. (The 
hospital must attach a copy.)
    [squ] Application for approval of an expansion of the number of 
approved positions in its residency program resulting from taking over 
part of a residency program from the closed hospital has been submitted 
to the ACGME, AOA or the ABMS, or approval has been received from the 
ACGME, AOA, or the ABMS. (The hospital must attach a copy.)
    [squ] Application for approval of an expansion of the number of 
approved positions in its residency program has been submitted to the 
ACGME, AOA or the ABMS, or approval has been received from the ACGME, 
AOA, or the ABMS. (The hospital must attach a copy.)
    [squ] The hospital currently has unfilled positions in its 
residency program that have previously been approved by the ACGME, AOA, 
or the ABMS, and is now seeking to fill those positions. (The hospital 
must attach documentation clearly showing its current number of 
approved positions, and its current number of filled positions).
    [squ] The hospital has submitted an institutional review document 
or program information form concerning the program in an application 
for approval of an expansion to the program (The hospital must attach a 
copy).

Demonstrated Likelihood Criterion 3: Receiving Slots for General Cap 
Relief

    [squ] The hospital does not have sufficient room under its direct 
GME FTE cap or IME cap, or both, and is seeking an increase in its FTE 
cap(s) for general cap relief for residents that it is already 
training.

Demonstrated Likelihood Criterion 4: Receiving Slots by Virtue of 
Medicare GME Affiliated Group Agreement with Closed Hospital

    [squ] The hospital was listed as a participant of a Medicare GME 
affiliated group on the most recent Medicare GME affiliation agreement 
of which the closed hospital was a member before the hospital closed, 
and under the terms of that Medicare GME affiliation agreement, the 
applying hospital received slots from the hospital that closed, and the 
applying hospital will use the additional slots to continue to train at 
least the number of FTE residents it had trained under the terms of the 
Medicare GME affiliation agreement. If the most recent Medicare GME 
affiliation agreement of which the closed hospital was a member before 
the hospital closed was with a hospital that itself has closed or is 
closing, the applying hospital was listed as a participant in the next 
most recent Medicare GME affiliation agreement (but not one which was 
entered into more than 5 years prior to the hospital's closure) of 
which the first closed hospital was a member before the hospital 
closed, and that applying hospital received slots from the closed 
hospital under the terms of that affiliation agreement. (Copies of EACH 
of the following must be attached.)
    [dec222] Copies of the recent Medicare GME affiliation agreement of 
which the applying hospital and the closed hospital were a member of 
before the hospital closed.
    [dec222] Copies of the most recent accreditation letters for all of 
the hospital's training programs in which the hospital had a shared 
rotational arrangement (as defined at Sec.  413.75(b)) with the closed 
hospital.

Section B. Level Priority Category

    (Place an ``X'' in the appropriate box that is applicable to the 
level priority category that describes the applicant hospital.)
    [squ] First, to hospitals located in the same core-based 
statistical area (CBSA) as, or in a CBSA contiguous to, the hospital 
that closed.
    [squ] Second, to hospitals located in the same State as the closed 
hospital.
    [squ] Third, to hospitals located in the same region as the 
hospital that closed.
    [squ] Fourth, if the slots have not yet been fully distributed, to 
qualifying hospitals in accordance with the criteria established under 
section 5503, ``Distribution of Additional Residency Positions''

Section C. Ranking Criteria

    (Place an ``X'' in the box for each criterion that is appropriate 
for the applicant hospital and for the program for which the increase 
in the FTE cap is requested.)
    [squ] Ranking Criterion One. The applying hospital is requesting 
the increase in its FTE resident cap(s) because it is assuming (or 
assumed) an entire program (or programs) from the hospital that closed, 
and the applying hospital is continuing to operate the program (s) 
exactly as it had been operated by the hospital that closed (that is, 
same residents, possibly the same program director, and possibly the 
same (or many of the same) teaching staff).
    [squ] Ranking Criterion Two. The applying hospital was listed as a 
participant of a Medicare GME affiliated group on the most recent 
Medicare GME affiliation agreement of which the closed hospital was a 
member before the hospital closed, and under the terms of that Medicare 
GME affiliation agreement, the applying hospital

[[Page 53447]]

received slots from the hospital that closed, and the applying hospital 
will use the additional slots to continue to train at least the number 
of FTE residents it had trained under the terms of the Medicare GME 
affiliation agreement. If the most recent Medicare GME affiliation 
agreement of which the closed hospital was a member before the hospital 
closed was with a hospital that itself has closed or is closing, 
preference would be given to an applying hospital that was listed as a 
participant in the next most recent Medicare GME affiliation agreement 
(but not one which was entered into more than 5 years prior to the 
hospital's closure) of which the first closed hospital was a member 
before the hospital closed, and that applying hospital received slots 
from the closed hospital under the terms of that affiliation agreement.
    [squ] Ranking Criterion Three. The applying hospital took in 
residents displaced by the closure of the hospital, but is not assuming 
an entire program or programs, and will use the additional slots to 
continue training residents in the same programs as the displaced 
residents, even after those displaced residents complete their training 
(that is, the applying hospital is permanently expanding its own 
existing programs).
    [squ] Ranking Criterion Four. The program does not meet Ranking 
Criteria 1, 2, or 3, and the applying hospital will use additional 
slots to establish a new or expand an existing geriatrics residency 
program.
    [squ] Ranking Criterion Five: The program does not meet Ranking 
Criteria 1 through 4, the applying hospital is located in a HPSA, and 
will use all the additional slots to establish or expand a primary care 
or general surgery residency program.
    [squ] Ranking Criterion Six: The program does not meet Ranking 
Criteria 1 through 5, and the applying hospital is not located in a 
HPSA, and will use all the additional slots to establish or expand a 
primary care or general surgery residency program.
    [squ] Ranking Criterion Seven: The applying hospital will use 
additional slots to establish or expand a primary care or general 
surgery program, but the program does not meet Ranking Criterion 5 or 6 
because the hospital is also separately applying under Ranking 
Criterion 8 for slots to establish or expand a nonprimary care or non-
general surgery program and/or for cap relief.
    [squ] Ranking Criterion Eight: The program does not meet Ranking 
Criteria 1 through 7, and the applying hospital will use additional 
slots to establish or expand a nonprimary care or a non-general surgery 
program or for cap relief.

Application Process and CMS Central Office and Regional Office Mailing 
Addresses for Receiving Increases in FTE Resident Caps

    In order for hospitals to be considered for increases in their FTE 
resident caps, each qualifying hospital must submit a timely 
application. The following information must be submitted on 
applications to receive an increase in FTE resident caps:
    [ssquf] The name and Medicare provider number, and Medicare 
contractor (to which the hospital submits its cost report) of the 
hospital.
    [ssquf] The total number of requested FTE resident slots for direct 
GME or IME, or both.
    [ssquf] A completed copy of the CMS Application Form for each 
residency program for which the hospital intends to use the requested 
increase in FTE residents.
    [ssquf] Source documentation to support the assertions made by the 
hospital on the CMS Application Form.
    [ssquf] FTE resident counts for direct GME and IME and FTE resident 
caps for direct GME and IME reported by the hospital in the most recent 
as-filed cost report. (If the CMS Form 2552-96 is applicable, include 
copies of Worksheets E, Part A, E-3, Part IV, and if a hospital 
received an increase to its FTE cap(s) under section 422 of the MMA, a 
copy of E-3, Part VI. If the CMS Form 2552-10 is applicable, include 
copies of Worksheets E, Part A, and E-4).
    [ssquf] An attestation, signed and dated by an officer or 
administrator of the hospital who signs the hospital's Medicare cost 
report, of the following information:
    ``I hereby certify that I understand that misrepresentation or 
falsification of any information contained in this application may be 
punishable by criminal, civil, and administrative action, fine and/or 
imprisonment under federal law. Furthermore, I understand that if 
services identified in this application were provided or procured 
through payment directly or indirectly of a kickback or were otherwise 
illegal, criminal, civil, and administrative action, fines and/or 
imprisonment may result. I also certify that, to the best of my 
knowledge and belief, it is a true, correct, and complete application 
prepared from the books and records of the hospital in accordance with 
applicable instructions, except as noted. I further certify that I am 
familiar with the laws and regulations regarding Medicare payment to 
hospitals for the training of interns and residents.''
5. Notice of Closure of Teaching Hospitals 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 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. For teaching 
hospitals that closed on or after March 23, 2008, and on or before 
August 3, 2010, we established an application deadline of April 1, 
2011, for a hospital to request cap slots from a closed hospital(s). We 
also stated in the CY 2011 OPPS/ASC final rule with comment period (75 
FR 72215) that hospitals that close at any point after August 3, 2010, 
will fall into additional categories of applications, for which we 
would provide a separate notice with a future application deadline.
b. Notice of Closure of Teaching Hospitals
    We have learned of the closure of several teaching hospitals that 
occurred after August 3, 2010. This notice serves to notify the public 
of the closure of teaching hospitals, and to initiate another round of 
the section 5506 application and selection process. (We note that the 
first round applied to closed teaching hospitals listed at 76 FR 13294 
(March 11, 2011), with an application deadline of April l, 2011; and 
the second round applied to one closed teaching hospital as discussed 
at 76 FR 55917 (September 9, 2011), with an application deadline of 
December 1, 2011.) The following closed teaching

[[Page 53448]]

hospitals are part of a new application process under section 5506:

----------------------------------------------------------------------------------------------------------------
                                                                                     IME cap      Direct GME cap
                                                                                   (including       (including
                                                                                  
 Provider No.     Provider name    City and state   CBSA Code     Terminating     MMA Sec. 422     MMA Sec. 422
                                                                      date         \1\ and ACA     \1\ and ACA
                                                                                  Sec. 5503 \2\   Sec. 5503 \2\
                                                                                  adjustments)     adjustments)
----------------------------------------------------------------------------------------------------------------
120010........  Hawaii Medical    Honolulu, HI...        26180  January 5, 2012           15.73  16.12
                 Center East.
140301........  Oak Forest        Oak Forest, IL.        16974  August 31, 2011               0  4.40 - section
                 Hospital.                                                                        422 decrease
                                                                                                  2.37 = 2.03
                                                                                                  \3\
360101........  Huron Hospital..  East Cleveland,        17460  October 3, 2011           50.06  50.85 +.17
                                   OH.                                                            section 422
                                                                                                  increase - .10
                                                                                                  section 422
                                                                                                  reduction =
                                                                                                  50.92 \4\
----------------------------------------------------------------------------------------------------------------
\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\ Section 5503 of the Affordable Care Act (ACA), Public Law 111-148, redistributed unused residency slots
  effective July 1, 2011.
\3\ Oak Forest Hospital's 1996 direct GME FTE cap is 4.40. Under section 422 of the MMA, the hospital received a
  decrease of 2.37 to its direct GME FTE cap: 4.40 - 2.37 = 2.03.
\4\ Huron Hospital's 1996 direct GME FTE cap is 50.85. Under section 422 of the MMA, the hospital received an
  increase of 0.17 to its direct GME FTE cap and a decrease of 0.10 to its direct GME FTE cap: 50.85 + 0.17 -
  0.10 = 50.92.

c. Application Process for Available Resident Slots
    Under section IV.I.4. of the preamble of this final rule, in 
response to comments, we are finalizing a policy that provides an 
application period of 90 days following notification to the public of a 
hospital closure. Therefore, hospitals wishing to apply for and receive 
slots from the above hospitals' FTE resident caps must submit 
applications directly to the CMS Central Office no later than October 
29, 2012. 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 the October 29, 2012 deadline date.
    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 
October 29, 2012 deadline and 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 (CMS Section 5506 
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 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. 
We note that in section IV.I.4. of the preamble of this final rule, we 
are finalizing additional policies regarding the section 5506 
application process and an updated and revised CMS Section 5506 
Application Form as well.

J. Changes to the Reporting Requirements for Pension Costs for Medicare 
Cost-Finding Purposes

    In the FY 2012 IPPS/LTCH PPS final rule (76 FR 51693 through 
51697), we finalized our policy for reporting costs of qualified 
defined benefit pension plans for Medicare cost-finding purposes. 
Specifically, beginning with cost reporting periods on or after October 
1, 2011, a provider's pension cost for cost-finding purposes equals the 
cash basis contribution deposits plus any carry forward contributions, 
subject to a limitation. Providers with current contributions and carry 
forward contributions in excess of the limit may request approval of 
excess contributions, which will be reviewed on a case-by-case basis. 
Some or all of the excess contributions will be approved, as 
applicable, if it is determined that all or a portion of the excess 
contribution(s) are reasonable and necessary. To the extent that 
approval is granted, that portion of the excess is allowable as current 
period pension costs. We refer readers to the FY 2012 IPPS/LTCH PPS 
final rule for full details on this policy.
    In addition to finalizing this new policy in the FY 2012 IPPS/LTCH 
PPS final rule, we stated that we intended to make future amendments to 
conform existing regulations to this final policy (76 FR 51693). The 
existing regulations at 42 CFR 413.24 and 413.100 specify that pension 
costs of qualified defined benefit plans are reported on an accrual 
basis of accounting method. Sections 413.24 and 413.100 provide that 
revenue is reported in the period in which it is earned, regardless of 
when it is collected and expenses are reported in the period in which 
they are incurred, regardless of when it is paid. For Medicare payment 
purposes, the costs are generally allowable in the year in which the 
costs are accrued and claimed, subject to specific exceptions. 
Furthermore, for accrued costs to be recognized for Medicare payment in 
the year of the accrual, the requirements must be met with respect to 
the liquidation of related liabilities. Therefore, to conform these two 
existing regulations to the final policy we adopted in the FY 2012 
IPPS/LTCH PPS final rule with regard to pension costs for Medicare 
cost-finding purposes, in the FY 2013 IPPS/LTCH PPS proposed rule (77 
FR 27991), we proposed to amend the general cost reporting rules under 
Sec. Sec.  413.24 and 413.100 to note the exception for recognizing 
actual pension contributions funded during the cost reporting period on 
a cash basis. We also indicated that we plan to revise section 2305.2 
of the Provider Reimbursement Manual to reflect this policy change.
    We did not receive any public comments on our proposal. We are

[[Page 53449]]

finalizing our proposed amendments to the general cost reporting rules 
under Sec. Sec.  413.24 and 413.100, without modification, to note the 
exception for recognizing actual pension contributions funded during 
the cost reporting period on a cash basis.

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 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 report years 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 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, it required the Secretary 
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. These hospitals were notified of this start 
date in the award letter that was sent to them dated February 24, 2011
    Three of these 19 hospitals declined participation prior to the 
start of the cost report 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 as of April 2011.
    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

[[Page 53450]]

demonstration program is budget neutral in its own terms; in other 
words, the aggregate payments to the participating hospitals do not 
exceed the amount that would be paid to those same hospitals in the 
absence of the demonstration program. Typically, this form of budget 
neutrality is viable when, by changing payments or aligning incentives 
to improve overall efficiency, or both, a demonstration program may 
reduce the use of some services or eliminate the need for others, 
resulting in reduced expenditures for the demonstration program's 
participants. These reduced expenditures offset increased payments 
elsewhere under the demonstration program, thus ensuring that the 
demonstration program as a whole is budget neutral or yields savings. 
However, the small scale of this demonstration program, in conjunction 
with the payment methodology, makes it extremely unlikely that this 
demonstration program could be viable under the usual form of budget 
neutrality. Specifically, cost-based payments to participating small 
rural hospitals are likely to increase Medicare outlays without 
producing any offsetting reduction in Medicare expenditures elsewhere. 
Therefore, a rural community hospital's participation in this 
demonstration program is unlikely to yield benefits to the participant 
if budget neutrality were to be implemented by reducing other payments 
for these same hospitals.
    In the past eight 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 2012 IPPS final rules (69 FR 49183; 70 FR 
47462; 71 FR 48100; 72 FR 47392; 73 FR 48670; 74 FR 43922, 75 FR 50343, 
and 76 FR 51698, 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 the FY 2013 IPPS/LTCH 
proposed rule (77 FR 27991 through 27995) we proposed a methodology to 
calculate a budget neutrality adjustment factor to the FY 2013 national 
IPPS rate. In this final rule, we are adopting the proposed methodology 
for calculating the budget neutrality adjustment to the FY 2013 
national IPPS rates and finalizing the budget neutrality adjustment 
factor to be made to the FY 2103 national IPPS rate.
    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. 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. 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 rule for FY 2012, 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. 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 adjustments. For the FY 2010, RY2010 
IPPS/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/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.
    As in the FY 2010 IPPS/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 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, 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 small 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.)
2. Budget Neutrality Offset Amount for FY 2013
    In the FY 2013 IPPS/LTCH PPS proposed rule (77 FR 27993 and 27994), 
we revisited the issue of which cost reports to propose to use for 
calculating the FY 2013 budget neutrality offset amount. Although we 
used finalized cost reports where available for the FYs 2010, 2011, and 
2012 IPPS/LTCH PPS final rules, for FY 2013, we proposed to

[[Page 53451]]

use the ``as submitted'' cost report for each hospital participating in 
the demonstration for the cost report period ending in CY 2010 in 
estimating the costs of the demonstration. In the proposed rule, we 
stated that we believe a way to streamline our methodology for 
calculating the budget neutrality offset amount would be to use cost 
reports all with the same status (that is, only ``as submitted'' cost 
reports as opposed to a mix of ``as submitted'' and ``settled'' cost 
reports) from the same time period for all hospitals participating in 
the demonstration (as opposed to cost reports of varying statuses from 
varying years for the various hospitals as has been done previously). 
Therefore, because ``as submitted'' cost reports ending in CY 2010 are 
the most recent complete set of cost reports for all demonstration 
hospitals, we proposed to use these cost reports for our budget 
neutrality offset estimate. Further, because ``as submitted'' cost 
reports ending in CY 2010 are recent available cost reports, we stated 
that we believe they would be an accurate predictor of the costs of the 
demonstration in FY 2013 because they give us a recent picture of the 
participating hospitals' costs.
    In revisiting the issue of which datasets to propose to use in the 
budget neutrality offset amount calculation, we also revisited the 
methodology for calculating the budget neutrality offset amount. In the 
proposed rule, we proposed changes to that methodology in an effort to 
further improve and refine it. We noted that the proposed methodology 
varied, in part, from that finalized in the FY 2012 IPPS/LTCH PPS final 
rule (76 FR 51698 through 51707). Specifically, in proposing 
refinements to the methodology, our objective was to simplify the 
calculation so that it included as few steps as possible. In addition, 
we proposed to incorporate 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. As explained in greater detail below, 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 noted that, although we were proposing changes to certain 
aspects of the budget neutrality offset amount calculation, several 
core components of the methodology would remain unchanged. For example, 
we were continuing to propose to include in the budget neutrality 
offset amount 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).
    The proposed methodology for calculating the estimated FY 2013 
demonstration cost for the 23 currently participating hospitals was as 
follows:
    Step 1: For each of the 23 participating hospitals, we proposed 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 2010) in FY 2010. The general reasonable 
cost amount calculated under the reasonable cost methodology for any 
applicable year was thereafter referred to as the ``reasonable cost 
amount.''
    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 proposed 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 2010 reasonable cost amount for covered 
inpatient hospitals services under the demonstration. As indicated 
above, we proposed to use ``as submitted'' cost reports for the 
hospital's cost reporting period ending in CY 2010 for this 
calculation.
    We proposed to sum the two above-referenced amounts to calculate 
the general total estimated FY 2010 reasonable cost amount for covered 
inpatient hospital services for all 23 hospitals.
    We proposed to multiply this sum (that is, the general total 
estimated FY 2010 reasonable cost amount for covered inpatient hospital 
services for all 23 hospitals) by the FYs 2011 through 2013 IPPS market 
basket percentage increases, which were formulated by the CMS Office of 
the Actuary. We also proposed to then multiply the product of the 
general total estimated FY 2010 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 
2011 through 2013--the result would be the general total estimated FY 
2013 reasonable cost amount for covered inpatient hospital services for 
all 23 hospitals.
    We proposed to apply the IPPS market basket percentage increases 
applicable for FYs 2011 through 2013 to the FY 2010 reasonable cost 
amount described above to model the estimated FY 2013 reasonable cost 
amount under the demonstration. We proposed 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 
last year by the CMS Office of the Actuary and was proposed because it 
is intended to accurately reflect the tendency of hospitals' inpatient 
caseloads to increase. We acknowledged the possibility that inpatient 
caseloads for small hospitals may fluctuate, and proposed 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 proposed to identify the 
general estimated amount that would otherwise be paid in FY 2010 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 2010) if the demonstration was not 
implemented. Similarly, as in Step 1, for the hospitals that provide 
swing-bed services, we proposed 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 2010) and include it in the total FY 2010 general estimated amount 
that would otherwise be paid for covered inpatient hospital services 
without the demonstration. We proposed to sum these two amounts in 
order to calculate the estimated FY 2010 total payments that generally 
would otherwise be paid for covered inpatient hospital services for all 
23 hospitals without the demonstration.
    We proposed to multiply the above amount (that is, the estimated FY 
2010 total payments that generally would otherwise be paid for covered 
inpatient hospital services for all 23 hospitals without the 
demonstration) by the FYs 2011 through 2013 IPPS applicable percentage 
increases and a 3 percent annual volume adjustment for FYs 2011 through 
2013, the result would be the general total estimated FY 2013 costs 
that would be paid without the

[[Page 53452]]

demonstration for covered inpatient hospital services for the 23 
participating hospitals. In the proposed rule, we indicated that this 
methodology differs from Step 1, in which we proposed to apply the 
market basket percentage increases to the sum of the hospitals' general 
total FY 2010 estimated reasonable cost amount for covered inpatient 
hospital services. We believe that the IPPS applicable percentage 
increases are appropriate factors to update the estimated amounts that 
generally would otherwise be paid without the demonstration. This is 
because IPPS payments would constitute the majority of payments that 
would otherwise be made without the demonstration and the applicable 
percentage increase is the factor used under the IPPS to update the 
inpatient hospital payment rates. Hospitals participating in the 
demonstration would be participating under the IPPS payment methodology 
if they were not in the demonstration. We note that such use of the 
applicable percentage increase would represent a shift from 
formulations in previous years of the budget neutrality offset amount. 
In the FY 2013 proposed rule, as well as in this FY 2013 final rule, we 
are trying to increase the precision of the different projections for 
estimating the reasonable cost amounts and the estimated payments that 
would otherwise be paid without the demonstration.
    Step 3: We proposed 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 2013 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 2013). We proposed that the resulting difference would 
be the amount for which an adjustment to the national IPPS rates would 
be calculated. In the proposed rule, we indicated the resulting 
difference was $35,077,708. For the FY 2013 IPPS/LTCH PPS proposed 
rule, this amount was the estimated amount for which an adjustment to 
the national IPPS rates was calculated. We further indicated this 
estimated amount was based on the specific assumptions indentified 
regarding the data sources that were used, that is, ``as submitted'' 
recently available cost reports.
    We also noted that if updated data become available prior to the FY 
2013 final rule, we propose to use them to the extent appropriate to 
estimate costs of the demonstration program in FY 2013. Therefore, we 
indicated that the estimated budget neutrality offset amount may change 
in the final rule.
    Similar to previous years, we proposed that if settled cost reports 
for all of the demonstration hospitals that participated in the 
applicable fiscal year (FY 2007, 2008, 2009, or 2010) were available 
prior to the FY 2013 IPPS/LTCH PPS final rule, we would 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 system without the demonstration 
for the year from the amount paid to those hospitals under the 
reasonable-cost methodology for such year.)
    For this FY 2013 final rule, we are adopting without modification 
our proposal to use the ``as submitted'' cost report for each hospital 
participating in the demonstration for the cost report period ending in 
CY 2010 in estimating the costs of the demonstration in FY 2010. We are 
finalizing this proposal because we continue to believe this approach 
enables us to streamline our methodology for calculating the budget 
neutrality offset amount as explained in detail above. In addition, 
this set of cost reports remains the most recent set of complete cost 
reports that have been accepted by the MACs. Therefore, we believe they 
are an accurate predictor of costs of the demonstration in FY 2013 
because they give us a recent picture of the participating hospitals' 
costs.
    For this final rule, we also are adopting as final, without 
modification, Steps 1 and 2 of the proposed methodology as set forth 
above for the reasons explained above and in section IV.K. of the FY 
2013 IPPS/LTCH PPS proposed rule (77 FR 27994 and 27995). We note that, 
with respect to Step 1 of the methodology, the IPPS market basket 
percentage increase that is applicable to FY 2013 (and identified by 
the CMS Office of the Actuary) appears in section IV.H. of this 
preamble. We note that, with respect to Step 2 of the methodology, the 
IPPS applicable percentage increase that is applicable to FY 2013 is 
set forth in section IV.H. of the preamble to this FY 2013 final rule.
    With respect to Step 3, for the reasons set forth above and in 
section IV.K. of the preamble of the proposed rule (77 FR 27994 and 
27995) and this final rule, we are finalizing our proposal, without 
modification, 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 2013 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 2013). The resulting 
difference is the amount for which an adjustment to the national IPPS 
rates is calculated. For this final rule, the resulting difference for 
which an adjustment to the national IPPS rates is made is $34,288,129. 
This 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 we proposed that if settled cost 
reports for all of the demonstration hospitals that participated in the 
applicable fiscal year (FY 2007, 2008, 2009, or 2010) were available 
prior to the FY 2013 IPPS/LTCH PPS final rule, we would 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. 
However, finalized cost reports for the hospitals participating in the 
demonstration are not yet available for these years at the time of 
development of this FY 2013 IPPS/LTCH PPS final rule. Therefore, we are 
not finalizing this component of the proposed methodology. We are 
expecting 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. Thus, we expect to be in a position to propose to include in the 
budget neutrality offset amount for FY 2014 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.
    Comment: One commenter requested clarification regarding how 
hospitals participating in the Rural Community Hospital Demonstration 
will be impacted by the Hospital Readmissions Reduction Program.
    Response: As described above, the applicable hospital is defined as 
a

[[Page 53453]]

subsection (d) hospital or certain Maryland hospitals. Hospitals 
participating in the Rural Community Hospital Demonstration are 
subsection (d) hospitals and, thus, will be included in the Hospital 
Readmissions Reduction. Accordingly, we have calculated excess 
readmission ratios and readmissions payment adjustment factors for 
hospitals in the Demonstration. If hospitals in the Demonstration are 
subject to a readmissions payment reduction, the reduction will be 
applied to their base operating DRG amount as if they were paid under 
the IPPS. At cost report settlement, the readmissions payment amount 
reduced from the hospital's base operating DRG amount will be reduced 
from the payments received under the Demonstration.

L. Hospital Routine 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 by 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 proposed rule (77 FR 
27995), we have become aware that a number of affected hospitals need 
additional time to restructure existing arrangements and establish 
necessary operational protocols to comply with the requirement that 
therapeutic and diagnostic services are the only services that may be 
furnished outside of the hospital to Medicare beneficiaries ``under 
arrangement,'' and that ``routine services'' must be furnished by the 
hospital. While we still believe that our policy is consistent with the 
statutory language, we also believe that because a number of hospitals 
are actively pursuing compliance (often building construction or 
restructuring is involved), it is appropriate to postpone the effective 
date of this requirement to give hospitals additional time to comply 
with the provision.
    Therefore, in the FY 2013 IPPS/LTCH PPS proposed rule, we proposed 
to change the implementation date of this requirement to be effective 
for cost reporting periods beginning on or after October 1, 2013. We 
stated that we expect that, during FY 2013, hospitals will complete the 
work needed to ensure compliance with the new requirement. Beginning 
with a hospital's FY 2014 cost reporting period, we expect that all 
hospitals would be in full compliance with the revised policy for 
services furnished under arrangement. We indicated that we would 
continue to work with affected hospitals to communicate the requirement 
established by this provision, and to provide continued guidance 
regarding compliance with the provision.
    Comment: Several commenters submitted comments that were mostly 
similar to those received last year when we proposed this policy. All 
commenters believed that another one year delay in the effective date 
of the revised policy was insufficient and that the policy should be 
rescinded. The primary objections from all commenters were that the 
policy is not required by statute or regulations, the policy runs 
counter to efforts promoting efficiency in delivering health care, and 
the costs that will be incurred by certain providers to comply with the 
new policy are unnecessary and burdensome.
    Response: We continue to believe that the proposed policy is 
correct and consistent with the statute. As explained in more detail in 
our response to comments in the FY 2012 IPPS/LTCH PPS final rule (76 FR 
51712), we believe that when section 1862(a)(14) of the Act and section 
1861(b) of the Act are read in conjunction with each other, it becomes 
clear that the language limits the services that may be furnished 
outside of the hospital under arrangement to only diagnostic and 
therapeutic services, consistent with our revised policy. It is only 
paragraph (3) of the definition of ``inpatient hospital services'' at 
section 1861(b) of the Act, referencing diagnostic or therapeutic items 
or services, that includes the language, ``furnished by the hospital or 
by others under arrangements.''
    As we indicated in our response to similar public comments in the 
FY 2012 IPPS/LTCH PPS final rule (76 FR 51713 through 51714), we do not 
agree that the positive objectives of interfacility cooperation and 
collaboration in promoting efficiency in the delivery of health care 
are applicable to the existing arrangements that our revised policy is 
intended to address. We do not believe that the objective of efficiency 
in health care delivery would include moving inpatients of one hospital 
to another hospital, without being discharged from the first and 
admitted to the second, in order to provide routine services that are 
not available at the first hospital.
    We do not disagree that there may be additional costs incurred by 
some providers because of building construction or restructuring in 
order to comply with the proposed policy. However, to our knowledge, 
this involves very few providers, and to allow particular service 
arrangements that we find contrary to statute and regulations to 
continue because changing the arrangement would mean additional cost to 
a few providers is not an appropriate rationale to rescind this policy. 
Furthermore, while complying with the revised policy may necessitate 
expending additional funds for some of the commenters, those commenters 
are generally receiving higher Medicare payments as PPS-excluded 
providers by providing the routine services under arrangement, meaning 
such arrangements may inappropriately increase Medicare payments to 
those providers. In most cases that have come to our attention, the 
services are being provided at another hospital that is co-located with 
the hospital that is IPPS-excluded. If the hospitals are finding 
construction or restructuring costs too onerous, the hospital may want 
to consider becoming a unit of the IPPS hospital which would obviate 
the need for obtaining any services under arrangements from another 
hospital and may allow them to avoid the costs that they find 
burdensome.
    Comment: Three of the PPS-excluded cancer hospitals, as well as the 
alliance representing the 11 PPS-excluded cancer hospitals, submitted 
comments more specific to their own situations. These commenters stated 
that CMS' proposed policy upset a longstanding care delivery model that 
was created at the direction of CMS, that CMS had given its express 
approval for the type of arrangements that it is now trying to 
disallow, and that CMS had ``required'' one of the hospitals to operate 
under this type of arrangement.
    Response: CMS was involved, 15 to 20 years ago, at various times 
and to varying degrees, with three of the PPS-excluded cancer hospitals 
that wanted to ensure that they would retain their PPS-excluded status 
as they changed their physical and operational structures, to become 
hospitals-within-hospitals (HwH). Because two different payment systems 
are involved for the co-located hospitals, IPPS and reasonable cost 
subject to a limit, at the

[[Page 53454]]

time, we focused on preventing possible abuse of this arrangement. Some 
CMS requirements articulated at that time may appear to be contrary to 
our revised policy on services furnished under arrangements. However we 
have discretion to change our policy, and we believe this change is 
appropriate for the reasons described throughout this section and the 
FY 2012 IPPS/LTCH PPS final rule (76 FR 51711 through 51714).
    We believe the care delivery models that were carefully crafted 
years ago to protect against abuse of the payment systems and retain 
the separate identity of the HwHs have devolved over time to the point 
where the host hospital and PPS-excluded HwH are nearly 
indistinguishable from each other. Patients are moved from one 
hospital's bed to the other hospital's bed, and then back, not because 
of a particular service being provided, but because of bed availability 
or other reason unrelated to services. Patient care is administered by 
both entities or by the host hospital under contract. The PPS-excluded 
hospital has almost become a virtual hospital. Such arrangements do not 
merit special treatment under Medicare regulations. Moreover, as 
explained in more detail in a previous response in this section and in 
response to comments in the FY 2012 IPPS/LTCH PPS final rule (76 FR 
51711 through 51714), our revised policy is consistent with the statute 
and reduces the opportunity for gaming. To the extent the PPS-excluded 
cancer hospital and the subsection (d) hospital with which it is co-
located wish to retain their separate classifications, compliance with 
these requirements remains necessary and appropriate. To the extent 
that PPS excluded cancer hospitals are finding construction or 
restructuring costs too onerous, the hospitals may want to consider 
becoming one provider with the subsection (d) IPPS hospital.
    Comment: The cancer hospitals and the cancer hospital alliance 
reiterated comments they made on last year's proposed rule (FY 2012 
IPPS/LTCH PPS final rule (76 FR 51713 through 51714) that CMS' proposed 
policy is more expensive to the Medicare program because it would 
result in more hospital discharges--the cancer hospital would have to 
discharge patients that need ICU services, the patient would then be 
admitted to the co-located hospital for the ICU services, discharged 
from the co-located hospital once ICU services are no longer needed, 
and then readmitted back to the cancer hospital. The commenters 
believed that this would be more costly, in the aggregate, to the 
Medicare program.
    Response: We do not know that our revised policy will be more 
costly to the Medicare program, because although Medicare would be 
paying the IPPS hospital under the IPPS for the ICU services, it would 
not be paying the cancer hospital for those services based on 
reasonable cost. As explained in the FY 2012 IPPS/LTCH PPS final rule, 
some hospitals were furnishing certain routine services, including ICU 
services, under arrangement. For example, under certain arrangements, 
if an inpatient of an IPPS-excluded hospital (``hospital A'') required 
ICU services, and the IPPS-excluded hospital could not provide these 
services, the patient was moved to an IPPS hospital (``hospital B'') 
that could furnish these ICU services. In these situations, the patient 
was not transferred to hospital B but was moved from an inpatient bed 
of hospital A to an inpatient bed of hospital B. However, the IPPS-
excluded hospital treated these services as being provided under 
arrangement and included the cost of those services on its cost report. 
Because the two hospitals in the example above are under two different 
payment systems, we believe this behavior could lead to inappropriate 
and excessive Medicare payment. This is because the IPPS-excluded 
hospital, hospital A, is paid on a reasonable cost basis. This payment 
could be greater than if the hospital that provided the service were 
paid under the IPPS for the same patient.
    Comment: The cancer hospitals and the cancer hospital alliance also 
expressed concern that if patients needing ICU services had to be 
discharged and admitted as described above, it could inflate the 
readmission rates.
    Response: We do not believe that a hospital's readmission rates 
under the Hospital Readmissions Reduction Program would be affected by 
this policy for several reasons. Cancer hospitals are not included in 
the Program so admissions and readmissions to cancer hospitals are not 
included in an IPPS hospital's readmission rate. Furthermore, transfers 
to other providers are not included in the calculations of excess 
readmissions. Each of the measures used in the Hospital Readmissions 
Reduction Program has exclusions for transfers to other hospitals. 
Finally, currently, we are only measuring readmissions for heart 
attack, heart failure, and pneumonia.
    Comment: Commenters requested that CMS adopt a grandfathering 
provision to allow hospitals that have been furnishing routine services 
under arrangements outside of the hospital to continue furnishing these 
services in this manner. Cancer hospitals requested that, if the policy 
is not rescinded, a grandfathering provision be implemented that allows 
existing arrangements to continue, or provides an exception for cancer 
hospitals.
    Response: We do not believe it is appropriate to adopt a 
grandfathering provision. We are concerned that, without this policy 
change, Medicare will continue to pay inappropriately for these 
services. That is, payment to IPPS hospitals should be based on the DRG 
payment amount, and payment to excluded hospitals should not be based 
in part on the costs of routine services that the hospital has not 
furnished directly to its patients.
    After consideration of the public comments and for the reasons set 
forth above, we are finalizing our proposal to change the effective 
date of the revised policy. Therefore, effective for cost reporting 
periods beginning on or after October 1, 2013, routine services 
provided in the hospital to its inpatients are considered as being 
provided by the hospital. However, if services are provided outside the 
hospital, the services are considered as being provided under 
arrangement. Only therapeutic and diagnostic items and services may be 
furnished under arrangement outside of the hospital.

M. Technical Change

    In an interim final rule that appeared in the November 27, 2007 
Federal Register (72 FR 66895 through 66897), we made changes to the 
regulations governing the application of the emergency Medicare GME 
affiliation agreement rules in order to address the needs of hospitals 
located in the section 1135 emergency area in the aftermath of 
Hurricane Katrina and Rita. In that rule, we changed the length of 
emergency affiliation agreements from 3 years to 5 years under 42 CFR 
413.79(f)(7) (then Sec.  413.79(f)(6)); that is, we specified that the 
emergency Medicare GME affiliation agreement must terminate no later 
than the conclusion of 4 academic years following the academic year 
during which the section 1135 emergency period began. However, we 
inadvertently did not make a conforming change to 42 CFR 
413.79(f)(7)(i)(B). In the FY 2013 IPPS/LTCH PPS proposed rule (77 FR 
27995), we proposed to change the regulatory text specified Sec.  
413.79(f)(7)(i)(B) to make it consistent with the regulatory text under 
Sec.  413.79(f)(7).
    We did not receive any public changes on the proposed technical 
changes. Therefore, in this final rule, we

[[Page 53455]]

are adopting the proposed changes as final.

V. 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, as noted in the FY 2012 IPPS/LTCH PPS final rule (76 FR 51725 
and 51804), 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 Medicare allowable capital-related costs through its 
first 2 years of operation, unless the new hospital elects to receive 
full prospective payment based on 100 percent of the Federal rate. We 
refer readers to the FY 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. Prospective Adjustment for the FY 2010 Documentation and Coding 
Effect

1. Background
    In the FY 2008 IPPS final rule with comment period (72 FR 47175 
through 47186), we established adjustments to both the national 
operating standardized amount and the national capital Federal rate to 
eliminate the estimated effect of changes in documentation and coding 
resulting from the adoption of the MS-DRGs that do not reflect real 
changes in case-mix. Specifically, we established prospective 
documentation and coding adjustments of -1.2 percent for FY 2008, -1.8 
percent for FY 2009, and -1.8 percent for FY 2010. However, to comply 
with section 7(a) of Public Law 110-90, enacted on September 29, 2007, 
in a final rule published in the Federal Register on November 27, 2007 
(72 FR 66886 through 66888), we modified the documentation and coding 
adjustment for FY 2008 to -0.6 percent, and consequently revised the FY 
2008 IPPS operating and capital payment rates, factors, and thresholds 
accordingly, with these revisions effective October 1, 2007.
    For FY 2009, section 7(a) of Public Law 110-90 required a 
documentation and coding adjustment of -0.9 percent instead of the -1.8 
percent adjustment established in the FY 2008 IPPS final rule with 
comment period. As discussed in the FY 2009 IPPS final rule with 
comment period (73 FR 48447 and 48733 through 48774), we applied an 
additional documentation and coding adjustment of -0.9 percent to the 
FY 2009 IPPS national standardized amounts and the national capital 
Federal rate. The documentation and coding adjustments established in 
the FY 2009 IPPS final rule, as amended by Public Law 110-90, are 
cumulative. As a result, the -0.9 percent documentation and coding 
adjustment in FY 2009 was in addition to the -0.6 percent adjustment in 
FY 2008, yielding a combined effect of -1.5 percent. (For additional 
details on the development and implementation of the documentation and 
coding adjustments for FY 2008 and FY 2009, we refer readers to section 
II.D. of this preamble and the following rules published in the Federal 
Register: August 22, 2007 (72 FR 47175 through 47186 and 47431 through 
47432); November 27, 2007 (72 FR 66886 through 66888); and August 19, 
2008 (73 FR 48447 through 48450 and 48773 through 48775).)

[[Page 53456]]

    For the FY 2011 IPPS/LTCH PPS proposed and final rules, we 
performed a retrospective evaluation of the FY 2009 claims data updated 
through December 2009 using the same analysis methodology as we did for 
FY 2008 claims in the FY 2010 IPPS/RY 2010 LTCH PPS proposed and final 
rules. Based on this evaluation, our actuaries determined that the 
implementation of the MS-DRG system resulted in a 5.4 percent change in 
case-mix due to documentation and coding that did not reflect real 
changes in case-mix for discharges occurring during FY 2009. In the FY 
2011 IPPS/LTCH PPS final rule (75 FR 50355), we implemented an 
additional adjustment to the FY 2011 national capital Federal rate of -
2.9 percent to account for part of the effect of the estimated changes 
in documentation and coding under the MS-DRG system that occurred in 
FYs 2008 and 2009 that did not reflect real changes in case-mix. 
Consistent with past practice, this -2.9 percent adjustment was applied 
in a cumulative manner, which yielded a combined effect of -4.4 
percent. (For additional information on our estimate of the 5.4 percent 
cumulative documentation effect under the MS-DRG system for FYs 2008 
and 2009 and the additional -2.9 percent documentation and coding 
adjustment applied to the national capital Federal rate in FY 2011, we 
refer readers to the FY 2011 IPPS/LTCH PPS proposed rule (75 FR 24014) 
and the FY 2011 IPPS/LTCH PPS final rule (75 FR 50355).)
    In the FY 2012 IPPS/LTCH PPS final rule (76 FR 51727), we made an 
additional -1.0 percent adjustment to the national capital Federal rate 
to account for the remainder of the 5.4 percent estimate of the 
cumulative effect of documentation and coding changes under the MS-DRG 
system that occurred during FYs 2008 and 2009. Consistent with past 
practice, this -1.0 percent adjustment was applied in a cumulative 
manner, which yielded a combined effect of -5.4 percent.

2. Prospective Adjustment for the Effect of Documentation and Coding in 
FY 2010

    We continue to believe that it is appropriate to make adjustments 
to the capital IPPS rates to eliminate the effect of any documentation 
and coding changes as a result of the implementation of the MS-DRGs. 
These adjustments are intended to ensure that future annual aggregate 
IPPS payments are the same as payments that otherwise would have been 
made in those years absent the change to the MS-DRGs. Under section 
1886(g) of the Act, the Secretary has broad authority in establishing 
and implementing the IPPS for acute-care hospital inpatient capital-
related costs (that is, the capital IPPS). We have consistently stated 
since the initial implementation of the MS-DRG system that we do not 
believe it is appropriate for Medicare expenditures under the capital 
IPPS to increase due to MS-DRG related changes in documentation and 
coding. Accordingly, we believe that it is appropriate under the 
Secretary's broad authority under section 1886(g) of the Act, in 
conjunction with section 1886(d)(3)(A)(vi) of the Act and section 7(b) 
of Public Law 110-90, to make adjustments to the national capital 
Federal rate to eliminate the full effect of the documentation and 
coding changes resulting from the adoption of the MS-DRGs. We believe 
that this is appropriate because, in absence of such adjustments, the 
effect of the documentation and coding changes resulting from the 
adoption of the MS-DRGs results in inappropriately high capital IPPS 
payments because that portion of the increase in aggregate payments is 
not due to an increase in patient severity of illness (and costs).
    As discussed in the FY 2013 IPPS/LTCH PPS proposed rule (77 FR 
27997), we analyzed claims data from FY 2010 to determine whether any 
additional adjustment would be required to ensure that the adoption of 
MS-DRGs was implemented in a budget neutral manner. Specifically, we 
analyzed FY 2010 data on claims paid through December 2011 using our 
existing methodology as described in section II.D.4. of this preamble. 
Based on this analysis, our actuaries determined that implementation of 
the MS-DRG system resulted in a 6.2 percent change in case-mix due to 
documentation and coding that did not reflect real changes in case-mix 
for discharges occurring during FY 2010. This is an estimated 
additional 0.8 percentage point increase over the 5.4 percent reduction 
currently applied to the national capital Federal rate.
    Consistent with our proposal for the operating IPPS standardized 
amounts, we proposed, under the Secretary's broad authority under 
section 1886(g) of the Act, in conjunction with section 
1886(d)(3)(A)(vi) of the Act, 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 in FY 2010. Under that proposal, we 
would leave the -0.8 percent adjustment in place for FY 2013 and 
subsequent fiscal years to account for the effect in those years.
    In section II.D.10. of the preamble of this final rule, we discuss 
the public comments we received on our proposal to make a -0.8 percent 
adjustment to the operating IPPS standardized amounts and hospital-
specific rates and the national capital Federal rate 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 in FY 2010. In summary, numerous 
commenters objected to this proposal, and many commenters pointed to 
MedPAC's analysis, discussed in its comment letter on the FY 2011 IPPS/
LTCH PPS proposed rule, that suggested that ``negative documentation 
and coding'' may have occurred under the CMS-DRGs, creating an 
overestimation of documentation and coding due to the introduction of 
MS-DRGs.
    As discussed in greater detail in section II.D.10. of the preamble 
of this final rule, at this time, we believe that, while MedPAC's 
analysis suggested that a potential overestimate could have, in theory, 
occurred in our methodology, the estimates are theoretical maximums. It 
is not clear at this time that, based on the information submitted, to 
what extent the examples provided by the commenters substantiate these 
theoretical maximums or any change in adjustments. Nonetheless, we 
recognize that the methodological issues that surround this question 
are complex, and may merit further consideration. Therefore, consistent 
with the policy we are adopting for the operating IPPS standardized 
amounts and hospital-specific rates for FY 2013, we are not finalizing 
our proposal to apply a -0.8 percent adjustment to the national capital 
Federal rate at this time until more analysis can be completed.
3. Documentation and Coding Adjustment to the Puerto Rico-Specific 
Capital Rate
    Under Sec.  412.74, Puerto Rico hospitals are currently paid based 
on 75 percent of the national capital Federal rate and 25 percent of 
the Puerto Rico-specific capital rate. In the FY 2011 IPPS/LTCH PPS 
final rule (75 FR 50358 through 50359), we discussed the retrospective 
evaluation of the FY 2009 claims data from the March 2010 update of the 
MedPAR file of hospitals located in Puerto Rico using the same 
methodology used to estimate documentation and coding changes under 
IPPS for non-Puerto Rico hospitals. This analysis shows that the change 
in case-mix due to

[[Page 53457]]

documentation and coding that did not reflect real changes in case-mix 
for discharges occurring during FYs 2008 and 2009 from hospitals 
located in Puerto Rico was approximately 2.6 percent. We also explained 
that we continue to believe that an adjustment for such increases is 
appropriate because all hospitals have the same financial incentives 
for documentation and coding improvements, and the same ability to 
benefit from the resulting increase in aggregate payments that do not 
reflect real changes in case-mix.
    Given this case-mix increase due to changes in documentation and 
coding under the MS-DRGs, under the Secretary's broad authority under 
section 1886(g) of the Act, we established an adjustment to the Puerto 
Rico-specific capital rate of -2.6 percent in FY 2011 for the 
cumulative increase in case-mix due to changes in documentation and 
coding under the MS-DRGs for FYs 2008 and 2009. In addition, consistent 
with our implementation of other prospective MS-DRG documentation and 
coding adjustments to the capital Federal rate and operating IPPS 
standardized amounts, we established that the -2.6 percent adjustment 
will remain in place for subsequent fiscal years in order to ensure 
that changes in documentation and coding resulting from the adoption of 
the MS-DRGs do not lead to an increase in aggregate payments not 
reflective of an increase in real case-mix in subsequent years. 
Therefore, the -2.6 percent adjustment to the capital Puerto Rico-
specific rate made in FY 2011 reflects the entire amount of our 
estimate at that time of the effects of documentation and coding that 
did not reflect real changes in case-mix for discharges occurring 
during FYs 2008 and 2009 from hospitals located in Puerto Rico.
    As discussed above, for the proposed rule and this final rule, we 
analyzed FY 2010 data on claims paid through December 2011 using our 
existing methodology to determine if any additional adjustment for the 
effects of documentation and coding that did not reflect real changes 
in case-mix is warranted. Based on this analysis (which is described in 
greater detail in section II.D.10. of this preamble), we found no 
significant additional effect of documentation and coding that would 
warrant any additional adjustment. Therefore, we did not propose to 
make any additional adjustment to the capital Puerto Rico-specific rate 
for FY 2013 for the effect of documentation and coding that did not 
reflect real changes in case-mix.

D. Changes for Annual Update for FY 2013

    The annual update to the capital PPS Federal and Puerto Rico-
specific rates, as provided for at Sec.  412.308(c), for FY 2013 is 
discussed in section III. of the Addendum to this final rule.

VI. Changes for Hospitals Excluded From the IPPS

A. Excluded Hospitals

    Historically, hospitals and hospital units excluded from the 
prospective payment system received payment for inpatient hospital 
services they furnished on the basis of reasonable costs, subject to a 
rate-of-increase ceiling. A per discharge limit (the target amount as 
defined in 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 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 all categories of excluded 
providers, which included rehabilitation hospitals and units (now 
referred to as IRFs), psychiatric hospitals and units (now referred to 
as IPFs), LTCHs, children's hospitals, and IPPS-excluded cancer 
hospitals.
    Payment to children's hospitals and cancer hospitals that are 
excluded from the IPPS continues to be subject to the rate-of-increase 
ceiling based on the hospital's own historical cost experience. (We 
note that, in accordance with 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.)
    In the FY 2013 IPPS/LTCH PPS proposed rule (77 FR 27998), we 
proposed that the FY 2013 rate-of-increase percentage to be applied to 
the target amount for cancer and children's hospitals and RNHCIs would 
be the FY 2013 percentage increase in the IPPS operating market basket. 
At the time of issuance of the proposed rule, the FY 2013 percentage 
increase in the IPPS operating market basket was estimated to be 3.0 
percent. Beginning with FY 2006, we have used the percentage increase 
in the IPPS operating market basket to update the target amounts for 
children's and cancer hospitals. As explained in the FY 2006 IPPS final 
rule (70 FR 47396 through 47398), with IRFs, IPFs, and LTCHs being paid 
under their own PPS, the remaining number of providers being paid based 
on reasonable cost subject to a ceiling (that is, children's 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. For FY 2013, we proposed to continue to use the IPPS 
operating market basket to update the target amounts for children's and 
cancer hospitals and RNHCIs for the reasons discussed in the FY 2006 
IPPS final rule.
    In the FY 2013 IPPS/LTCH PPS proposed rule (77 FR 27998), we 
proposed to use the FY 2006-based IPPS operating market basket to 
update the target amounts for children's and cancer hospitals and 
RNHCIs for FY 2013. Therefore, based on IHS Global Insight, Inc.'s 2012 
first quarter forecast, with historical data through the 2011 fourth 
quarter, we estimated that the IPPS operating market basket update for 
FY 2013 would be 3.0 percent (that is, the estimate of the market 
basket rate-of-increase). We proposed 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 2013. Therefore, based on IHS 
Global Insight, Inc.'s 2012 second quarter forecast, with historical 
data through the 2012 first quarter, we use the FY 2013 estimate of the 
IPPS operating market basket rate-of-increase of 2.6 percent. Moreover, 
consistent with our proposal that the percentage increase in the rate-
of-increase limits for cancer and children's hospitals and RNHCIs would 
be the percentage increase in the FY 2013 IPPS operating market basket, 
the FY 2013 rate-of-increase percentage that is applied to the FY 2012 
target amounts in order to calculate the final FY 2013 target amounts 
for cancer and children's hospitals and RNHCIs is 2.6 percent, in 
accordance with the applicable regulations at 42 CFR 413.40.
    We note that IRFs, IPFs, and LTCHs, which were paid previously 
under the reasonable cost methodology, now receive payment under their 
own prospective payment systems, in accordance with changes made to the 
statute. In general, the prospective payment systems for IRFs, IPFs, 
and LTCHs provided transition periods of varying lengths during which 
time a portion of the prospective payment was based on cost-based 
reimbursement rules under Part 413. (However, certain providers do not 
receive a transition period or may elect to bypass the transition 
period as applicable under 42 CFR Part 412, Subparts N, O, and P.) We 
note that the various transition periods

[[Page 53458]]

provided for under the IRF PPS, the IPF PPS, and the LTCH PPS have 
ended.
    The IRF PPS, the IPF PPS, and the LTCH PPS are updated annually. We 
refer readers to section IV. of the Addendum to this final rule for the 
specific final update changes to the Federal payment rates for LTCHs 
under the LTCH PPS for FY 2013. The annual updates for the IRF PPS and 
the IPF PPS are issued by the agency in separate Federal Register 
documents.
    We did not receive any public comments on this section in the 
proposed rule.

B. Report on Adjustment (Exceptions) Payments

    Section 4419(b) of Public Law 105-33 requires the Secretary to 
publish annually in the Federal Register a report describing the total 
amount of adjustment payments made to excluded hospitals and hospital 
units by reason of section 1886(b)(4) of the Act during the previous 
fiscal year.
    The process of requesting, adjusting, and awarding an adjustment 
payment is likely to occur over a 2-year period or longer. First, 
generally, an excluded hospital must file its cost report for a fiscal 
year in accordance with Sec.  413.24(f)(2). The fiscal intermediary or 
MAC reviews the cost report and issues a notice of provider 
reimbursement (NPR). Once the hospital receives the NPR, if its 
operating costs are in excess of the ceiling, the hospital may file a 
request for an adjustment payment. After the fiscal intermediary or MAC 
receives the hospital's request in accordance with applicable 
regulations, the fiscal intermediary or MAC or CMS, depending on the 
type of adjustment requested, reviews the request and determines if an 
adjustment payment is warranted. This determination is sometimes not 
made until more than 180 days after the date the request is filed 
because there are times when the applications are incomplete and 
additional information must be requested in order to have a completed 
application. However, in an attempt to provide interested parties with 
data on the most recent adjustments for which we do have data, we are 
publishing data on adjustment payments that were processed by the 
fiscal intermediary or MAC or CMS during FY 2011.
    The table below includes the most recent data available from the 
fiscal intermediaries or MACs and CMS on adjustment payments that were 
adjudicated during FY 2011. As indicated above, the adjustments made 
during FY 2011 only pertain to cost reporting periods ending in years 
prior to FY 2010. Total adjustment payments given to excluded hospitals 
during FY 2011 are $3,118,588. The table depicts for each class of 
hospitals, in the aggregate, the number of adjustment requests 
adjudicated, the excess operating costs over the ceiling, and the 
amount of the adjustment payments.

----------------------------------------------------------------------------------------------------------------
                                                                                    Excess cost     Adjustment
                        Class of hospital                             Number       over ceiling      payments
----------------------------------------------------------------------------------------------------------------
Children's......................................................               2      $1,362,705      $1,303,381
Cancer..........................................................               1      $7,805,148      $1,743,053
Religious Nonmedical Health Care Institution (RNHCI)............               1         $72,154         $72,154
                                                                 -----------------------------------------------
    TOTAL.......................................................  ..............  ..............      $3,118,588
----------------------------------------------------------------------------------------------------------------

VII. Changes to the Long-Term Care Hospital Prospective Payment System 
(LTCH PPS) for FY 2013

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

[[Page 53459]]

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 VII. of this preamble, when we refer to 
discharges, the intent is to describe Medicare discharges.) The August 
30, 2002 final rule further details the payment policy under the TEFRA 
system (67 FR 55954).
    In the August 30, 2002 final rule, we provided for a 5-year 
transition period 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 this 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 LOS 
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 
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. Medicare Severity Long-Term Care Diagnosis-Related Group (MS-LTC-
DRG) Classifications and Relative Weights for FY 2013

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

[[Page 53460]]

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 and implementation and 
rationale for the use of the MS-DRGs and MS-LTC-DRGs, we refer readers 
to the FY 2008 IPPS final rule with comment period (72 FR 47141 through 
47175 and 47277 through 47299). (We note that, in that same final rule, 
we revised the regulations at 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 2013, as we proposed, we are not creating or 
deleting any MS-DRGs, and as such we continue to have a total of 751 
MS-DRG groupings for FY 2013. 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 VII.B.3.f. of this preamble, we use low-volume MS-LTC-
DRGs (that is, MS-LTC-DRGs with less than 25 LTCH cases) in determining 
the MS-LTC-DRG relative weights because LTCHs do not typically treat 
the full range of diagnoses as do acute care hospitals. For purposes of 
determining the relative weights for the large number of low-volume MS-
LTC-DRGs, we group all of the low-volume MS-LTC-DRGs into five 
quintiles based on average charge per discharge. (A detailed discussion 
of the initial development and application of the quintile methodology 
appears in the August 30, 2002 LTCH PPS final rule (67 FR 55978).) 
Under our existing methodology and as proposed, we 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, as 
proposed, we make adjustments to account for nonmonotonically 
increasing weights, when necessary. That is, theoretically, cases under 
the MS-LTC-DRG system that are more severe require greater expenditure 
of medical care resources and will result in higher average charges 
such that, in the severity levels within a base MS-LTC-DRG, the weights 
should increase monotonically with severity from the lowest to highest 
severity level. (We discuss nonmonotonicity in greater detail and our 
methodology to adjust the MS-LTC-DRG relative weights to account for 
nonmonotonically increasing relative weights in section VII.B.3.g. 
(Step 6) of this preamble.)
2. Patient Classifications Into MS-LTC-DRGs
a. Background
    The MS-DRGs (used under the IPPS) and the MS-LTC-DRGs (used under 
the LTCH PPS) are based on the CMS DRG structure. As noted above in 
this section, we refer to the DRGs under the LTCH PPS as MS-LTC-DRGs 
although they are structurally identical to the MS-DRGs used under the 
IPPS.
    The MS-DRGs are organized into 25 major diagnostic categories 
(MDCs), most of which are based on a particular organ system of the 
body; the remainder involve multiple organ systems (such as MDC 22, 
Burns). Within most MDCs, cases are then divided into surgical DRGs and 
medical DRGs. Surgical DRGs are assigned based on a surgical hierarchy 
that orders operating room (O.R.) procedures or groups of O.R. 
procedures by resource intensity. The GROUPER software program does not 
recognize all ICD-9-CM procedure codes as procedures affecting DRG 
assignment. That is, procedures that are not surgical (for example, 
EKG), or minor surgical procedures (for example, biopsy of skin and 
subcutaneous tissue (procedure code 86.11)) do not affect the MS-LTC-
DRG assignment based on their presence on the claim.
    Generally, under the LTCH PPS, a Medicare payment is made at a 
predetermined specific rate for each discharge and that payment varies 
by the MS-LTC-DRG to which a beneficiary's stay is assigned. Cases are 
classified into MS-LTC-DRGs for payment based on the following six data 
elements:
     Principal diagnosis;
     Additional or secondary diagnoses;
     Surgical procedures;
     Age;
     Sex; and
     Discharge status of the patient.
    Through FY 2010, the number of secondary or additional diagnoses 
and the number of 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).
    Upon the discharge of the patient, the LTCH must assign appropriate 
diagnosis and procedure codes from the most

[[Page 53461]]

current version of the International Classification of Diseases, Ninth 
Revision, Clinical Modification (ICD-9-CM). HIPAA Transactions and Code 
Sets Standards regulations at 45 CFR Parts 160 and 162 require that no 
later than October 16, 2003, all covered entities must comply with the 
applicable requirements of Subparts A and I through R of Part 162. 
Among other requirements, those provisions direct covered entities to 
use the ASC X12N 837 Health Care Claim: Institutional, Volumes 1 and 2, 
Version 4010, and the applicable standard medical data code sets for 
the institutional health care claim or equivalent encounter information 
transaction (45 CFR 162.1002 and 45 CFR 162.1102). For additional 
information on the ICD-9-CM Coding System, we refer readers to the FY 
2008 IPPS final rule with comment period (72 FR 47241 through 47243 and 
47277 through 47281). We also refer readers to the detailed discussion 
on correct coding practices in the August 30, 2002 LTCH PPS final rule 
(67 FR 55981 through 55983). Additional coding instructions and 
examples are published in the Coding Clinic for ICD-9-CM, a product of 
the American Hospital Association. (We refer readers to section II.G.9. 
of this preamble for additional information on the annual revisions to 
the ICD-9-CM codes.)
    With respect to the ICD-9-CM coding system, we have been discussing 
the conversion to the ICD-10-CM and the ICD-10-PCS coding systems for 
many years. In prior rules published in the Federal Register (for 
example, section II.G.11. 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.9. of this preamble for additional information 
on the adoption 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-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 
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. Changes to the MS-LTC-DRGs for FY 2013
    As specified by our regulations at Sec.  412.517(a), which requires 
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, as we proposed, we are updating the MS-LTC-DRG classifications 
effective October 1, 2012, through September 30, 2013 (FY 2013) 
consistent with the changes to specific MS-DRG classifications 
presented in section II.G. of this preamble (that is, GROUPER Version 
30.0). Therefore, the MS-LTC-DRGs for FY 2013 presented in this final 
rule are the same as the MS-DRGs that are being used under the IPPS for 
FY 2013. In addition, because the MS-LTC-DRGs for FY 2013 are the same 
as the MS-DRGs for FY 2013, the other changes that affect MS-DRG (and 
by extension MS-LTC-DRG) assignments under Version 30.0 of the GROUPER 
discussed in section II.G. of the preamble of this final rule, 
including the changes to the MCE software and the ICD-9-CM coding 
system, are also applicable under the LTCH PPS for FY 2013. We note 
that, we did not receive any public comments regarding the proposals 
presented under this section. The comments we received on the proposed 
changes to the MS-DRG classifications for FY 2013 (GROUPER Version 
30.0) are discussed in section II.G. of the preamble of this final 
rule.
3. Development of the FY 2013 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.
    Although the adoption of the MS-LTC-DRGs resulted in some 
modifications of our historical procedures for assigning relative 
weights in cases of zero volume and/or nonmonotonicity, as proposed, 
the basic methodology used to develop the MS-LTC-DRG relative weights 
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). (For additional details on the 
modifications to our historical procedures for assigning 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

[[Page 53462]]

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 calculated 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 MS-LTC-DRG Relative Weights for FY 2013
    In the FY 2013 IPPS/LTCH PPS proposed rule (77 FR 28000 through 
28007), we presented our proposals for the development of the MS-LTC-
DRG relative weights for FY 2013, The basic methodology we proposed to 
use to develop the FY 2013 MS-LTC-DRG relative weights is 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 (76 FR 51738 through 
51743) and is 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). Our proposed development of the FY 2013 
MS-LTC-DRG relative weights included proposals 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. We did not 
receive any public comments on our proposals regarding the development 
of the MS-LTC-DRG relative weights for FY 2013, and are adopting the 
proposals as final without modification in this final rule. (We refer 
readers to the FY 2013 IPPS/LTCH PPS proposed rule for additional 
details on our proposals for the development of the FY 2103 MS-LTC-DRG 
relative weights (77 FR 28000 through 28007).) Below we present the 
finalized methodology that we used to determine the MS-LTC-DRG relative 
weights for FY 2013, which is consistent with the methodology presented 
in the proposed 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) and as proposed, 
we 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 did not receive any public 
comments regarding this proposal. Thus, for this final rule, we 
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 2013 are based on the FY 
2012 MS-LTC-DRG classifications and relative weights established in 
Table 11 listed in section VI. of the Addendum to the FY 2012 IPPS/LTCH 
PPS final rule (76 FR 51813). (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 the proposed rule, to calculate the MS-LTC-DRG relative weights 
for FY 2013, we obtained total charges from FY 2011 Medicare LTCH bill 
data from the December 2011 update of the FY 2011 MedPAR file, which 
were the best available data at that time, and used the proposed 
Version 30.0 of the GROUPER to classify LTCH cases. Consistent with our 
existing methodology, we also proposed that if more recent data became 
available, we would use those data and the finalized Version 30.0 of 
the GROUPER in establishing the FY 2013 MS-LTC-DRG relative weights in 
the final rule. Consistent with our proposal, to calculate the MS-LTC-
DRG relative weights for FY 2013 for this final rule, we obtained total 
charges from FY 2011 Medicare LTCH bill data from the March 2012 update 
of the FY 2011 MedPAR file, which are the best available data, and used 
Version 30.0 of the GROUPER to classify LTCH cases.
    As proposed and consistent with our historical methodology, we 
excluded the data from LTCHs that are all-inclusive rate providers and 
LTCHs that are reimbursed in accordance with demonstration projects 
authorized under section 402(a) of Public Law 90-248 or section 222(a) 
of Public Law 92-603. Furthermore, consistent with our historical 
practice, we excluded Medicare Advantage (Part C) claims, which are now 
included in the MedPAR files, in the calculations for the relative 
weights under the LTCH PPS that are used to determine payments for 
Medicare fee-for-service claims. Specifically, we did not use any 
claims from the MedPAR files that have a GHO Paid indicator value of 
``1,'' which effectively removes Medicare Advantage claims from the 
relative weight calculations (73 FR 48532). Accordingly, in the 
development of the FY 2013 MS-LTC-DRG relative weights in this final 
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 March 2012 update of the FY 2011 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 (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. As proposed, 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 continue to use a hospital-specific 
relative value (HSRV) methodology to calculate the MS-LTC-DRG relative 
weights for FY 2013. 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 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

[[Page 53463]]

complexity of the cases treated by all other LTCHs (the average case-
mix of all LTCHs).
    We did not receive any public comments regarding this proposal. 
Thus, in accordance with our established methodology and as proposed, 
we 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 VII.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. Treatment of Severity Levels in Developing the MS-LTC-DRG Relative 
Weights
    For purposes of determining the MS-LTC-DRG relative weights, under 
our historical methodology, there are three different categories of 
DRGs based on volume of cases within specific MS-LTC-DRGs. MS-LTC-DRGs 
with at least 25 cases are each assigned a unique relative weight; low-
volume MS-LTC-DRGs (that is, MS-LTC-DRGs that contain between 1 and 24 
cases based on a given year's claims data) are grouped into quintiles 
(as described below) and assigned the relative weight of the quintile. 
No-volume MS-LTC-DRGs (that is, no cases in the given year's claims 
data 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). As proposed, we continue to utilize these same three categories 
of MS-LTC-DRGs for purposes of the treatment of severity levels in 
determining the MS-LTC-DRG relative weights for FY 2013. (We provide 
in-depth discussions of our policy regarding weight-setting for low-
volume MS-LTC-DRGs in section VII.B.3.f. of the preamble of this final 
rule and for no-volume MS-LTC-DRGs, under Step 5 in section VII.B.3.g. 
of this preamble.)
    As also noted above, while the LTCH PPS and the IPPS use the same 
patient classification system, the methodology that is used to set the 
DRG relative weights for use in each payment system differs because the 
overall volume of cases in the LTCH PPS is much less than in the IPPS. 
In general, as proposed and consistent with our existing methodology we 
used the following steps to determine the FY 2013 MS-LTC-DRG relative 
weights: (1) If an MS-LTC-DRG has at least 25 cases, it is assigned its 
own relative weight; (2) if an MS-LTC-DRG has between 1 and 24 cases, 
it is assigned to a quintile for which we compute a relative weight for 
all of the MS-LTC-DRGs assigned to that quintile; and (3) if an MS-LTC-
DRG has no cases, it is cross-walked to another MS-LTC-DRG based upon 
clinical similarities to assign an appropriate relative weight (as 
described below in detail in Step 5 of section VII.B.3.g. of this 
preamble). Furthermore, in determining the FY 2013 MS-LTC-DRG relative 
weights, when necessary, we make adjustments to account for 
nonmonotonicity, as discussed in greater detail below in Step 6 of 
section VII.B.3.g. of this preamble. We refer readers to the discussion 
in the FY 2010 IPPS/RY LTCH PPS final rule for our rationale for 
including an adjustment for nonmonotonicity (74 FR 43953 through 
43954).
f. Low-Volume MS-LTC-DRGs
    In order to account for MS-LTC-DRGs with low volume (that is, with 
fewer than 25 LTCH cases), as proposed and consistent with our existing 
methodology, for purposes of determining the FY 2013 MS-LTC-DRG 
relative weights, we continue to employ the quintile methodology for 
low-volume MS-LTC-DRGs, such that we group the ``low-volume MS-LTC-
DRGs'' (that is, MS-LTC-DRGs that contained between 1 and 24 cases 
annually) into one of five categories (quintiles) based on average 
charges (67 FR 55984 through 55995 and 72 FR 47283 through 47288). In 
determining the FY 2013 MS-LTC-DRG relative weights in this final rule, 
in cases where the initial assignment of a low-volume MS-LTC-DRG to 
quintiles resulted in nonmonotonicity within a base-DRG, in order to 
ensure appropriate Medicare payments, consistent with our historical 
methodology, we made adjustments to the treatment of low-volume MS-LTC-
DRGs to preserve monotonicity, as discussed in detail below in section 
VII.B.3.g. (Step 6) in this preamble.
    In this final rule, using LTCH cases from the March 2012 update of 
the FY 2011 MedPAR file (which is currently the best available data), 
we identified 304 MS-LTC-DRGs that contained between 1 and 24 cases. 
This list of MS-LTC-DRGs was then divided into one of the 5 low-volume 
quintiles, each containing a minimum of 61 MS-LTC-DRGs (304/5 = 64 with 
4 MS-LTC-DRGs as the remainder). We assigned a low-volume MS-LTC-DRG to 
a specific low-volume quintile by sorting the low-volume MS-LTC-DRGs in 
ascending order by average charge in accordance with our established 
methodology. Furthermore, because the number of MS-LTC-DRGs with less 
than 25 cases was not evenly divisible by 5, the average charge of the 
low-volume quintile was used to determine which of the low-volume 
quintiles contain the 4 additional low-volume MS-LTC-DRGs. 
Specifically, after organizing the MS-LTC-DRGs by ascending order by 
average charge, we assigned the first fifth (1st through 60th) of low-
volume MS-LTC-DRGs (with the lowest average charge) into Quintile 1. 
The MS-LTC-DRGs with the highest average charge cases were assigned 
into Quintile 5. Because the average charge of the 61st low-volume MS-
LTC-DRG in the sorted list was closer to the average charge of the 60th 
low-volume MS-LTC-DRG (assigned to Quintile 1) than to the average 
charge of the 62nd low-volume MS-LTC-DRG (assigned to Quintile 3), we 
assigned it to Quintile 1 (such that Quintile 1 contains 61 low-volume 
MS-LTC-DRGs before any adjustments for nonmonotonicity, as discussed 
below). This process was repeated through the remaining low-volume MS-
LTC-DRGs so that 4 of the 5 low-volume quintiles contain 61 MS-LTC-DRGs 
(Quintiles 1, 2, 3 and 4) and the other low-volume quintile contains 60 
MS-LTC-DRGs

[[Page 53464]]

(Quintiles 5). Table 13A, which is listed in section VI. of the 
Addendum to this final rule and is available via the Internet, lists 
the composition of the low-volume quintiles for MS-LTC-DRGs for FY 
2013.
    Accordingly, in order to determine the FY 2013 relative weights for 
the MS-LTC-DRGs with low volume, we used the 5 low-volume quintiles 
described above. The composition of each of the 5 low-volume quintiles 
shown in Table 13A (listed in section VI. of the Addendum to this final 
rule and available via the Internet) was used in determining the FY 
2013 MS-LTC-DRG relative weights (as shown in Table 11 listed in 
section VI. of the Addendum to this final rule and available via the 
Internet). We determined a relative weight and (geometric) average 
length of stay for each of the 5 low-volume quintiles using the 
methodology that we applied to the MS-LTC-DRGs (25 or more cases), as 
described below in section VII.B.3.g. of this preamble. We assigned the 
same relative weight and average length of stay to each of the low-
volume MS-LTC-DRGs that made up an individual low-volume quintile. We 
note that, as this system is dynamic, it is possible that the number 
and specific type of MS-LTC-DRGs with a low volume of LTCH cases will 
vary in the future.
    We note that we will continue to monitor the volume (that is, the 
number of LTCH cases) in the low-volume quintiles to ensure that our 
quintile assignments used in determining the MS-LTC-DRG relative 
weights result in appropriate payment for such cases and do not result 
in an unintended financial incentive for LTCHs to inappropriately admit 
these types of cases.
g. Steps for Determining the FY 2013 MS-LTC-DRG Relative Weights
    For this final rule, as we proposed, we determined the FY 2013 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 FY 2013 MS-LTC-DRG 
relative weights, we grouped LTCH cases to the appropriate 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 calculated the FY 2013 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 adjusted the number of cases in each 
MS-LTC-DRG (or low-volume quintile) for the effect of SSO cases (Step 3 
below). After removing statistical outliers (Step 1 below) and cases 
with a length of stay of 7 days or less (Step 2 below), the SSO 
adjusted discharges and corresponding charges were then used to 
calculate ``relative adjusted weights'' for each MS-LTC-DRG (or low-
volume quintile) using the HSRV method.
    Below we discuss in detail the steps for calculating the FY 2013 
MS-LTC-DRG relative weights. We note that, as we discussed in section 
VII.B.3.c. of this preamble, we excluded the data of all-inclusive rate 
LTCHs, LTCHs that are paid in accordance with demonstration projects, 
and any Medicare Advantage claims in the March 2012 update of the FY 
2011 MedPAR file.
    Step 1--Remove statistical outliers.
    The first step in the calculation of the FY 2013 MS-LTC-DRG 
relative weights is to remove statistical outlier cases. Consistent 
with our historical relative weight methodology, we continue to define 
statistical outliers as cases that are outside of 3.0 standard 
deviations from the mean of the log distribution of both charges per 
case and the charges per day for each MS-LTC-DRG. These statistical 
outliers are removed prior to calculating the relative weights because 
we believe that they may represent aberrations in the data that distort 
the measure of average resource use. Including those LTCH cases in the 
calculation of the relative weights could result in an inaccurate 
relative weight that does not truly reflect relative resource use among 
the MS-LTC-DRGs. (For additional information on this step of the 
relative weight methodology, we refer readers to 67 FR 55989 and 74 FR 
43959.)
    Step 2--Remove cases with a length of stay of 7 days or less.
    The MS-LTC-DRG relative weights reflect the average of resources 
used on representative cases of a specific type. Generally, cases with 
a length of stay of 7 days or less do not belong in a LTCH because 
these stays do not fully receive or benefit from treatment that is 
typical in a LTCH stay, and full resources are often not used in the 
earlier stages of admission to a LTCH. If we were to include stays of 7 
days or less in the computation of the FY 2013 MS-LTC-DRG relative 
weights, the value of many relative weights would decrease and, 
therefore, payments would decrease to a level that may no longer be 
appropriate. We do not believe that it would be appropriate to 
compromise the integrity of the payment determination for those LTCH 
cases that actually benefit from and receive a full course of treatment 
at a LTCH by including data from these very short stays. Therefore, 
consistent with our historical relative weight methodology, in 
determining the FY 2013 MS-LTC-DRG relative weights, we removed LTCH 
cases with a length of stay of 7 days or less. (For additional 
information on this step of the relative weight methodology, we refer 
readers to 67 FR 55989 and 74 FR 43959.)
    Step 3--Adjust charges for the effects of SSOs.
    After removing cases with a length of stay of 7 days or less, we 
are left with cases that have a length of stay of greater than or equal 
to 8 days. As the next step in the calculation of the FY 2013 MS-LTC-
DRG relative weights, consistent with our historical relative weight 
methodology, we adjusted 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 made 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 FY 2013 MS-LTC-DRG relative weights would lower the FY 
2013 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 adjusted 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 FY 2013 MS-LTC-DRG relative weights on an 
iterative basis.
    Consistent with our historical relative weight methodology, we 
calculated the FY 2013 MS-LTC-DRG relative weights

[[Page 53465]]

using the HSRV methodology, which is an iterative process. First, for 
each LTCH case, we calculated 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 was 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 MS-LTC-DRG, we calculated the FY 2013 relative weight by 
dividing the average of the adjusted hospital-specific relative charge 
values (from above) for the MS-LTC-DRG by the overall average hospital-
specific relative charge value across all cases for all LTCHs. Using 
these recalculated MS-LTC-DRG relative weights, each LTCH's average 
relative weight for all of its cases (that is, its case-mix) was 
calculated by dividing the sum of all the LTCH's MS-LTC-DRG relative 
weights by its total number of cases. The LTCHs' hospital-specific 
relative charge values (from above) were then multiplied by the 
hospital-specific case-mix indexes. The hospital-specific case-mix 
adjusted relative charge values were then used to calculate a new set 
of MS-LTC-DRG relative weights across all LTCHs. This iterative process 
was continued until there was convergence between the weights produced 
at adjacent steps, for example, when the maximum difference was less 
than 0.0001.
    Step 5--Determine a FY 2013 relative weight for MS-LTC-DRGs with no 
LTCH cases.
    As we stated above, we determined the FY 2013 relative weight for 
each MS-LTC-DRG using total Medicare allowable total charges reported 
in the best available LTCH claims data (that is, the March 2012 update 
of the FY 2011 MedPAR file for this final rule). Using these data, we 
identified the MS-LTC-DRGs for which there are no LTCH cases in the 
database, such that no patients who would have been classified to those 
MS-LTC-DRGs were treated in LTCHs during FY 2011 and, therefore, no 
charge data are available for these MS-LTC-DRGs. Thus, in the process 
of determining the MS-LTC-DRG relative weights, we were unable to 
calculate relative weights for the MS-LTC-DRGs with no LTCH cases using 
the methodology described in Steps 1 through 4 above. However, because 
patients with a number of the diagnoses under these MS-LTC-DRGs may be 
treated at LTCHs, consistent with our historical methodology, we 
assigned a relative weight to each of the no-volume MS-LTC-DRGs based 
on clinical similarity and relative costliness (with the exception of 
``transplant'' MS-LTC-DRGs and ``error'' MS-LTC-DRGs, as discussed 
below). (For additional information on this step of the relative weight 
methodology, we refer readers to 67 FR 55991 and 74 FR 43959 through 
43960.)
    In general, we determined FY 2013 relative weights for the MS-LTC-
DRGs with no LTCH cases in the March 2012 update of the FY 2011 MedPAR 
file used in this final rule (that is, ``no-volume'' MS-LTC-DRGs) by 
cross-walking each no-volume MS-LTC-DRG to another MS-LTC-DRG with a 
calculated relative weight (determined in accordance with the 
methodology described above). Then, the ``no-volume'' MS-LTC-DRG was 
assigned the same relative weight (and average length of stay) of the 
MS-LTC-DRG to which it was cross-walked (as described in greater detail 
below).
    Of the 751 MS-LTC-DRGs for FY 2013, we identified 212 MS-LTC-DRGs 
for which there are no LTCH cases in the database (including the 8 
``transplant'' MS-LTC-DRGs and 2 ``error'' MS-LTC-DRGs). As stated 
above, we assigned relative weights for each of the 212 no-volume MS-
LTC-DRGs (with the exception of the 8 ``transplant'' MS-LTC-DRGs and 
the 2 ``error'' MS-LTC-DRGs, which are discussed below) based on 
clinical similarity and relative costliness to one of the remaining 539 
(751 - 212 = 539) MS-LTC-DRGs for which we were able to determine 
relative weights based on FY 2011 LTCH claims data using the steps 
described above. (For the remainder of this discussion, we refer to the 
``cross-walked'' MS-LTC-DRGs as the MS-LTC-DRGs to which we cross-walk 
one of the 213 ``no volume'' MS-LTC-DRGs for purposes of determining a 
relative weight.) Then, we assigned the no-volume MS-LTC-DRG the 
relative weight of the cross-walked MS-LTC-DRG. (As explained below in 
Step 6, when necessary, we made adjustments to account for 
nonmonotonicity.)
    For this final rule, we cross-walked the no-volume MS-LTC-DRG to an 
MS-LTC-DRG for which there are LTCH cases in the March 2012 update of 
the FY 2011 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 MS-LTC-DRG to which a 
no-volume MS-LTC-DRG is cross-walked in order to assign an appropriate 
relative weight for the no-volume MS-LTC-DRGs in FY 2013. (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 no-volume MS-LTC-DRGs in FY 2013, the relative 
weights assigned based on the cross-walked MS-LTC-DRGs will result in 
an appropriate LTCH PPS payment because the crosswalks, which are based 
on similar clinical similarity and relative costliness, generally 
require equivalent relative resource use.
    We then assigned the relative weight of the cross-walked MS-LTC-DRG 
as the relative weight for the no-volume MS-LTC-DRG such that both of 
these MS-LTC-DRGs (that is, the no-volume MS-LTC-DRG and the cross-
walked MS-LTC-DRG) have the same relative weight for FY 2013. We note 
that if the cross-walked MS-LTC-DRG had 25 cases or more, its relative 
weight, which was calculated using the methodology described in Steps 1 
through 4 above, was assigned to the no-volume MS-LTC-DRG as well. 
Similarly, if the MS-LTC-DRG to which the no-volume MS-LTC-DRG was 
cross-walked had 24 or less cases and, therefore, was designated to one 
of the low-volume quintiles for purposes of determining the relative 
weights, we assigned the relative weight of the applicable low-volume 
quintile to the no-volume MS-LTC-DRG such that both of these MS-LTC-
DRGs (that is, the no-volume MS-LTC-DRG and the cross-walked MS-LTC-
DRG) have the same relative weight for FY 2013. (As we noted above, in 
the infrequent case where nonmonotonicity involving a no-volume MS-LTC-
DRG resulted, additional adjustments as described in Step 6 were 
required in order to maintain monotonically increasing relative 
weights.)
    For this final rule, a list of the no-volume MS-LTC-DRGs and the 
MS-LTC-DRG to which it is cross-walked (that is, the cross-walked MS-
LTC-DRG) for FY 2013 is shown in Table 13B, which is listed in section 
VI. of the Addendum to this final rule and is available via the 
Internet.
    To illustrate this methodology for determining the relative weights 
for the FY 2013 MS-LTC-DRGs with no LTCH cases, we are providing the 
following example, which refers to the no-volume

[[Page 53466]]

MS-LTC-DRGs crosswalk information for FY 2013 provided in Table 13B.
    Example: There are no cases in the FY 2011 MedPAR file used for 
this final rule for MS-LTC-DRG 61 (Acute Ischemic Stroke with Use of 
Thrombolytic Agent with MCC). We determined that MS-LTC-DRG 70 
(Nonspecific Cerebrovascular Disorders with MCC) is similar clinically 
and based on resource use to MS-LTC-DRG 61. Therefore, we assigned the 
same relative weight of MS-LTC-DRG 70 of 0.8209 for FY 2013 to MS-LTC-
DRG 61 (obtained from Table 11, which is listed in section VI. of the 
Addendum to this final 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 no-volume MS-LTC-
DRGs and to determine the relative weights in this final rule.
    Furthermore, for FY 2013, consistent with our historical relative 
weight methodology, we established MS-LTC-DRG relative weights of 
0.0000 for the following transplant MS-LTC-DRGs: Heart Transplant or 
Implant of Heart Assist System with MCC (MS-LTC-DRG 1); Heart 
Transplant or Implant of Heart Assist System without MCC (MS-LTC-DRG 
2); Liver Transplant with MCC or Intestinal Transplant (MS-LTC-DRG 5); 
Liver Transplant without MCC (MS-LTC-DRG 6); Lung Transplant (MS-LTC-
DRG 7); Simultaneous Pancreas/Kidney Transplant (MS-LTC-DRG 8); 
Pancreas Transplant (MS-LTC-DRG 10); and Kidney Transplant (MS-LTC-DRG 
652). This is because Medicare will only cover these procedures if they 
are performed at a hospital that has been certified for the specific 
procedures by Medicare and presently no LTCH has been so certified. At 
the present time, we include these eight transplant MS-LTC-DRGs in the 
GROUPER program for administrative purposes only. Because we use the 
same GROUPER program for LTCHs as is used under the IPPS, removing 
these MS-LTC-DRGs would be administratively burdensome. (For additional 
information regarding our treatment of transplant MS-LTC-DRGs, we refer 
readers to the RY 2010 LTCH PPS final rule (74 FR 43964).)
    Step 6--Adjust the FY 2013 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, relative weights should increase by severity, from lowest to 
highest. If the relative weights decrease as severity increases (that 
is, if within a base MS-LTC-DRG, an MS-LTC-DRG with CC has a higher 
relative weight than one with MCC, or the MS-LTC-DRG ``without CC/MCC'' 
has a higher relative weight than either of the others), they are 
nonmonotonic. We continue to believe that utilizing nonmonotonic 
relative weights to adjust Medicare payments would result in 
inappropriate payments because the payment for the cases in the higher 
severity level in a base MS-LTC-DRG (which are generally expected to 
have higher resource use and costs) would be lower than the payment for 
cases in a lower severity level within the same base MS-LTC-DRG (which 
are generally expected to have lower resource use and costs). 
Consequently, in determining the FY 2013 MS-LTC-DRG relative weights in 
this final rule, consistent with our historical methodology, we 
combined MS-LTC-DRG severity levels within a base MS-LTC-DRG for the 
purpose of computing a relative weight when necessary to ensure that 
monotonicity is maintained. For a comprehensive description of our 
existing methodology to adjust for nonmonotonicity, we refer readers to 
the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 43964 through 
43966). Any adjustments for nonmonotonicity that were made in 
determining the FY 2013 MS-LTC-DRG relative weights in this final rule 
by applying this methodology are denoted in Table 11, which is listed 
in section VI. of the Addendum to this final rule and is available via 
the Internet.
    Step 7--Calculate the FY 2013 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 updated the MS-LTC-DRG 
classifications and relative weights for FY 2013 based on the most 
recent available LTCH data, and applied a budget neutrality adjustment 
in determining the FY 2013 MS-LTC-DRG relative weights.
    To ensure budget neutrality in the update to the MS-LTC-DRG 
classifications and relative weights under Sec.  412.517(b), we 
continued to use our established two-step budget neutrality 
methodology. In this final rule, in the first step of our MS-LTC-DRG 
budget neutrality methodology, for FY 2013, we calculated and applied a 
normalization factor to the recalibrated relative weights (the result 
of Steps 1 through 6 above) to ensure that estimated payments are not 
influenced by changes in the composition of case types or the changes 
to the classification system. That is, the normalization adjustment is 
intended to ensure that the recalibration of the MS-LTC-DRG relative 
weights (that is, the process

[[Page 53467]]

itself) neither increases nor decreases the average CMI.
    To calculate the normalization factor for FY 2013 (the first step 
of our budget neutrality methodology), we used the following three 
steps: (1.a.) we used the most recent available LTCH claims data (FY 
2011) and grouped them using the FY 2013 GROUPER (Version 30.0) and the 
recalibrated FY 2013 MS-LTC-DRG relative weights (determined in steps 1 
through 6 of the Steps for Determining the FY 2013 MS-LTC-DRG Relative 
Weights above) to calculate the average CMI; (1.b.) we grouped the same 
LTCH claims data (FY 2011) using the FY 2012 GROUPER (Version 29.0) and 
FY 2012 MS-LTC-DRG relative weights and calculated the average CMI; and 
(1.c.) we computed the ratio of these average CMIs by dividing the 
average CMI for FY 2012 (determined in Step 1.b.) by the average CMI 
for FY 2013 (determined in Step 1.a.). In determining the MS-LTC-DRG 
relative weights for FY 2013, each recalibrated MS-LTC-DRG relative 
weight was multiplied by 1.12412 (determined in Step 1.c.) in the first 
step of the budget neutrality methodology, which produced ``normalized 
relative weights.''
    In the second step of our MS-LTC-DRG budget neutrality methodology, 
we determined a budget neutrality factor to ensure that estimated 
aggregate LTCH PPS payments (based on the most recent available LTCH 
claims data) after reclassification and recalibration (that is, the FY 
2013 MS-LTC-DRG classifications and relative weights) are equal to 
estimated aggregate LTCH PPS payments before reclassification and 
recalibration (that is, the FY 2012 MS-LTC-DRG classifications and 
relative weights). Accordingly, consistent with our existing 
methodology, we used FY 2011 discharge data to simulate payments and 
compare estimated aggregate LTCH PPS payments using the FY 2012 MS-LTC-
DRGs and relative weights to estimate aggregate LTCH PPS payments using 
the FY 2013 MS-LTC-DRGs and relative weights.
    For this final rule, we determined the FY 2013 budget neutrality 
adjustment factor using the following three steps: (2.a.) we simulated 
estimated total LTCH PPS payments using the normalized relative weights 
for FY 2013 and GROUPER Version 30.0 (as described above); (2.b.) we 
simulated estimated total LTCH PPS payments using the FY 2012 GROUPER 
(Version 29.0) and the FY 2012 MS-LTC-DRG relative weights in Table 11 
of the Addendum to the FY 2012 IPPS/LTCH PPS final rule available on 
the Internet (76 FR 51813); and (2.c.) we calculated the ratio of these 
estimated total LTCH PPS payments by dividing the estimated total LTCH 
PPS payments using the FY 2012 GROUPER (Version 29.0) and the FY 2012 
MS-LTC-DRG relative weights (determined in Step 2.b.) by the estimated 
total LTCH PPS payments using the FY 2013 GROUPER (Version 30.0) and 
the normalized MS-LTC-DRG relative weights for FY 2013 (determined in 
Step 2.a.). In determining the FY 2013 MS-LTC-DRG relative weights, 
each normalized relative weight was multiplied by a budget neutrality 
factor of 0.9880413 (determined in Step 2.c.) in the second step of the 
budget neutrality methodology to determine the budget neutral FY 2013 
relative weight for each MS-LTC-DRG.
    Accordingly, in determining the FY 2013 MS-LTC-DRG relative weights 
in this final rule, consistent with our existing methodology, we 
applied a normalization factor of 1.12412 and a budget neutrality 
factor of 0.9880413 (computed as described above). Table 11, which is 
listed in section VI. of the Addendum to this final rule and is 
available via the Internet, lists the MS-LTC-DRGs and their respective 
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 ``IPPS Comparable Thresholds'' (used in 
determining SSO payments under Sec.  412.529(c)(3)), for FY 2013. The 
FY 2013 MS-LTC-DRG relative weights in Table 11, which is listed in 
section VI. of the Addendum to this final rule and available via the 
Internet, reflect both the normalization factor of 1.12412 and the 
budget neutrality factor of 0.9880413.

C. Use of a LTCH-Specific Market Basket under the LTCH PPS

1. Background
    The input price index (that is, the market basket) that was used to 
develop the LTCH PPS for FY 2003 was the ``excluded hospital with 
capital'' market basket. That market basket was based on 1997 Medicare 
cost report data and included data for Medicare-participating IRFs, 
IPFs, LTCHs, cancer hospitals, and children's hospitals. Although the 
term ``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 section, 
refers to an input price index.
    Beginning with RY 2007, LTCH PPS payments were updated using a FY 
2002-based market basket reflecting the operating and capital cost 
structures for IRFs, IPFs, and LTCHs (hereafter referred to as the 
rehabilitation, psychiatric, and long-term care (RPL) market basket). 
We excluded cancer and children's hospitals from the RPL market basket 
because their payments are based entirely on reasonable costs subject 
to rate-of-increase limits established under the authority of section 
1886(b) of the Act, which are implemented in regulations at Sec.  
413.40. Those types of hospitals are not paid under a PPS. Also, the FY 
2002 cost structures for cancer and children's hospitals are noticeably 
different from the cost structures for freestanding IRFs, freestanding 
IPFs, and LTCHs. A complete discussion of the FY 2002-based RPL market 
basket appears in the RY 2007 LTCH PPS final rule (71 FR 27810 through 
27817).
    In the FY 2010 IPPS/RY 2010 LTCH PPS proposed rule (74 FR 21062), 
we expressed our interest in exploring the possibility of creating a 
stand-alone LTCH market basket that only reflects the cost structures 
for LTCHs. However, as we discussed in the FY 2010 IPPS/RY 2010 LTCH 
PPS final rule (74 FR 43967 through 43968), we were in the process of 
conducting further research to assist us in understanding the 
underlying reasons for the variations in costs and cost structures 
between freestanding IRFs and hospital-based IRFs, as well as between 
freestanding IPFs and hospital-based IPFs. At this time, we remain 
unable to sufficiently explain the observed differences in costs and 
cost structures between hospital-based IRFs and freestanding IRFs and 
between hospital-based IPFs and freestanding IPFs.
    In the FY 2012 IPPS/LTCH PPS final rule (76 FR 51756), we finalized 
the rebasing and revising of the FY 2002-based RPL market basket by 
creating and implementing an FY 2008-based RPL market basket. We also 
discussed that we were exploring the viability of creating two separate 
market baskets from the current RPL market basket: One market basket 
would include freestanding IRFs and freestanding IPFs and could be used 
to update payments under both the IPF and IRF payment systems. We 
continue our research in this area. The other market basket would be a 
stand-alone LTCH market basket. We stated that, depending on the 
outcome of our research, we may propose a stand-alone LTCH market 
basket in the next LTCH PPS update cycle. We received several public 
comments in response to the FY 2012

[[Page 53468]]

proposed rule, all of which supported deriving a stand-alone LTCH 
market basket (76 FR 51756 through 51757).
    As we routinely do, we have revisited the issue of the market 
basket used in the LTCH PPS. We previously did not estimate stand-alone 
market baskets for IRFs, IPFs, and LTCHs because of small sample sizes 
for freestanding facilities and the data concerns associated with the 
hospital-based facilities. Although we continue to do research in this 
area, at this time, we believe it is appropriate to move forward with a 
proposal to create a LTCH-specific market basket. This is because we 
believe we have sufficiently robust data to create such a market 
basket, and no longer need to rely on the cost report data from IPPS 
hospitals or from IRFs, IPFs, and LTCHs combined. Specifically, over 
the last several years, the number of LTCH facilities submitting a 
Medicare cost report has increased, helping to address concerns 
regarding the size of the available pool of facilities. The 
completeness and quality of the Medicare cost reports that we have been 
evaluating over the last several years have improved as well. 
Therefore, consistent with our intention to use the latest available 
and complete cost report data, we believe that it would be appropriate 
to create a market basket that would specifically reflect the cost 
structures of LTCHs based on Medicare cost report data for FY 2009, 
which are for cost reporting periods beginning on and after October 1, 
2008, and before October 1, 2009.
    Therefore, under the LTCH PPS for FY 2013, as we proposed, in this 
final rule, we are creating a FY 2009-based LTCH-specific market basket 
as described below. As we proposed, for this final rule, we are using 
data from cost reports beginning in FY 2009 because these data are the 
latest available complete data and, therefore, we believe it will 
enable us to accurately calculate cost weights that specifically 
reflect the cost structures of LTCHs. In this FY 2013 final rule, we 
are finalizing our proposal to create a LTCH-specific market basket 
based solely on Medicare cost report data from LTCHs of which the 
majority of the reports are settled. In the following discussion, we 
provide an overview of the market basket and describe the methodologies 
we used for determining the operating and capital portions of the FY 
2009-based LTCH-specific market basket.
2. Overview of the FY 2009-Based LTCH-Specific Market Basket
    As we proposed and are adopting in this final rule, the FY 2009-
based LTCH-specific market basket is a fixed-weight, Laspeyres-type 
price index. A Laspeyres 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 (that is, intensity) of 
goods and services purchased over time are not measured.
    As we proposed and are adopting in this final rule, the index 
itself is constructed in the following three steps. First, a base 
period is selected (as proposed, in this final rule, we used FY 2009 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 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 because it represents the change in price over time of a constant 
mix (quantity and intensity) of goods and services needed to furnish 
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.
3. Development of a LTCH-Specific Market Basket
    In the FY 2013 IPPS/LTCH PPS proposed rule (77 FR 28009), we 
invited public comments on our proposed methodology for deriving a 
LTCH-specific market basket. A summary of the public comments we 
received on the methodology for creating a LTCH-specific market basket 
are included in section VII.C.3.d. of the preamble of this final rule. 
Below we describe the methodology and data used to derive the cost 
categories, cost weights, and price proxies for the LTCH-specific 
market basket that we proposed and are adopting in this final rule.
a. Development of Cost Categories
(1) Medicare Cost Reports
    As we proposed and are adopting in this final rule, the FY 2009-
based LTCH-specific market basket consists of several major cost 
categories derived from the FY 2009 LTCH Medicare cost reports as 
described previously, including wages and salaries, employee benefits, 
contract labor, pharmaceuticals, professional liability insurance, 
capital, and a residual. These FY 2009 Medicare cost reports are for 
cost reporting periods beginning on and after October 1, 2008, and 
before October 1, 2009. As we proposed and are adopting in this final 
rule, we are using FY 2009 as the base year because we believe that the 
FY 2009 Medicare cost reports represent the most recent, complete set 
of Medicare cost report data available for LTCHs.
    Medicare cost report data include costs for all patients, including 
Medicare, Medicaid, and private payer. As we proposed and are adopting 
in this final rule, because our goal is to measure cost shares for 
facilities that serve Medicare beneficiaries, and are reflective of 
case-mix and practice patterns associated with providing services to 
Medicare beneficiaries in LTCHs, we limit our selection of Medicare 
cost reports to those from LTCHs that have a Medicare average length of 
stay that is within a comparable range of their total facility average 
length of stay. We believe this provides a more accurate reflection of 
the structure of costs for Medicare covered days. As we proposed and 
are adopting in this final rule, similar to our methodology for the FY 
2008-based RPL market basket, we use the cost reports submitted by 
LTCHs with Medicare average lengths of stay within 15 percent (that is, 
15 percent higher or

[[Page 53469]]

lower) of the total facility average length of stay for the hospital. 
This is the same edit we applied to derive the FY 2008-based RPL market 
basket and generally includes those LTCHs with Medicare average length 
of stay within approximately 5 days of the facility average length of 
stay of the hospital.
    Using this set of Medicare cost reports, as we proposed and are 
adopting in this final rule, we then calculate cost weights for six 
cost categories, and a residual category as represented by all other 
costs, directly from the FY 2009 Medicare cost reports submitted by 
LTCHs (found in Table VII.C-1 below). As we proposed and are adopting 
in this final rule, these Medicare cost report cost weights are then 
supplemented with information obtained from other data sources 
(explained in more detail below) to derive the FY 2009-based LTCH-
specific market basket cost weights.
    The proposed and final methodology used to develop the FY 2009-
based LTCH-specific market basket cost weights is generally the same 
methodology used to develop the FY 2008-based RPL market basket cost 
weights, with the exception of the employee benefits and contract labor 
cost weights. For the FY 2008-based RPL market basket, there was an 
issue with obtaining data specifically for employee benefits and 
contract labor from the set of FY 2008 Medicare cost reports, as IRFs, 
IPFs, and LTCHs were not required to complete the Medicare cost report 
worksheet from which these data were collected (Form CMS-2552-96, 
Worksheet S3, Parts II and III). As a result, only a proportion of the 
total number of IRFs, IPFs, and LTCHs reported data for employee 
benefits and contract labor; therefore, we developed these cost weights 
for the FY 2008-based RPL market basket using data obtained from IPPS 
Medicare cost reports. However, when we reviewed LTCH Medicare cost 
reports for FY 2009, we found that a greater proportion of LTCHs 
submitted data for employee benefits and contract labor (approximately 
40 percent of LTCHs, whose total costs account for approximately 50 
percent of total costs for all LTCHs, submitted a cost report) compared 
to the proportion of IRFs and IPFs that submitted these data. We 
believe that it is better to use the LTCH-specific cost report data 
whenever possible to further our goal to create a market basket that 
represents the cost structures of LTCHs serving Medicare beneficiaries. 
Therefore, as we proposed and are adopting in this final rule, we use 
the LTCH-specific cost reports to derive the employee benefits and 
contract labor cost weights for the FY 2009-based LTCH-specific market 
basket, as opposed to using the IPPS Medicare cost reports as a proxy, 
as was done for the FY 2008-based RPL market basket.

 Table VII.C-1--Major Cost Categories and Their Respective Cost Weights
        as Calculated Directly From FY 2009 Medicare Cost Reports
------------------------------------------------------------------------
                                     FY 2009-based LTCH-specific market
      Major cost categories          basket cost weights obtained from
                                      Medicare cost reports (percent)
------------------------------------------------------------------------
Wages and Salaries...............                                 40.407
Employee Benefits................                                  6.984
Contract Labor...................                                  6.947
Professional Liability Insurance                                   0.830
 (Malpractice)...................
Pharmaceuticals..................                                  8.877
Capital..........................                                  9.829
All Other (Residual).............                                 26.126
------------------------------------------------------------------------

(2) Other Data Sources
    In addition to the data from Medicare cost reports submitted by 
LTCHs, as we proposed and are adopting in this final rule, the other 
data source we use to develop the FY 2009-based LTCH-specific 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 use the 2002 BEA Benchmark I-O data to disaggregate the 
``All Other (Residual)'' cost category (26.126 percent) into more 
detailed hospital expenditure category shares. We note that we use 
these data to derive most of the CMS market baskets, including the FY 
2008-based RPL and FY 2006-based IPPS market baskets. 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. We used the 2002 BEA Benchmark 
I-O data for the FY 2008-based RPL market basket. Because BEA has not 
released new Benchmark I-O data, and we believe the data to be 
comprehensive and complete as indicated above, we use the 2002 
Benchmark I-O data in the FY 2009-based LTCH-specific market basket.
    Instead of using the less detailed Annual I-O data, as we proposed 
and are adopting in this final rule, we age the 2002 Benchmark I-O data 
forward to 2009. As we proposed, the methodology we are using in this 
final rule 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.
    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 LTCH-specific market basket.
b. Cost Category Computation
    As we proposed and are adopting in this final rule, for the FY 
2009-based LTCH-specific market basket, we use data from the Medicare 
cost reports submitted by LTCHs to derive six major cost categories. 
The six major categories are: Wages and Salaries, Employee

[[Page 53470]]

Benefits, Contract Labor, Professional Liability Insurance, 
Pharmaceuticals, and Capital, as shown above in Table VII.C-1. These 
represent the most detailed cost categories available from the Medicare 
cost reports. As stated above, as we proposed and are adopting in this 
final rule, we then utilize the Benchmark I-O data in order to further 
disaggregate expenses. This is the same methodology used to derive most 
of the CMS market baskets, including the FY 2008-based RPL and FY 2006-
based IPPS market baskets. We obtained the same major cost categories 
from the Medicare cost report for the FY 2009-based LTCH market basket 
as were obtained for the FY 2008-based RPL market basket (76 FR 51758), 
and two additional categories, Employee Benefits and Contract Labor.
c. Selection of Price Proxies
    After computing the FY 2009 cost weights for the LTCH-specific 
market basket, it was necessary to select appropriate wage and price 
proxies to reflect the rate of price change for each expenditure 
category. With the exception of the proxy for Professional Liability 
Insurance, all of the proxies that we proposed and are adopting in this 
final rule for the operating portion of the FY 2009-based LTCH-specific 
market basket 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 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. As we proposed and are adopting in this final rule, the 
PPIs that we are using 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. As we proposed and are adopting in this final rule, because 
they may not represent the price encountered by a producer, we 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 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.
    As we proposed and are adopting in this final rule, 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 PPIs, CPIs, and ECIs selected in this final rule meet these 
criteria.
    Table VII.C-2 below sets forth the FY 2009-based LTCH-specific 
market basket, including the cost categories and their respective 
weights and price proxies that we proposed and are adopting for this 
final rule. For comparison purposes, the corresponding FY 2008-based 
RPL market basket cost weights also are listed. For example, ``Wages 
and Salaries'' are 46.330 percent of total costs under the FY 2009-
based LTCH-specific market basket compared to 49.447 percent under the 
FY 2008-based RPL market basket. ``Employee Benefits'' are 8.008 
percent under the FY 2009-based LTCH-specific market basket compared to 
12.831 percent under the FY 2008-based RPL market basket. As a result, 
compensation costs (wages and salaries plus employee benefits) under 
the FY 2009-based LTCH-specific market basket are 54.338 percent of 
total costs compared to 62.278 percent under the FY 2008-based RPL 
market basket. We note that the ``Wages and Salaries'' cost weight 
contained in Table VII.C-2 (46.330 percent) differs from that contained 
in Table VII.C-1 (40.407 percent). We attribute this difference to our 
allocation of the ``Contract Labor'' cost weight obtained from the 
Medicare cost reports (6.947 percent) proportionately across the 
``Wages and Salaries'' and ``Employee Benefits'' cost weights obtained 
from the Medicare cost reports.
    Following Table VII.C-2 is a summary of the proxies for the 
operating portion of the FY 2009-based LTCH-specific market basket that 
we proposed and are adopting for this final rule. We note that the 
proxies for the operating portion of the FY 2009-based LTCH-specific 
market basket are the same as those used under the FY 2008-based RPL 
market basket. Because these proxies meet our criteria of reliability, 
timeliness, availability, and relevance, we believe they are the best 
measures of price changes for the cost categories. For further 
discussion on the FY 2008-based RPL market basket, we refer readers to 
the discussion in the FY 2012 IPPS/LTCH PPS final rule (76 FR 51759). 
For the capital-related portion of the FY 2009-based LTCH-specific 
market basket, the price proxies that we proposed and are adopting for 
this final rule are the same as those used under the FY 2008-based RPL 
market basket (prior to any vintage weighting), as described in the FY 
2012 IPPS/LTCH PPS final rule (75 FR 51765), and as described in more 
detail in the capital methodology discussion under section VII.C.3.d. 
of the preamble of this final rule.

    Table VII.C-2--FY 2009-Based LTCH-Specific Market Basket Cost Categories, Cost Weights, and Price Proxies
                            Compared to FY 2008-Based RPL Market Basket Cost Weights
----------------------------------------------------------------------------------------------------------------
                                                   FY               FY
                                            2009[dash]based  2008[dash]based
              Cost categories                LTCH-specific      RPL market     FY 2009-based LTCH market basket
                                             market basket     basket cost               price proxies
                                              cost weights       weights
----------------------------------------------------------------------------------------------------------------
1. Compensation...........................           54.338           62.278
A. Wages and Salaries \1\.................           46.330           49.447  ECI for Wages and Salaries,
                                                                               Civilian Hospital Workers.
B. Employee Benefits \1\..................            8.008           12.831  ECI for Benefits, Civilian
                                                                               Hospital Workers.

[[Page 53471]]

 
2. Utilities..............................            1.751            1.578
A. Electricity............................            1.367            1.125  PPI for Commercial Electric Power.
B. Fuel, Oil, and Gasoline................            0.281            0.371  PPI for Petroleum Refineries.
C. Water and Sewage.......................            0.103            0.082  CPI-U for Water and Sewerage
                                                                               Maintenance.
3. Professional Liability Insurance.......            0.830            0.764  CMS Hospital Professional
                                                                               Liability Insurance Premium
                                                                               Index.
4. All Other Products and Services........           33.252           26.988
A. All Other Products.....................           19.531           15.574
(1.) Pharmaceuticals......................            8.877            6.514  PPI for Pharmaceutical
                                                                               Preparations for Human Use
                                                                               (Prescriptions).
(2.) Food: Direct Purchases...............            3.409            2.959  PPI for Processed Foods and Feeds.
(3.) Food: Contract Services..............            0.478            0.392  CPI-U for Food Away From Home.
(4.) Chemicals \2\........................            1.275            1.100  Blend of Chemical PPIs.
(5.) Medical Instruments..................            2.141            1.795  PPI for Medical, Surgical, and
                                                                               Personal Aid Devices.
(6.) Rubber and Plastics..................            1.329            1.131  PPI for Rubber and Plastic
                                                                               Products.
(7.) Paper and Printing Products..........            1.226            1.021  PPI for Converted Paper and
                                                                               Paperboard Products.
(8.) Apparel..............................            0.250            0.210  PPI for Apparel.
(9.) Machinery and Equipment..............            0.127            0.106  PPI for Machinery and Equipment.
(10.) Miscellaneous Products..............            0.419            0.346  PPI for Finished Goods less Food
                                                                               and Energy.
B. All Other Services.....................           13.721           11.414
(1.) Labor-Related Services...............            5.349            4.681
(a.) Professional Fees: Labor-Related.....            2.256            2.114  ECI for Compensation for
                                                                               Professional and Related
                                                                               Occupations.
(b.) Administrative and Business Support              0.508            0.422  ECI for Compensation for Office
 Services.                                                                     and Administrative Services.
(c.) All Other: Labor-Related Services....            2.585            2.145  ECI for Compensation for Private
                                                                               Service Occupations.
(2.) Nonlabor-Related Services............            8.372            6.733
(a.) Professional Fees: Nonlabor-Related..            5.332            4.211  ECI for Compensation for
                                                                               Professional and Related
                                                                               Occupations.
(b.) Financial Services...................            1.013            0.853  ECI for Compensation for Financial
                                                                               Activities.
(c.) Telephone Services...................            0.501            0.416  CPI-U for Telephone Services.
(d.) Postage..............................            0.779            0.630  CPI-U for Postage.
(e.) All Other: Nonlabor-Related Services.            0.747            0.623  CPI-U for All Items less Food and
                                                                               Energy.
5. Capital-Related Costs..................            9.829            8.392
A. Depreciation...........................            5.707            5.519
(1.) Building and Fixed Equipment.........            3.838            3.286  BEA chained price index for
                                                                               Nonresidential Construction for
                                                                               Hospitals and Special Care
                                                                               Facilities--vintage weighted (20
                                                                               years).
(2.) Movable Equipment....................            1.869            2.233  PPI for Machinery and Equipment--
                                                                               vintage weighted (8 years).
B. Interest Costs.........................            2.434            1.954
(1.) Government/Nonprofit.................            0.702            0.653  Average yield on Domestic
                                                                               Municipal Bonds (Bond Buyer 20
                                                                               bonds)--vintage-weighted (20
                                                                               years).
(2.) For Profit...........................            1.732            1.301  Average yield on Moody's Aaa
                                                                               Bonds--vintage-weighted (20
                                                                               years).
C. Other Capital-Related Costs............            1.688            0.919  CPI-U for Residential Rent.
                                           ----------------------------------
    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 use 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, we refer readers to the FY 2012 IPPS/LTCH final rule (76 FR 51761).

(1) Wages and Salaries
    As we proposed and are adopting in this final rule, we 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.
(2) Employee Benefits
    As we proposed and are adopting in this final rule, we use the ECI 
for Employee Benefits for Hospital Workers (All Civilian) to measure 
the price growth of this cost category.
(3) Electricity
    As we proposed and are adopting in this final rule, we use the PPI 
for Commercial Electric Power (BLS series code WPU0542) to measure the 
price growth of this cost category.

[[Page 53472]]

(4) Fuel, Oil, and Gasoline
    As we proposed and are adopting in this final rule, we use the PPI 
for Petroleum Refineries (BLS series code PCU324110324110) to measure 
the price growth of this cost category. We believe that it is 
appropriate to use this proxy for the same reasons set forth in the FY 
2012 IPPS/LTCH final rule when this proxy was adopted for use under the 
FY 2008-based RPL market basket (76 FR 51761).
(5) Water and Sewage
    As we proposed and are adopting in this final rule, we use the CPI 
for Water and Sewerage Maintenance (All Urban Consumers) (BLS series 
code CUUR0000SEHG01) to measure the price growth of this cost category.
(6) Professional Liability Insurance
    As we proposed and are adopting in this final rule, we determine 
price changes in hospital professional liability insurance premiums 
(PLI) using percentage changes as estimated by the CMS Hospital 
Professional Liability 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).
(7) Pharmaceuticals
    As we proposed and are adopting in this final rule, we use the PPI 
for Pharmaceuticals for Human Use, Prescription (BLS series code 
WPUSI07003) to measure the price growth of this cost category.
(8) Food: Direct Purchases
    As we proposed and are adopting in this final rule, we use the PPI 
for Processed Foods and Feeds (BLS series code WPU02) to measure the 
price growth of this cost category.
(9) Food: Contract Services
    As we proposed and are adopting in this final rule, we use the CPI 
for Food Away From Home (All Urban Consumers) (BLS series code 
CUUR0000SEFV) to measure the price growth of this cost category.
(10) Chemicals
    As we proposed and are adopting in this final rule, we 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). We believe that it is appropriate to use 
this blended index for the reasons set forth in the FY 2012 IPPS/LTCH 
PPS final rule (76 FR 51761) when this proxy was adopted for use under 
the FY 2008-based RPL market basket.
(11) Medical Instruments
    As we proposed and are adopting in this final rule, we use the PPI 
for Medical, Surgical, and Personal Aid Devices (BLS series code 
WPU156) to measure the price growth of this cost category. We believe 
that it is appropriate to use this index for the reasons set forth in 
the FY 2012 IPPS/LTCH PPS final rule (76 FR 51761 through 51762) when 
this proxy was adopted for use under the FY 2008-based RPL market 
basket.
(12) Rubber and Plastics
    As we proposed and are adopting in this final rule, we use the PPI 
for Rubber and Plastic Products (BLS series code WPU07) to measure the 
price growth of this cost category.
(13) Paper and Printing Products
    As we proposed and are adopting in this final rule, we use the PPI 
for Converted Paper and Paperboard Products (BLS series code WPU0915) 
to measure the price growth of this cost category.
(14) Apparel
    As we proposed and are adopting in this final rule, we use the PPI 
for Apparel (BLS series code WPU0381) to measure the price growth of 
this cost category.
(15) Machinery and Equipment
    As we proposed and are adopting in this final rule, we use the PPI 
for Machinery and Equipment (BLS series code WPU11) to measure the 
price growth of this cost category.
(16) Miscellaneous Products
    As we proposed and are adopting in this final rule, we use the PPI 
for Finished Goods Less Food and Energy (BLS series code WPUSOP3500) to 
measure the price growth of this cost category.
(17) Professional Fees: Labor-Related
    As we proposed and are adopting in this final rule, we use the ECI 
for Compensation for Professional and Related Occupations (Private 
Industry) (BLS series code CIS2020000120000I) to measure the price 
growth of this category. It includes occupations such as legal, 
accounting, and engineering services.
(18) Administrative and Business Support Services
    As we proposed and are adopting in this final rule, we 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. We believe this compensation index 
appropriately reflects the changing price of labor associated with the 
provision of Administrative and Business Support Services.
(19) All Other: Labor-Related Services
    As we proposed and are adopting in this final rule, we use the ECI 
for Compensation for Service Occupations (Private Industry) (BLS series 
code CIU2010000300000I) to measure the price growth of this cost 
category.
(20) Professional Fees: Nonlabor-Related
    As we proposed and are adopting in this final rule, we use the ECI 
for Compensation for Professional and Related Occupations (Private 
Industry) (BLS series code CIS2020000120000I) to measure the price 
growth of this category. This is the same price proxy that we used for 
the Professional Fees: Labor-related cost category.
(21) Financial Services
    As we proposed and are adopting in this final rule, we use the ECI 
for Compensation for Financial Activities (Private Industry) (BLS 
series code CIU201520A000000I) to measure the price growth of this cost 
category. We believe that this compensation index appropriately 
reflects the changing price of labor associated with the provision of 
Financial Services.
(22) Telephone Services
    As we proposed and are adopting in this final rule, we use the CPI 
for Telephone Services (BLS series code CUUR0000SEED) to measure the 
price growth of this cost category.
(23) Postage
    As we proposed and are adopting in this final rule, we use the CPI 
for Postage (BLS series code CUUR0000SEEC01) to measure the price 
growth of this cost category.
(24) All Other: Nonlabor-Related Services
    As we proposed and are adopting in this final rule, we use the CPI 
for ``All

[[Page 53473]]

Items Less Food and Energy'' (BLS series code CUUR0000SA0L1E) to 
measure the price growth of this cost category. We believe that using 
the CPI for ``All Items Less Food and Energy'' avoids double counting 
of changes in food and energy prices as they are already captured 
elsewhere in the market basket.
d. Methodology for the Capital Portion of the FY 2009-Based LTCH-
Specific Market Basket
    In order to ensure consistency in the FY 2009-based LTCH-specific 
market basket, as we proposed and are adopting in this final rule, we 
calculated the capital-related cost weights using the same set of FY 
2009 Medicare cost reports used to develop the operating cost weights 
with the same length-of-stay edit as applied when calculating the 
operating cost weights as described in section VII.C.3.a. of this 
preamble. The resulting capital-related cost weight for the FY 2009 
base year is 9.829 percent. Using the methodology that we proposed and 
are adopting in this final rule, we then separated the total capital-
related cost weight into more detailed cost categories.
    As we proposed and are adopting in this final rule, we derived cost 
weights for depreciation, interest, lease, and other capital-related 
expenses from the Medicare cost reports. Lease expenses are unique in 
that they are not broken out as a separate cost category in the LTCH-
specific market basket, but rather are proportionally distributed among 
the cost categories of Depreciation, Interest, and Other Capital-
Related, reflecting the assumption that the underlying cost structure 
of leases is similar to that of capital-related costs in general. As 
was done under the FY 2008-based RPL market basket, and as we proposed 
and are adopting in this final rule, we assume 10 percent of lease 
expenses represents overhead and assign those costs to the Other 
Capital-Related Costs category accordingly. As we proposed and are 
adopting in this final rule, the remaining lease expenses are 
distributed across the three cost categories based on the respective 
weights of depreciation, interest, and other capital-related, not 
including lease expenses. This is the same method that was applied 
under the FY 2008-based RPL market basket.
    As we proposed and are adopting in this final rule, the 
``Depreciation'' cost category contains two subcategories: (1) Building 
and Fixed Equipment (or Fixed Assets); and (2) Movable Equipment. Under 
the FY 2008-based RPL market basket, we disaggregated total 
depreciation expenses into Building and Fixed Equipment and Movable 
Equipment, using depreciation data from the FY 2008 Medicare cost 
reports for freestanding IRFs, freestanding IPFs, and LTCHs. Based on 
FY 2009 LTCH Medicare cost report data, we have determined that 
depreciation costs for building and fixed equipment account for 42 
percent of total depreciation costs, while depreciation costs for 
movable equipment account for 58 percent of total depreciation costs. 
As mentioned above, we proposed and are adopting in this final rule to 
allocate lease expenses among the ``Depreciation,'' ``Interest,'' and 
``Other Capital'' cost categories. We determined that leasing building 
and fixed equipment expenses account for 80 percent of total leasing 
expenses, while leasing movable equipment expenses account for 20 
percent of total leasing expenses. As we proposed and are adopting in 
this final rule, we sum the depreciation and leasing expenses for 
building and fixed equipment together, as well as sum the depreciation 
and leasing expenses for movable equipment. This results in the final 
building and fixed equipment depreciation cost weight (after leasing 
costs are included) being 67 percent of total depreciation costs and 
the movable equipment depreciation cost weight (after leasing costs are 
included) being 33 percent of total depreciation costs. We note that 
total leasing costs account for approximately one-half of total 
capital-related expenses.
    As we proposed and are adopting in this final rule, the total 
``Interest'' cost category is split between government/nonprofit 
interest and for-profit interest. The FY 2008-based RPL market basket 
allocated 33 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 67 percent of the 
``Interest'' cost weight was allocated to for-profit interest and was 
proxied by the average yield on Moody's Aaa bonds (76 FR 51760). This 
was based on the FY 2008 Medicare cost report data on interest expenses 
for government/nonprofit and for-profit freestanding IRFs, freestanding 
IPFs, and LTCHs. Under the FY 2009-based LTCH-specific market basket, 
as we proposed and are adopting in this final rule, we use the FY 2009 
Medicare cost report data on interest expenses for government/nonprofit 
and for-profit LTCHs. Based on these data, we calculated a 29/71 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 for LTCHs.
    Because capital is acquired and paid for over time, capital-related 
expenses in any given year are determined by both past and present 
purchases of physical and financial capital. As we proposed and are 
adopting in this final rule, the vintage-weighted capital-related 
portion of the FY 2009-based LTCH-specific market basket 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-related purchases 
attributable to each year of the expected life of building and fixed 
equipment, movable equipment, and interest. As we proposed and are 
adopting in this final rule, we use vintage weights to compute vintage-
weighted price changes associated with depreciation and interest 
expenses.
    Vintage weights are an integral part of the FY 2009-based LTCH-
specific market basket. Capital-related costs are inherently 
complicated and are determined by complex capital-related 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. By accounting for 
the vintage nature of capital, we are able to provide an accurate and 
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. As we proposed and are adopting in this 
final rule, the capital-related component of the FY 2009-based LTCH-
specific market basket reflects the underlying stability of the 
capital-related acquisition process.
    To calculate the vintage weights for depreciation and interest 
expenses, we needed a time series of capital-related purchases for 
building and fixed equipment and movable equipment. We found no single 
source that provides an appropriate time series of capital-related 
purchases by hospitals for all of the above components of capital 
purchases. The early Medicare cost reports did not have sufficient 
capital-related data to meet this need. Data we obtained from the 
American Hospital Association (AHA) do not include annual capital-
related purchases. However, the AHA does provide a consistent database 
of total expenses back to 1963. Consequently, as we proposed and are 
adopting in this final rule, we used data

[[Page 53474]]

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 2009.
    In order to estimate capital-related 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. Under the FY 2008-based RPL market 
basket, we used FY 2008 Medicare cost reports for IPPS hospitals to 
determine the expected life of building and fixed equipment and movable 
equipment (76 FR 51763). The FY 2008-based RPL market basket was based 
on an expected average life of building and fixed equipment of 26 years 
and an expected average life of movable equipment of 11 years, which 
were both calculated using data for IPPS hospitals. We believed that 
this data source reflected the latest relative cost structure of 
depreciation expenses for hospitals at the time and was analogous to 
freestanding IRFs, freestanding IPFs, and LTCHs.
    The expected life of any asset 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 the rates of depreciation were to continue at 
current year levels, assuming straight-line depreciation. As we 
proposed and are adopting for this final rule, following a similar 
method to what was applied under the FY 2008-based RPL market basket, 
we determined the average expected life of building and fixed equipment 
to be equal to 20 years, and the average expected life of movable 
equipment to be equal to 8 years. These expected lives are calculated 
using a 3-year average of data from Medicare cost reports for LTCHs for 
FY 2007 through FY 2009. We believe that using LTCH-specific data to 
calculate the expected lives of assets best reflects the cost 
structures of LTCH facilities.
    As we proposed and are adopting in this final rule, we also used 
the ``Building and Fixed Equipment'' and ``Movable Equipment'' cost 
weights derived from FY 2009 Medicare cost reports for LTCHs to 
separate the depreciation expenses into annual amounts of building and 
fixed equipment depreciation and movable equipment depreciation. As we 
proposed and are adopting in the final rule, 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. We then calculated a time series, back to 1963, of annual 
capital purchases by subtracting the previous year's asset costs from 
the current year's asset costs. As we proposed, for this final rule, 
from this capital-related purchase time series, we calculated 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.
    As we proposed and are adopting in this final rule, for the 
building and fixed equipment vintage weights, we use the real annual 
capital-related 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 capital-related purchase 
amount for building and fixed equipment is 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. This is the same proxy used 
under the FY 2008-based RPL market basket. Because building and fixed 
equipment have an expected average life of 20 years, the vintage 
weights for building and fixed equipment are deemed to represent the 
average purchase pattern of building and fixed equipment over 20-year 
periods. As we proposed and are adopting in this final rule, with real 
building and fixed equipment purchase estimates available from 2009 
back to 1963, we averaged twenty-seven 20-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. As proposed, for this final rule, vintage weights 
for each 20-year period are calculated by dividing the real building 
and fixed capital-related purchase amount in any given year by the 
total amount of purchases in the 20-year period. As proposed, for this 
final rule, this calculation is done for each year in the 20-year 
period, and for each of the twenty-seven 20-year periods. As proposed, 
for this final rule, we use the average of each year across the twenty-
seven 20-year periods to determine the average building and fixed 
equipment vintage weights for the FY 2009-based LTCH-specific market 
basket.
    As we proposed and are adopting for this final rule, for the 
movable equipment vintage weights, the real annual capital-related 
purchase amounts for movable equipment are used to capture the actual 
amount of the physical acquisition, net of price inflation. As 
proposed, for this final rule, this real annual capital-related 
purchase amount for movable equipment is calculated by deflating the 
nominal annual purchase amounts by the movable equipment price proxy, 
the PPI for Machinery and Equipment. This is the same proxy used for 
the FY 2008-based RPL market basket. Based on our determination that 
movable equipment has an expected average life of 8 years, the vintage 
weights for movable equipment represent the average expenditure for 
movable equipment over an 8-year period. As proposed, for this final 
rule, with real movable equipment purchase estimates available from 
2009 back to 1963, we averaged thirty-nine 8-year periods to determine 
the average vintage weights for movable equipment that are 
representative of average movable equipment purchase patterns over 
time. As proposed, for this final rule, vintage weights for each 8-year 
period are calculated by dividing the real movable capital-related 
purchase amount for any given year by the total amount of purchases in 
the 8-year period. As proposed, for this final rule, this calculation 
is done for each year in the 8-year period and for each of the thirty-
nine 8-year periods. As we proposed and are adopting for this final 
rule, we use the average of each year across the thirty-nine 8-year 
periods to determine the average movable equipment vintage weights for 
the FY 2009-based LTCH-specific market basket.
    As proposed, for this final rule, for the interest vintage weights, 
the nominal annual capital-related purchase amounts for total equipment 
(building and fixed, and movable) are used to capture the value of the 
debt instrument (including, but not limited to, mortgages and bonds). 
The vintage weights for interest should represent the average purchase 
pattern of total equipment over 20-year periods, which is the average 
useful life of building and fixed equipment as calculated using the 
LTCH Medicare cost report data. We believe vintage weights for interest 
should represent the average useful life of buildings and fixed 
equipment because, based on previous research described in the FY 1997 
IPPS final rule (61 FR 46198), the expected life of hospital debt 
instruments and the expected life of buildings and fixed equipment are 
similar. As proposed, for this final rule, with nominal total equipment 
purchase estimates available from 2009 back to 1963, we averaged 
twenty-seven 20-year

[[Page 53475]]

periods to determine the average vintage weights for interest that are 
representative of average capital purchase patterns over time. As 
proposed, with this final rule, vintage weights for each 20-year period 
are calculated by dividing the nominal total capital purchase amount 
for any given year by the total amount of purchases in the 20-year 
period. As proposed, for this final rule, this calculation is done for 
each year in the 20-year period and for each of the twenty-seven 20-
year periods. As proposed, for this final rule, we use the average of 
each year across the twenty-seven 20-year periods to determine the 
average interest vintage weights for the FY 2009-based LTCH-specific 
market basket. As we proposed and are adopting in this final rule, the 
vintage weights for the capital-related portion of the FY 2008-based 
RPL market basket and the FY 2009-based LTCH-specific market basket are 
presented in Table VII.C-4 below.

                              Table VII.C-4--FY 2008 RPL and FY 2009 LTCH Vintage Weights for Capital-Related Price Proxies
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                           Building and fixed equipment          Movable equipment                   Interest
                                                         -----------------------------------------------------------------------------------------------
                          Year                              FY 2008 26      FY 2009 20      FY 2008 11       FY 2009 8      FY 2008 26      FY 2009 20
                                                               years           years           years           years           years           years
--------------------------------------------------------------------------------------------------------------------------------------------------------
1.......................................................           0.021           0.034           0.071           0.102           0.010           0.021
2.......................................................           0.023           0.037           0.075           0.108           0.012           0.024
3.......................................................           0.025           0.039           0.080           0.114           0.014           0.026
4.......................................................           0.027           0.042           0.083           0.123           0.016           0.029
5.......................................................           0.028           0.043           0.085           0.129           0.018           0.032
6.......................................................           0.030           0.045           0.089           0.134           0.020           0.035
7.......................................................           0.031           0.046           0.092           0.142           0.021           0.037
8.......................................................           0.033           0.047           0.098           0.149           0.024           0.040
9.......................................................           0.035           0.049           0.103  ..............           0.026           0.043
10......................................................           0.037           0.051           0.109  ..............           0.029           0.047
11......................................................           0.039           0.053           0.116  ..............           0.033           0.050
12......................................................           0.041           0.053  ..............  ..............           0.035           0.053
13......................................................           0.042           0.053  ..............  ..............           0.038           0.055
14......................................................           0.043           0.054  ..............  ..............           0.041           0.059
15......................................................           0.044           0.055  ..............  ..............           0.043           0.062
16......................................................           0.045           0.057  ..............  ..............           0.046           0.068
17......................................................           0.046           0.059  ..............  ..............           0.049           0.073
18......................................................           0.047           0.059  ..............  ..............           0.052           0.077
19......................................................           0.047           0.061  ..............  ..............           0.053           0.082
20......................................................           0.045           0.062  ..............  ..............           0.053           0.086
21......................................................           0.045  ..............  ..............  ..............           0.055  ..............
22......................................................           0.045  ..............  ..............  ..............           0.056  ..............
23......................................................           0.046  ..............  ..............  ..............           0.060  ..............
24......................................................           0.046  ..............  ..............  ..............           0.063  ..............
25......................................................           0.045  ..............  ..............  ..............           0.064  ..............
26......................................................           0.046  ..............  ..............  ..............           0.068  ..............
                                                         -----------------------------------------------------------------------------------------------
    Total...............................................           1.000           1.000           1.000           1.000           1.000           1.000
--------------------------------------------------------------------------------------------------------------------------------------------------------
Note: Numbers may not add to total due to rounding.

    As proposed, for this final rule, after the capital-related cost 
category weights are computed, it is necessary to select appropriate 
price proxies to reflect the rate-of-increase for each expenditure 
category. As we proposed and are adopting in this final rule, we use 
the same price proxies (prior to any vintage weighting) for the 
capital-related portion of the FY 2009-based LTCH-specific market 
basket that were used under the FY 2008-based RPL market. We believe 
these are the most appropriate proxies for hospital capital-related 
costs that meet our selection criteria of relevance, timeliness, 
availability, and reliability.
    The price proxies (prior to any vintage weighting) for each of the 
capital-related cost categories, as shown in Table VII.C-2 above, are 
the same as those used under the FY 2008-based RPL market basket, as 
described in the FY 2012 IPPS/LTCH PPS final rule (76 FR 51765), as 
well as the FY 2006-based Capital Input Price Index (CIPI) as described 
in the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 43857). The 
process of creating vintage-weighted price proxies requires applying 
the vintage weights to the price proxy index where the last applied 
vintage weight in Table VII.C-4 is applied to the most recent data 
point. We have provided on the CMS Web site an example of how the 
vintage weighting price proxies are calculated, using example vintage 
weights and example price indices. The example can be found at the 
following link: http://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/MedicareProgramRatesStats/MarketBasketResearch.html in the zip file titled ``Weight Calculations 
as described in the IPPS FY 2010 Proposed Rule''.
    Below is a summary of the public comments we received on the 
methodology we proposed to derive the LTCH-specific market basket and 
our responses.
    Comment: One commenter stated that CMS should now be able to 
identify the cost differences between hospitals-within-hospitals (HwHs) 
and freestanding LTCHs. The commenter asked whether CMS could further 
detail the cost categories by differentiating the major costs incurred 
by HwHs from the major costs incurred by freestanding LTCHs, as there 
is still a fundamental cost difference between these types of 
providers.
    Response: For the methodology to derive the LTCH-specific market 
basket that we proposed and are adopting in this final rule without 
modification, we began with the universe of cost reports for LTCHs 
(both HwHs and freestanding facilities). After analyzing the major cost

[[Page 53476]]

category weights obtained from the Medicare cost reports, we found that 
the weights obtained for HwHs and freestanding LTCHs were similar. 
Therefore, given that the market basket is intended to reflect the 
national average distribution of the costs of goods and services that 
hospitals purchase to furnish inpatient care, and that the weights are 
similar, we believe it is appropriate to derive the LTCH-specific 
market basket by using Medicare cost reports from both of these types 
of facilities. We do not believe that it is appropriate to further 
subdivide the cost categories of the LTCH-specific market basket on the 
basis of whether a LTCH is a HwH or a freestanding facility.
    Comment: One commenter asked whether there are any provider-type or 
provider-dominant issues that need to be factored into the calculation 
of the LTCH-specific market basket because the LTCH industry is 
dominated by two large chains.
    Response: As stated above, the market basket cost weights are 
intended to capture the national average cost distribution of LTCHs. 
For each individual cost weight, we reviewed the Medicare cost report 
data and analyzed the univariate distributions. We then trimmed the 
Medicare cost report data prior to calculating the final cost weight to 
attempt to remove any outliers. As a result, we believe the cost 
weights for the LTCH-specific market basket are representative of a 
typical cost structure for providers in the LTCH industry. Therefore, 
we do not believe any provider-type or provider-dominant issues should 
be factored into the calculation of the LTCH-specific market basket. 
The purpose of the market basket update (as measured by the percent 
increase) is to update the base payment to reflect price inflation in 
the inputs required to provide medical care across all LTCH providers.
e. FY 2013 Market Basket Update for LTCHs
    For FY 2013 (that is, October 1, 2012, through September 30, 2013), 
we proposed to use an estimate of the proposed FY 2009-based LTCH-
specific market basket to update payments to LTCHs based on the best 
available data. Consistent with our historical practice of using the 
most recent data available, we estimated the proposed LTCH-specific 
market basket update for the LTCH PPS based on IHS Global Insight, 
Inc.'s (IGI's) most recent forecast. IGI is a nationally recognized 
economic and financial forecasting firm that contracts with CMS to 
forecast the components of the market baskets.
    Based on IGI's first quarter 2012 forecast with history through the 
fourth quarter of 2011, the projected market basket update for FY 2013 
was 3.0 percent. Therefore, consistent with our historical practice of 
estimating market basket increases based on the best available data, we 
proposed a market basket update of 3.0 percent for FY 2013. 
Furthermore, because the proposed FY 2013 annual update was based on 
the most recent market basket estimate for the 12-month period, we also 
proposed that if more recent data are subsequently available (for 
example, a more recent estimate of the market basket), we would use 
such data, if appropriate, to determine the FY 2013 annual update in 
the final rule.
    For this final rule, consistent with our proposal to use updated 
data, if appropriate, to determine the FY 2013 annual update, we are 
incorporating a more recent estimate of the market basket update. Based 
on IGI's second quarter 2012 forecast with history through the first 
quarter of 2012, the projected market basket update (as measured by the 
percentage increase) for FY 2013 is 2.6 percent. Therefore, consistent 
with our historical practice of estimating market basket increases 
based on the best available data, we are establishing a market basket 
update of 2.6 percent for FY 2013. We note that the final market basket 
update for FY 2013 (2.6 percent) is lower than the proposed market 
basket update (3.0 percent) due to a lower inflationary outlook on wage 
and energy prices. The wage price revision mostly reflects an 
expectation of a slower labor market recovery compared to the previous 
forecast. (As discussed in greater detail in section V.A.2. of the 
Addendum to this final rule, we are establishing an annual update of 
1.8 percent to the LTCH PPS standard Federal rate for FY 2013 under 
Sec.  412.523(c)(3)(viii) of the regulations.)
    Using the current FY 2008-based RPL market basket and IGI's second 
quarter 2012 forecast for the market basket components, the FY 2013 
market basket update (as measured by the percentage increase) would be 
2.7 percent (before taking into account any statutory adjustments). 
Table VII.C-5 below compares the FY 2008-based RPL market basket and 
the FY 2009-based LTCH-specific market basket percent changes based on 
IGI's second quarter 2012 forecast. For a comparison of the FY 2008-
based RPL market basket and the FY 2009-based LTCH-specific market 
basket percent changes based on IGI's first quarter 2012 forecast, we 
refer readers to Table VII.C-5 of the FY 2013 IPPS/LTCH proposed rule 
(77 FR 28016).

  Table VII.C-5--FY 2008-Based RPL Market Basket and FY 2009-Based LTCH
         Market Basket Percent Changes; FY 2008 Through FY 2015
------------------------------------------------------------------------
                                                          FY 2009-based
                                        FY 2008-based     LTCH-specific
          Fiscal year (FY)               RPL market       market basket
                                        basket index      index percent
                                       percent  change       change
------------------------------------------------------------------------
Historical data:
    FY 2008.........................               3.7               3.9
    FY 2009.........................               2.7               2.8
    FY 2010.........................               2.2               2.2
    FY 2011.........................               2.5               2.6
    Average 2008-2011...............               2.8               2.9
Forecast:
    FY 2012.........................               2.2               2.4
    FY 2013.........................               2.7               2.6
    FY 2014.........................               2.8               2.7
    FY 2015.........................               3.1               3.0
    Average 2012-2015...............               2.7               2.7
------------------------------------------------------------------------
Note that these market basket percent changes do not include any further
  adjustments as may be statutorily required.
Source: IHS Global Insight, Inc. second quarter 2012 forecast.

[[Page 53477]]

    For FY 2013, the FY 2009-based LTCH-specific market basket update 
(2.6 percent, as measured by the percentage increase) is forecasted to 
be slightly lower than the market basket update based on the FY 2008-
based RPL market basket at 2.7 percent. The lower total compensation 
weight in the FY 2009-based LTCH-specific market basket (54.338 
percent) relative to the FY 2008-based RPL market basket (62.278 
percent), absent other factors, would have resulted in a slightly lower 
market basket update for FY 2013 using the FY 2009-based LTCH-specific 
market basket. However, this impact is partially offset by the impact 
of the larger cost weights associated with the Pharmaceuticals and All 
Other Services cost categories. The net effect of these offsetting 
factors is that the market basket update for the FY 2009-based LTCH-
specific market basket is forecasted to be slightly lower for FY 2013 
than the market basket update based on the current FY 2008-based RPL 
market basket.
    Comment: Several commenters supported the use of a LTCH-specific 
market basket. One commenter stated that this market basket more 
accurately reflects costs of those services for LTCHs. A few commenters 
stated that the new market basket will more closely align market-basket 
updates under the LTCH PPS with actual LTCH cost structures, which will 
produce greater accuracy in aggregate Medicare payments to LTCHs. One 
commenter supported the proposal to identify a 3.0 percent market 
basket update for FY 2013.
    Response: We agree with the commenters that the use of a LTCH-
specific market basket is an improvement for the reasons set forth in 
section VII.C.1 of the preamble of this final rule. We do note that, 
based on more recent data, the final market basket update is 2.6 
percent (and not 3.0 percent, as supported by one commenter). We are 
adopting the use of a LTCH-specific market basket in this final rule, 
as proposed.
f. FY 2013 Labor-Related Share
    As discussed in section V.B. of the Addendum to this final rule, 
under the authority of section 123 of the BBRA as amended by section 
307(b) of the BIPA, we established an adjustment to the LTCH PPS 
payments to account for differences in LTCH area wage levels (Sec.  
412.525(c)). The labor-related portion of the LTCH PPS standard Federal 
rate, hereafter referred to as the labor-related share, is adjusted to 
account for geographic differences in area wage levels by applying the 
applicable LTCH PPS wage index.
    As proposed, for this final rule, the labor-related share is 
determined by identifying the national average proportion of total 
costs that are related to, influenced by, or vary with the local labor 
market. As proposed in the FY 2013 IPPS/LTCH proposed rule (77 FR 
28016), and are adopting in this final rule, and similar to the FY 
2008-based RPL market basket and FY 2006 IPPS market basket (74 FR 
43850), we are classifying a cost category as labor-related and 
including 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. Given this, based on our definition of the labor-related share, 
we proposed and are adopting in this final rule to include in the 
labor-related share the sum of the relative importance of Wages and 
Salaries, Employee Benefits, Professional Fees: Labor-related, 
Administrative and Business Support Services, All Other: Labor-related 
Services, and a portion of the Capital-Related cost weight. These are 
the same cost categories that were proposed and adopted in the FY 2012 
labor-related share using the FY 2008-based RPL market basket, as we 
continue to believe these categories meet our criteria of being labor-
intensive and whose costs vary with the local labor market. For a more 
detailed discussion of the selection of cost categories for inclusion 
in the FY 2012 labor-related share, we refer readers to the FY 2012 
IPPS/LTCH PPS final rule (76 FR 51766). As proposed, for this final 
rule, we note that the wages and salaries and benefit cost weights 
reflect allocated contract labor costs, similar to the FY 2008-based 
RPL market basket and as described above.
    For the FY 2008-based RPL market basket rebasing, in an effort to 
more accurately determine the share of professional fees for services 
such as accounting and auditing services, engineering services, legal 
services, and management and consulting services that should be 
included in the labor-related share, we obtained data from a survey of 
IPPS hospitals regarding the proportion of those fees that go to 
companies that are located beyond their own local labor market. The 
results from this survey were then used to separate a portion of the 
Professional Fees cost category into labor-related and nonlabor-related 
costs. These results and our allocation methodology are discussed in 
more detail in the FY 2012 IPPS/LTCH PPS final rule (76 FR 51766).
    As we proposed and are adopting in this final rule, for the FY 
2009-based LTCH-specific market basket, we will apply these results 
from the survey of IPPS hospitals using this same methodology to 
separate the Professional Fees category into Professional Fees: Labor-
related and Professional Fees: Nonlabor-related cost categories. We 
believe using the survey results serves as an appropriate proxy for the 
purchasing patterns of professional services for LTCHs as they also are 
providers of institutional care.
    In addition to the professional services listed above, we also 
proposed and are adopting for this final rule to classify expenses 
under NAICS 55, Management of Companies and Enterprises, into the 
Professional Fees: Labor-related and Professional Fees: Nonlabor-
related cost categories, as was done for the FY 2008-based RPL market 
basket. The NAICS 55 industry is mostly comprised of corporate, 
subsidiary, and regional managing offices (otherwise referred to as 
home offices). As stated above, we classify a cost category as labor-
related and include it in the labor-related share if the cost category 
is labor-intensive and if its costs vary with the local labor market. 
We believe many of the costs associated with NAICS 55 are labor-
intensive and vary with the local labor market. However, data indicate 
that not all LTCHs with home offices have home offices located in their 
local labor market. Therefore, as we proposed and are adopting in this 
final rule, we will include in the labor-related share only a 
proportion of the NAICS 55 expenses based on the methodology described 
below.
    For the FY 2008-based RPL market basket, we used data primarily 
from the Medicare cost reports and a CMS database of Home Office 
Medicare Records (HOMER) (a database that provides city and state 
information (addresses) for home offices) and determined that 19 
percent of the total number of freestanding IRFs, freestanding IPFs, 
and LTCHs that had home offices had those home offices located in their 
respective local labor markets--defined as being in the same 
Metropolitan Statistical Area (MSA). For a detailed discussion of this 
analysis, we refer readers to the FY 2012 IPPS/LTCH PPS final rule (76 
FR 51766 through 51767).
    As we proposed and are adopting in this final rule, for the FY 
2009-based LTCH-specific market basket, we conducted a similar analysis 
of home office data. However, instead of using data on freestanding 
IRF, freestanding IPF, and LTCHs, we began with the initial set of LTCH 
Medicare cost reports

[[Page 53478]]

that were used to derive the cost weights for the proposed FY 2009-
based LTCH-specific market basket. As we proposed, for this final rule, 
for consistency, we believe it is important for our analysis on home 
office data to be conducted on the same LTCHs used to derive the FY 
2009 LTCH-specific market basket cost weights.
    The Medicare cost report requires a hospital to report information 
regarding their home office provider. Approximately 82 percent of LTCHs 
reported some type of home office information on their Medicare cost 
report for FY 2009 (for example, home office number, city, state, zip 
code, or name). For the majority of these providers, we were able to 
identify in which MSA the LTCH's home office was located using the 
HOMER database and the Medicare cost reports. We then compared the home 
office MSA with the MSA in which the LTCH was located.
    We found that 13 percent of the LTCHs with home offices had those 
home offices located in the same MSA as their facilities. We then 
concluded that these providers were located in the same local labor 
market as their home office. As a result, we proposed and are adopting 
for this final rule to apportion the NAICS 55 expense data by this 
percentage. Thus, we proposed and are adopting for this final rule to 
classify 13 percent of these costs into the ``Professional Fees: Labor-
related Services'' cost category and the remaining 87 percent into the 
``Professional Fees: Nonlabor-related Services'' cost category.
    Using the methodology described above and IGI's first quarter 2012 
forecast of the proposed FY 2009-based LTCH-specific market basket, the 
proposed LTCH labor-related share for FY 2013 was the sum of the FY 
2013 relative importance of each labor-related cost category. 
Consistent with our proposal to update the labor-related share with the 
most recent available data, the labor-related share for this final rule 
reflects IGI's second quarter 2012 forecast of the FY 2009-based LTCH-
specific market basket. Table VII.C-6 below shows the FY 2013 labor-
related share relative importance using IGI's second quarter 2012 
forecast of the FY 2009-based LTCH-specific market basket and the FY 
2012 labor-related share relative importance using the FY 2008-based 
RPL market basket. For a comparison of the FY 2012 labor-related share 
and the FY 2013 proposed labor-related share based on IGI's first 
quarter 2012 forecast that was provided in the FY 2013 IPPS/LTCH 
proposed rule, we refer readers to Table VII.C-6 of the proposed rule 
(77 FR 28017).

  Table VII.C-6--Comparison of the FY 2012 Labor-Related Share Relative
 Importance Based on the FY 2008-Based RPL Market Basket and the FY 2013
Labor-Related Share Relative Importance Based on the FY 2009-Based LTCH-
                         Specific Market Basket
------------------------------------------------------------------------
                                       FY 2012 Labor-    FY 2013 Labor-
                                        related share     related share
                                          relative          relative
                                       importance \1\    importance \2\
------------------------------------------------------------------------
Wages and Salaries..................            48.984            45.470
Employee Benefits...................            12.998             8.146
Professional Fees: Labor-Related....             2.072             2.217
Administrative and Business Support              0.416             0.503
 Services...........................
All Other: Labor-Related Services...             2.094             2.507
                                     -----------------------------------
    Subtotal........................            66.564            58.843
Labor-Related Portion of Capital                 3.635             4.253
 Costs (46%)........................
                                     -----------------------------------
    Total Labor-Related Share.......            70.199            63.096
------------------------------------------------------------------------
\1\ Published in the FY 2012 IPPS/LTCH PPS final rule (76 FR 51767) and
  based on the second quarter 2011 IGI forecast.
\2\ Based on the second quarter 2012 IGI forecast.

    As we proposed and are adopting in this final rule, the labor-
related share for FY 2013 is the sum of the FY 2013 relative importance 
of each labor-related cost category, and reflects the different rates 
of price change for these cost categories between the base year (FY 
2009) and FY 2013. For this final rule, the sum of the relative 
importance for FY 2013 for operating costs (Wages and Salaries, 
Employee Benefits, Professional Fees: Labor-related, Administrative and 
Business Support Services, and All Other: Labor-related Services) is 
58.843 percent, as shown in Table VII.C-6 above. As we proposed and are 
adopting in this final rule, the portion of capital-related costs that 
is influenced by the local labor market is estimated to be 46 percent, 
which is the same percentage applied under the FY 2008-based RPL market 
basket. For this final rule, because the most recent forecast of the 
relative importance for capital-related costs is 9.246 percent of the 
FY 2009-based LTCH-specific market basket in FY 2013, we took 46 
percent of 9.246 percent to determine the labor-related share of 
capital-related costs for FY 2013 (.46 * 9.246). The result is 4.253 
percent, which we are adding to 58.843 percent for the operating cost 
amount to determine the total labor-related share for FY 2013 in this 
final rule. Thus, the labor-related share that we are establishing 
under the LTCH PPS for FY 2013 is 63.096 percent. This labor-related 
share was determined using the same methodology as employed in 
calculating all previous LTCH labor-related shares.
    Comment: One commenter requested that CMS reconsider its proposal 
to decrease the labor-related share from 70.199 percent for FY 2012 to 
63.217 percent for FY 2013, stating that this decrease would unfairly 
penalize LTCHs in urban areas and reward LTCHs in rural areas.
    Response: We believe that the revision to the labor-related share 
using data exclusively from LTCHs, which we proposed and are 
finalizing, is an improvement over the current labor-related share 
based on the RPL market basket. We believe a labor-related share for 
LTCHs that is based on Medicare cost report data obtained exclusively 
from the universe of LTCH providers appropriately reflects the national 
average cost structures of LTCHs. While we recognize that this downward 
revision to the labor-related share will have an effect on the 
distribution of payments, the decision to revise the labor-related 
share was based on what

[[Page 53479]]

was most appropriate for LTCHs given the sufficiently robust data 
available and that the completeness and the quality of the Medicare 
cost reports we have been evaluating over the last several years have 
improved. For the reasons stated above, we believe a labor-related 
share based on the FY 2009-based LTCH-specific market basket 
(reflecting LTCH-specific Medicare cost report data) is an improvement. 
Thus, we are adopting our proposal to revise the labor-related share as 
described in the proposed rule.
    Comment: A few commenters were concerned about the significant 
reduction in the labor-related share from FY 2012 to FY 2013 and its 
impact on providers, particularly those in high wage index areas. One 
commenter requested that CMS communicate the driving factors that 
contribute to such a significant decrease, and evaluate the 
appropriateness of those contributing factors. One commenter questioned 
the significant difference between the compensation weights for the FY 
2009-based market basket (54.338 percent) and the FY 2008-based RPL 
market basket (62.278 percent) after there was already a significant 
decrease in the labor-related share from FY 2011 to FY 2012. One 
commenter expressed support for phasing-in the reduction in the labor-
related share over 3 years to help minimize that impact. Another 
commenter requested that CMS spread the impact of this change over a 
longer period of time instead of having it apply all at once.
    Response: The principal factors contributing to the difference in 
the labor-related shares between the proposed and final FY 2009-based 
LTCH-specific market basket and the FY 2008-based RPL market basket are 
the base year cost weight differences found in two categories; Wages 
and Salaries, and Benefits. These weights (as proposed and adopted in 
this final rule) are shown above in Table VII. C-2. The lower share of 
costs attributable to wages, salaries, and benefits found in the 
proposed and final FY 2009-based LTCH-specific market basket is a 
direct result of incorporating cost data exclusively from LTCHs, as 
opposed to incorporating cost report data from freestanding IRFs, 
freestanding IPFs, and LTCHs combined (as is the case in the RPL market 
basket). For the reasons provided previously, we believe using data 
solely from LTCHs is appropriate and results in a market basket that 
better reflects the cost structure of the LTCH industry.
    The labor-related share is determined by identifying the national 
average proportion of total costs that are related to, influenced by, 
or vary with the local labor market. We generally do not phase-in 
changes to the labor-related share. As explained above, the labor-
related share is determined from the relative importance of each labor-
related cost category under the FY 2009-based LTCH-specific market 
basket, which is developed exclusively from cost data from LTCHs. 
Because the labor-related share will now be based on data obtained 
exclusively from the universe of LTCH providers (reflecting the 
national average cost structures of only LTCHs as compared to the cost 
structures of freestanding IRFs, freestanding IPFs, and LTCHs combined 
as is the case in the current LTCH PPS market basket), we believe it 
appropriately identifies the labor-related portion of the LTCHs' costs 
that are influenced by the local labor market and, therefore, will 
result in the most accurate payments to LTCHs in FY 2013 (when making 
the area wage level adjustment provided for under Sec.  412.525(c). 
Therefore, we continue to believe that adopting a labor-related share 
based on the FY 2009-based LTCH-specific market basket will result in 
the most appropriate LTCH PPS payments. In addition, we do not believe 
that a phase-in of the change in the LTCH PPS labor-related share is 
necessary because the majority of LTCHs (approximately 80 percent) are 
located in areas where the FY 2013 wage index value is less than 1.0 
and, therefore, are estimated to experience an increase in LTCH PPS 
payments as a result of the change to the labor-related share from FY 
2012 to FY 2013. Of the approximately 20 percent of LTCHs that are 
estimated to experience a decrease in LTCH PPS payments as a result of 
the change to the labor-related share in FY 2013, we estimate that 
those LTCHs, on average, will experience a 0.5 percent decrease in LTCH 
PPS payments as a result of the change to the labor-related share under 
the FY 2009-based LTCH-specific market basket, which is similar in 
magnitude (and fiscal impact) to changes to aggregate LTCH PPS payments 
in the past due to annual updates to the adjustment for area wage 
levels (for which we have not provided a phase-in).
    Comment: One commenter stated that the downward revision to the 
labor-related share creates ongoing future challenges to urban 
providers and urged CMS to continue to assess if more recent data is 
available before the FY 2013 annual update is established.
    Response: We proposed to use data from cost reports beginning in FY 
2009 because these data are the latest available complete data and, 
therefore, we continue to believe that it will enable us to accurately 
calculate cost weights that specifically reflect the cost structures of 
LTCHs. We are finalizing our proposed use of these data for the reasons 
set forth above. We will continue to monitor the cost weights of the 
LTCH-specific market basket over time. We note that using the most 
recent data available at the time of the FY 2013 IPPS/LTCH PPS proposed 
rule, we proposed a FY 2013 market basket update (as measured by the 
percentage increase) for LTCHs of 3.0 percent. We also proposed to use 
more recent data for the final rule, if available and appropriate. As 
proposed, we have incorporated a more recent forecast from IGI for this 
final rule, which results in a FY 2013 market basket update of 2.6 
percent.

D. Changes to the LTCH Payment Rates for FY 2013 and Other Changes to 
the LTCH PPS for FY 2013

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 used to update the LTCH 
PPS standard Federal rate for FY 2013, that is, effective for LTCH 
discharges occurring on or after October 1, 2012 through September 30, 
2013.
    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 Federal rate, we refer 
readers to the following final rules: RY 2004 LTCH PPS final rule (68 
FR 34134 through 34140); RY 2005 LTCH PPS final rule (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); RY 2010 LTCH PPS final rule (74 
FR 44021 through 44030); FY 2011 IPPS/LTCH PPS final rule (75 FR 50443 
through 50444); and FY 2012 IPPS/LTCH PPS final rule (76 FR 51769 
through 51773).
    The update to the LTCH PPS standard Federal rate for FY 2013 is 
presented in section V.A. of the Addendum to this final rule. The 
components of the annual market basket update to the LTCH PPS standard 
Federal rate for FY 2013 are discussed below. Furthermore,

[[Page 53480]]

as discussed in section VII.E.4. of this preamble, for FY 2013, in 
addition to the update factor, we made a one-time prospective 
adjustment to the standard Federal rate for FY 2013 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 under existing Sec.  
412.523(d)(3) (this adjustment will not apply to payments made for 
discharges occurring on or before December 28, 2012, consistent with 
the statute). Furthermore, as discussed in section V.A. of the Addendum 
of this final rule, we made an adjustment to the standard Federal rate 
to account for the estimated effect of the changes to the area wage 
level adjustment for FY 2013 on estimated aggregate LTCH PPS payments, 
in accordance with Sec.  412.523(d)(4).
    In the FY 2013 IPPS/LTCH PPS proposed rule (77 FR 28018 through 
28019), we presented our proposals for the development of the annual 
update to the LTCH PPS standard Federal rate for FY 2013, including 
proposals related to the annual market basket update, the revision of 
certain market basket updates required by the statute, and the 
methodology for calculating and applying the MFP adjustment. We did not 
receive any public comments on our proposals regarding the development 
of the annual update to the LTCH PPS standard Federal rate for FY 2013, 
and are adopting the proposals as final without modification in this 
final rule. (We refer readers to the FY 2013 IPPS/LTCH PPS proposed 
rule for additional details on our proposals for the development of the 
annual update to the LTCH PPS standard Federal rate for FY 2013 (77 FR 
28018 through 28019), The other adjustments we proposed to apply in 
determining the FY 2013 LTCH PPS standard Federal rate (in addition to 
the annual update), such as the one-time prospective adjustment 
discussed in section VII.E.4. of this preamble and the budget 
neutrality adjustment for changes in the area wage levels discussed in 
section V.A. of the Addendum of this final rule, are discussed in those 
respective sections of this final rule.) Below we present the finalized 
methodology that we used to develop the annual update to the LTCH PPS 
standard Federal rate for FY 2013, which is consistent with the 
methodology presented in the proposed rule.
2. FY 2013 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 section VII.C. of this preamble, as proposed, we are adopting 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 section VII.C.1. of 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.'' (The adjustments are discussed in more detail in section 
VII.D.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 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 
employ ``fiscal year'' rather than ``rate year'' for 2011 and 
subsequent years.
b. Revision of Certain Market Basket Updates as Required by the 
Affordable Care Act
    Section 1886(m)(3)(A) of the Act, as added by section 3401(c) of 
the Affordable Care Act, specifies that, for rate year 2010 and each 
subsequent rate year through 2019, any annual update to the standard 
Federal rate shall be reduced:
     For rate year 2010 through 2019, by the ``other 
adjustment'' specified in sections 1886(m)(3)(A)(ii) and (m)(4) of the 
Act; and
     For rate year 2012 and each subsequent year, by the 
productivity adjustment (which we refer to as ``the multifactor 
productivity (MFP) adjustment'') described in section 
1886(b)(3)(B)(xi)(II) of the Act.
    Section 1886(m)(3)(B) of the Act provides that the application of 
paragraph (3) of section 1886(m) of the Act may result in the annual 
update being less than zero for a rate year, and may result in payment 
rates for a rate year being less than such payment rates for the 
preceding rate year.
    Section 1886(b)(3)(B)(xi)(II) of the Act defines the MFP adjustment 
as equal to the 10-year moving average of changes in annual economy-
wide, private nonfarm business multifactor productivity (as projected 
by the Secretary for the 10-year period ending with the applicable 
fiscal year, calendar year, cost reporting period, or other annual 
period). Under our methodology, the end of the 10-year moving average 
of changes in the MFP coincides with the end of the appropriate FY 
update period. In 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).)
    We did not receive any public comments and for FY 2013, we continue 
to use our methodology for calculating and applying the MFP adjustment 
to determine the annual update to the LTCH PPS standard Federal rate 
for FY 2013. (For details on the development of the MFP, 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. Market Basket Under the LTCH PPS for FY 2013
    For FY 2013, under the authority of section 123 of the BBRA as 
amended by section 307(b) of the BIPA, we are adopting a newly created 
FY 2009-based LTCH-specific market basket for use under the LTCH PPS 
beginning in FY 2013 because we believe it more appropriately reflects 
the cost structure

[[Page 53481]]

of LTCHs. 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 section VII.C. of this preamble.
d. Annual Market Basket Update for LTCHs for FY 2013
    Consistent with our historical practice, we estimate the market 
basket update and the MFP adjustment based on IGI's forecast using the 
most recent available data. Based on IGI's second quarter 2012 
forecast, the FY 2013 full market basket estimate for the LTCH PPS 
using the FY 2009-based LTCH-specific market basket is 2.6 percent (for 
additional details, we refer readers to section VII.C.3.e. of this 
preamble). Using our established methodology for determining the MFP 
adjustment, the current estimate of the MFP adjustment for FY 2013 
based on IGI's second quarter 2012 forecast is 0.7 percent (for 
additional details, we refer readers to section VII.D.2.b. of this 
preamble).
    For FY 2013, 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, as 
proposed, in this final rule we reduced the full FY 2013 market basket 
update by the FY 2013 MFP adjustment. As proposed, in this final rule, 
to determine the market basket update for LTCHs for FY 2013, as reduced 
by the MFP adjustment, consistent with our established methodology, we 
subtracted the FY 2013 MFP adjustment from the FY 2013 market basket 
update. Furthermore, sections 1886(m)(3)(A)(ii) and 1886(m)(4)(C) of 
the Act requires that any annual update to the standard Federal rate 
for FY 2013 be reduced by the ``other adjustment'' described in 
paragraph (4), which is 0.1 percentage point for FY 2013. Therefore, as 
proposed, for this final rule, following application of the 
productivity adjustment, we reduced the 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).)
    In this final rule, in accordance with the statute and as proposed, 
we reduced the FY 2013 full market basket estimate of 2.6 percent 
(based on the second quarter 2012 forecast of the FY 2009-based LTCH-
specific market basket) by the FY 2013 MFP adjustment (that is, the 10-
year moving average of MFP for the period ending FY 2013, as described 
in section VII.D.2.b. of the preamble of this final rule) of 0.7 
percentage point (based on IGI's second quarter 2012 forecast). 
Following application of the productivity adjustment, the adjusted 
market basket update of 1.9 percent (2.6 percent minus 0.7 percentage 
point) was then reduced by 0.1 percentage point, as required by 
sections 1886(m)(3)(A)(ii) and 1886(m)(4)(C) of the Act. Therefore, in 
this final rule, under the authority of section 123 of the BBRA as 
amended by section 307(b) of the BIPA, we are establishing an annual 
market basket update under the LTCH PPS for FY 2013 of 1.8 percent 
(that is, the most recent estimate of the LTCH PPS market basket update 
at this time of 2.6 percent less the MFP adjustment of 0.7 percentage 
point less the 0.1 percentage point required under section 
1886(m)(4)(C) of the Act). Accordingly, we are revising Sec.  
412.523(c)(3) by adding a new paragraph (ix), which specifies that the 
standard Federal rate for FY 2013 is the standard Federal rate for the 
previous LTCH PPS year updated by 1.8 percent, and as further adjusted, 
as appropriate, as described in Sec.  412.523(d). In addition, 
consistent with the policy we are establishing under section VII.E.4. 
of this preamble to adjust the FY 2013 standard Federal rate by a one-
time prospective adjustment, we are revising the regulations to specify 
under Sec.  412.523(c)(3)(ix)(B) that with respect to discharges 
occurring on or after October 1, 2012, and before December 29, 2012, 
payments are based on the standard Federal rate in Sec.  
412.523(c)(3)(ix)(A) without regard to the one-time prospective 
adjustment provided for under Sec.  412.523(d)(3)(iii). (We note that 
we also adjusted the FY 2013 standard Federal rate by an 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 final rule).)
3. LTCH PPS Cost-of-Living Adjustment (COLA) for LTCHs Located in 
Alaska and Hawaii
    Under Sec.  412.525(b), we established a cost-of-living adjustment 
(COLA) for LTCHs located in Alaska and Hawaii to account for the higher 
costs incurred in those States (67 FR 56022). Specifically, we apply a 
COLA to payments to LTCHs located in Alaska and Hawaii by multiplying 
the nonlabor-related portion of the standard Federal 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.
    Historically, we have 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 payments for LTCHs 
in Alaska and Hawaii. Sections 1911 through 1919 of the Nonforeign Area 
Retirement Equity Assurance Act, as contained in subtitle B of title 
XIX of the National Defense Authorization Act (NDAA) for Fiscal Year 
2010 (Pub. L. 111-84, October 28, 2009) transitions the Alaska and 
Hawaii COLAs to locality pay. Under section 1914 of Public Law 111-84, 
locality pay is being phased in over a 3-year period beginning in 
January 2010, with COLA rates frozen as of the date of enactment, 
October 28, 2009, and then proportionately reduced to reflect the 
phase-in of locality pay. As we discussed in the FY 2012 IPPS/LTCH PPS 
final rule (76 FR 51809), we did not believe it was appropriate to use 
either the 2010 or 2011 reduced factors to adjust the nonlabor-related 
portion of the standard Federal rate for LTCHs in Alaska and Hawaii for 
Medicare payment purposes. Therefore, for FY 2012, we continued to use 
the same COLA factors (published by OPM) that we used to adjust 
payments in FY 2011 (which were based on OPM's 2009 COLA factors) to 
adjust the nonlabor-related portion of the standard Federal rate for 
LTCHs located in Alaska and Hawaii.
    As we discussed in the FY 2013 IPPS/LTCH PPS proposed rule (77 FR 
28019 through 28090), we continue to believe it is appropriate to use 
``frozen'' COLA factors to adjust payments in FY 2012 while we explored 
alternatives for updating the COLA in the future because we believe 
those COLA factors appropriately adjusted the nonlabor-related portion 
of the standard Federal rate for LTCHs located in Alaska and Hawaii, 
consistent with Sec.  412.523(b) (76 FR 51809). In that same proposed 
rule, under the authority of section 123 of the BBRA, as amended by 
section 307(b) of the BIPA, we proposed to continue to use the same 
``frozen'' COLA factors used in FY 2012 for FY 2013 and to update the 
COLA factors for Alaska and Hawaii, beginning in FY 2014, based on a 
comparison of the growth in the consumer price indices (CPIs) for

[[Page 53482]]

Anchorage, Alaska and Honolulu, Hawaii relative to the growth in the 
CPI for the average U.S. city as published by the BLS. This proposal 
was consistent with the proposals made for the COLA factors used under 
the IPPS discussed in section II.B.2. of the Addendum to this final 
rule.
    We did not receive any public comments on these proposals for the 
COLA factors (that is, our proposal for FY 2013 to continue to use the 
same COLA factors used in FY 2012, and our proposal for FY 2014 to 
begin updating the COLA factors for Alaska and Hawaii 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. In this final rule, we are adopting these proposals as final 
without modification because we believe these COLA factors will 
appropriately adjust the nonlabor-related portion of the standard 
Federal rate in for LTCHs located in Alaska and Hawaii, consistent with 
Sec.  412.523(b) (as we discussed in the FY 2013 IPPS/LTCH PPS proposed 
rule (77 FR 28019 through 28020). Both our finalized policy for FY 2013 
and our finalized policy for FY 2014 and subsequent years are described 
in detail below.
    In this final rule, for FY 2013, under the authority of section 123 
of the BBRA, as amended by section 307(b) of the BIPA, we will use the 
same ``frozen'' COLA factors used in FY 2012 (which are based on OPM's 
2009 COLA factors) for FY 2013 to adjust the nonlabor-related portion 
of the standard Federal rate for LTCHs located in Alaska and Hawaii. 
Therefore, for FY 2013, a COLA will be applied to the standard Federal 
rate for LTCHs located in Alaska and Hawaii, consistent with Sec.  
412.525(b), by multiplying the nonlabor-related portion of the standard 
Federal rate by the factors listed in the chart shown in section V.C. 
of the Addendum to this final rule.
    In addition, in this final rule, under the authority of section 123 
of the BBRA, as amended by section 307(b) of the BIPA, we are 
establishing that, beginning in FY 2014, we will update the COLA 
factors published by OPM that we used to adjust payments in FY 2011 
(which are based on OPM's 2009 COLA factors) as these are the last COLA 
factors OPM published prior to transitioning from COLAs to locality 
pay. Under this updated methodology, we use a comparison of the 
relative growth in the overall CPI for Anchorage, Alaska and Honolulu, 
Hawaii to update the COLA factors for all areas in Alaska and Hawaii, 
respectively, because the BLS publishes CPI data only for the cities of 
Anchorage and Honolulu. We believe that the relative price differences 
between these cities and the United States are appropriate and 
necessary proxies for the relative price differences of the ``other 
areas'' of Alaska and Hawaii.
    Although the BLS publishes the CPI for ``All Items'' for Anchorage, 
Honolulu, and for the average U.S. city, under this methodology, we 
will create reweighted CPIs for each of the respective areas to reflect 
the underlying composition of the IPPS market basket nonlabor-related 
share. The current composition of the CPI for ``All Items'' for all the 
respective areas is approximately 40 percent commodities and 60 percent 
services. However, the IPPS nonlabor-related share is comprised of 
approximately 60 percent commodities and 40 percent services. 
Therefore, we will create reweighted indexes for Anchorage, Honolulu, 
and the average U.S. city using the respective CPI commodities index 
and CPI services index to comprise the approximate 60/40 share obtained 
from the IPPS market basket. As we explained in the proposed rule, we 
believe that using the underlying composition of the IPPS market basket 
nonlabor-related share to reweight CPIs for each of the respective 
areas is an appropriate proxy for determining the COLAs for LTCHs 
because both LTCHs and IPPS hospitals are required to meet the same 
certification criteria set forth in section 1861(e) of the Act to 
participate as a hospital in the Medicare program and generally 
experience similar nonlabor-related costs for providing inpatient 
hospital services. We also note that the composition of the nonlabor-
related share of the LTCH-specific market basket is not significantly 
different from the approximate 60/40 share obtained from the IPPS 
market basket.
    As we explained in the proposed rule, we believe this methodology 
is appropriate because we will be able to continue updating COLA 
factors for hospitals located in Alaska and Hawaii using the relative 
price differences as a proxy for relative cost differences. We believe 
this is an appropriate alternative methodology given the 
discontinuation of COLA factors being published by OPM. We note that 
OPM's COLA factors were calculated with a statutorily mandated cap of 
25 percent, and since the inception of the LTCH PPS, we have exercised 
our discretionary authority to adjust payments to LTCHs located in 
Alaska and Hawaii by incorporating this cap. Consistent with our 
existing policy, our approach for FY 2014 will continue to use such a 
cap, as our policy is based on OPM's COLA factors (updated by the 
methodology described above). We note that this policy is consistent 
with the policy we are adopting for IPPS hospitals discussed in section 
II.B.2. of the Addendum to this final rule.
    Lastly, under this policy and as finalized, we will update the COLA 
factors using the methodology described above every 4 years (beginning 
in FY 2014), consistent with the policy we are establishing for 
updating the COLA factors under the IPPS discussed in section II.B.2. 
of the Addendum to this final rule. Under the IPPS, we also are 
adopting a policy to update the COLA factors used to adjust the 
nonlabor-related portion of the standard Federal rate for Alaska and 
Hawaii every 4 years (beginning in FY 2014) concurrently with the 
update to the labor-related share under the IPPS market basket. The 
labor-related share of the IPPS market basket currently is not 
scheduled to be updated until FY 2014. At the time of development of 
the FY 2014 proposed rule, we expect to have CPI data available through 
2012. Therefore, under this methodology as updated, we expect the 
proposed FY 2014 COLA factors for Alaska and Hawaii to be based on the 
2009 OPM COLA factors updated through 2012 by the 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.

E. Expiration of Certain Payment Rules for LTCH Services and the 
Moratorium on the Establishment of Certain Hospitals and Facilities and 
the Increase in Number of Beds in LTCHs and LTCH Satellite Facilities

1. Background
    Moratoria on the implementation of certain LTCH payment policies 
and on the development of new LTCHs and LTCH satellite facilities and 
on bed increases in existing LTCHs and LTCH satellite facilities 
established under sections 114(c) and (d) of the MMSEA (Pub. L. 110-
173), as amended by section 4302 of the ARRA (Pub. L. 111-5) and 
further amended by sections 3106 and 10312 of the Affordable Care Act, 
are set to expire during CY 2012, under current law.
    The moratoria established by these provisions delayed the full 
implementation of the following policies for 5 years beginning at 
various times in CY 2007:
     The full application of the ``25-percent payment 
adjustment threshold'' to certain LTCHs, including hospitals-within-
hospitals (HwHs) and LTCH satellite facilities for cost reporting 
periods beginning on or after July 1,

[[Page 53483]]

2007, and before July 1, 2012, or cost reporting periods beginning on 
or after October 1, 2007, and before October 1, 2012, as applicable 
under the regulations at Sec. Sec.  412.534 and 412.536.
     The inclusion of an ``IPPS comparable'' option for payment 
determinations under the short-stay outlier (SSO) adjustment under 
Sec.  412.529 of the regulations for LTCH discharges occurring on or 
after December 29, 2007, but prior to December 29, 2012.
     The application of any one-time prospective adjustment to 
the LTCH PPS standard Federal rate provided for in Sec.  412.523(d)(3) 
of the regulations from December 29, 2007, until December 29, 2012.
     In general, the development of new LTCHs and LTCH 
satellite facilities, or increases in the number of beds in existing 
LTCHs and LTCH satellite facilities from December 29, 2007, and ending 
December 28, 2012, unless one of the specified exceptions to the 
particular moratorium was met. (We refer readers to the May 22, 2008 
interim final rule with comment period for the MMSEA (73 FR 29699, 
29704 through 29707, and 29709), the interim final rule for the ARRA 
(74 FR 43990 through 43992 and 43997), and the finalizing of the 
Affordable Care Act changes in the FY 2011 IPPS/LTCH PPS final rule (75 
FR 50399 through 50400, and 50416) for a complete description of this 
moratorium.)
    In the FY 2013 IPPS/LTCH PPS proposed rule (77 FR 28021 and 28022), 
we proposed a 1-year continuation of the existing delay of the full 
implementation of the 25-percent payment adjustment threshold; that is, 
for cost reporting periods beginning on or after October 1, 2012, and 
before October 1, 2013, as applicable. We also proposed to make a one-
time prospective adjustment to the standard Federal rate under Sec.  
412.523(d)(3) of the regulations. We proposed to phase in this one-time 
prospective adjustment to the standard Federal rate over a 3-year 
period, beginning in FY 2013; however, consistent with the statute, 
this adjustment would not apply to payments made for discharges 
occurring on or before December 28, 2012. We did not propose to make 
any changes to the SSO policy as it currently exists in the regulations 
at Sec.  412.529. Accordingly, consistent with the existing regulations 
at Sec.  412.529(c)(3), for SSO discharges occurring on or after 
December 29, 2012, the ``IPPS comparable'' option at Sec.  
412.529(c)(3)(i)(D) would apply to payment determinations as 
appropriate for certain short-stay cases. The moratoria on the 
development of new LTCHs or LTCH satellite facilities and on an 
increase in the number of beds in existing LTCHs or LTCH satellite 
facilities mandated by section 114(d) of the MMSEA, as amended by 
section 4302(b) of the ARRA and further amended by section 3106 and 
10312 of the Affordable Care Act, are set to expire on December 29, 
2012, under current law.
2. The 25-Percent Payment Adjustment Threshold
    In the FY 2013 IPPS/LTCH PPS proposed rule (77 FR 28021 and 28022), 
we proposed to provide a 1-year extension (that is, for cost reporting 
periods beginning on or after October 1, 2012, and before October 1, 
2013) on the moratorium on the application of the 25-percent payment 
adjustment threshold policy as provided by 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. We proposed to revise Sec. Sec.  
412.534 and 412.536 of the regulations to reflect this extension. 
Specifically, we proposed to change ``2012'' to ``2013'' in the heading 
of paragraph Sec.  412.534(c)(1); in paragraph (c)(1)(i) and in 
paragraph (c)(1)(ii); in the heading of paragraphs (c)(2) and (d)(1); 
in paragraph (d)(1)(i) and in the headings of paragraphs (d)(2), and 
(e)(1); in paragraph (e)(1)(i); and in the heading of paragraph (e)(2) 
to incorporate this change. In addition, we proposed to revise the 
headings at Sec. Sec.  412.534(c)(3), (d)(3), and (e)(3), and make 
conforming changes to (h)(4) and (5) and Sec.  412.536(a)(2) to reflect 
this extension. This extension would continue the existing statutory 
exemption of grandfathered HwHs and freestanding LTCHs from the 25-
percent payment adjustment threshold and the continued statutory 
increase in the percentage threshold to 50 or 75 percent, as 
applicable, for those LTCHs and LTCH satellite facilities presently so 
affected. For a detailed description of the moratorium on the 25-
percent payment adjustment threshold policy, we refer readers to the 
May 22, 2008 interim final rule with comment period (73 FR 29699 
through 29704) and the interim final rule with comment period for the 
ARRA (74 FR 43990 through 43992).
    Although we proposed to extend the moratorium relating to the 
application of the 25-percent payment adjustment threshold policy 
effective for cost reporting periods beginning on or after October 1, 
2012, and before October 1, 2013, we noted that the existing moratorium 
will expire for certain LTCHs prior to the effective date of the 
extension. Specifically, under existing regulations, the moratoria for 
an LTCH described in Sec.  412.23(e)(2)(i) that meets the criteria in 
Sec.  412.22(f) and a satellite facility of a LTCH described under 
Sec.  412.22(h)(3)(i) (that is, a grandfathered HwH and a grandfathered 
LTCH satellite facility, respectively), and the moratoria for a 
``freestanding'' LTCH as described in Sec.  412.23(e)(5), will expire 
effective for cost reporting periods beginning on or after July 1, 
2012. In addition, under existing regulations, the moratorium on the 
25-percent payment adjustment threshold policies for a LTCH or a LTCH 
satellite facility that, as of December 29, 2007, was co-located with 
an entity that is a provider-based, off-campus location of a subsection 
(d) hospital which did not provide services payable under section 
1886(d) of the Act at the off-campus location also expires beginning 
with discharges occurring in cost reporting periods beginning on or 
after July 1, 2012. Therefore, under our proposed policy, there would 
be a period during which some of the above-described LTCHs and LTCH 
satellite facilities must comply with Sec. Sec.  412.534 and 412.536 
before becoming subject to the moratoria again. Specifically, the 
above-described LTCHs and LTCH satellite facilities with a cost 
reporting period beginning on or after July 1, 2012, and before October 
1, 2012, would be required to comply with the applicable 25-percent 
payment adjustment threshold policy under Sec. Sec.  412.534 and 
412.536 for discharges occurring in the LTCH's or LTCH satellite 
facility's first cost reporting period beginning from July 1, 2012, 
through September 30, 2012. Then, those same LTCHs and LTCH satellite 
facilities would be subject to the regulatory moratorium effective for 
discharges occurring in their first cost reporting period beginning on 
or after July 1, 2013, and before October 1, 2013.
    Comment: Commenters supported the proposed 1-year delay in the full 
application of the 25-percent payment adjustment threshold policy. Some 
of the commenters requested that CMS consider extending this delay for 
2 years rather than the proposed 1-year extension.
    Response: We appreciate the commenters' support of our proposed 
policy. While we understand the commenters' desire to extend this 
policy beyond the hospital's first cost reporting period beginning on 
or after October 1, 2012, and before October 1, 2013, we believe that 
it is appropriate to only consider extending a moratorium on the 25-
percent payment adjustment threshold policy through FY 2013. 
Accordingly, in this final rule, we are finalizing our proposed 1-year 
extension

[[Page 53484]]

of the existing moratorium for applicable LTCHs for cost reporting 
periods beginning on or after October 1, 2012, and before October 1, 
2013. However, as discussed below, in this final rule, we are also 
revising our regulations to address the situation of those LTCHs that 
have cost reporting periods beginning on or after July 1, 2012, and 
before October 1, 2012.
    Comment: Many commenters expressed concern about the impact of the 
proposed effective date of the regulatory moratorium on the 25-percent 
payment adjustment threshold policy (that is, for cost reporting 
periods beginning on or after October 1, 2012, and before October 1, 
2013) in light of the July 1, 2012 expiration of the statutory 
moratorium on certain LTCH providers with cost reporting periods 
beginning from July 1, 2012, and before October 1, 2012. They pointed 
out that this group of LTCHs would be required to comply with the 
fully-implemented 25-percent payment adjustment threshold policy for 
their first cost reporting period beginning on or after July 1, 2012, 
and before October 1, 2012. Those hospitals would not benefit from the 
extension of the moratorium on the 25-percent payment adjustment 
threshold policy until their first cost reporting period beginning on 
or after October 1, 2012, and before October 1, 2013, which for these 
providers would start between July 1, 2013 and September 30, 2013. 
Requiring them to comply with the fully reinstated policy in the 
interim, several commenters noted, would contradict CMS' assertion in 
the proposed rule, where CMS indicated that ``* * * we could be in a 
position within the near future to propose revisions to our payment 
policies that could render the 25-percent payment adjustment threshold 
policy unnecessary.'' Further, ``[i]n light of this potential result, 
we believe it is prudent to avoid requiring LTCHs (or CMS payment 
processing systems) to retool in order to implement the full 
reinstatement of the policy for what could be a relatively short period 
of time.'' The commenters asserted that this statement further argued 
for the development of a solution to avoid ``subjecting'' approximately 
130 LTCHs to the ``substantial logistic, administrative, and financial 
burden'' of compliance with the fully implemented policy for a single 
cost reporting period. Several commenters also noted that the 
particular group of LTCHs and LTCH satellite facilities that would be 
effected by the ``gap'' between the July 1, 2012 expiration of the 
statute and the October 1, 2012 implementation of our proposed policy 
are those freestanding and grandfathered HwHs that have never actually 
been subject to the policy and, therefore, would find compliance for 
one cost reporting period even more burdensome.
    In urging consistent treatment for this group of providers and 
requesting that CMS not delay relief to them under the proposed 
extension of the moratorium, a number of commenters submitted 
suggestions regarding how to avoid the ``gap'' period for this group of 
LTCHs. Suggestions made by commenters can be grouped into two 
categories: those that focused on how CMS could revise the mechanics of 
execution of the payment adjustment in order to immediately cover those 
affected LTCHs and LTCH satellite facilities in the proposed extension 
of the moratorium or at least limit the impact of the ``gap'' between 
statutory and regulatory protection for such entities; and those 
focusing on the Secretary's authority to implement the extension of the 
moratorium effective for cost reporting periods beginning on July 1, 
2012, notwithstanding the rulemaking schedule under the LTCH PPS which 
establishes an October 1, 2012 implementation date for policies 
promulgated in the FY 2013 IPPS/LTCH PPS final rule.
    Several commenters suggested that CMS issue an interim final rule 
with comment period as soon as possible that would provide immediate 
relief for those LTCHs that would be affected by the ``gap'' referenced 
previously, by accelerating the implementation date of the proposed 
extension of the moratorium. Other commenters recommended that CMS 
``refrain from enforcing the policy.'' A number of commenters suggested 
that affected LTCHs be allowed to elect to have the 12-month period 
beginning on October 1, 2012, for the purposes of calculating its 
compliance with the 25-percent payment adjustment threshold policy. One 
commenter offered a specific remedy for those LTCHs that would be 
subject to the ``gap'': That the moratoria on full implementation of 
the 25-percent payment adjustment threshold policy could be applied to 
Medicare patient discharges occurring on and after October 1, 2012. 
Therefore, this commenter suggested that the 25-percent payment 
adjustment threshold policy would only apply to those ``gap'' LTCHs for 
1 to 3 months of their cost reporting periods, that is, the months from 
the beginning of their cost reporting period (from July 1, 2012 through 
September 30, 2012) until October 1, 2012, when the proposed regulatory 
moratorium would go into effect.
    Several commenters suggested that for CMS to choose July 1, 2012 as 
the proposed effective date of the extension of the existing statutory 
moratorium on the full implementation of the 25-percent payment 
adjustment threshold policy was not actually ``retroactive rulemaking'' 
because the actual payment adjustment would be applied in the future, 
upon cost report reconciliation. These and other commenters also argued 
in the alternative that even if such action constituted retroactive 
rulemaking, generally the courts disallow it only if it results in 
``harm,'' is ``a substantive change from an agency's prior regulatory 
practice,'' and would ``impair any right, or create any new obligation, 
duty or disability.'' Furthermore, the commenters argued that the 
Secretary has the authority to engage in retroactive rulemaking if the 
public interest is served. A number of commenters urged CMS to 
eliminate the 25-percent payment adjustment threshold policy entirely 
for cost reporting periods beginning on or after October 1, 2012, and 
rather focus on developing and using patient and facility-level 
criteria to determine which patients are appropriate for LTCH 
treatment.
    Response: We appreciate the suggestions made by the commenters 
detailed above regarding possible resolutions of the situation faced by 
those LTCHs subject to the July 1, 2012 expiration of the statutory 
moratorium, but we believe that the suggestion to apply the extension 
of the moratorium effective for discharges occurring on or after 
October 1, 2012, instead of cost reporting periods beginning on or 
after October 1, 2012 for those LTCHs that would be effected by the 
``gap,'' addresses most, if not all, of the concerns raised by the 
commenters, including that these facilities were being subject--for 
even a short time--to a policy that we may be reevaluating. We 
understand the commenters' concerns that gap entities, including 
freestanding and grandfathered HwHs that have never been subjected to 
the policy, will have to comply with the full application of the policy 
for a period of time; that is from 1 to 3 months. Nonetheless, we do 
not believe that being subjected to the policy for this short period of 
time will require these entities to have to ``retool'' nor do we think 
it will impose a ``substantial logistic, administrative, and financial 
burden'' upon LTCHs that are admitting appropriate patients, that is, 
extremely sick patients who continue to require hospital-level care at 
an LTCH

[[Page 53485]]

following a course of treatment at a referring hospital. We also 
believe that, as discussed below, in applying the supplemental 
moratorium to the gap entities prior to their first cost reporting 
period for which they would be subjected to our regulatory moratorium, 
as suggested by a commenter, we are for the most part, bridging the gap 
for these LTCHs. As we note below, we believe that it is highly 
unlikely that any of the gap entities will exceed the 25-percent 
threshold during the time prior to the October 1, 2012 effective date 
of the supplemental moratorium.
    Accordingly, while we are not adopting any of the other suggestions 
detailed in the comment above, we believe that the suggested discharge-
based supplemental moratorium for this specific group of effected LTCHs 
provides a narrow and ``targeted'' remedy for those particular LTCHs 
subject to the ``gap'' between the expiration of the statutory 
moratorium, that is, cost reporting periods beginning on or after July 
1, 2012, and the effective date of the regulatory moratorium, that is, 
for cost reporting periods beginning on or after October 1, 2012, which 
we believe is superior to other solutions recommended by the 
commenters.
    Accordingly, as revised in this final rule, the statutory 
moratorium and the regulatory moratorium will be implemented as 
follows: For those LTCHs for which the statutory moratorium will expire 
effective with the hospitals' cost reporting periods beginning on or 
after October 1, 2012, the regulatory moratorium will seamlessly 
provide for an additional moratorium for the hospitals' first cost 
reporting period beginning on or after October 1, 2012. For LTCHs and 
LTCH satellite facilities for which the statutory moratorium expires 
effective with the hospital's cost reporting periods beginning on or 
after July 1, 2012, we will apply a regulatory moratorium as follows: 
For hospitals with cost reporting periods beginning on or after October 
1, 2012, the proposed moratorium will be finalized effective for the 
hospital's first cost reporting period beginning on or after October 1, 
2012. In addition, for hospitals with cost reporting periods beginning 
on or after July 1, 2012, and before October 1, 2012, we are finalizing 
a 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).
    We provide the following as an example of how this policy will be 
applied. Assume that LTCH A is a freestanding LTCH that has a cost 
reporting period beginning August 1, 2012. The statutory moratorium 
will expire for this LTCH on July 31, 2012. For its FY 2013 cost 
reporting period, it discharges 200 patients. Because the statutory 
moratorium expired for LTCH A on July 31, 2012 (which was the 
completion of its cost reporting period that ended on or after July 1, 
2012), the hospital is allowed to admit up to 50 patients from any one 
referring hospital under the 25-percent payment adjustment threshold 
policy before the LTCH PPS adjusted payment would be applied for 
additional patients. Therefore, if LTCH A discharges 35 patients 
admitted from IPPS Hospital B during August and September, no payment 
adjustment would be applied. If LTCH A discharges an additional 25 
patients after October 1, 2012, no adjustment would be applied to any 
of the discharges that had been admitted from IPPS Hospital A, 
effective with discharges occurring on or after October 1, when the 
regulatory moratorium goes into effect and LTCH B would be permitted to 
exceed the 50 patient limit under revised Sec.  412.536(a)(3)(1). This 
LTCH would not be subject to the 25-percent payment adjustment 
threshold policy until its cost reporting period beginning on or after 
August 1, 2014 as described in revised Sec.  412.536(a)(2).
    Therefore, we will finalize the proposed regulatory moratorium on 
the full application of the 25-percent payment adjustment threshold 
policy for LTCHs with reporting periods beginning on or after October 
1, 2012, and we will also establish a discharge-based moratorium on the 
application of the 25-percent payment adjustment threshold policy 
solely for those LTCHs that would have been effected by the ``gap'' for 
discharges occurring on or after October 1, 2012, and through the end 
of their first cost reporting period beginning on or after July 1, 
2012, and before October 1, 2012.
    We do not agree with the commenters who suggested that we eliminate 
the 25-percent payment adjustment threshold policy at this time even as 
we are evaluating revisions to the LTCH PPS that may more accurately 
target the types of patients who we believe are appropriate for 
treatment in an LTCH. We adopted the 25-percent payment adjustment 
threshold policy to limit the percentage of patients an LTCH may admit 
from another hospital, in order to address our concerns that LTCHs were 
functioning as step-down units of referring IPPS hospitals and that 
Medicare was, therefore, paying twice (first to the IPPS hospital and 
then to the LTCH) for what was essentially one episode of patient care. 
We believe that the original objectives of the 25-percent payment 
adjustment threshold policy continue to be valid even though we are 
presently temporarily extending the moratorium on the policy's full 
implementation.
    Comment: A number of commenters requested that CMS provide more 
information about the two projects that appear to be moving toward 
addressing the concerns and perhaps realizing the goals of establishing 
LTCH facility and patient-level criteria that MedPAC articulated in its 
2004 recommendations and that could ``render the 25-percent payment 
adjustment threshold policy unnecessary.''
    Response: We continue to share MedPAC's concerns regarding the 
treatment of medically appropriate patients in LTCHs. In its March 2012 
Report to Congress, 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.'' (p. 273). CMS agrees with MedPAC and 
has been undertaking research to determine whether there are patient 
level criteria that can be used to determine patients that are 
appropriately treated in an LTCH or in an IPPS hospital at a higher 
than the traditional IPPS payment consistent with their higher costs. 
Generally, preliminary research by our contractor seems to indicate 
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. 
We are also researching whether under the IPPS it is appropriate to 
carve out these patients as a separate category within the MS-DRGs, 
calculating separate relative weights for these patients. As 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.
    In this final rule, our regulations are revised under Sec. Sec.  
412.534 and 412.536 to reflect our finalized policies. We note that, in 
each regulatory provision, we

[[Page 53486]]

specify that the determination as to whether a payment adjustment is 
applicable for discharges occurring during the months that an LTCH or 
LTCH satellite facility will be subject to the gap, that were admitted 
from a particular referring hospital (that have not achieved high-cost 
outlier status at the referring hospital), will be based upon whether 
or not those discharges exceed 25 percent (or 50 percent, as 
applicable) of total discharges during that cost reporting period.
    Although those with cost reporting periods beginning on or after 
July 1 and before October 1 will be ``technically'' subject to the 
payment adjustment until October 1, 2012, we believe that very few, if 
any, LTCHs will actually be disadvantaged because these LTCHs would 
rarely, if ever admit more than 25 percent of their discharges from any 
one referring hospital during the limited period of 1 to 3 months 
(depending on the hospital's cost reporting beginning date) that the 
25-percent payment adjustment threshold policy would technically be in 
effect. For discharges occurring on or after October 1, 2012, they 
would be protected by our new regulation and would not have to wait 
until the start of their next cost reporting period for relief. In 
addition, we would note that because we believe that the application of 
the 25-percent payment adjustment threshold policy would virtually have 
no impact on those hospitals for the period of July 1, 2012, through 
September 30, 2012, we do not intend to expend limited audit dollars to 
pursue this issue for discharges occurring during that period.
    We are revising the regulations at Sec. Sec.  412.534 and 412.536 
to reflect these finalized policies.
3. The ``IPPS Comparable Per Diem Amount'' Payment Option for Very 
Short Stays Under the Short-Stay Outlier (SSO) Policy
    Prior to the enactment of section 114(c)(3) of the MMSEA, for LTCH 
short stay outlier (SSO) cases with a covered length of stay that was 
equal to or less than one standard deviation from the geometric average 
length of stay for the same MS-DRG under the IPPS (that is, the ``IPPS 
comparable threshold''), the SSO payment adjustment determination 
included an additional option, the ``IPPS comparable amount per diem 
amount'' (72 FR 26906). This policy was implemented in our regulations 
at Sec.  412.529(c)(3)(i) in the RY 2008 LTCH PPS final rule (72 FR 
26904 through 26908).
    Section 114(c)(3) of the MMSEA, as amended by section 3106(a) of 
the Affordable Care Act, provided a 5-year moratorium from the 
application of the ``IPPS comparable amount'' option under the SSO 
payment adjustment, which is scheduled to expire for discharges 
beginning on or after December 29, 2012 (75 FR 50399 through 50400). 
With the expiration of the moratorium, payment for an SSO discharge 
occurring on or after December 29, 2012, the Medicare payment will be 
based on the least of the following:
     100 percent of the estimated cost of the case.
     120 percent of the MS-LTC-DRG specific per diem amount 
multiplied by the covered length of stay of the particular case.
     The full MS-LTC-DRG per diem amount.
     Comparing the covered length of stay for as an SSO case 
and the ``IPPS comparable threshold,'' one of the following:
    (a) The blend of the 120 percent of the MS-LTC-DRG specific per 
diem amount (specified in Sec.  412.529(d)(1)) and an amount comparable 
to the IPPS per diem amount (specified in Sec.  412.529(d)(4)), for 
cases where the covered length of stay for an SSO case is greater than 
the ``IPPS comparable threshold'' (as specified under Sec.  
412.529(c)(3)(ii)).
    (b) An amount comparable to the IPPS comparable per diem amount 
(specified in Sec.  412.529(d)(4)), if the covered length of stay for 
an SSO case is equal to or less than one standard deviation from the 
geometric average length of stay for the same MS-DRG under the IPPS 
(the ``IPPS comparable threshold''), as specified under Sec.  
412.529(d)(4).
    For a comprehensive discussion of the SSO policy, including the 
payment for very short stays under the SSO policy, we refer readers to 
the May 6, 2008 interim final rule with comment period (73 FR 24874 
through 24881).
    The FY 2013 ``IPPS comparable threshold'' (that is, one standard 
deviation from the geometric average length of stay for the same MS-DRG 
under the IPPS) used in determining SSO payments for discharges 
occurring on or after December 29, 2012, under Sec.  412.529(c)(3) of 
the regulations are provided in Table 11, which is listed in section 
VI. of the Addendum to this final rule and available via the Internet 
on the CMS Web site.
    Comment: A large number of commenters expressed concern about our 
application of the ``IPPS comparable amount'' option under the SSO 
payment adjustment policy in light of the expiration of the 5-year 
statutory moratorium.
    Response: In the proposed rule, we did not propose to make any 
changes in our policy under Sec.  412.529(c)(3) for LTCH discharges 
occurring on or after December 29, 2012, that related to these public 
comments. Therefore, we will not address the commenters' concerns 
regarding this policy at this time but we will take them into 
consideration should we contemplate changes to the SSO policy in the 
future.
    Technical change. With the expiration of the moratorium on the 
application of the ``IPPS comparable per diem amount'' option at Sec.  
412.529(c)(3)(i)(D) on the determination of the payment adjustment 
under the SSO policy, described above, we proposed a technical change 
to the regulation text at Sec.  412.529(d)(i)(C) in order to clarify 
the application of our policy. Specifically, at Sec.  
412.529(d)(4)(i)(C), we proposed to remove the following introductory 
phrase that appears at the beginning of the paragraph: ``For purposes 
of the blend amount described in paragraph (c)(2)(iv) of this 
section,'' so that the provision of the paragraph is not limited only 
to the ``blend amount'' option under the SSO policy at Sec.  
412.529(c)(2)(iv), but is also applicable to the ``IPPS comparable per 
diem amount'' option at Sec.  412.529(c)(3)(i)(D).
    In the proposed rule, we proposed to clarify this policy by 
revising the language of paragraph (d)(4)(i)(C) of Sec.  412.529 to 
read as follows:
    ``(C) The payment amount specified under paragraph (d)(4)(i)(B) of 
this section may not exceed the full amount comparable to what would 
otherwise be paid under the hospital inpatient prospective payment 
system determined under paragraph (d)(4)(i)(A) of this section.''
    We proposed this technical correction in order to clarify that, 
payment for a case based solely on the ``IPPS comparable per diem 
amount'' described at Sec.  412.529(d)(4) is calculated in the same way 
that it is calculated when payment for a case will be based on the 
``blend amount'' (under Sec.  412.529(c)(2)(iv)) of the ``IPPS 
comparable per diem amount'' and the ``120 percent of the LTC-DRG 
specific per diem payment amount.'' When we finalized the ``IPPS 
comparable per diem amount'' option to the SSO payment adjustment in 
the RY 2008 LTCH PPS final rule (72 FR 26907), we stated in the 
preamble that ``the IPPS comparable per diem amount [was] capped at the 
full IPPS comparable amount that is used under the blend option of the 
current SSO policy * * *.'' However, we neglected, at that time, to 
revise the regulation text. Therefore, we proposed to clarify our

[[Page 53487]]

regulations at Sec.  412.529(d)(4)(i)(C) to reflect existing policy 
that the ``IPPS comparable per diem amount'' is calculated as a per 
diem that is capped at an amount comparable to what would have been a 
full payment under the inpatient prospective payment system, such that 
an SSO payment made under the ``IPPS comparable per diem amount'' 
option may also not exceed the full amount comparable to what would 
otherwise be paid under the inpatient prospective payment system.
    We did not receive any public comments on this technical change and 
are finalizing the proposed technical change to Sec.  
412.529(d)(4)(i)(C) as described above.
4. One-Time Prospective Adjustment to the Standard Federal Rate Under 
Sec.  412.523(d)(3)
a. Overview
    In the August 30, 2002 LTCH PPS final rule (67 FR 55954), 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.'' The statute 
requires the LTCH PPS to be budget neutral in FY 2003, so 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 be made if the LTCH PPS was not implemented. In performing 
our budget neutrality calculations, we took into account the statute's 
requirement that certain statutory provisions that affect the level of 
payments to LTCHs in years prior to the implementation of the LTCH PPS 
shall not be taken into account in the development and implementation 
of the LTCH PPS. Specifically, section 307(a)(2) of the BIPA requires 
that the increases to the target amounts and the increases to the cap 
on the target amounts for LTCHs provided for by section 307(a)(1) of 
the BIPA (as set forth in section 1886(b)(3)(J) of the Act) and the 
enhanced continuous improvement bonus (CIB) payments for LTCHs provided 
for by section 122 of the BBRA (as set forth in section 1886(b)(2)(E) 
of the Act) are not to be taken into account in the development and 
implementation of the LTCH PPS.
    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 differ 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, provided by section 123(a)(1) of the BBRA, as 
amended by section 307(b) of 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 by a deadline of October 1, 2006, 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. This deadline was 
revised to July 1, 2008, in the RY 2007 LTCH PPS final rule because 
sufficient time had not elapsed since the start of the LTCH PPS for new 
data to be generated that would have enabled us to conduct a 
comprehensive reevaluation of our budget neutrality calculations (71 FR 
27842 through 27844). Therefore, we did not implement the one-time 
prospective adjustment provided under Sec.  412.523(d)(3) at that time. 
However, we stated that we would continue to collect and interpret new 
data as they became available in order to determine whether we should 
propose such an adjustment in the future. Furthermore, we revised Sec.  
412.523(d)(3) by changing the original October 1, 2006 deadline to July 
1, 2008, to postpone the prospective one-time adjustment due to the 
time lag in the availability of Medicare data upon which a proposed 
adjustment would be based, noting that there is a lag time between the 
submission of claims data and cost report data, and the availability of 
that data in the MedPAR files and HCRIS, respectively. We also 
explained that we believed that postponing the deadline of the one-time 
prospective adjustment to the LTCH PPS rates provided for in Sec.  
412.523(d)(3) to July 1, 2008, would allow our decisions regarding a 
possible adjustment to be based on more complete and up-to-date data 
(71 FR 27842 through 27845).
    Section 114(c)(4) of the Medicare, Medicaid, and SCHIP Extension 
Act of 2007 (Pub. L. 110-173) (MMSEA) provides that the ``Secretary 
shall not, for the 3-year period beginning on the date of the enactment 
of this Act, make the one-time prospective adjustment to long-term care 
hospital prospective payment rates provided for in section 
412.523(d)(3) of title 42, Code of Federal Regulations, or any similar 
provision.'' That provision delayed the effective date of any one-time 
prospective adjustment until no earlier than December 29, 2010. 
Accordingly, we revised Sec.  412.523(d)(3) of the regulations to 
conform with this requirement (73 FR 26801 through 26804 and 26839). 
Then, section 3106 of the Affordable Care Act amended section 114(c) of 
the MMSEA by specifying an additional 2-year delay in the one-time 
prospective adjustment to the standard Federal rate at Sec.  
412.523(d)(3). Thus, under current law, the Secretary is precluded from 
making the one-time adjustment to the standard Federal rate until 
December 29, 2012. Therefore, we revised Sec.  412.523(d)(3) to conform 
with this requirement (75 FR 50399 and 50416).
    Prior to the statutory delay in the application of any one-time 
prospective adjustment required when the MMSEA was enacted on December 
29, 2007, we had developed a methodology for evaluating whether to 
propose a one-time prospective adjustment under Sec.  412.523(d)(3) of 
the regulations. In order to inform the public of our thinking, and to 
stimulate comments for our consideration during the statutory delay in 
implementing any one-time prospective adjustment, we discussed our 
analysis and its results in the RY 2009 LTCH PPS proposed rule and 
final rule (73 FR 5353 through 5360 and 26800 through 26804, 
respectively).
    Evaluating the appropriateness of the possible one-time prospective 
adjustment under Sec.  412.523(d)(3) requires a thorough review of the 
relevant LTCH data (as described below). As we discussed in the RY 2009 
LTCH PPS proposed and final rules, we conducted a thorough review of 
the relevant data, that is, cost data from FY 2002, representing the 
final year LTCHs were paid under the TEFRA payment

[[Page 53488]]

system. The cost report data for FY 2002 is comprised of a high 
proportion of settled and audited cost reports submitted by LTCHs. We 
also have payment data on the first year of the LTCH PPS (that is, FY 
2003). On the basis of our review of these data sources, we discussed a 
potential methodology for determining whether the one-time prospective 
adjustment provided for under Sec.  412.523(d)(3) of the regulations 
should be proposed and the computation of such adjustment, if 
appropriate, based on that potential methodology. We also discussed 
that, under that potential methodology, our analysis indicated that a 
permanent adjustment factor of 0.9625 to the LTCH PPS standard Federal 
rate could be warranted. Consistent with the requirements of section 
114(c)(4) of the MMSEA, which delayed the implementation of such an 
adjustment, we did not propose any one-time prospective adjustment to 
the standard Federal rate. However, we presented our analysis and 
welcomed public comment to inform the public of our analysis if and 
when we decide to propose (and ultimately finalize) such an adjustment 
under Sec.  412.523(d)(3).
    As we discussed in the RY 2009 LTCH PPS final rule (73 FR 26803), 
our policy objective in providing for this one-time prospective 
adjustment has always been to ensure that computations based on the 
earlier, necessarily limited (but at that time best available) data 
available at the inception of the LTCH PPS would not be built 
permanently into the rates if data available at a later date could 
provide more accurate results. When we established the FY 2003 standard 
Federal rate in a budget neutral manner, we used the most recent LTCH 
cost data available at that time (that is, FY 1999 data), and trended 
that data forward to estimate what Medicare would have paid to LTCHs in 
FY 2003 under the TEFRA payment system if the PPS were not implemented 
for FY 2003. As we discussed in the RY 2009 LTCH PPS final rule (73 FR 
26803), after a thorough evaluation of the currently available data in 
light of this stated policy objective, we believe that the most 
appropriate methodology for evaluating an adjustment to the original 
budget neutrality adjustment would be to compare estimated payments in 
the first year under the LTCH PPS to what estimated payments would have 
been under the prior TEFRA payment system for that year based on the 
best available data. Accordingly, in that same final rule, we revised 
Sec.  412.523(d)(3) to provide for the possibility of making a one-time 
prospective adjustment to LTCH PPS rates 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.'' As noted above, the 
statutory moratoria that delayed the implementation of the application 
of any one-time prospective adjustment to the LTCH PPS standard Federal 
rate provided for in Sec.  412.523(d)(3) of the regulations for 5 years 
(from December 29, 2007, until December 29, 2012) is set to expire 
during FY 2013.
    In order to determine whether a one-time prospective adjustment 
under Sec.  412.523(d)(3) would be warranted, we evaluated several 
issues regarding the data to use for this purpose. These issues, our 
proposals related to these issues (as presented in the FY 2013 IPPS/
LTCH PPS proposed rule (77 FR 28025 through 28032)), and a summary of 
the public comments and our responses related to these issues are 
presented below. As indicated in the proposed rule, we previously 
discussed these issues in the RY 2009 LTCH PPS proposed and final 
rules.
b. Data Used To Estimate Aggregate FY 2003 TEFRA Payments
    As we discussed in the FY 2013 IPPS/LTCH PPS proposed rule (77 FR 
28025 through 28032), as we considered the appropriateness of the 
possible one-time prospective adjustment under Sec.  412.523(d)(3) of 
the regulations, it is necessary to estimate both aggregate payments 
under the LTCH PPS for FY 2003 and the estimated aggregate payments 
that would have been made if the LTCH PPS were not implemented in FY 
2003 (that is, estimated FY 2003 TEFRA payments). While it is possible 
to determine actual TEFRA payments to LTCHs for FY 2002, the last year 
of payment under that methodology, it is necessary to estimate what 
TEFRA payments would have been in FY 2003 if the new LTCH PPS had not 
been implemented. In developing our proposed methodology for evaluating 
a one-time prospective adjustment, we considered whether we should use 
actual FY 2003 costs to calculate estimated TEFRA payments for FY 2003 
or use costs for FY 2002 trended forward to FY 2003 as the basis for 
the calculation. As we discussed in that same proposed rule (77 FR 
28025), basing the estimate on actual FY 2003 costs would have the 
considerable advantage of avoiding the need to inflate FY 2002 costs to 
FY 2003 costs. However, there is also a potentially serious 
disadvantage to using actual FY 2003 costs. Because FY 2003 was the 
first year of payment under the LTCH PPS, the cost experience of LTCHs 
in that year would reflect their response to the incentives provided by 
the new payment system, instead of reflecting behavior under the 
reasonable cost payment system. Indeed, implementation of an LTCH PPS 
should directly affect the behavior of LTCHs, and, therefore, the level 
of costs in LTCHs. One of the incentives of a PPS is to improve 
efficiency in the delivery of care, which generally results in 
decreased cost per discharge. For this reason, using FY 2003 costs 
directly could be a poor basis for estimating payments that ``would 
have been made if the LTCH PPS were not implemented.'' On balance, 
however, we believe that trending the costs incurred under the last 
year of the TEFRA payment system forward for 1 year poses a smaller 
prospect for distortion than using costs incurred during the subsequent 
year, when the incentives faced by LTCHs to reduce costs could have had 
a significant effect. We also noted that some LTCH stakeholders have 
expressed concern that using FY 2003 costs directly would provide a 
poor basis upon which to estimate payments that ``would have been made 
if the LTCH PPS were not implemented'' for precisely the reasons 
discussed above. We believe that basing the estimate of FY 2003 TEFRA 
payments on FY 2002 costs trended forward should satisfy these 
concerns. For the reasons discussed above, in the FY 2013 IPPS/LTCH PPS 
proposed rule (77 FR 28025 through 28026), in evaluating the 
appropriateness of the possible one-time prospective adjustment under 
Sec.  412.523(d)(3) of the regulations, we proposed to base our 
calculation of the estimated aggregate payments that would have been 
made if the LTCH PPS were not implemented (that is, estimated FY 2003 
TEFRA payments) on FY 2002 costs trended forward.
    We did not receive any public comments on our proposal to base our 
calculation of the estimated aggregate payments that would have been 
made if the LTCH PPS were not implemented (that is, estimated FY 2003 
TEFRA payments) on FY 2002 costs trended forward for purposes of 
evaluating the appropriateness of the possible one-time prospective 
adjustment under Sec.  412.523(d)(3). We are adopting this policy as 
final, without modification, for the reasons discussed above. (We 
discuss the specific methodology we are adopting in this final rule to 
trend

[[Page 53489]]

forward FY 2002 costs to estimated FY 2003 TEFRA payments, which is the 
same as the methodology we proposed below in this section.)
    In this final rule, under the broad authority conferred upon the 
Secretary by section 123 of the BBRA as amended by section 307(b) of 
BIPA, in evaluating the appropriateness of the possible one-time 
prospective adjustment under Sec.  412.523(d)(3) of the regulations, we 
based our calculation of the estimated aggregate payments that would 
have been made if the LTCH PPS were not implemented (that is, estimated 
FY 2003 TEFRA payments) on FY 2002 costs trended forward for the 
reasons discussed above. Specifically, as we proposed, under the 
methodology we are adopting in this final rule, we trended forward the 
most recent available LTCH FY 2002 costs to FY 2003 using the excluded 
hospital market basket, because we believe these data best reflect the 
price changes in hospital inpatient costs realized by LTCHs from FY 
2002 to FY 2003. We believe that using the excluded hospital market 
basket to update FY 2002 reasonable cost-based (TEFRA) payments in 
order to estimate FY 2003 TEFRA payments is appropriate because the 
TEFRA payment system under which LTCHs were paid prior to the 
implementation of the LTCH PPS utilized the excluded hospital market 
basket to update the hospital-specific limits on payment for operating 
costs of LTCHs. In addition, we used the excluded hospital market 
basket to update the inpatient hospital operating and capital costs of 
LTCHs when we developed the initial LTCH PPS standard Federal rate for 
FY 2003 (67 FR 56029 through 56031). As we asserted in the proposed 
rule, we believe that the LTCH cost report data for FY 2002 currently 
available are appropriate to use for this purpose because, as noted 
above, they are comprised of settled and audited cost reports submitted 
by LTCHs. (We noted that this is the same methodology for evaluating 
the appropriateness of the possible one-time prospective adjustment 
under Sec.  412.523(d)(3) that we presented in the RY 2009 LTCH PPS 
proposed rule and final rule (73 FR 5356 and 26802, respectively).)
c. Data Used To Estimate Aggregate FY 2003 LTCH PPS Payments
    As discussed in the FY 2013 IPPS/LTCH PPS proposed rule (77 FR 
28025) and as discussed above, to determine whether a one-time 
prospective adjustment under Sec.  412.523(d)(3) was warranted, we 
believe that an estimate of the payments that would have been made in 
FY 2003 under the TEFRA payment system methodology should be compared 
to estimated payments under the new LTCH PPS in FY 2003. Specifically, 
we explained that the most direct way to determine payments under the 
new LTCH PPS is simply to aggregate the actual payments calculated 
under the LTCH PPS methodology for the discharges that occurred during 
the first year of the LTCH PPS (FY 2003). However, that approach raises 
an issue of consistency because the discharges for which Medicare 
payments were made under the LTCH PPS during FY 2003 are not the same 
as the discharges for which costs were incurred during the last year of 
payment under the TEFRA methodology, FY 2002. For these reasons 
discussed above, we believe that the best way to estimate the TEFRA 
payments that would have been made to LTCHs during FY 2003 is to use 
inflated FY 2002 costs as a proxy for FY 2003 costs. Comparing actual 
FY 2003 LTCH PPS payments to FY 2003 TEFRA payments estimated on the 
basis of FY 2002 discharges would amount to a comparison between 
payments related to two different sets of discharges, potentially 
skewing the results. Therefore, for the purpose of consistency, rather 
than comparing TEFRA payments based on FY 2002 costs updated to FY 
2003, to aggregate LTCH PPS payments for discharges that actually 
occurred in FY 2003, we believe it is preferable to compare estimated 
TEFRA payments based on updated FY 2002 costs to the estimated payments 
that would have been made under LTCH PPS methodology in FY 2003 for 
those same FY 2002 discharges. For these reasons, in the FY 2013 IPPS/
LTCH PPS proposed rule (77 FR 28025), we proposed to base our estimate 
FY 2003 LTCH PPS payments on the same set of discharges (from FY 2002) 
which are the basis for the estimate of what would have been paid in FY 
2003 under the reasonable cost-based (TEFRA) payment system.
    We did not receive any public comments on our proposal to base the 
estimate of FY 2003 LTCH PPS payments on the same set of discharges 
(from FY 2002) for purposes of evaluating the appropriateness of the 
possible one-time prospective adjustment under Sec.  412.523(d)(3). We 
are adopting this policy as final, without modification for the reasons 
discussed above. (We discuss the methodology we are adopting in this 
final rule to estimate FY 2003 LTCH PPS payments using those FY 2002 
discharges, which is the same as the methodology we proposed below in 
this section.)
    In this final rule, under the broad authority conferred upon the 
Secretary by section 123 of the BBRA as amended by section 307(b) of 
BIPA, as we proposed, in evaluating the appropriateness of the possible 
one-time prospective adjustment under Sec.  412.523(d)(3) of the 
regulations, we are using the same set of discharges (from FY 2002) to 
base our estimate of FY 2003 LTCH PPS payments and our estimate of what 
would have been paid in FY 2003 under the reasonable cost-based (TEFRA) 
payment system for purposes of evaluating the appropriateness of the 
possible one-time prospective adjustment under Sec.  412.523(d)(3).
d. Methodology To Evaluate Whether a One-Time Prospective Adjustment 
Under Sec.  412.523(d)(3) Is Warranted
    In the FY 2013 IPPS/LTCH PPS proposed rule (77 FR), to evaluate the 
appropriateness of the possible one-time prospective adjustment under 
Sec.  412.523(d)(3) of the regulations, we proposed to compare 
estimated aggregate FY 2003 TEFRA payments (calculated on the basis of 
FY 2002 costs, updated to FY 2003) to estimated aggregate payments that 
would have been made in FY 2003 under the LTCH PPS methodology (by 
applying the FY 2003 LTCH payment rules to the discharges that occurred 
in FY 2002). As we asserted in the proposed rule, we believe that this 
approach would ensure that we are comparing the estimated FY 2003 TEFRA 
payments, which are based on updated costs incurred for FY 2002 
discharges, to the estimated PPS payments that would have been made for 
those same FY 2002 discharges under the new LTCH PPS payment 
methodology. (We note that this is the same methodology for evaluating 
the appropriateness of the possible one-time prospective adjustment 
under Sec.  412.523(d)(3) of the regulations that we presented in the 
RY 2009 LTCH PPS proposed rule and final rule (73 FR 5356 and 73 FR 
26802, respectively).) We discuss the public comments and our responses 
to these proposals below in this section.
    To evaluate whether a one-time prospective adjustment under Sec.  
412.523(d)(3) was warranted, in the FY 2013 IPPS/LTCH PPS proposed rule 
(77 FR 28024 through 28025), we proposed to consider as ``significant'' 
any difference greater than or equal to a 0.25 percentage point 
difference between the original budget neutrality calculations and 
budget neutrality calculations based on the more recent data now 
available. As we discussed in that same proposed rule, the regulations 
at Sec.  412.523(d)(3)

[[Page 53490]]

provide that the Secretary may make a one-time prospective adjustment 
to the LTCH PPS rates in order to ensure that any ``significant'' 
difference is not perpetuated in the LTCH PPS rates for future years. 
The regulation does not specifically define what constitutes a 
significant difference for this purpose.
    We did not receive any public comments on our proposal to establish 
that any difference greater than or equal to 0.25 percentage points is 
``significant'' for purposes of determining whether the one-time 
prospective adjustment provided under Sec.  412.523(d)(3) is warranted. 
Therefore, we are adopting this policy as final without modification.
    In this final rule, as we proposed, in evaluating whether a one-
time prospective adjustment under Sec.  412.523(d)(3) was warranted, we 
will consider as ``significant'' any difference greater than or equal 
to a 0.25 percentage point difference between the original budget 
neutrality calculations for FY 2003 and budget neutrality calculations 
for FY 2003 based on the more recent data now available. As we 
discussed in the proposed rule (77 FR 28024 through 28025), we believe 
this threshold will avoid making an adjustment to account for very 
minor deviations between earlier and later estimates of budget 
neutrality. It is also consistent with thresholds that we employ for 
similar purposes in other prospective payment systems. For example, 
under the capital IPPS, we make a forecast error correction in the 
framework used to update the capital Federal rate if a previous 
forecast of input prices varies by at least a 0.25 percentage point 
from actual input price changes (72 FR 47425). We do not believe that 
we should treat differences greater than or equal to 0.25 percent as 
not ``significant,'' because the effect of any difference would be 
magnified as the rates are updated each year.
e. Methodology To Estimate FY 2003 LTCH Payments Under the TEFRA 
Payment System
    To estimate FY 2003 LTCH payments under the TEFRA payment system, 
in the FY 2013 IPPS/LTCH PPS proposed rule (77 FR 28026), we proposed 
to use a methodology that is similar in concept to the methodology we 
used to estimate FY 2003 LTCH total payments under the TEFRA payment 
system when we determined the initial standard Federal rate in the 
August 30, 2002 final rule (67 FR 56030 through 56033). Specifically, 
we proposed to estimate total LTCH payments under the TEFRA payment 
system in FY 2003 using the following steps:
     Estimate each LTCH's payment per discharge for inpatient 
operating costs under the TEFRA payment system for FY 2003, including 
continuous bonus improvement payments;
     Estimate each LTCH's payment per discharge for capital-
related costs for FY 2003; and
     Sum each LTCH's estimated operating and capital payment 
per case to determine its estimated total FY 2003 TEFRA payment system 
payments per discharge.
    We did not receive any public comments on our proposed methodology 
for estimating aggregate FY 2003 LTCH TEFRA payments for purposes of 
evaluating the one-time prospective adjustment at Sec.  412.523(d)(3). 
We are adopting this methodology as final, without modification, for 
the reasons discussed in the proposed rule and reiterated below. (We 
discuss the specific steps of the methodology we are adopting in this 
final rule to estimate total FY 2003 TEFRA payment system payments per 
discharge, which is the same as the methodology we proposed below under 
``Step 1''.)
f. Methodology to Estimate FY 2003 LTCH PPS Payments
    In the FY 2013 IPPS/LTCH PPS proposed rule (77 FR 28030), we 
proposed to estimate FY 2003 LTCH PPS payments using the same general 
methodology that we used to estimate FY 2003 payments under the LTCH 
PPS (without a one-time prospective adjustment) when we determined the 
initial standard Federal rate in the August 30, 2002 final rule (67 FR 
56032). We proposed to estimate FY 2003 LTCH PPS payments for each LTCH 
by simulating payments on a case-by-case basis by applying the final FY 
2003 payment policies established in the August 30, 2002 final rule 
that implemented the LTCH PPS (67 FR 55954), which generally include 
the established FY 2003 LTC-DRGs and relative weights (Version 22.0), 
adjustments for differences in area wage levels, adjustments for SSO 
cases, additional payments for HCO cases that were applied in 
determining LTCH PPS payments to discharges occurring in FY 2003. We 
also proposed to use LTCH case-specific discharge information from the 
FY 2002 MedPAR files, and we proposed to use LTCH provider-specific 
data from the FY 2003 Provider-Specific File (PSF), as these were the 
data used by fiscal intermediaries to make LTCH payments during the 
first year of the LTCH PPS (FY 2003). To determine total estimated PPS 
payments for all LTCHs, we summed the individual estimated LTCH PPS 
payments for each LTCH. (We note that this is the same methodology we 
used to estimate FY 2003 payments under the LTCH PPS for purposes of 
evaluating the one-time prospective adjustment at Sec.  412.523(d)(3) 
that we presented in the RY 2009 LTCH PPS proposed rule (73 FR 5359 
through 5360).)
    We did not receive any public comments on our proposed methodology 
for estimating aggregate FY 2003 LTCH PPS payments for purposes of 
evaluating the one-time prospective adjustment at Sec.  412.523(d)(3). 
We are adopting this methodology as final, without modification. (We 
note that we did receive public comments that suggested that we take 
into account other policy considerations in determining the necessity 
and magnitude of the one-time prospective adjustment. A summary of 
these comments and our responses can be found below.)
g. Methodology for Calculating the One-Time Prospective Adjustment 
Under Sec.  412.523(d)(3)
    In the FY 2013 IPPS/LTCH PPS proposed rule (77 FR 28023 through 
28032), we described in detail the methodology and the data that we 
proposed to use to calculate a one-time budget neutrality adjustment 
factor. In general, under our proposed methodology for evaluating a 
possible one-time prospective adjustment under Sec.  412.523(d)(3), we 
proposed to determine a case-weighted average estimated TEFRA payment, 
consistent with the methodology used when we determined the initial 
standard Federal rate in the FY 2003 LTCH PPS final rule (68 FR 56032). 
Then we proposed that each LTCH's estimated total FY 2003 TEFRA payment 
per discharge would be determined by summing its estimated FY 2003 
operating and capital payments under the TEFRA payment system based on 
FY 2002 cost report data, and dividing that amount by the number of 
discharges from the FY 2002 cost report data. Next, we proposed to 
determine each LTCH's average estimated TEFRA payment weighted for its 
number of discharges in the FY 2002 MedPAR file (for the purpose of 
estimating FY 2003 LTCH PPS payments) by multiplying its average 
estimated total TEFRA payment per discharge by its number of discharges 
in the FY 2002 MedPAR file. We then proposed to estimate total case-
weighted TEFRA payments by summing each LTCH's (MedPAR) case-weighted 
estimated FY 2003 TEFRA payments. Under our proposed methodology, we 
compared these estimated FY 2003 total TEFRA payments to estimated FY 
2003

[[Page 53491]]

total LTCH PPS payments in order to determine whether a one-time 
prospective adjustment would be appropriate. (We also noted that this 
is the same methodology we used to compare estimated FY 2003 total 
TEFRA payments to estimated FY 2003 total LTCH PPS payments for 
purposes of evaluating the one-time prospective adjustment at Sec.  
412.523(d)(3) that we presented in the RY 2009 LTCH PPS proposed rule 
(73 FR 5360).) For additional details on our proposed methodology and 
the data proposed to use to calculate a one-time budget neutrality 
adjustment factor, we refer readers to the FY 2013 IPPS/LTCH PPS 
proposed rule (77 FR 28025 through 28031). (As we noted above, we did 
receive public comments that suggested that we take into account other 
policy considerations in determining the necessity and magnitude of the 
one-time prospective adjustment. A summary of these comments and our 
responses can be found below.)
    Based on approximately 91,300 LTCH discharges for 250 LTCHs, under 
the proposed methodology and data present in the proposed rule, we 
calculated that estimated FY 2003 LTCH PPS payments are approximately 
2.5 percent higher than estimated payments to the same LTCHs in FY 2003 
if the LTCH PPS had not been implemented (that is, estimated total FY 
2003 TEFRA payment system payments) (77 FR 28031). This 2.5 percent 
difference exceeded our proposed 0.25 percentage points threshold of 
what we would consider to be a ``significant difference'' for purposes 
of determining whether the one-time prospective adjustment provided 
under Sec.  412.523(d)(3) would be warranted. Although we projected 
that estimated FY 2003 LTCH PPS payments are approximately 2.5 percent 
higher than estimated FY 2003 TEFRA payments, in the FY 2013 IPPS/LTCH 
PPS proposed rule (77 FR 28031), we explained that proposing to reduce 
the standard Federal rate by 2.5 percent would not ``maintain budget 
neutrality'' for FY 2003 (that is, estimated FY 2003 LTCH PPS payments 
would not be equal to estimated FY 2003 TEFRA payments) because a 
considerable number of LTCH discharges are projected to have received a 
LTCH PPS payment in FY 2003 based on the estimated cost of the case 
(rather than a payment based on the standard Federal rate) under the 
payment adjustment for SSO cases at Sec.  412.529. Specifically, under 
our proposed methodology, our payment analysis indicates that nearly 20 
percent of estimated FY 2003 LTCH PPS payments are SSO payments that 
were paid based on estimated cost and not based on the LTCH PPS 
standard Federal rate. These SSO cases that receive a payment based on 
the estimated cost of the case are generally unaffected by any changes 
to the standard Federal rate because the estimated cost of the case is 
determined by multiplying the Medicare allowable charges by the LTCH's 
CCR (Sec.  412.529(d)(2)). In other words, if we had proposed to reduce 
the standard Federal rate by 2.5 percent, estimated total FY 2003 LTCH 
PPS payments would still be greater than estimated total FY 2003 TEFRA 
payments (that is, would not be budget neutral), and this difference 
would be perpetuated in the LTCH PPS payment rates for future years. 
This is because the estimated LTCH PPS payments for those SSO cases 
that in FY 2003 were estimated to have been paid 120 percent of the 
estimated cost of the case generally are not affected (that is, in this 
case, not lowered) by any one-time prospective adjustment budget 
neutrality factor that would be applied to the standard Federal rate 
because those payments are not derived from the standard Federal rate 
(as explained above). Therefore, it was necessary to propose to offset 
the standard Federal rate by a factor that is larger than 2.5 percent 
in order to ensure that estimated total FY 2003 LTCH PPS payments would 
be equal to estimated total FY 2003 TEFRA payments in order to 
``maintain budget neutrality.'' To determine the necessary adjustment 
factor that would need to be applied to the standard Federal rate in 
order to ``maintain budget neutrality,'' under the proposed methodology 
we presented in the FY 2013 IPPS/LTCH PPS proposed rule (77 FR 28030), 
we simulated FY 2003 LTCH PPS payments using the same general 
methodology that we used to estimate FY 2003 LTCH PPS payments when we 
determined the initial standard Federal rate by simulating payments on 
a case-by-case basis using the final FY 2003 LTCH PPS payment rates and 
policies as established when we implemented the LTCH PPS in the August 
30, 2002 final rule (67 FR 56032). Using iterative payment simulations 
using the data from the 250 LTCHs in our database, we determined that 
we would need to apply a factor of 0.9625 (that is, a reduction of 
approximately 3.75 percent rather than 2.5 percent) to the standard 
Federal rate in order to make estimated total FY 2003 LTCH PPS payments 
equal to estimated total FY 2003 TEFRA payments consistent with our 
stated policy goal of the one-time prospective adjustment at 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 also noted that the proposed adjustment of approximately -
3.75 percent is the same result of the evaluation of the one-time 
prospective adjustment at Sec.  412.523(d)(3) that we presented in the 
RY 2009 LTCH PPS proposed rule and final rule (73 FR 5360 and 26804, 
respectively).) In that same proposed rule (77 FR 258031), we stated 
(as we did in the RY 2009 LTCH PPS proposed and final rules), that in 
the years following the initial implementation of the LTCH PPS, we have 
adopted some revised policies and adjustments to LTCH PPS payment 
levels. However, none of these revised policies and payment adjustments 
have addressed the intended purpose of the one-time prospective 
adjustment allowed under Sec.  412.523(d)(3) of the regulations, to 
ensure that 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 are not perpetuated in 
the LTCH PPS rates for future years. For example, the adjustments that 
we have made to account for coding changes in excess of real severity 
increases in RYs 2007 through 2010 were made to account for changes in 
coding behavior in the years following the implementation of the LTCH 
PPS, and not to address any issue regarding the budget neutrality 
calculations that were used to establish the base rate for the LTCH 
PPS. (As we noted above, we received public comments that suggested 
that we take into account other policy considerations in determining 
the necessity and magnitude of the one-time prospective adjustment. A 
summary of these comments and our responses can be found below.)
    Based on the general methodology described above, in the FY 2013 
IPPS/LTCH PPS proposed rule (77 FR 28031 through 28032), under the 
broad authority granted to the Secretary under section 123 of the BBRA, 
as amended by section 307(b) of the BIPA, we proposed to make a one-
time prospective adjustment of 0.9625, which would permanently reduce 
the standard Federal rate by approximately 3.75 percent so to reflect 
the estimated difference between projected aggregate LTCH PPS payments 
in FY 2003 and the projected aggregate payments that would have been 
made in FY 2003 under the TEFRA payment system if the

[[Page 53492]]

LTCH PPS had not been implemented. Consistent with current law, we also 
proposed that this adjustment would not apply to payments for 
discharges occurring on or after October 1, 2012, and on or before 
December 28, 2012. Furthermore, given the magnitude of this adjustment 
and in acknowledgement of hopeful research outcomes (discussed in 
section VII.E.2. of the preamble of that proposed rule), we proposed to 
phase-in this approximate 3.75 percent reduction to the standard 
Federal rate over a 3-year period. Furthermore, we proposed to revise 
the regulations under Sec.  412.523(d)(3) to specify that the standard 
Federal rate would be permanently reduced by 3.75 percent (that is, an 
adjustment of 0.9625) to reflect the estimated difference between 
projected aggregate LTCH PPS payments in FY 2003 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, and this 
adjustment would be phased-in over 3 years.
    We also explained that although the adjustment to the standard 
Federal rate provided for at Sec.  412.523(d)(3) is called a ``one-
time'' prospective adjustment, as stated above, this adjustment would 
be permanently applied to the standard Federal rate so that the effect 
of the estimated 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. Under this proposal, we 
proposed that we would make a one-time prospective adjustment by 
applying a factor of 0.98734 to the standard Federal rate in FY 2013 
(which would not be applicable 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 to completely 
account for our estimate (determined using the methodology described 
above) that a factor of 0.9625 (that is 0.98734 x 0.98734 x 0.98734 = 
0.9625) needs to be applied to the standard Federal rate in order 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, consistent with our 
stated policy goal of the one-time prospective adjustment at Sec.  
412.523(d)(3).
    The public comments we received on our proposal to make a one-time 
prospective adjustment of 0.9625, which would permanently reduce the 
standard Federal rate by approximately 3.75 percent, including our 
proposed 3-year phase-in of this adjustment, and our responses are 
presented below.
h. Public Comments and CMS' Responses
    Comment: Many commenters objected to the proposed one-time 
prospective adjustment. Some commenters expressed concern about the 
financial impact of the proposed reduction to the standard Federal rate 
with the application of the proposed one-time prospective adjustment in 
light of LTCH margins for certain providers as cited in MedPAC's March 
2012 Report to Congress. Other commenters asserted that, in keeping 
with CMS' policy goal that any difference between LTCH PPS aggregate 
payments and estimated TEFRA aggregate payments in the first year of 
LTCH PPS is not perpetuated in future years, the policy objective 
behind the one-time prospective adjustment has already been 
accomplished as a result of other adjustments and payment policy 
changes under the LTCH PPS since its initial implementation in FY 2003. 
Some commenters pointed to various payment adjustments made since the 
inception of the LTCH PPS, including the recalibration of DRG weights, 
adjustments made to account for changes in documentation and coding 
that did not reflect actual changes in case mix, elimination of the 
annual payment updates in interim years, or payment updates that are 
less than the market basket increase. A number of commenters pointed to 
the changes made to the SSO policy made in RY 2007 which changed the 
SSO cost payment option from 120 percent of cost to 100 percent of cost 
as an adjustment that would preclude CMS from the need to apply the 
one-time prospective adjustment. Based on an analysis provided by some 
commenters, they believed that if CMS had paid 100 percent of cost for 
SSO cases at the time of the LTCH PPS implementation in FY 2003, there 
would not have been a 2.5 percent difference between aggregate payments 
made under LTCH PPS and TEFRA payments. These commenters also stated 
that the SSO policy change in RY 2007 resulted in a reduction in total 
LTCH payments by 3.6 percent, and argued, therefore, that the SSO 
policy change essentially accomplishes the intended goal of the one-
time prospective adjustment by bringing LTCH spending to at least (or 
below) the budget neutrality baseline (that is, what current aggregate 
LTCH PPS payments would be had estimated total FY 2003 LTCH PPS 
payments been 2.5 percent lower).
    In addition, these commenters urged CMS to review and adjust the 
proposed methodology for calculating the one-time prospective 
adjustment in a manner that incorporates the SSO policy changes made 
since the implementation of the LTCH PPS in assessing whether the one-
time prospective adjustment is warranted, and believed that doing so 
would yield a reduced one-time prospective adjustment or eliminate the 
need for one altogether. These same commenters asserted that CMS must 
also consider the changes in the SSO policy when calculating the one-
time prospective adjustment factor because the SSO policy changes and 
the one-time prospective adjustment are policies that are aligned 
because they both were derived from the same broad authority under the 
statute to make ``appropriate adjustments'' to LTCH PPS. Some 
commenters also pointed out that, in the past, CMS had indicated that 
certain payment adjustments, for example the zero percent update to the 
standard Federal rate for RY 2007, may make the one-time prospective 
adjustment to the standard Federal rate ``unnecessary. '' These 
commenters also stated that CMS only cited the adjustments made for 
documentation and coding to account for the effects of changes in 
coding that did not reflect actual increase in patient severity in RYs 
2007 through 2010 as adjustments that do not address any issue 
regarding the budget neutrality calculations that were used to 
establish the base rate for the LTCH PPS. Therefore, these commenters 
believed that the payment impact of policy changes and adjustment that 
have been made since the implementation of the LTCH PPS should be taken 
into consideration when evaluating whether a one-time prospective 
adjustment is necessary.
    Response: We understand the commenters' concern regarding the 
impact of a reduction to the standard Federal rate due to the 
application of the proposed one-time prospective adjustment. However, 
as we discuss below, we believe that a one-time prospective adjustment 
to the standard Federal rate of approximately 3.75 percent is necessary 
to ensure that any 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 LTCH 
PPS rates for future years, and will, therefore, result in appropriate 
LTCH PPS payments. In light of the magnitude of the proposed one-time 
prospective adjustment, we proposed to phase-in the

[[Page 53493]]

adjustment over a 3-year period, which should mitigate the impact of 
this reduction to the standard Federal rate. In response to the comment 
regarding the financial impact on LTCH margins for certain providers, 
as cited in MedPAC's March 2012 Report to Congress in its rationale for 
its recommendation to eliminate the update to the LTCH PPS payment rate 
for FY 2013 in that same report MedPAC noted that LTCH ``margins for 
2010 were positive, and [* * *] expect they will remain so. These 
trends suggest that LTCHs are able to operate within current payment 
rates.'' (p. 272). We note that, under the proposed phase-in of the 
proposed one-time prospective adjustment, in conjunction with the 
proposed market basket update and the subsequent final market basket 
update (adjusted as required by statute), the proposed update to the 
LTCH PPS standard Federal rate would result in a slight increase to the 
LTCH PPS payment rate for FY 2013. Therefore, we believe that the 
positive update to the standard Federal rate coupled with overall 
positive LTCH margins (as reported by MedPAC) and the proposed phase-in 
of the one-time prospective adjustment will act to mitigate the 
financial impact of the one-time prospective adjustment.
    We disagree with commenters that payment policy changes and 
adjustments made since the implementation of the LTCH PPS have already 
served as a substitute for the one-time prospective adjustment, and we 
continue to believe that a one-time prospective adjustment is necessary 
to ensure that any significant 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 (that is, the standard 
Federal rate) in future years. The various payment policy changes and 
adjustments established since the inception of the LTCH PPS were never 
made to address any budget neutrality requirement related to the 
initial implementation of the LTCH PPS, nor were they ever presented as 
such. Our regulations at Sec.  412.523(d)(3) clearly state that the 
Secretary ``may make a one-time prospective adjustment to the long-term 
care hospital prospective payment system rates * * * 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 system rates for future years.'' (emphasis added). 
Our policy has always been that the one-time prospective adjustment be 
applied to the standard Federal rate. As we discussed in the RY 2009 
LTCH PPS final rule (73 FR 26803), our policy objective in providing 
for this one-time prospective adjustment has always been to ensure that 
computations based on the earlier, necessarily limited (but at the time 
best available) data available at the inception of the LTCH PPS would 
not be built permanently into the rates if data available at a later 
date could provide more accurate results. The intended goal of the one-
time prospective adjustment is to establish the LTCH PPS standard 
Federal rate in a manner that results in bringing current estimated 
aggregate LTCH PPS payments to the level they would have been had the 
estimated total FY 2003 LTCH PPS payments been 2.5 percent lower. The 
policy changes and adjustments that have been made to the LTCH PPS 
since its inception are part and parcel of fine-tuning a new 
prospective payment system, and were made to address explicitly stated 
policy goals, none of which were duplicative of the stated purpose and 
end-result of the one-time prospective adjustment, which ensures that 
any significant 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 (that is, the standard Federal rate) in 
future years.
    In the RY 2007 LTCH PPS final rule, we modified the SSO policy, 
changing the SSO cost payment option from 120 percent of cost to 100 
percent of cost, effective beginning July 1, 2006 (RY 2007). We clearly 
stated that we believed that by providing a reduced payment for SSO 
cases, we would discourage hospitals from admitting patients for whom 
they would not provide complete treatment to maximize Medicare 
payments. We believed that the previous SSO policy may have 
unintentionally provided a financial incentive for LTCHs to admit 
patients more appropriately treated in other settings (71 FR 27845). 
This policy change was not intended to address the one-time prospective 
adjustment in any way (nor does it duplicate the stated purpose or 
effect of the one-time prospective adjustment), but was intended to 
prevent inappropriate patient movement to LTCHs. The commenters are 
correct in that both the change to the SSO policy and the one-time 
prospective adjustment are authorized by the same broad statutory 
authority to make appropriate adjustments. However, each of these 
adjustments is proper in its own context, serves different purposes, 
and reflects different policy concerns. Consequently, we disagree with 
the commenters that we must consider the changes in the SSO policy when 
calculating the one-time prospective adjustment factor because the SSO 
policy changes and the one-time prospective adjustment are policies 
that were both derived from the same broad authority under the statute 
to make ``appropriate adjustments'' under the LTCH PPS for the reasons 
discussed above.
    We acknowledge that we have stated in the past (such as in the RY 
2007 final rule when we established a 0.0 percent update to the 
standard Federal rate for RY 2007) that we may consider other payment 
adjustments when deciding whether or not to implement the one-time 
prospective adjustment. However, such statements were made prior to the 
first comprehensive discussion of the stated purpose of the one-time 
prospective adjustment or the development of a methodology under which 
to determine whether such an adjustment is warranted (first presented 
in the RY 2009 proposed and final rules). In the RY 2009 proposed and 
final rules (73 FR 5354 and 26801), we did, in fact, state that none of 
revised policies and payment adjustments that were made in the years 
following the initial implementation of the LTCH PPS addressed the 
intended purpose of the one-time prospective adjustment allowed under 
Sec.  412.523(d)(3) of the regulations, to ensure that any significant 
difference between the original estimates and calculations based on 
more recent data are not perpetuated in the LTCH PPS rates for future 
years. In the FY 2013 IPPS/LTCH PPS proposed rule (77 FR 28031), we 
referenced the documentation and coding adjustment which was made to 
account for the effects of changes in coding that did not reflect 
actual increase in patient severity in RYs 2007 through 2010. These 
adjustments were noted merely as examples of payment adjustments made 
in the years following the implementation of the LTCH PPS that did not 
address any issue regarding the budget neutrality calculations that 
were used to establish the base rate for the LTCH PPS, and were not 
presented as an exhaustive list of policy changes and payment 
adjustments that had been implemented since FY 2003.
    We continue to believe that the one-time prospective adjustment is 
based on the difference in payment between what would have otherwise 
been paid under the TEFRA payment system and

[[Page 53494]]

payments made under the LTCH PPS as it was implemented in FY 2003, 
only, as is consistent with our policy goal of the one-time prospective 
adjustment. Therefore, we disagree with commenters' assertions that the 
payment impact of policy changes and adjustment that have been made 
since the implementation of the LTCH PPS should be taken into 
consideration when evaluating whether a one-time prospective adjustment 
is necessary. In the RY 2007 LTCH PPS final rule (71 FR 27864), we 
stated that it has been our consistent interpretation that the 
statutory requirement for budget neutrality applies exclusively to FY 
2003 when the LTCH PPS was implemented. Accordingly, we are finalizing 
our methodology for calculating for the one-time prospective 
adjustment, as proposed, without accounting for any revised policies 
and payment adjustments that have been made in the years following the 
initial implementation of the LTCH PPS, including the SSO policy 
changes.
    Comment: Some commenters stated that CMS correctly identified that 
SSO cases have an impact on the calculation of the one-time perspective 
adjustment (that is, the proposed adjustment to reduce the standard 
Federal rate by approximately 3.75 percent was higher than the 
estimated 2.5 percent difference between LTCH PPS payments and TEFRA 
payments in FY 2003 in order to account for SSO cases that are not paid 
based on the standard Federal rate). However, these commenters believed 
that CMS specifically needs to consider the percentage of LTCH PPS 
payments that are paid as SSOs and how that percentage has changed over 
time, highlighting the fact that in 2012 only 30 percent of cases were 
SSO cases versus 48 percent in 2003. These commenters believed that the 
proposed 3.75 percent one-time perspective adjustment is overstated 
because CMS' proposed methodology does not account for the fact that 
there are currently fewer SSO cases than there were in FY 2003, and 
specifically requested that CMS recalculate the one-time prospective 
adjustment to include an adjustment to reflect the current level of SSO 
case. By accounting for current levels of SSO cases (30 percent versus 
48 percent) in CMS' proposed methodology, the commenters calculated a 
one-time perspective adjustment of 2.75 percent (instead of 3.75 
percent).
    Response: As mentioned above, although we agree that the levels of 
SSO cases have changed since the inception of the LTCH PPS, the policy 
objective behind the one-time prospective adjustment has always been to 
ensure that any significant difference between the data used in the 
original computation of budget neutrality for FY 2003 and more recent 
data to determine budget neutrality for FY 2003 are not perpetuated in 
the LTCH PPS rates for future years. Consistent with this policy 
objective, our proposed methodology for determining a one-time 
prospective adjustment compares estimated payments that would have been 
made in FY 2003 under the TEFRA payment system to estimated payments 
under the LTCH PPS in FY 2003. Thus, the data and methodology that we 
have employed for this purpose is limited to the types of Medicare 
cases projected to have been treated in LTCHs in 2003, and the 2012 
levels of SSO cases are not germane to the computations of budget 
neutrality for FY 2003 under the one-time prospective adjustment under 
Sec.  412.523(d)(3). As discussed above, we continue to believe that 
the one-time prospective adjustment should be based on any difference 
in payment between what would have otherwise been paid under the TEFRA 
payment system and payments made under the LTCH PPS as it was 
implemented in FY 2003, only. The current level of SSO cases has no 
relationship to estimated FY 2003 LTCH PPS payments, which were used to 
evaluate and calculate the proposed one-time prospective adjustment 
under Sec.  412.523(d)(3). For these reasons, we disagree with the 
commenters' assertions that the proposed 3.75 percent one-time 
prospective adjustment is overstated, and are not adopting the 
commenters' suggestion to make an adjustment to our methodology for 
calculating the one-time prospective adjustment to account for the 
current level of SSO cases. Therefore, as stated above, we are 
finalizing our methodology for calculating for the one-time prospective 
adjustment, as proposed, without modification.
    Comment: One commenter believed that CMS is inconsistent in its 
treatment of ``the one-time adjustment'' across various PPSs, 
specifically citing that a Inpatient Rehabilitation Facility (IRF) 
policy that reduced the standard Federal rate to account for changes in 
coding that did not reflect changes in case-mix index. The commenter 
stated that such adjustments to account for changes in coding that did 
not reflect changes in case-mix index have been adopted under both the 
IRF PPS and the LTCH PPS. However in the case of the IRF PPS, CMS 
considered that adjustment to have satisfied ``its responsibility to 
perform a one-time adjustment'' under the IRF PPS while a similar 
adjustment to account for changes in coding that did not reflect 
changes in case-mix index made under the LTCH PPS did not negate CMS' 
need to impose a one-time prospective adjustment under Sec.  
412.523(d)(3). They requested a full explanation on why LTCHs are being 
treated differently than IRFs and suggested that this inconsistency is 
inequitable.
    Response: We believe that the commenter has mistakenly assumed that 
the adjustment to account for coding or classification changes that did 
not reflect real changes in case-mix under the IRF PPS is the same as 
the one-time prospective adjustment under Sec.  412.523(d)(3). Under 
the IRF PPS, we established a reduction to the standard payment amount 
of 1.9 percent to account for coding changes consistent with the 
requirement set forth in section 1886(j)(2)(C)(ii) of the Act that 
directs the Secretary to adjust the per payment unit payment rate for 
IRF services to eliminate the effect of coding or classification 
changes that do not reflect real changes in case-mix if the Secretary 
determines that changes in coding or classification of patients' 
severity of illnesses have resulted or will result in changes in 
aggregate payments under the classification system (70 FR 47904 through 
47908). In the discussion of the development of the IRF standard 
payment conversion factor for FY 2006 in that same final rule (70 FR 
47937, 47939, and 47950), we referred to that ``adjustment'' as ``a 
one-time reduction to the standard payment amount of 1.9 percent to 
adjust for coding changes that increased payments to IRFs'' (emphasis 
added). We believe that because the term ``one-time'' was used in 
conjunction with the 1.9 percent reduction that was applied in 
determining the IRF standard payment conversion factor for FY 2006, 
that the commenter mistakenly believed that adjustment serves the same 
purpose as the one-time prospective adjustment under Sec.  
412.523(d)(3).
    As discussed in the FY 2006 IRF PPS final rule (70 FR 47904 through 
47908), the ``one-time'' reduction to the standard payment amount of 
1.9 percent was based on an analysis that showed that there was an 
increase in FY 2003 IRF PPS payments due to documentation and coding 
changes that did not reflect real changes in case-mix, and we believed 
that changes in payment amounts should accurately reflect changes in 
IRFs' patient case-mix (that is, the true cost of treating patients), 
and should not be influenced by changes in coding practices. As the 
commenter pointed out, the purpose of the ``one-time'' 1.9 percent 
reduction made to the FY 2006 IRF standard

[[Page 53495]]

payment amount is similar in purpose to the documentation and coding 
adjustments that have been made under the LTCH PPS. However, the 
purpose of those documentation and coding adjustments made under the 
LTCH PPS (that is, to account for increases in LTCH PPS payments that 
were due to documentation and coding changes that do not reflect real 
changes in case-mix) is separate and distinct from that of the stated 
purpose of the LTCH PPS one-time prospective adjustment under Sec.  
412.523(d)(3) (that is, to ensure that any significant 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). Therefore, we disagree with the commenter that we 
have been inconsistent or inequitable in our treatment in applying 
adjustments, including the one-time prospective adjustment provided for 
at Sec.  412.523(d)(3), across various PPSs. We also note that we 
responded to a similar comment on our proposal to extend the regulatory 
timeframe for making the possible one-time prospective adjustment under 
Sec.  412.523(d)(3) in the RY 2007 LTCH PPS final rule (27842 through 
27843), where we believe that the commenter mistakenly assumed that the 
adjustment to account for changes in documentation and coding practices 
that did not reflect real changes in case-mix is the same as the one-
time prospective adjustment under Sec.  412.523(d)(3). In response, we 
explained that because the intended purposes of those adjustments are 
different, we do not believe that we acted in an inconsistent manner by 
making two separate adjustments under the LTCH PPS that have separate 
and distinct purposes. Similarly, we disagree with the commenter that 
CMS is inconsistent in its treatment of ``the one-time adjustment'' 
across various PPSs since the purposes of those adjustments are 
separate and distinct (as explained above).
    Comment: One commenter objected to the one-time prospective 
adjustment because a budget neutrality factor is already being applied 
during the MS-LTC-DRG recalibration process. The commenter believed 
that applying the one-time prospective adjustment would place providers 
in double jeopardy because if they are coding accurately, they will get 
penalized on an annual basis from the MS-LTC-DRG recalibration budget 
neutrality factors and the one-time prospective adjustment ``budget 
neutrality factor.''
    Response: CMS' regulations under Sec.  412.517(b) require that, 
``the annual changes to the LTC-DRG classifications and recalibration 
of the weighting factors * * * are made in a budget neutral manner such 
that estimated aggregate LTCH PPS payments are not affected.'' We 
established this requirement in order to mitigate fluctuations in 
aggregate LTCH PPS payments resulting from the annual update to the MS-
LTC-DRG classifications and relative weights that reflect changes in 
relative resource use based on the latest available data (72 FR 26880 
through 26882). The purpose of the annual MS-LTC-DRG recalibration 
budget neutrality factor is separate and distinct from that of the one-
time prospective adjustment, and is not germane to ensuring that any 
significant 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. Therefore, we disagree 
with the commenter that applying both the one-time prospective 
adjustment and the annual MS-LTC-DRG recalibration budget neutrality 
factor would result in a double adjustment to LTCHs for accurate 
coding.
    Comment: Many commenters commended our proposal to phase-in the 
one-time prospective adjustment over 3 years. Some commenters requested 
that CMS phase-in the adjustment over 4 years. One commenter requested 
a 5-year phase-in. One commenter, who supported the 3-year phase-in, 
requested that the one-time prospective adjustment that would be 
applied to the standard Federal rate for each year for FYs 2013 through 
2015 be removed before establishing the initial base rates each year 
for FYs 2014 and 2015 so as not to create a compounding effect of the 
reduction in those years.
    Response: We appreciate the commenters' support to phase-in the 
one-time prospective adjustment. In recognition of the magnitude of 
this adjustment, we proposed to phase-in the adjustment over a 3 year 
period, which should mitigate the impact of this reduction to the 
standard Federal rate, and we continue to believe that 3 years is a 
sufficient amount of time for providers to adjust to the effect on 
their LTCH PPS payments resulting from this adjustment.
    As we explained in the proposed rule (77 FR 28031), the proposed 
one-time prospective adjustment of 0.9625 would be permanently applied 
to the standard Federal rate so that the effect of the estimated 
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. To achieve a permanent adjustment of 0.9625, we 
proposed to 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 would not 
be applicable 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 3.75 percent adjustment by 
having applied a cumulative factor of 0.9625 (calculated as 0.98734 x 
0.98734 x 0.98734 = 0.9625). Consequently, applying a factor of 0.98734 
in each of FYs 2013 through 2015 would create a compounding effect of 
the reduction and it is not appropriate to remove the prior year's 
factor before establishing the standard federal rate for FYs 2014 and 
2015. As discussed above, a factor of 0.9625 (or approximately a 3.75 
percent reduction) to the standard Federal rate is necessary 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 consistent with our stated 
policy goal of the one-time prospective adjustment at Sec.  
412.523(d)(3). As discussed below in this section, we are revising our 
proposed revision to Sec.  412.523(d)(3) to clarify the standard 
Federal rate will be permanently adjusted by to account for the 
estimated difference between projected aggregate FY 2003 LTCH PPS 
payments and the projected aggregate FY 2003 TEFRA payments.
i. Final Policy Regarding the One-Time Prospective Adjustment Under 
Sec.  412.523(d)(3)
    After consideration of the public comments we received, we are 
finalizing our proposal 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. Based on 
approximately 91,300 LTCH discharges for 250 LTCHs, under the 
methodology and data presented above, we calculated that estimated FY 
2003 LTCH PPS payments are approximately

[[Page 53496]]

2.5 percent higher than estimated payments to the same LTCHs in FY 2003 
if the LTCH PPS had not been implemented (that is, estimated total FY 
2003 TEFRA payment system payments). This 2.5 percent difference 
exceeds the 0.25 percentage points threshold of what we consider to be 
a ``significant difference'' for purposes of determining whether the 
one-time prospective adjustment provided under Sec.  412.523(d)(3) is 
warranted, as discussed above in this final rule. As also discussed in 
greater detail above, because of the estimated LTCH PPS payments for 
certain SSO cases are generally not affected by any one-time 
prospective adjustment factor that is applied to the standard Federal 
rate, it is necessary to offset the standard Federal rate by a factor 
that is larger than 2.5 percent in order to ensure that estimated total 
FY 2003 LTCH PPS payments would be equal to estimated total FY 2003 
TEFRA payments in order to ``maintain budget neutrality'', thereby 
ensuring 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 LTCH prospective payment rates for future years.
    To determine the necessary adjustment factor to apply to the 
standard Federal rate to make the one-time prospective adjustment under 
Sec.  412.523(d)(3), using the methodology we are adopting in this 
final rule (as described in this section), we simulated FY 2003 LTCH 
PPS payments by simulating payments on a case-by-case basis using the 
final FY 2003 LTCH PPS payment rates and policies as established when 
we implemented the LTCH PPS in the August 30, 2002 final rule (67 FR 
56032). Using iterative payment simulations using the data from the 250 
LTCHs in our database, we determined that we need to apply a factor of 
0.9625 (that is, a reduction of approximately 3.75 percent rather than 
2.5 percent) to the standard Federal rate in order to make estimated 
total FY 2003 LTCH PPS payments equal to 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).
    Furthermore, given the magnitude of this adjustment and in 
acknowledgement of hopeful research outcomes, we are finalizing our 
proposal to phase-in this approximate 3.75 percent reduction to the 
standard Federal rate over a 3-year period. Although the adjustment to 
the standard Federal rate provided for at Sec.  412.523(d)(3) is called 
a ``one-time'' prospective adjustment, as stated above, this adjustment 
will be permanently applied to the standard Federal rate so that the 
effect of the estimated 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. During this 3-year 
period, we intend to further explore potential revisions to certain 
LTCH PPS payment policies as discussed above in section VII.E.2. of 
this preamble. Below, we describe the methodology that we are 
establishing in this final rule to determine the one-time prospective 
adjustment under Sec.  412.523(d)(3) of the regulations. (We note that, 
as discussed above, this is the same methodology we proposed in the FY 
2013 IPPS/LTCH PPS proposed rule.)
    In this final rule, to evaluate a one-time prospective adjustment 
under Sec.  412.523(d)(3) of the regulations, we based our estimate of 
FY 2003 LTCH PPS payments on the same set of discharges (from FY 2002) 
which are the basis for the estimate of what would have been paid in FY 
2003 under the reasonable cost-based (TEFRA) payment system. 
Specifically, we compared--
     Estimated aggregate FY 2003 TEFRA payments calculated on 
the basis of FY 2002 costs, updated to FY 2003, to
     Estimated aggregate payments that would have been made in 
FY 2003 under the LTCH PPS methodology, by applying the FY 2003 LTCH 
payment rules to the discharges that occurred in FY 2002.
    As discussed above, we believe that this approach will ensure that 
we are comparing the estimated FY 2003 TEFRA payments, which are based 
on updated costs incurred for FY 2002 discharges, to the estimated PPS 
payments that would have been made for those same FY 2002 discharges 
under the new LTCH PPS payment methodology.
    Under the policy we are adopting in this final rule to use FY 2002 
LTCH costs as a basis for estimating FY 2003 LTCH TEFRA payments in 
evaluating whether to establish a one-time prospective adjustment under 
Sec.  412.523(d)(3), as we proposed, we are updating LTCHs' FY 2002 
costs for inflation to FY 2003 by our Office of the Actuary's current 
estimate of the actual increase in the excluded hospital market basket 
from FY 2002 to FY 2003 of 4.2 percent. This updated amount serves as 
the proxy for actual FY 2003 costs under the TEFRA payment system in 
the budget neutrality computation for purposes of the one-time 
prospective adjustment at Sec.  412.523(d)(3). We note that, as we 
proposed, under our methodology to estimate reasonable cost-based 
payments under the TEFRA payment system, we updated LTCHs' TEFRA target 
amounts from FY 2002 to FY 2003 using the forecasted market basket 
percentage increase of 3.5 percent, as discussed in greater detail 
below. This approach maintains consistency with the approach taken in 
the FY 2003 IPPS final rule in which we established an applicable rate-
of-increase percentage to update TEFRA target amounts from FY 2002 to 
FY 2003 of 3.5 percent (67 FR 50289). This increase was based on our 
Office of the Actuary's forecasted increase in the excluded hospital 
market basket for FY 2003, using the best available data at that time. 
Based on more recent data, our Office of the Actuary now estimates the 
actual increase in the excluded hospital market based from FY 2002 to 
FY 2003 is 4.2 percent (as stated above). We believe it is appropriate 
to use the current estimate of the actual increase in the excluded 
hospital market basket based from FY 2002 to FY 2003 (4.2 percent) to 
update LTCHs' FY 2002 costs for inflation to FY 2003 because this 
reflects the most recent estimate of increases in the prices of goods 
and services realized by LTCHs when providing inpatient hospital 
services.
    The methodology we are adopting in this final rule to estimate FY 
2003 LTCH payments under the TEFRA payment system (which is presented 
below) is similar in concept to the methodology we used to estimate FY 
2003 LTCH total payments under the TEFRA payment system when we 
determined the initial standard Federal rate in the August 30, 2002 
final rule (67 FR 56030 through 56033). We note that our methodology 
for estimating FY 2003 LTCH total payments under the TEFRA payment 
system using FY 2002 cost data for the purposes of the one-time 
prospective adjustment at Sec.  412.523(d)(3), includes modifications 
to the methodology we used to estimate FY 2003 LTCH total payments 
under the TEFRA system when we implemented the LTCH PPS because we used 
data from a later period (FY 2002 as compared to FYs 1998 and 1999), as 
discussed in greater detail below. As we proposed, in general, we 
estimated total LTCH

[[Page 53497]]

payments under the TEFRA payment system in FY 2003 using the following 
steps:
     Estimate each LTCH's payment per discharge for inpatient 
operating costs under the TEFRA payment system for FY 2003, including 
continuous bonus improvement payments (Step 1);
     Estimate each LTCH's payment per discharge for capital-
related costs for FY 2003 (Step 2); and
     Sum each LTCH's estimated operating and capital payment 
per case to determine its estimated total FY 2003 TEFRA payment system 
payment per discharge (Step 3).
    We discuss each of these steps in greater detail below.
    Step 1.--Estimate each LTCH's payment per discharge for inpatient 
operating costs under the TEFRA payment system for FY 2003.
    Under our methodology, the first step in the process of estimating 
total FY 2003 payments under the TEFRA payment system is to estimate 
each LTCH's payment per discharge for inpatient operating costs under 
the TEFRA payment system. Until FY 1998, the payment methodology for 
inpatient operating costs under the TEFRA payment system was a 
relatively straightforward process. First, we calculated a target 
amount by dividing the Medicare total allowable inpatient operating 
costs in a base year by the number of Medicare discharges. The 
provider's target amount under the TEFRA payment system (referred to as 
the TEFRA target amount) was then updated by a rate-of-increase 
percentage (Sec.  413.40(c)(3) of the regulations to determine the 
TEFRA target amount for the subsequent cost reporting period (Sec.  
413.40(c)(4)(i) and (ii)). Generally, for any particular cost reporting 
period, the Medicare payment for inpatient operating costs would be the 
lesser of the hospital's allowable net inpatient operating costs, or 
the updated TEFRA target amount multiplied by the number of Medicare 
discharges during the cost reporting period, that is, the TEFRA ceiling 
(Sec.  413.40(a)(3)).
    The TEFRA payment system methodology described above, broadly 
speaking, is the general approach that we used to arrive at an estimate 
of what Medicare payments for hospital inpatient operating costs would 
have been in FY 2003 under the TEFRA payment system. That is, under our 
methodology, each LTCH's FY 2003 TEFRA target amount was calculated by 
updating its estimated FY 2002 target amount per discharge by the full 
market basket percentage increase. The sum of all LTCH payments for 
operating costs (TEFRA target amount multiplied by Medicare 
discharges), bonus or relief payments, continuous improvement bonus 
payments, and payments for capital-related costs yields, in general, 
the estimate of what total Medicare payments to LTCHs would have been 
in FY 2003 under the TEFRA payment system if the LTCH PPS had not been 
implemented.
    However, because sections 4413 through 4419 of the BBA of 1997, 
section 122 of the BBRA of 1999, and section 307(a)(1) of the BIPA made 
numerous changes to the TEFRA payment system, our methodology reflects 
variations in the method described above to arrive at the estimate of 
FY 2003 payments for the inpatient operating costs of each LTCH under 
the TEFRA payment system, depending on the participation date of the 
hospital. Specifically, we made the requisite computations differently 
for two classes of hospitals, ``existing'' hospitals and ``new'' 
hospitals. (A detailed explanation of the provisions affecting LTCHs, 
established by each of the amendments, is found in the August 30, 2002 
final rule that implemented the LTCH PPS (67 FR 55959).) We discuss 
below these specific BBA, BBRA, and BIPA changes, and their impact on 
the calculations of estimated FY 2003 TEFRA payments for ``existing'' 
and ``new'' hospitals under our methodology for estimating total LTCH 
payments under the TEFRA payment system in FY 2003 for purposes of the 
one-time prospective adjustment under Sec.  412.523(d)(3). As discussed 
in greater detail below, we employed two approaches to estimate 
Medicare payments under the TEFRA payment system to LTCHs in FY 2003, 
depending on how these changes in calculating TEFRA payments, as 
established by the amendments, applied to each LTCH. (We note, the 
discussion below of the specific BBA, BBRA, and BIPA changes and their 
impact on the calculations of estimated FY 2003 TEFRA payments for 
``existing'' and ``new'' hospitals under our methodology for estimating 
total LTCH payments under the TEFRA payment system in FY 2003 for 
purposes of the one-time prospective adjustment under Sec.  
412.523(d)(3) is the same as the discussion presented in the RY 2009 
LTCH PPS proposed rule (73 FR 5356 through 5359).)
    The first set of changes that we took into account was included in 
the BBA. The BBA made significant changes to the TEFRA payment 
methodology starting with cost reporting periods beginning on or after 
October 1, 1997. While the changes were applicable to three types of 
PPS-excluded providers (rehabilitation hospitals and units, psychiatric 
hospitals and units, and LTCHs), the following discussion will address 
the provisions of the amendments as they relate to LTCHs.
    The first change to consider under the BBA is section 4414 that 
established caps on the TEFRA target amounts for cost reporting periods 
beginning on or after October 1, 1997, for LTCHs that were paid as 
IPPS-excluded providers prior to that date. The cap was determined by 
taking the 75th percentile of target amounts for cost reporting periods 
ending in FY 1996 for each class of provider (rehabilitation hospitals 
and units, psychiatric hospitals and units, and LTCHs), updating that 
amount by the market basket percentage increases to FY 1998, and 
applying it to the cost reporting period beginning on or after October 
1, 1997 (62 FR 46018). The cap calculated for FY 1998 was updated by 
the applicable market basket percentages for cost reporting periods 
beginning during FY 1999 through 2002. Providers subject to the 75th 
percentile cap were paid the lesser of their inpatient operating costs 
or the TEFRA target amount, which was limited by the 75th percentile 
cap amount (67 FR 55959). In addition, section 4411 of the BBA 
established a formula for calculating the update factor for FY 1999 
through FY 2002 that was dependent on the relationship of a provider's 
inpatient operating costs to its ceiling amount based on data from the 
most recently available cost report. Section 121 of the BBRA provided 
that the 75th percentile cap amount should be wage adjusted, starting 
with cost reporting periods beginning on or after October 1, 1999, and 
before October 1, 2002.
    The second change that we took into account was section 4415 of the 
BBA. This provision revised the percentage factors used to determine 
the amount of bonus and relief payments for LTCHs meeting specific 
criteria. If a provider's net inpatient operating costs did not exceed 
the hospital's ceiling, a bonus payment was made to the LTCH (Sec.  
413.40(d)(2) of the regulations). The bonus payment was the lower of 15 
percent of the difference between the hospital's inpatient operating 
costs and the ceiling, or 2 percent of the ceiling. In addition, relief 
payments were made to providers whose net inpatient operating costs 
were greater than 110 percent of the ceiling (or adjusted ceiling, if 
applicable). These relief payments were the lower of 50 percent of the 
allowable inpatient operating costs in excess of 110 percent of the 
ceiling (or the adjusted ceiling, if applicable) or 10 percent of the 
ceiling

[[Page 53498]]

(or adjusted ceiling, if applicable) (Sec.  413.40(d)(3)(ii) of the 
regulations).
    The third change that was considered was the additional incentive 
established by section 4415 of the BBA, the CIB payment for providers 
meeting certain conditions and that kept their costs below the target 
amount. Eligibility for the CIB payment required that a provider had 
three full cost reporting periods as an IPPS-excluded provider prior to 
the applicable fiscal year (62 FR 46019). To qualify for a CIB payment, 
a provider's operating costs per discharge in the current cost 
reporting period had to be lower than the least of any of the 
following: its target amount; its expected costs, that is, the lower of 
its target amount or allowable inpatient operating costs per discharge 
from the previous cost reporting period, updated by the market basket 
percent increase for the fiscal year; or, its trended costs, that is, 
the inpatient operating costs per discharge from its third full cost 
reporting period, updated by the market basket percentage increase to 
the applicable fiscal year (62 FR 46019; Sec.  413.40(d)(5)(ii)(B) of 
the regulations). For providers with their third or subsequent full 
cost reporting period ending in FY 1996, trended costs are the lower of 
their allowable inpatient operating costs per discharge or target 
amount updated forward to the current year (Sec.  413.40(d)(5)(ii)(A) 
of the regulations). The CIB payment equals the lesser of 50 percent of 
the amount by which the operating costs were less than expected costs, 
or 1 percent of the ceiling (Sec.  413.40(d)(4) of the regulations). 
Section 122 of the BBRA increased this percentage for LTCHs for FY 2001 
to 1.5 percent of the ceiling, and beginning in FY 2002, to 2 percent 
of the ceiling (Sec.  413.40(d)(4)(ii) and (iii) of the regulations). 
The increase in the CIB payment percentage is not to be accounted for 
in the development and implementation of the LTCH PPS in accordance 
with section 307(a)(2) of BIPA.
    The fourth change that we took into account was section 4416 of the 
BBA, which significantly revised the payment methodology for ``new'' 
IPPS-excluded providers. This provision applies to three classes of 
providers--psychiatric hospitals and units, rehabilitation hospitals 
and units, and LTCHs--that were not paid as excluded hospitals prior to 
October 1, 1997. The payment amount for a new provider for the first 
12-month cost reporting period is the lower of its Medicare inpatient 
operating cost per discharge or a limit based on 110 percent of the 
national median of target amounts for the same class of hospital for 
cost reporting periods ending in FY 1996, updated by the market basket 
percentage increases to the applicable period, and wage-adjusted. The 
payment limit in the second 12-month cost reporting period is the same 
110 percent limit as for the first year (Sec.  413.40(f)(2)(ii)). A new 
provider's target amount would be established in its third cost 
reporting period by updating the amount paid in its second cost 
reporting period by the market basket percentage increase for hospitals 
and hospital units excluded from the IPPS, applicable to the specific 
year, as published annually in the Federal Register, which then becomes 
the target amount for its third cost reporting period. The target 
amount for the fourth and subsequent cost reporting periods is 
determined by updating the target amount from the previous cost 
reporting period by the applicable market basket percentage increase.
    Finally, two provisions under BIPA specifically related to LTCHs. 
Section 307(a) of BIPA provided a 2 percent increase to the wage-
adjusted 75th percentile cap for existing LTCHs for cost reporting 
periods beginning in FY 2001, and a 25 percent increase to the target 
amount for LTCHs, subject to the increased 75th percentile cap. 
However, it is important to note that in accordance with section 
307(a)(2) of BIPA, the 2 percent increase to the 75th percentile cap 
and the 25 percent increase to the target amount were not to be taken 
into account in the development and implementation of the LTCH PPS.
    In this final rule, under our methodology, in order to determine 
what a LTCH's estimated payments would be under the TEFRA payment 
system in FY 2003, we used cost report data for LTCHs from the Hospital 
Cost Reporting Information System (HCRIS) for FYs 1999 through 2002. In 
addition, to determine whether a LTCH is ``new,'' the certification 
date for each LTCH was obtained from the On-line Survey & Certification 
Automated Reporting (OSCAR) file. Based on the certification date, a 
LTCH would either be a ``new'' LTCH, meaning a LTCH that was not paid 
as an excluded hospital prior to October 1, 1997, or an ``existing'' 
LTCH, meaning a LTCH that was paid as an excluded hospital prior to 
October 1, 1997. This could include a LTCH that was certified as an 
LTCH on or after October 1, 1997, but was previously paid as another 
type of IPPS-excluded provider prior to October 1, 1997. Our approach 
to estimating Medicare payments in FY 2003 under the TEFRA payment 
system varies somewhat, depending on whether an LTCH was either 
``existing'' or ``new'' is discussed in greater detail below. Below we 
discuss our methodology for estimating FY 2003 inpatient operating 
payments under the TEFRA payment system for ``existing'' hospitals 
(Step 1.a.) and ``new'' hospitals (Step 1.b.), and our methodology for 
estimating CIB payments under the TEFRA payment system in FY 2003 
(under Step 1.c.).
    Step 1.a.--Estimate FY 2003 inpatient operating payments under the 
TEFRA payment system for ``existing'' LTCHs.
    Based on the applicable statutory changes mentioned above, under 
our methodology, the first step was to estimate FY 2003 inpatient 
operating payments under the TEFRA payment system for ``existing'' 
LTCHs. ``Existing'' LTCHs are those receiving payment as IPPS-excluded 
providers in cost reporting periods prior to FY 1998. These LTCHs were 
subject to the 75th percentile cap on their hospital-specific target 
amounts. While section 307(a)(1) of BIPA provided for a 2-percent 
increase to the 75th percentile cap amount for LTCHs for cost reporting 
periods beginning in FY 2001 and a 25-percent increase to the target 
amount for cost reporting periods beginning in FY 2001 (subject to the 
limiting or cap amount determined under section 1886(b)(3)(H) of the 
Act), section 307(a)(2) of BIPA precluded accounting for these 
increases in developing the LTCH PPS. In addition, section 122 of the 
BBRA increased the CIB payment percentage to 1.5 percent for FY 2001 
and 2.0 percent for FY 2002 (Sec.  413.40(d)(4)(ii) and (iii)). But 
these increases, also, are not to be accounted for the development and 
implementation of the LTCH PPS in accordance with section 307(a)(2) of 
BIPA. Therefore, to ensure that these increases would be excluded from 
the computations, as required by the statute, we estimated an existing 
LTCH's FY 2003 target amount by starting with the hospital's target 
amount from the FY 2000 cost report, the year prior to when these 
increases were effective. Target amounts and payments for FY 2003 were 
simulated using the FY 2000 target amount in the hospital's cost report 
and updating the target amount for each subsequent cost reporting 
period by the applicable rate-of-increase percentage as described in 
Sec.  413.40(c)(3)(vii) through FY 2002. The target amount from FY 2002 
was updated by the forecasted market basket percentage increase of 3.5 
percent to arrive at the FY 2003 target amount (Sec.  
413.40(c)(3)(viii)). (We note that the forecasted increase in the 
excluded hospital market basket for FY 2003 of 3.5 percent was used to 
establish the applicable rate-of-increase percentage used to update 
TEFRA target

[[Page 53499]]

amounts in accordance with Sec.  413.40(c)(3)(viii) in the FY 2003 IPPS 
final rule (67 FR 50289)). Based on more recent data, our Office of the 
Actuary currently estimates an increase of 4.2 percent in the excluded 
hospital market basket for FY 2003, which we used to update LTCHs' FY 
2002 costs to FY 2003, as described below.) In a small number of cases 
where FY 2002 operating cost data were not available, we used operating 
cost data from the most recent year available and trended it forward to 
FY 2003. In addition, we estimated FY 2003 bonus or relief payments 
without the inclusion of the 2-percent and 25-percent increases to the 
cap amount and target amount, respectively, and without the 1.5 percent 
and 2.0 percent increases to the CIB payments, consistent with section 
307(a)(2) of BIPA as discussed above.
    In addition, because comparisons were made between the target 
amount and Medicare inpatient operating costs to determine bonus or 
relief payments, under our methodology, we estimated FY 2003 operating 
costs for each LTCH by updating its FY 2002 operating costs by the 
actual percentage increase in operating costs for PPS-excluded 
hospitals from FY 2002 to FY 2003 (4.2 percent, as determined by our 
Office of the Actuary) because this is currently our best estimate of 
actual cost increase from FY 2002 to FY 2003 realized by excluded 
hospitals, including LTCHs. As discussed earlier, we estimated the FY 
2003 operating costs using FY 2002 costs rather than using the costs 
reported on the FY 2003 cost report.
    The 75th percentile cap for LTCHs for FY 2002, without the 2-
percent and 25-percent increases to the cap and target amount, 
respectively, was $30,783 for the wage-index adjusted labor-related 
share, and $12,238 for the nonlabor-related share. If a LTCH's costs 
and hospital-specific target amount were above the 75th percentile cap, 
Medicare's payment under the TEFRA system would be the wage-index 
adjusted cap amount. If under our payment model a LTCH's estimated FY 
2002 TEFRA payment would have been limited by the wage-adjusted 75th 
percentile cap in FY 2002, that amount would be updated by the 
forecasted market basket percentage increase (of 3.5 percent) to FY 
2003 to determine the LTCH's FY 2003 target amount that was used to 
estimate its TEFRA payment system amount for FY 2003 under our 
methodology.
    Step 1.b.--Estimate FY 2003 inpatient operating payments under the 
TEFRA payment system for ``new'' LTCHs.
    Next, under our methodology, we estimated FY 2003 hospital 
operating payments under the TEFRA payment system for ``new'' LTCHs 
based on the applicable statutory changes discussed above. A ``new'' 
LTCH is one that was first paid as an IPPS-excluded hospital on or 
after October 1, 1997. For a ``new'' LTCH, payment in the hospital's 
first 12-month cost reporting period is the lower of its Medicare net 
inpatient operating costs per discharge or the wage-adjusted 110 
percent median amount determined for that particular year (Sec.  
413.40(f)(2)(ii) of the regulations). For the hospital's second 12-
month cost reporting period, payment is the lower of their costs, or 
the same 110 percent median amount that was used in the first cost 
reporting period, that is, it is not updated. The hospital's ``target 
amount'' is established in the third cost reporting period by updating 
the per discharge amount that was paid in the prior cost reporting 
period by the estimated market basket percentage increase for hospitals 
and hospital units excluded from the IPPS, applicable to the specific 
year, as published annually in the Federal Register. Therefore, if the 
LTCH was paid its costs in the previous cost reporting period because 
costs were lower than the 110 percent median amount, the hospital's 
cost per discharge for the second cost reporting period is updated and 
becomes the target amount for the hospital's third cost reporting 
period. Target amounts for subsequent cost reporting periods are 
determined by updating the previous year's target amount by the 
applicable market basket percentage increase.
    New LTCHs with their first 12-month cost reporting period beginning 
in FY 1998 would have had a target amount calculated under section 
1886(b)(7)(A)(ii) of the Act in FY 2000. Therefore, consistent with our 
finalized policies concerning ``existing'' LTCH's (described in Step 
1.a. above), in estimating the FY 2003 target amount for ``new'' LTCHs 
we used the target amount from the FY 2000 cost report and updated that 
target amount by the applicable estimated market basket percentage 
increases as published annually in the Federal Register for the IPPS 
final rule, without the 25-percent increase, to FY 2003. That is, we 
used 3.4 percent to update from FY 2000 to FY 2001, 3.3 percent to 
update from FY 2001 to FY 2002, and 3.5 percent to update from FY 2002 
to FY 2003. For LTCHs with their first 12-month cost reporting period 
beginning in FY 1999, we used the lower of their costs or target amount 
from their FY 2000 cost report, and updated that amount by the 
applicable estimated market basket percentage increase to establish the 
target amount in FY 2001, without the 25-percent increase. Next, we 
continued to update that target amount by the estimated market basket 
percentage increases to FY 2003. We believe that it is necessary to 
compute an estimated target amount for LTCHs that are ``new'' in FY 
1999 under our methodology in order to eliminate the potential 
inclusion of the increase to the target amounts provided for by section 
307(a)(1) of BIPA (consistent with the statute).
    The 25-percent increase (under section 307(a) of the BIPA) to the 
target amount would not be an issue for LTCH's with their first 12-
month cost reporting period beginning in FYs 2000, 2001, and 2002 
because they would not have a ``target amount'' based on sections 
1886(b)(7)(A)(ii) of the Act, in FY 2001. Rather, for these LTCHs, 
under our methodology we determined the estimated payment amount for 
their first 12-month cost reporting period by looking at their 
certification date from the OSCAR file, the applicable 110 percent 
median amount (adjusted by their wage-index) and their costs from the 
applicable cost report, and then proceeded in accordance with the 
policy in Sec.  413.40(f)(2)(ii) of the regulations, to arrive at 
estimated FY 2003 TEFRA payments.
    Step 1c.--Estimate CIB payments that would have been made in FY 
2003 under the TEFRA payment system (for both ``existing'' and ``new'' 
LTCHs).
    In addition to the TEFRA system payments for operating costs, and 
any bonus or relief payments made, we also added an amount to account 
for the estimate of the CIB payments that would have been made in FY 
2003 under the TEFRA payment system under Sec.  413.40(d)(4). We 
estimated what CIB payments would have been in FY 2003 by using actual 
CIB payments from the cost reports for FYs 1999 and 2000, as they would 
not include the statutory increases to the target amount discussed 
above, and recalculated CIB payments for FYs 2001 and 2002 based on 
cost report data. Based on these historical CIB payments, we estimated 
that CIB payments in FY 2003 would have been approximately $10 million. 
Just as the TEFRA payments and bonus and relief payments had to be 
recalculated in particular years to eliminate percentage increases that 
were not to be included in our budget neutrality calculations (as 
required by the statute), we believe that it is necessary to 
recalculate the CIB payments in FYs 2001 and 2002 to eliminate the 
percentage increases to these payments as provided for under

[[Page 53500]]

section 122 of BBRA, such that they would not be accounted for in the 
development of the LTCH in accordance with section 307(a)(2) of BIPA. 
Therefore, under our methodology, we added $10 million as an estimate 
of the CIB payments that would have been made in FY 2003 under the 
TEFRA payment system to our estimated FY 2003 TEFRA system payments for 
operating costs, including any bonus or relief payments.
    Step 2.--Estimate each LTCH's payment per discharge for inpatient 
capital costs under the TEFRA payment system for FY 2003.
    As we discussed above, under our methodology, the second step in 
estimating total payments under the TEFRA payment system was to 
estimate each LTCH's payment per discharge for capital-related costs 
for FY 2003. Under the TEFRA payment system, in accordance with the 
regulations at 42 CFR Part 413, Medicare allowable capital costs are 
paid on a reasonable cost basis. Therefore, we updated each LTCH's 
payment for capital-related costs directly from the FY 2002 cost report 
for inflation using the FY 2003 capital excluded hospital market basket 
estimate of 0.7 percent, consistent with the methodology used to 
establish the initial standard Federal rate (67 FR 56031). Thus, we 
determined capital-related costs per case using capital cost data from 
Worksheets D, Parts I and II, and total Medicare discharges for the 
cost reporting period from Worksheet S-3. (We note that because 
payments for capital-related costs are on a reasonable-cost basis, 
capital payments were the same for ``existing'' and ``new'' LTCHs.)
    Step 3.--Sum each LTCH's estimated operating and capital payment 
per case to determine its estimated total FY 2003 TEFRA payment system 
payment per discharge.
    Under our methodology for estimating FY 2003 LTCH total payments 
under the TEFRA payment system using FY 2002 cost data for the purposes 
of the one-time prospective adjustment at Sec.  412.523(d)(3), after 
estimating payments for inpatient operating costs under the TEFRA 
payment system for FY 2003 and payments for capital-related costs under 
the TEFRA payment system for FY 2003, we summed each LTCH's estimated 
operating and capital payment per case to determine its estimated total 
FY 2003 TEFRA payment system payment per discharge. Therefore, we added 
the estimate of each LTCH's payment per discharge for inpatient 
operating costs under the TEFRA payment system for FY 2003, including 
continuous improvement bonus payments (determined under Steps 1.a. 
through 1.c. above) and the estimate of each LTCH's payment per 
discharge for capital-related costs for FY 2003 (determined under Step 
2 above).
    Once we estimated total TEFRA payments as the sum of each LTCH's 
estimated operating and capital payment per case, under our methodology 
for evaluating the one-time prospective adjustment at Sec.  
412.523(d)(3), the next step was to estimate FY 2003 payments under the 
LTCH PPS. As we discussed above, we believe that the best approach was 
to use FY 2002 LTCH claims data as a proxy for estimating FY 2003 LTCH 
PPS payments in evaluating the one-time prospective adjustment at Sec.  
412.523(d)(3). We note that we used the same FY 2002 LTCH MedPAR data 
that was used to develop the FY 2004 LTC-DRG relative weights in the FY 
2004 IPPS final rule (68 FR 45376), as explained below. As we discussed 
in that final rule, there is a data problem with the FY 2002 claims 
data for LTCHs where multiple bills for the stay were submitted. 
Specifically, given the long stays at LTCHs, some providers had 
submitted multiple bills for payment under the reasonable cost-based 
reimbursement system for the same stay. In certain LTCHs, hospital 
personnel apparently reported a different principal diagnosis on each 
bill because, under the reasonable cost-based (TEFRA) reimbursement 
system, payment was not dependent upon principal diagnosis, as it is 
under a DRG-based PPS system. As a result of this billing practice, we 
discovered that only data from the final bills were being extracted for 
the MedPAR file. Therefore, it was possible that the original MedPAR 
file was not receiving the correct principal diagnosis. In that same 
IPPS final rule, we discussed how we addressed this problem in the LTCH 
FY 2002 MedPAR data when we used that data to determine the FY 2004 
LTC-DRG relative weights. Therefore, for the evaluation of the one-time 
prospective adjustment at Sec.  412.523(d)(3) we used the same 
``corrected'' FY 2002 LTCH MedPAR data that was used to develop the FY 
2004 LTC-DRG relative weights. For the reader's benefit, we are 
providing a summary of how we addressed the multiple bill problem in 
the FY 2002 LTCH MedPAR data below. As we explained in the FY 2004 IPPS 
final rule (68 FR 45376), we addressed this problem by identifying all 
LTCH cases in the FY 2002 MedPAR file for which multiple bills were 
submitted. For each of these cases, beginning with the first bill and 
moving forward consecutively through subsequent bills for that stay, we 
recorded the first unique diagnosis codes up to 10 and the first unique 
procedure codes up to 10. We then used these codes to appropriately 
group each LTCH case to a LTC-DRG for FY 2004.
    For this final rule, as we proposed, we estimated FY 2003 LTCH PPS 
payments using the same general methodology that we used to estimate FY 
2003 payments under the LTCH PPS (without a budget neutrality 
adjustment) when we determined the initial standard Federal rate in the 
August 30, 2002 final rule (67 FR 56032). Specifically, we estimated FY 
2003 LTCH PPS payments for each LTCH by simulating payments on a case-
by-case basis by applying the final FY 2003 payment policies 
established in the August 30, 2002 final rule that implemented the LTCH 
PPS (67 FR 55954) based on the LTCH case-specific discharge information 
from the FY 2002 MedPAR files (as explained above), and we also used 
LTCH provider-specific data from the FY 2003 Provider-Specific File 
(PSF), as these were the data used by fiscal intermediaries to make 
LTCH payments during the first year of the LTCH PPS (FY 2003). Under 
our methodology, we used the FY 2003 LTC-DRG Grouper (Version 22.0), 
relative weights, and average length of stay (67 FR 55979 through 
55995); we made adjustments for differences in area wage levels 
established for FY 2003 as set forth at Sec.  412.525(c) using the 
appropriate phase-in wage index values for FY 2003 (67 FR 56015 through 
56020); we made a cost-of-living adjustment for LTCHs located in Alaska 
and Hawaii as set forth at Sec.  412.525(b) (67 FR 56022); we made 
adjustments for SSO cases based on the method for determining payment 
applicable for discharges occurring during FY 2003 in accordance with 
Sec.  412.529(c)(1) (67 FR 55975 and 55995 through 56002); and we 
included additional payments for HCO cases in accordance with former 
Sec.  412.525(a) for determining payments for discharges occurring in 
FY 2003 and the FY 2003 fixed-loss amount of $24,450 (67 FR 56023). (We 
note that correctly billed interrupted stay cases under Sec.  412.531 
are single LTCH cases in the MedPAR files; therefore, we estimated a 
single LTCH PPS payment for those cases.) Under this methodology, for 
purposes of this calculation we simulated case-by-case payments for 
each LTCH as if it were paid based on 100 percent of the standard 
Federal rate in FY 2003 rather than the transition blend methodology 
set forth at Sec.  412.533. To determine total estimated PPS payments 
for all LTCHs, we summed the individual estimated

[[Page 53501]]

LTCH PPS payments for each LTCH. (We note that this is the same 
methodology we used to estimate FY 2003 payments under the LTCH PPS for 
purposes of evaluating the one-time prospective adjustment at Sec.  
412.523(d)(3) that we presented in the RY 2009 LTCH PPS proposed rule 
(73 FR 5359 through 5360).)
    In order to determine if there is any difference between estimated 
total TEFRA payments and estimated LTCH PPS payments in FY 2003 under 
our methodology for evaluating a possible one-time prospective 
adjustment under Sec.  412.523(d)(3), we determined a case-weighted 
average estimated TEFRA payment, consistent with the methodology used 
when we determined the initial standard Federal rate in the FY 2003 
LTCH PPS final rule (68 FR 56032). Under this methodology, each LTCH's 
estimated total FY 2003 TEFRA payment per discharge was determined by 
summing its estimated FY 2003 operating and capital payments under the 
TEFRA payment system based on FY 2002 cost report data (as described in 
Step 3 above), and dividing that amount by the number of discharges 
from the FY 2002 cost report data. Next, we determined each LTCH's 
average estimated TEFRA payment weighted for its number of discharges 
in the FY 2002 MedPAR file (for the purpose of estimating FY 2003 LTCH 
PPS payments, as discussed above) by multiplying its average estimated 
total TEFRA payment per discharge by its number of discharges in the FY 
2002 MedPAR file. We then estimated total case-weighted TEFRA payments 
by summing each LTCH's (MedPAR) case-weighted estimated FY 2003 TEFRA 
payments. Under our methodology, we compared these estimated FY 2003 
total TEFRA payments to estimated FY 2003 total LTCH PPS payments in 
order to determine whether a one-time prospective adjustment would be 
appropriate. (As discussed in greater detail above, we determined both 
estimated total FY 2003 TEFRA payments and estimated total FY 2003 LTCH 
PPS payments based on FY 2002 cost report and claims data, 
respectively.) Our policy to adjust our estimate of FY 2003 TEFRA 
payments for the number of discharges that we used to estimate FY 2003 
LTCH PPS payments will ensure that the comparison of estimated 
aggregate FY 2003 TEFRA payments to estimated aggregate FY 2003 LTCH 
PPS payments is based on the same number of LTCH discharges.
    Using the methodology and data described above, we calculated that 
estimated FY 2003 LTCH PPS payments are approximately 2.5 percent 
higher than estimated payments to the same LTCHs in FY 2003 if the LTCH 
PPS had not been implemented (that is, estimated total FY 2003 TEFRA 
payment system payments). Although we project that estimated FY 2003 
LTCH PPS payments are approximately 2.5 percent higher than estimated 
FY 2003 TEFRA payments, as we explained in the FY 2013 IPPS/LTCH PPS 
proposed rule (77 FR 28031), reducing the standard Federal rate by 2.5 
percent would not ``maintain budget neutrality'' for FY 2003 (that is, 
estimated FY 2003 LTCH PPS payments would not be equal to estimated FY 
2003 TEFRA payments) because a considerable number of LTCH discharges 
are projected to have received a LTCH PPS payment in FY 2003 based on 
the estimated cost of the case (rather than a payment based on the 
standard Federal rate) under the payment adjustment for SSO cases at 
Sec.  412.529. (As discussed previously, our payment analysis indicates 
that nearly 20 percent of estimated FY 2003 LTCH PPS payments are SSO 
payments that were paid based on estimated cost and not based on the 
LTCH PPS standard Federal rate. These SSO cases that receive a payment 
based on the estimated cost of the case are generally unaffected by any 
changes to the standard Federal rate. If we were to reduce the standard 
Federal rate by 2.5 percent, estimated total FY 2003 LTCH PPS payments 
would still be greater than estimated total FY 2003 TEFRA payments 
(that is, would not be budget neutral), and that difference would be 
perpetuated in the LTCH PPS payment rates for future years.) Therefore, 
it is necessary to offset the standard Federal rate by a factor that is 
larger than 2.5 percent in order to ensure that estimated total FY 2003 
LTCH PPS payments would be equal to estimated total FY 2003 TEFRA 
payments in order to ``maintain budget neutrality.'' To determine the 
necessary adjustment factor that would need to be applied to the 
standard Federal rate in order to ``maintain budget neutrality,'' we 
simulated FY 2003 LTCH PPS payments using the same payment simulation 
model discussed above (that we used to estimate FY 2003 LTCH PPS 
payments without a budget neutrality factor). Using iterative payment 
simulations using the data from the 250 LTCHs in our database, we 
determined that we would need to apply a factor of 0.9625 (that is, a 
reduction of approximately 3.75 percent rather than 2.5 percent) to the 
standard Federal rate in order to make estimated total FY 2003 LTCH PPS 
payments equal to estimated total FY 2003 TEFRA payments, consistent 
with our stated policy goal of the one-time prospective adjustment at 
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).
    In the FY 2013 IPPS/LTCH PPS proposed rule (77 FR 28031), based on 
the methodology described above, we proposed to revise Sec.  
412.523(d)(3) to specify that the standard Federal rate would be 
permanently reduced by 3.75 percent so that the estimated difference 
between projected aggregate LTCH PPS payments in FY 2003 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. 
Consistent with current law, we also proposed that this adjustment 
would not apply to payments for discharges occurring on or after 
October 1, 2012, and on or before December 28, 2012. We also proposed 
to phase-in the 3.75 percent reduction to the standard Federal rate 
over a 3-year period. We also explained that although the adjustment to 
the standard Federal rate provided for under Sec.  412.523(d)(3) is 
called a ``one-time'' prospective adjustment, this adjustment will be 
permanently applied to the standard Federal rate so that the effect of 
the estimated 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 LTCH 
prospective payment rates for future years.
    Although we did not receive any specific public comments on our 
proposed revision to Sec.  412.523(d)(3), as we discussed in the 
comments and responses presented above in this section, in response to 
the commenter who expressed concern about a potential compounding 
effect under our proposal to phase-in the one-time prospective 
adjustment over a 3-year period, we are taking the opportunity in this 
final rule to clarify in the revisions we are making to Sec.  
412.523(d)(3) that the one-time prospective adjustment of 0.9625 will 
be permanently applied to the standard Federal rate so that the effect 
of the estimated 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 LTCH 
prospective payment rates for future years.

[[Page 53502]]

    Therefore, in this final rule, based on the methodology described 
above, under the broad authority granted to the Secretary under section 
123 of the BBRA, as amended by section 307(b) of the BIPA, we are 
revising Sec.  412.523(d)(3) to specify that the standard Federal rate 
is permanently adjusted by 3.75 percent (that is, a factor of 0.9625) 
to reflect the estimated difference between projected aggregate LTCH 
PPS payments in FY 2003 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. Consistent with current law, this 
adjustment will not apply to payments for discharges occurring on or 
after October 1, 2012, and on or before December 28, 2012. And as we 
discussed above in this section in our response to public comments, 
given the magnitude of this adjustment and in acknowledgement of 
hopeful research outcomes, we are finalizing our proposal to phase-in 
the one-time prospective adjustment of 3.75 percent (or a factor of 
0.9625) to the standard Federal rate over a 3-year period. As noted 
above, although the adjustment to the standard Federal rate provided 
for under Sec.  412.523(d)(3) is called a ``one-time'' prospective 
adjustment, this adjustment (that is, a factor of 0.9625) will be 
permanently applied to the standard Federal rate so that the effect of 
the estimated 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. During this 3-year period, 
we intend to further explore potential revisions to certain LTCH PPS 
payment policies as discussed above in section VII.E.2. of this 
preamble.
    Under the policy we are establishing in this final rule, consistent 
with the one-time prospective adjustment authorized under Sec.  
412.523(d)(3), we are applying a permanent factor of 0.98734 to the 
standard Federal rate in FY 2013 (which will 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 
to completely account for our estimate (determined using the 
methodology described above) that the standard Federal rate must be 
adjusted 3.75 percent (or a factor of 0.9625) 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, consistent with our stated policy 
goal of the one-time prospective adjustment at Sec.  412.523(d)(3). To 
achieve a permanent adjustment of 0.9625, under the phase-in of this 
adjustment that we are establishing in this final rule, 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 will not be applicable 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.
5. Other Comments Received on the Proposed Rule
    We note that we received some public comments on the LTCH PPS that 
were outside of the scope of the FY 2013 IPPS/LTCH PPS proposed rule. 
These out-of-scope public comments are not addressed with policy 
responses in this final rule. However, we appreciate these comments and 
we may consider these public comments in the development of future 
rulemaking.

VIII. 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 an increasing number 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 measure reporting programs for multiple 
settings of care. To measure the quality of hospital inpatient 
services, CMS implemented the Hospital Inpatient Quality Reporting 
(IQR) Program (formerly referred to as the Reporting Hospital Quality 
Data for Annual Payment Update (RHQDAPU) Program). In addition, CMS has 
implemented quality reporting programs for hospital outpatient 
services, the Hospital Outpatient Quality Reporting (OQR) Program 
(formerly referred to as the Hospital Outpatient Quality Data Reporting 
Program (HOP QDRP)), and for physicians and other eligible 
professionals, the Physician Quality Reporting System (formerly 
referred to as the Physician Quality Reporting Program Initiative 
(PQRI)). CMS has also implemented quality reporting programs for 
inpatient rehabilitation hospitals, hospices, and ambulatory surgical 
centers, and 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 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 at a future date, such as FY 2015, 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) and in section XVI. of the CY 2012 OPPS/ASC final rule with

[[Page 53503]]

comment period (76 FR 74527 through 74547). 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 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 
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, 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 being 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 creates a payment adjustment resulting in 
payment reductions for the lowest performing hospitals based on their 
rates of HACs.
    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 this section VIII. of this preamble, we are adopting changes to, 
or implementing, the following Medicare quality reporting systems:
     In section VIII.A., the Hospital IQR Program.
     In section VIII.B., the Hospital VBP Program.
     In section VIII.C., the PPS-Exempt Cancer Hospital Quality 
Reporting (PCHQR) Program.
     In section VIII.D., the Long-Term Care Hospital Quality 
Reporting (LTCHQR) Program.
     In section VIII.E., the Ambulatory Surgical Center Quality 
Reporting (ASCQR) Program.
     In section VIII.F., the Inpatient Psychiatric Facilities 
Quality Reporting (IPFQR) Program.

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 2012 IPPS/LTCH PPS final rule (76 FR 51636 through 51637) for the 
measures we have adopted for the Hospital IQR measure set through FY 
2015.
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 CMS 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.
    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 53504]]

    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, 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 proposed rule (77 FR 28033), we 
proposed that if the NQF updates an endorsed measure that we have 
adopted for the Hospital IQR Program in a manner that we consider to 
not substantially change the nature of the measure, we would use a 
subregulatory process to incorporate those updates to the measure 
specifications that apply to the program. Specifically, we would 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 would also post the updates on the QualityNet Web site at 
https://www.QualityNet.org. We would provide sufficient lead time for 
hospitals to implement the changes where changes to the data collection 
systems would be necessary.
    We would continue to use the rulemaking process to adopt changes to 
a measure that we consider to substantially change the nature of the 
measure. We believe that this proposal adequately balances our need to 
incorporate 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 invited public comment on this proposal.
    Comment: Many commenters supported the proposed subregulatory 
process to update the measure specifications of adopted NQF-endorsed 
measures in the Specifications Manual for non-substantive changes that 
arise from the NQF maintenance review, as well as the continuation of 
the rulemaking process for substantive changes that arise from NQF 
review. Several commenters objected to these proposals, and expressed 
concern that there is no clear definition of non-substantive updates. 
These commenters felt that changes such as conversion of measures to 
ICD-10 codes and eMeasures format, and exclusions to the patient 
population should be considered substantive changes that would warrant 
rulemaking. Some commenters stated that all changes to measures that 
are not NQF-endorsed measures should be subject to the rulemaking 
process.
    Response: We thank those commenters that supported our proposal to 
update NQF-endorsed measures using a subregulatory process. 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 non-substantive updates made by the NQF into the measure 
specifications we have adopted for the Hospital IQR Program so that 
these measures remain up-to-date. We also recognize that some changes 
the NQF might make to its endorsed measures are substantive in nature 
and might not be appropriate for adoption using a subregulatory 
process. Therefore, we are finalizing 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 non-substantive 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 include updates to NQF-
endorsed measures based upon changes to guidelines upon which the 
measures are based.
    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. These policies regarding what is considered 
substantive versus non-substantive would apply to all measures in the 
Hospital IQR Program. We also note that the NQF process incorporates an 
opportunity for public comment and engagement in the measure 
maintenance process.
    Comment: A few commenters supported the semiannual updates of the 
Specifications Manual to provide guidance to hospitals on data 
collection and submission of the required measures. Commenters urged 
CMS to provide at least 12 to 18 months' notice before nonsubstantive 
changes are implemented by vendors and providers.
    Response: We thank the commenter for the support for this process, 
which is consistent across all quality reporting programs. Per our 
existing policy for specification updates, we will provide at least 6 
months lead time for hospitals to implement updates to measures that 
would require changes to abstraction or data collection systems. This 
would include non-substantive changes.
    Comment: A commenter suggested that CMS must be more transparent 
about the NQF maintenance review and update process in the Hospital IQR 
Program proposed rules. Specifically, the commenter urged CMS to 
describe the NQF status, including the status of maintenance review, of 
every proposed and previously finalized measure in

[[Page 53505]]

proposed rules. The commenter believed that the lack of information 
regarding a measure's NQF status may disadvantage the public in 
commenting on Hospital IQR Program measures.
    Response: We appreciate the suggestion and recognize the 
commenter's desire to have more information about the measures in the 
program. This information is currently available and updated frequently 
on the measures list available on the NQF Web site: http://www.qualityforum.org/Measures_List.aspx. We will strive to provide 
additional NQF-related information about the Hospital IQR Program 
measures in the future.
    After consideration of the public comments we received, we are 
finalizing a policy under which we will use a subregulatory process to 
make non-substantive updates to measures in the Hospital IQR Program. 
We will continue to use the rulemaking process to adopt changes to 
measures that we consider to be substantive.
c. 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 will 
continue our current practice 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.hhs.gov, 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/. Publicly reporting the 
information in this manner, although not on the Hospital Compare Web 
site, allows CMS to meet the requirement under section 
1886(b)(3)(B)(viii)(VII) of the Act for establishing procedures to make 
information regarding measures submitted under the Hospital IQR Program 
available to the public following a preview period. In such 
circumstances, affected parties are notified via CMS listservs, CMS 
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.
    Comment: A commenter recommended that CMS collect and present data 
on Hospital Compare in a stratified manner in terms of race, language, 
and gender as the commenter believed all of the above are crucial data 
to address and reduce health disparities.
    Response: We are unable to collect data that is unrelated to 
quality measures, and therefore, it is not possible for us to stratify 
measures using demographic data as this commenter suggests.
    Comment: A commenter supported display of the Standardized 
Infection Ratio (SIR) for both CLABSI and CAUTI on Hospital Compare.
    Response: We thank the commenter for their support.
    Comment: A commenter believed that the public reporting of 
hospital-specific readmission rates on Hospital Compare needs 
significant improvement by providing more specific data on actual 
readmission rates. The commenter pointed out that the current display 
of readmissions as either ``same as the national average,'' ``worse 
than the national average,'' or ``better than the national average'' 
indicate little variation among hospitals and does not offer to 
consumers and purchasers meaningful information about how well specific 
hospitals are performing.
    Response: The purpose of the initial display of the readmission 
measures as ``same as the national average,'' ``worse than the national 
average,'' or ``better than the national average'' is to address 
consumer preferences for the display of information that incorporates 
confidence intervals or interval estimates for outcome measures such as 
hospital readmission rates. However, alternative displays that we 
provide, which can also be accessed through links on the main display 
at the Hospital Compare Web site, contain both graphical and table 
displays and provide more information, including the risk-adjusted 
readmission rates. Additional information is also available in the 
downloadable file at: http://www.medicare.gov/download/downloaddb.asp 
that accompanies each Hospital Compare release in order to facilitate 
customized comparative analyses.
    Comment: A commenter requested that CMS notify hospitals of changes 
to QualityNet Web site reports in a timely manner.
    Response: We send out memos in a timely manner to notify hospitals 
of changes to reports when there is a system release or production fix.
2. Removal and Suspension of Hospital IQR Program Measures
a. Considerations in Removing Quality Measures From the Hospital IQR 
Program
    We generally 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. In previous rulemakings, we have 
referred to the removal of measures from the Hospital IQR Program as 
``retirement.'' We have used this term to indicate that Hospital IQR 
Program measures are no longer included in the Hospital IQR Program 
measure set for one or more indicated reasons. However, we note that 
this term may imply that other payers/purchasers/programs should cease 
using these measures that are no longer required for the Hospital IQR 
Program. In order to clarify that this is not our intent, beginning 
with this rulemaking cycle, we will use the term ``remove'' rather than 
``retire'' to refer to the action of no longer including a measure in 
the Hospital IQR Program.
    As we stated in the FY 2011 IPPS/LTCH PPS final rule (75 FR 50185), 
the criteria that we consider when determining whether to remove 
Hospital IQR Program measures are the following: (1) Measure 
performance among hospitals is so high and unvarying that meaningful 
distinctions and improvements in performance can no longer be made 
(``topped out'' measures); (2) availability of alternative measures 
with a stronger relationship to patient outcomes; (3) a measure does 
not align with current clinical guidelines or practice; (4) the 
availability of a more broadly applicable (across settings, 
populations, or

[[Page 53506]]

conditions) measure for the topic; (5) the availability of a measure 
that is more proximal in time to desired patient outcomes for the 
particular topic; (6) the availability of a measure that is more 
strongly associated with desired patient outcomes for the particular 
topic; and (7) collection or public reporting of a measure leads to 
negative unintended consequences other than patient harm. These 
criteria were suggested by commenters during rulemaking, and we agreed 
that these criteria should be among those considered in evaluating 
Hospital IQR Program quality measures for removal.
    In addition, we take into account the views of the Measure 
Application Partnership (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. The MAP views patient safety as a high 
priority area and it strongly supports the use of NQF-endorsed safety 
measures. Furthermore, for efficiency and streamlining purposes, we 
strive to eliminate redundancy of similar measures.
    Comment: Several commenters supported the proposals regarding 
measure removal criteria and the use of ``removal'' terminology. Some 
commenters also recommended that CMS provide a list of potential 
measures for removal from the Hospital IQR Program for MAP review and 
recommendations.
    Response: We thank the commenters for the support of our measure 
removal criteria and the use of the term ``removal.'' We will consider 
the recommendation to provide a list of potential measures for removal 
from the Hospital IQR Program to MAP for its input.
b. Hospital IQR Program Measures Removed in Previous Rulemakings
    In previous rulemakings, we have removed several 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).
c. Removal of Hospital IQR Program Measures for FY 2015 Payment 
Determination and Subsequent Years
    To accommodate the expansion of the measure set, we have considered 
the removal of additional Hospital IQR Program measures using our 
stated measure removal criteria. In the FY 2013 IPPS/LTCH PPS proposed 
rule (77 FR 28035), based on some of these criteria, we proposed to 
remove 17 measures from the Hospital IQR Program. One of these 17 
measures is chart-abstracted, and the other 16 are claims-based.
(1) Removal of One Chart-Abstracted Measure
    In the FY 2013 IPPS/LTCH PPS proposed rule (77 FR 28035), we 
proposed to remove the SCIP-Venous Thromboembolism (VTE) measure: 
``SCIP-VTE-1: Surgery patients with recommended VTE prophylaxis 
ordered'' measure because we believe that the ``SCIP-VTE-2: Surgery 
patients who received appropriate VTE prophylaxis within 24 hours of 
pre/post surgery'' measure currently used in the Hospital IQR Program 
assesses practices that are more proximal in time to better surgical 
outcomes resulting from the use of VTE prophylaxis. We also note that 
during a recent NQF maintenance review of SCIP-VTE-1, the measure was 
not recommended for continued endorsement.
    Comment: Many commenters strongly agreed with CMS' rationale for 
proposing the removal of the SCIP-VTE-1 measure and urged its immediate 
removal from the Hospital IQR Program. One commenter was disappointed 
that the measure was removed shortly after it was adopted. Commenters 
requested that CMS clarify whether the end date for data submission of 
the proposed chart-abstracted measure is effective immediately, or on 
the effective date of this final rule.
    Response: We thank the commenters for the support of the removal of 
this measure. The removal of this measure is consistent with one of our 
measure removal criteria of removing a measure when an alternative 
measure(s) that is either more proximal to or that has a stronger 
relationship with patient outcomes is available. We are finalizing the 
removal of this measure from the Hospital IQR Program measure set. The 
data collection for this chart-abstracted measure will end with 
December 31, 2012 discharges.
(2) Removal of 16 Claims-Based Measures
    In the FY 2013 IPPS/LTCH PPS proposed rule (77 FR 28035), we 
proposed to remove eight HAC measures, three AHRQ Inpatient Quality 
Indicator (IQI) measures, and five AHRQ Patient Safety Indicator (PSI) 
measures from the Hospital IQR Program measure set.
(A) Removal of Eight Hospital-Acquired Condition (HAC) Measures
    In the FY 2011 IPPS/LTCH PPS final rule (75 FR 50194 through 
50196), for the FY 2012 payment determination, we adopted 8 claims-
based HAC measures based on 8 of the 10 conditions applicable under the 
HAC payment provisions specified in section 1886(d)(4)(D) of the Act. 
These eight HAC measures are: Air Embolism; Blood Incompatibility; 
Catheter-Associated Urinary Tract Infection (UTI); Falls and Trauma: 
(Includes Fracture Dislocation, Intracranial Injury, Crushing Injury, 
Burn, Electric Shock); Foreign Object Retained After Surgery; 
Manifestations of Poor Glycemic Control; Pressure

[[Page 53507]]

Ulcer Stages III or IV; and Vascular Catheter Associated Infections. 
Six of these HACS were identified by NQF as serious reportable events.
    In the FY 2013 IPPS/LTCH PPS proposed rule (77 FR 28035), we 
proposed to remove these eight HAC measures based on several 
considerations. First, the MAP recommended that we replace the HAC 
measures in the Hospital IQR Program with NQF-endorsed measures. 
Second, we seek to reduce redundancy among the measures in the program. 
Two of the eight HAC measures address HAIs which are addressed by other 
measures currently in the Hospital IQR Program. These two HAI measures 
are the NQF-endorsed CAUTI and CLABSI measures collected via the CDC's 
NHSN system. An additional three of the eight HAC measures address 
similar topics (pressure ulcers, air embolism, and manifestations of 
poor glycemic control) to patient safety indicators that are included 
in the NQF-endorsed AHRQ PSI composite that is also included in the 
Hospital IQR Program. Accordingly, because more broadly applicable NQF-
endorsed measures are available that address some of the same HAIs and 
HACs, we believe it is appropriate to remove these measures from the 
program. We note that section 3008 of the Affordable Care Act will 
require public reporting of HACs, including those conditions adopted 
under section 1886(d)(4)(D) of the Act. HACs remain an important aspect 
of our commitment to patient safety, and the measurement and reduction 
of patient harm. ``Safer care'' is one of the six priorities identified 
to address the three aims established under the National Quality 
Strategy. We stated our intention to pursue development of an all-cause 
harm composite measure for potential use in our quality reporting 
programs.
    Comment: The majority of the commenters who commented on the 
proposed removal of the eight HAC measures supported the MAP 
recommendation as well as our proposal to remove the eight HAC measures 
from the Hospital IQR Program. Commenters requested their immediate 
removal from the Hospital IQR Program as they believed their removal 
will minimize the potential for hospitals to be penalized twice for 
these conditions due to the measures' inclusion in the Hospital IQR 
Program and the HAC payment provisions under section 1886(d)(4)(D) of 
the Act.
    Response: We thank the commenters for their support for the removal 
of these measures. We are finalizing this proposal, and we do not 
intend to provide or publicly report new calculations of these 
individual HACs as part of the Hospital IQR Program after 2012.
    Comment: Two commenters supported the removal of the Catheter-
Associated Urinary Tract Infection (UTI) and the Vascular Catheter 
Associated Infections HACs but recommended the retention of rest of the 
HACs (Air Embolism; Blood Incompatibility; Falls and Trauma: (Includes 
Fracture Dislocation, Intracranial Injury, Crushing Injury, Burn, 
Electric Shock); Foreign Object Retained After Surgery; Manifestations 
of Poor Glycemic Control; and Pressure Ulcer Stages III), and urged us 
to work with stakeholders to address any coding irregularities that may 
affect the accuracy of the data used to calculate these six measures. 
These commenters also suggested continued reporting of these measures 
on Hospital Compare.
    Response: We appreciate the commenters' support of the removal of 
the Catheter-Associated Urinary Tract Infection (UTI) and the Vascular 
Catheter Associated Infections HACs. We are not considering the 
retention of any of the other six non-infection related HACs for the 
Hospital IQR Program at this time due to the MAP recommendations and 
our intent to pursue development of an all-cause harm composite measure 
for potential use in our quality reporting programs.
    Comment: One commenter opposed CMS' intention to develop an all-
cause harm composite measure, noting that there are too many variables 
to account for in measuring all-cause harm.
    Response: We wish to clarify that our goal of developing an all-
cause harm composite measure is to inform the healthcare community and 
the general public of hospital performance in terms of managing patient 
safety efficiently and economically. While we agree that HACs often 
result from multiple factors, some of these conditions are ``never 
events;'' they could cause serious injuries or even death, and should 
not happen under any circumstances. These never events are foreign 
objects retained after surgery, air embolism, and blood 
incompatibility. We are examining risk factors for other HACs. In 
pursuing this goal, we intend to work with clinical experts in 
injuries, complications, and infections, and with measure experts with 
knowledge in composite measures and risk adjustment to develop an all-
cause harm measure that can inform clinicians of gaps in their patient 
safety performance.
(B) Removal of Three AHRQ IQI Measures
    In the FY 2009 IPPS final rule (73 FR 48607), we adopted three 
claims-based AHRQ IQI outcome measures for the FY 2010 payment 
determination: (1) IQI-11: Abdominal aortic aneurysm (AAA) repair 
mortality rate (with or without volume); (2) IQI-19: Hip fracture 
mortality rate; and (3) IQI-91: Mortality for selected medical 
conditions (composite).
    In the FY 2013 IPPS/LTCH PPS proposed rule (77 FR 28035), we 
proposed to remove these three AHRQ IQI measures from the Hospital IQR 
Program. In removing measures from the Hospital IQR Program, we seek to 
eliminate measures that would not be used under the Hospital VBP 
Program, and to reduce redundancy among the measures in the Hospital 
IQR Program. Three of the six conditions in the IQI composite measure 
overlap with 30-day mortality measures that we have in the Hospital IQR 
Program, and which were recommended by the MAP for use in the Hospital 
VBP Program. The proposed removal of these AHRQ IQI measures would 
eliminate unnecessary redundancy in the Hospital IQR Program measure 
set. We also believe that inclusion of a large number of in-hospital 
mortality measures, the performance on which is highly dependent upon 
hospital discharge patterns, may lead to unintended consequences of 
patients being discharged sooner than advisable. We invited public 
comment on this proposal.
    Comment: All the commenters who commented on the proposed removal 
of the AHRQ IQI measures strongly supported and requested the removal 
of the three proposed AHRQ IQI measures from the Hospital IQR Program.
    Response: We thank the commenters for their support.
    Based on these comments, we are finalizing the removal of IQI-11, 
IQI-19, and the IQI-90 composite measures. These measures' calculations 
will not be refreshed on Hospital Compare after 2012.
(C) Removal of Five AHRQ PSI Measures
    In the FY 2009 IPPS final rule (73 FR 48607), we adopted three 
claims-based PSI outcome measures for the FY 2010 payment 
determination: (1) PSI-06: Iatrogenic pneumothorax; (2) PSI-14: 
Postoperative wound dehiscence; and (3) PSI-15: Accidental puncture or 
laceration. In the FY 2011 IPPS/LTCH PPS final rule (75 FR 50194), we 
adopted two more claims-based PSI

[[Page 53508]]

outcome measures for the FY 2012 payment determination: PSI-11: Post 
Operative Respiratory Failure; and PSI 12: Post Operative PE or DVT.
    In the FY 2013 IPPS/LTCH PPS proposed rule (77 FR 28035), we 
proposed to remove these five AHRQ PSI measures from the Hospital IQR 
Program because four of these five individual measures (all but PSI-11) 
are included in the NQF-endorsed AHRQ PSI Composite measure that is 
already included in the Hospital IQR Program. Also, the post-operative 
ventilator associated events assessed in PSI-11 could be captured more 
robustly using non-administrative data collected via the NHSN in the 
near future. Therefore, we proposed to remove these five individual 
PSIs from the Hospital IQR Program measure set in order to eliminate 
unnecessary redundancy. We invited public comment on this proposal.
    Comment: Almost all of the commenters who commented on the proposed 
removal of the AHRQ PSI measures supported their removal from the 
Hospital IQR Program. Commenters stated that these measures, which are 
based on administrative data, are less sensitive than those measures 
that utilize chart-abstracted data, and lack the specificity required 
for use in comparative public reporting programs. One commenter was 
concerned that the removal of the measures would deprive stakeholders 
of the opportunity to drill down and access more granular information 
on the individual measures. The commenter requested assurance that the 
transparency of information on these safety events is not compromised 
by the removal of these measures.
    Response: We appreciate the supportive comments received for this 
proposal. Four of the five measures to be removed are part of the PSI 
Composite that is being retained for the Hospital IQR Program, and we 
will be able to continue providing this information in ``drill down'' 
displays of the PSI Composite because the individual measure 
information can be made available through links or pop-up windows from 
the main display of the composite score. We are finalizing the removal 
of these five PSI measures from the Hospital IQR Program.
    Comment: Many commenters strongly supported the proposal to remove 
the 16 claims-based measures and one chart-abstracted measure as one 
way to streamline measures in the Hospital IQR Program and make the 
numbers of Hospital IQR Program measures more manageable. Commenters 
urged CMS to expedite the proposed removal of the 17 measures sooner 
than 2015 as proposed and to remove the 17 measures from the Hospital 
Compare Web site immediately. The commenters recommended that we use 
the CY 2013 OPPS/ASC proposed rule as a vehicle to propose the removal 
of these measures from the FY 2013 and 2014 Hospital IQR Program 
measure set.
    Response: We are sensitive to the comments on streamlining measures 
in the Hospital IQR Program. We thank the commenters for the support. 
Although we proposed the removal of these measures for the FY 2015 
payment determination, the impact from the removal of these measures 
begins in 2012. In particular, the data collection for the chart-
abstracted measure, SCIP-VTE-1: Surgery patients with recommended VTE 
prophylaxis ordered, will end with December 31, 2012 discharges. New 
calculations of the 16 individual claims-based measures on the Hospital 
Compare Web site will not be displayed as distinct measures after July 
2012 for purposes of the Hospital IQR Program. However, because the PSI 
Composite Measure is comprised of individual PSI measures, information 
on the specific measures that are part of the AHRQ PSI Composite can be 
provided on Hospital Compare in ``drill down'' displays from the main 
composite. Also, some or all of the HAC measures may be reported on 
Hospital Compare in some manner in the future under the public 
reporting authority under section 3008 of the Affordable Care Act.
    Comment: Two commenters assumed that because CMS proposed the 
removal of several individual AHRQ PSI measures from the Hospital IQR 
Program, that we would also remove these indicators from the 
calculation of the AHRQ PSI-90 composite measure for both Hospital IQR 
and the Hospital VBP Programs. Furthermore, these commenters believed 
that the statutory display requirement for the AHRQ PSI-90 composite 
measure has not been met because CMS did not display data for all eight 
of the individual AHRQ indicators that are used in the composite.
    Response: We wish to clarify that our removal of several individual 
AHRQ indicators from the Hospital IQR Program does not in any way 
change the composition of the AHRQ PSI-90 composite measure for either 
the Hospital IQR or Hospital VBP Programs. No changes have been 
proposed for the AHRQ PSI-90 composite for the Hospital IQR or Hospital 
VBP Programs. We adopted and displayed the NQF-endorsed AHRQ PSI-90 
composite measure for the Hospital IQR Program (NQF531) which 
is comprised of the following individual indicators: PSI-03, PSI-06, 
PSI-07, PSI-08, PSI-12, PSI-13, PSI-14, and PSI-15. We will continue to 
use/display this NQF-endorsed version of the PSI composite for the 
program. Regarding the 1 year display requirement for the PSI-composite 
for the Hospital VBP Program, we have proposed to use the AHRQ PSI-90 
composite calculation in its totality for Hospital VBP Program scoring. 
We displayed this composite score in its totality on Hospital Compare 
beginning in October 2011. Therefore, the PSI-90 composite meets the 
display requirement for use in the Hospital VBP Program regardless of 
how many individual AHRQ indicators were displayed.
    Some commenters also provided suggestions for removal of other 
measures in the Hospital IQR Program.
    Comment: A commenter recommended the removal of the HF-1 (Discharge 
Instructions) measure because the measure did not receive continued 
NQF-endorsement and was perceived as a ``check-the-box'' measure that 
does not convey meaningful or actionable information about the quality 
of the discharge process. Another commenter believed that HF-1 should 
be replaced with a Post-Discharge Appointment for Heart Failure 
Patients measure.
    One commenter proposed the removal of the SCIP Infection-2 
(Prophylactic Antibiotic Selection for Surgical Patients) measure 
because the commenter believed implementation of the Surgical Site 
Infection measures targeted for FY 2014 will provide more meaningful 
outcome information than this process measure.
    One commenter recommended the removal of all non-NQF-endorsed 
measures except those measures that are part of TJC's accountability 
measure set.
    One commenter requested the removal of SCIP-INF-10 (Surgery 
Patients with Perioperative Temperature Management), which the 
commenter contended is topped out and which is not required for the 
Hospital VBP Program. One commenter indicated that PN-3b (Blood Culture 
Performed in the Emergency Department prior to First Antibiotic 
Received in Hospital) should be removed from the Hospital IQR Program 
because of the pending removal of its NQF-endorsement status, the 
consensus among stakeholders, the evidence citing the ineffective and 
inefficient implementation, and the unintended consequences associated 
with the measure.
    Response: We appreciate the commenters' input on the removal of the 
measures and we will take this into consideration when we select 
measures

[[Page 53509]]

for removal in the future. In our view, currently, these recommended 
measures for removal still yield valuable information in the 
improvement of healthcare and we have no plans to remove them unless 
evidence indicates otherwise. As for the suggested removal of non-NQF-
endorsed measures, while we seek to use NQF-endorsed measures where 
possible, we note that measures that we believe to be important in 
assessing the quality of hospital care can be adopted for the Hospital 
IQR Program through our exception authority in section 
1886(b)(3)(B)(IX)(bb) of the Act. 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), 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.
    After consideration of the public comments we received on measure 
removal, we are finalizing our proposal to remove 1 chart-abstracted 
measure and 16 claims-based measures as set forth in the table below:

------------------------------------------------------------------------
                                      17 Measures removed from Hospital
                                     IQR Program measure set for FY 2015
               Topic                       and subsequent payment
                                               determinations
------------------------------------------------------------------------
Surgical Care Improvement Project    SCIP INF-VTE[dash]1:
 (SCIP) Measure.                     Surgery patients with recommended
                                     Venous Thromboembolism (VTE)
                                     prophylaxis ordered.
AHRQ Patient Safety Indicators       PSI 06: Iatrogenic
 (PSIs), Inpatient Quality           pneumothorax, adult.
 Indicators (IQIs) and Composite     PSI 11: Post Operative
 Measures.                           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          Foreign Object Retained
 Measures.                           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.
------------------------------------------------------------------------

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 FY
                        Topic                             2015 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 because although 
our analysis indicated that these measures are topped-out measures 
(that is, their performance is uniformly high nationwide, with little 
variability among hospitals), we recognized some commenters' belief 
that the processes assessed by the measures were tied to better patient 
outcomes, and that removal of the measures from the program may result 
in declines in performance and hence, worse outcomes.
    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.
    Comment: Many commenters supported CMS' measure suspension policy, 
which provides a balance between maintaining quality and avoiding 
unnecessary administrative burden. Several commenters indicated that 
instead of suspension, these four previously suspended measures should 
be removed from the Hospital IQR Program permanently.
    Response: We thank the commenters for their support of our measure 
suspension policy. Before we can remove the suspended measures we will 
need to determine whether the important practices addressed by these 
suspended measures continue to be routinely practiced.

[[Page 53510]]

    Comment: A few commenters requested that CMS clarify: (1) The 
methodology used to determine if the measures are declining in 
performance; and (2) requirements to resume collection of a suspended 
measure. The commenters stated that if CMS decides to resume collection 
of a measure, it should integrate the timeline with the current process 
for implementation of technical specifications. Commenters offered to 
collaborate with CMS to identify measures warranting suspension.
    Response: We will continue to monitor the measures for evidence of 
performance slippage by reviewing published literature and examining 
national performance trends on these measures from data collected by 
other parties. In the event that data collection on a suspended measure 
must be resumed, we intend to align with Specifications Manual release 
and collection cycle timelines in order to provide sufficient notice to 
hospitals.
3. Measures for the FY 2015 and FY 2016 Hospital IQR Program Payment 
Determinations
a. Additional Considerations in Expanding and Updating Quality Measures 
Under the Hospital IQR Program
    In general, we seek to adopt measures for the Hospital IQR Program 
that would promote better, safer, more efficient care. We believe it is 
important to expand the pool of measures to include measures that aim 
to improve patient safety. This goal is supported by many reports 
documenting that tens of thousands of patients do not receive safe care 
in the nation's hospitals.53,54
---------------------------------------------------------------------------

    \53\ OEI-06-09-00090, ``Adverse Events in Hospitals: National 
Incidence Among Medicare Beneficiaries.'' Department of Health and 
Human Services, Office of Inspector General, November 2010.
    \54\ 2009 National Healthcare Quality Report, pp. 107-122. 
``Patient Safety,'' Agency for Healthcare Research and Quality.
---------------------------------------------------------------------------

    In addition to our goals to align measures and support the Hospital 
VBP Program, we also take into account other considerations in 
implementing and expanding the Hospital IQR Program:
     Our overarching purpose is to support the National Quality 
Strategy's (NQS') three-part aim of better health care for individuals, 
better health for populations, and lower costs for health care. The 
Hospital IQR Program will help achieve the three-part aim by creating 
transparency around the quality of care at inpatient hospitals to 
support patient decision-making and quality improvement. Given the 
availability of well-validated measures and the need to balance breadth 
with minimizing burden, measures should take into account and address, 
as fully as possible, the six domains of measurement 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. More information 
regarding the National Quality Strategy can be found at: http://www.hhs.gov/secretary/about/priorities/priorities.html and http://www.ahrq.gov/workingforquality/. HHS engaged a wide range of 
stakeholders to develop the National Quality Strategy, as required by 
the Affordable Care Act.
     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. 
Within the framework of our statutory authority and taking into account 
programmatic considerations, measures used in the Hospital IQR Program 
should be harmonized with other Medicare/Medicaid quality reporting 
programs and incentive programs to promote coordinated efforts to 
improve quality.
     As part of our burden reduction efforts, we will 
continuously weigh the relevance and utility of the measures compared 
to the burden on hospitals in submitting data under the Hospital IQR 
Program. We seek to use measures based on alternative sources of data 
that do not require chart abstraction or that utilize data already 
being reported by many hospitals, such as data that hospitals report to 
clinical data registries, or all-payer claims databases. In recent 
years we have adopted measures that do not require chart abstraction, 
including structural measures and claims-based measures that we can 
calculate using other data sources.
     To the extent practicable, measures we use should be 
nationally endorsed by a multi-stakeholder organization. Section 
3001(a)(2) of the Affordable Care Act added new sections 
1886(b)(3)(B)(viii)(IX)(aa) and (bb) of the Act. These sections state 
that ``* * * effective for payments beginning with fiscal year 2013, 
each measure specified by the Secretary under this clause shall be 
endorsed by the entity with a contract under section 1890(a) [of the 
Act],'' and ``[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.'' Accordingly, we attempt to utilize 
endorsed measures whenever possible.
     Measures should be developed with the input of providers, 
purchasers/payers, and other stakeholders. 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.
     Section 1890A(a)(4) of the Act, as added by section 
3014(b) of the Affordable Care Act, requires the Secretary to take into 
consideration input from multi-stakeholder groups in selecting quality 
and efficiency measures that have been endorsed by the entity with a 
contract under section 1890 of the Act, currently NQF, and measures 
that have not been endorsed. The MAP is a partnership comprised of 
multi-stakeholder groups that was convened by NQF to provide input on 
measures. Accordingly, we consider the MAP's recommendations in 
selecting quality and efficiency measures (http://www.qualityforum.org/map/).
    [e x  x nsp]HHS Strategic Plan and 
Initiatives. HHS is the U.S. government's principal agency for 
protecting the health of all Americans. HHS accomplishes its mission 
through programs and initiatives. Every 4 years HHS updates its 
Strategic Plan and measures its progress in addressing specific 
national problems, needs, or mission-related challenges. The goals of 
the HHS Strategic Plan for Fiscal Years 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/about/FY2012budget/strategicplandetail.pdf). 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 HAIs in 
clinical settings and the Partnership for Patients exemplify these 
programs.
     CMS Strategic Plan. We strive to ensure that measures for 
different Medicare and Medicaid programs are aligned with priority 
quality goals, that measure specifications are aligned

[[Page 53511]]

across settings, that outcome measures are used whenever possible, and 
that quality measures are collected from EHRs as appropriate.
     We give priority to measures that assess performance on: 
(a) Conditions that result in the greatest mortality and morbidity in 
the Medicare population; (b) conditions that are high volume and high 
cost for the Medicare program; and (c) conditions for which wide cost 
and treatment variations in the Medicare population have been reported, 
despite established clinical guidelines, across populations or 
geographic areas.
     We will focus on selecting measures that we believe will 
also meet the Hospital VBP Program measure inclusion criteria and 
advance the goals of the Hospital VBP Program by targeting hospitals' 
ability to improve patient care and patient outcomes.
    In the FY 2011 IPPS/LTCH PPS final rule (75 FR 50191 through 
502192), we finalized our proposal to adopt measures for the Hospital 
IQR Program for three consecutive payment determinations. The intent of 
this policy was to provide greater certainty for hospitals to plan to 
meet future reporting requirements and implement related quality 
improvement efforts. In addition to giving hospitals more advance 
notice in planning quality reporting, this multiyear approach also 
provides more time for us to prepare, organize, and implement the 
infrastructure needed to collect data on the measures and make payment 
determinations. However, we indicated that these finalized measure sets 
for multiple years could still be updated through the rulemaking 
process should we need to respond to agency and/or legislative changes.
    Finally, in section IV.A.5.a.(2) of the FY 2011 IPPS/LTCH PPS final 
rule (75 FR 50219 through 50220), we adopted a proposal to make 
Hospital IQR Program payment determinations beginning with FY 2013 
using one calendar year of data for chart-abstracted measures. We began 
using this approach, which synchronizes the quarters for which data on 
these measures must be submitted during each year with the quarters 
used to make payment determinations with respect to a fiscal year, 
beginning with January 1, 2011 discharges. However, it will not affect 
our payment determinations until FY 2013.
    Comment: Some commenters complimented CMS for successfully 
identifying measures that fall into the six NQS domains which can be 
used to identify measure gaps in domain areas for future measure 
development. The commenters strongly believed this approach will signal 
to the private sectors that the public and private sectors are 
progressing toward a common path to improve health care quality. 
However, one commenter noted that it may be premature to utilize the 
NQS domains for the purposes of payment determination at this time.
    Response: We thank the commenters for recognizing our intent for 
using the NQS as the framework to attain a cohesive public and private 
national quality strategy to achieve the overarching goal of improving 
patient care quality across the full healthcare spectrum. We point out 
that the NQS is intended to be used to identify gap areas in the 
program, but that individual measures considered for the Hospital IQR 
Program will continue to be evaluated against the more specific 
criteria articulated for the Hospital IQR Program.
    Comment: Many commenters highly commended CMS for moving the 
Hospital IQR Program in the right direction by essentially transforming 
a set of discrete process measures aimed at internal quality 
improvement to a comprehensive quality reporting program that addresses 
the needs of consumers and purchasers by including meaningful measures 
of outcomes, patient experience, and patient safety. The commenters 
commended CMS' efforts to foster transparency in healthcare quality and 
believed this approach incentivizes quality improvement and promotes 
better care, better value, and lower cost. One commenter praised our 
previous efforts to adopt measures for three consecutive payment 
determinations.
    Response: We are encouraged by the public support of our efforts to 
promote high-quality care, improve patient outcomes, and make quality 
data publicly available for consumers. We will continue to strive to 
improve the Hospital IQR Program.
    Comment: For program alignment, one commenter suggested CMS should 
deem a hospital as a meaningful user as required under the HITECH EHR 
Incentive Program if it participates in the Hospital IQR Program.
    Response: It would not be possible to deem Hospital IQR Program 
participating hospitals as meaningful users under the EHR Incentive 
Program. We note that aside from quality measure reporting, meaningful 
users under the HITECH EHR Incentive Program also have other program 
requirements with which to comply.
    Comment: For burden reduction purposes, several commenters 
recommended that CMS limit data collection for clinical process of care 
measures to aggregate performance levels only and, in addition, closely 
monitor the association of process with outcomes, such as mortality and 
readmission rates.
    Response: We thank the commenters for these suggestions. We have 
found that to fully address the relationship between clinical processes 
of care and patient outcomes, the analysis of patient level data on 
processes of care with individual patient level outcomes is necessary. 
We intend to continue monitoring this association using these data.
    Comment: A commenter praised CMS for driving the portfolio of 
programs administered via the IPPS to be more aligned with what private 
sector purchasers and payers are doing to improve care and reduce 
costs. The commenter recommended CMS develop a parsimonious list of 
high-impact measures suitable for both private purchasers/payers and 
public purchasers/payers through collaboration with private and state 
purchasers during pre-rulemaking, using the MAP process. Many 
commenters applauded CMS' recognition of recommendations from the MAP 
in this proposed rule. The commenters noted that the MAP recommends a 
unified data strategy for public and private sectors, a standardized 
data platform, approaches to performance-based payment, and use of NQF-
endorsed measures.
    Response: We thank the commenters for the commendations. We value 
the recommendations of the MAP and considered these recommendations 
carefully in determining the measure proposals to include in this 
year's rulemaking. In adopting many of the MAP's recommendations while 
giving priority to measures that have high impact in terms of 
mortality, morbidity, volume, and cost, that could be applicable to 
both the private and public sectors, we feel that we have developed a 
portfolio of high impact measures that are suitable for use by both 
private and public purchasers, even though some of the measures in the 
Hospital IQR Program are not NQF-endorsed. We have adhered to the pre-
rulemaking process as required under section 1890A(a) of the Act in the 
selection of quality and efficiency measures. As part of this process, 
we made available to the public a list of the measures described in 
section 1890(b)(7)(B) of the Act that the Secretary was considering 
under Title XVIII of the Act.
    Comment: For the future growth of the Hospital IQR Program and 
burden reduction purposes, some commenters recommended that all new 
measures

[[Page 53512]]

proposed for the Hospital IQR Program should: (1) Align with objectives 
of the National Priorities Partnership, HHS Strategic Plan, and the 
NQS; (2) align with criteria for meaningful use of EHRs; (3) avoid 
duplicative reporting via both chart-abstraction and e-reporting; and 
(4) avoid measures of broad or global facility populations.
    Response: We thank the commenters for their valuable suggestions 
and we will take them into consideration in our future measure 
proposals.
b. Hospital IQR Program Measures for the FY 2015 Payment Determination 
and Subsequent Years
(1) Process for Retention of Hospital IQR Program Measures Adopted in 
Previous Payment Determinations
    We previously finalized 76 measures for the FY 2015 Hospital IQR 
Program measure set (76 FR 51636 through 51637). We note that this 
number includes the four measures for which we have suspended data 
collection.
    In past rulemakings, we have proposed to retain previously adopted 
measures for each payment determination on a year-by-year basis and 
invited public comment on the proposal to retain such measures for all 
future payment determinations unless otherwise specified. Specifically, 
for the purpose of streamlining the rulemaking process, in the FY 2013 
IPPS/LTCH PPS proposed rule (77 FR 28038), we proposed that when we 
adopt measures for the Hospital IQR Program beginning with a payment 
determination and subsequent years, these measures are automatically 
adopted for all subsequent payment determinations unless we propose to 
remove, suspend, or replace the measures. We invited public comment on 
this approach.
    Comment: Some commenters supported CMS' proposed policy to 
automatically retain all previously adopted measures for all subsequent 
payment determinations unless we propose to remove, suspend, or replace 
the measures. Some commenters opposed the automatic retention of 
measures because they were concerned that the public may miss an 
opportunity to comment on the measures and potential changes to them. 
These commenters recommended that CMS propose to retain previously 
adopted measures through rulemaking on a year by year basis.
    Response: We thank the commenters for their support of the proposed 
retention of quality measures from previous payment determinations. 
Regarding the opportunity for the public to comment on the measures and 
potential changes to them, automatic retention of measures in the 
program does not preclude the public from submitting comments on 
measures in the program, and we post the specifications for the 
measures used in the program publicly on the QualityNet Web site with 
updates issued at regular 6-month intervals. Whether NQF-endorsed or 
not, we consistently maintain the measures used in the program. Should 
there be changes in scientific evidence or health care delivery models, 
or if patient safety concerns arise, we will evaluate the adopted 
measures accordingly. NQF-endorsed measures also undergo a full 
maintenance review with public comment every three years. The purpose 
of retaining measures automatically is to streamline the regulation 
process and make it more efficient.
    Comment: A commenter reported significant improvement in the 
appropriate interventions provided for AMI, HF, PN, and surgical care-
hospitalized patients since the initial implementation of the 10 
starter measures in 2003 and urged CMS to continue to retain these 
inpatient measures.
    Response: We note that some of the measures in the 10 starter 
measures were removed for different reasons in previous rulemakings. We 
thank the commenter for their support and will consider the suggestion 
regarding retaining the remaining measures in the 10 starter measures 
in making future proposals.
    Comment: A commenter was concerned about the increasing number of 
chart-abstracted and structural measures in the Hospital IQR Program. 
The commenter recommended that CMS exclude the four structural measures 
as well as the chart-abstracted Stroke and VTE measure sets from the 
Hospital IQR Program.
    Response: We will consider these suggestions for future removal of 
measures from the program. Our understanding is that, although required 
collection of the previously adopted Stroke and VTE measures for the 
Hospital IQR Program will begin with January 1, 2013 discharges, many 
hospitals already have experience collecting and reporting one or both 
of these measure sets either to TJC, or to a registry. The structural 
measures impose minimal burden to hospitals.
    We also received some comments on some of the measures that we have 
previously adopted and proposed to retain.
    Comment: A commenter was concerned that in some cases, the ED-1: 
Median time from emergency department arrival to time of departure from 
the emergency room for patients admitted to the hospital from the 
emergency department (ED) measure that was finalized for the FY 2014 
payment determination in the FY 2011 IPPS/LTCH PPS final rule (75 FR 
50210 through 50211) may be inflated to span days in some cases. The 
commenter gave an example that a patient may go to the ED, be sent 
home, return to the ED, and be admitted to the hospital, all over the 
course of 2 days. The commenter noted that the Medicare billing 
structure rolls up these 2 ED visits into one single episode of care 
and thus the median time from ED to time of departure from the ED would 
appear to span days.
    Response: The commenter is correct that in some instances, the 
timeframe for ED visits may span 2 calendar days reflecting Medicare 
billing processes and structures. We are aware of this issue and are 
working to address these concerns and will review the impact of this 
situation during upcoming technical expert panel meetings. We are also 
tracking the frequency in which scenarios like the one described occur 
in order to determine the impact of this billing process.
    Comment: A commenter requested that the ED-1 and ED-2 measures not 
apply to patients who suffer sexual assault and domestic violence 
because forensic evidence must be collected from these patients and 
application of the measures may compromise the time needed to stabilize 
and treat these patients.
    Response: We thank the commenter for the suggestion. However, we 
believe that all patients, no matter what their situation, should be 
seen and treated in the ED in a timely manner. The measure does not 
place time constraints on any type of treatment provided during an ED 
visit or indicate how much time provision of care in the ED should 
take. Therefore, we do not agree that patients who are being treated in 
the ED because they are victims of domestic violence or sexual assault 
should be excluded from the measure population.
    Comment: A commenter recommended the exclusions of various patients 
from the Influenza Immunization and Pneumococcal Immunization measures 
that were finalized for the FY 2014 payment determination in the FY 
2011 IPPS/LTCH PPS final rule (75 FR 50210 through 50211) as follows: 
left against medical advice, transferred to another hospital, 
discharged to hospice, documentation of comfort measures only.

[[Page 53513]]

    Response: We agree with the commenter and accordingly, beginning 
with January 1, 2013 discharges, the Specifications Manual includes 
exclusions for patients transferring to another acute care facility and 
patients who leave against medical advice. The manual informing January 
1, 2013 discharges was published in July 2012, and includes these 
changes. Patients who leave against medical advice cannot realistically 
be given vaccinations if they have already left the facility. Patients 
transferred to another facility for completion of medical care, 
vaccinations would be completed by the accepting facility. With these 
exclusions, the likelihood for double counting a patient is removed, 
and attribution is correctly achieved for this metric. We do not 
believe that patients discharged to hospice or those with orders for 
comfort measures only, should be excluded from the denominator because 
a secondary infection, potentially resulting from withholding of a 
vaccination, in this vulnerable population could reduce quality of 
life.
    Comment: A commenter suggested that the measure specification of 
the SCIP INF-4 (Cardiac surgery patients with controlled 6AM 
postoperative serum glucose) should be updated to reflect the recent 
NQF maintenance review updates. The updates would mean changing the 6AM 
time frame to the currently endorsed time frame of 18 to 24 hours post 
operative. The commenter also stated that the Specifications Manual 
should clearly indicate post-operative states.
    Response: We thank the commenter for the suggestion. We will 
evaluate the nature of this change, as well as the optimal timing for 
instituting system changes, and downstream impacts for other programs 
before determining whether an update can be made to the Specifications 
Manual.
    Comment: One commenter recommended moving the implementation date 
of the Healthcare Personnel Influenza Vaccination measure from the FY 
2015 payment determination to the FY 2014 payment determination. 
Another commenter recommended delaying the reporting of the measure on 
Hospital Compare because CDC/NHSN has significantly revised the measure 
with new data collection protocols, forms, and reports. The commenter 
noted that hospitals need to gain experience with the data collection 
process prior to public reporting of the information.
    Response: We will continue to require reporting of this measure for 
the Hospital IQR Program for patients discharged on or after January 1, 
2013. In response to the comment regarding the need for experience with 
the revised CDC/NHSN data collection process prior to public reporting, 
we will allow the first submission of cases spanning October 1, 2012 to 
December 31, 2012 to be on a voluntary basis, and we will not publicly 
report the first submission on Hospital Compare. We will plan to begin 
public reporting with the second submission of the Healthcare Personnel 
Influenza Vaccination measure, which would span the complete flu season 
from October 1, 2013 through March 30, 2014, in December of 2014.
    Comment: Two commenters strongly supported the retention of the 
Stroke measure set even though they may be burdensome because 
commenters believed these are important for measurement of stroke care.
    Response: We thank the commenters for the support of the Stroke 
measure set. We note that the e-specifications for these 2 measure sets 
have been completed. We anticipate that once hospitals have acquired 
the capability to submit data on measures electronically at a future 
date, such as 2015, the burden will be reduced significantly.
    Comment: One commenter noted that the names of the measures in the 
VTE measure set should be updated to align with TJC's measure names.
    Response: We thank the commenter for the input. To maintain 
alignment between CMS and TJC, we have updated the inpatient 
Specifications Manual to reflect TJC VTE measure set names.
    Comment: One commenter requested delaying the implementation of the 
MRSA Bacteremia and the C. difficile measures by one year to allow CMS 
and CDC to collaborate in developing and maintaining a set of technical 
specifications for the detection and reporting of LabID events from 
laboratory information systems.
    Response: We note that CDC has developed specifications for 
detecting and reporting LabID events and is prepared to provide the 
specifications and assistance to implementers. The technical 
specifications are simply instructions for how to collect and submit 
the measure using healthcare data that are available in electronic 
form. However, these detection specifications do not change the 
measure. Therefore, we believe that there is no need to delay the 
implementation of these two measures.
    After consideration of the public comments we received, we are 
finalizing the measure retention policy as proposed.
(2) Additional Hospital IQR Program Measures for the FY 2015 Payment 
Determination and Subsequent Years
    In the FY 2012 IPPS/LTCH PPS final rule (76 FR 51636 through 
51637), we finalized 17 new measures for the Hospital IQR Program 
measure set for FY 2015 payment determination: 3 HAI measures collected 
through the NHSN, (MRSA Bacteremia, C. difficile SIR, and the 
Healthcare Personnel Influenza Vaccination), the Stroke measure set (8 
measures) and the VTE measure set (6 measures).
(A) New Survey-Based Measure Items for Inclusion in the HCAHPS Survey 
Measure for the FY 2015 Payment Determination and Subsequent Years
    For the FY 2015 payment determination and subsequent years, in the 
FY 2013 IPPS/LTCH PPS proposed rule (77 FR 28038), we proposed to add 
the NQF-endorsed 3-Item Care Transition Measure (CTM-3) (NQF 
0228) to the existing HCAHPS survey. This measure is NQF-
endorsed; therefore, the measure meets the selection criteria under 
section 1886(b)(3)(B)(viii)(IX)(aa) of the Act. The CTM-3 was developed 
by the University of Colorado Health Sciences Center for the NQF 
Endorsement Project entitled ``National Voluntary Consensus Standards 
for Quality of Cancer Care.'' The MAP supports the immediate inclusion 
of the CTM-3 within the Hospital IQR Program. The three care 
transitions items that comprise the CTM-3, which we proposed to add to 
the HCAHPS survey beginning with January 2013 discharges, are listed 
below. Detailed information on scoring methodology can be found on the 
Care Transition Measure Web site: http://www.caretransitions.org/documents/CTM3Specs0807.pdf.
    The HCAHPS Survey was designed to accommodate the addition of 
supplemental items, provided such items adhere to the relevant HCAHPS 
survey protocols, see HCAHPS Quality Assurance Guidelines V7.0, p. 72: 
http://www.hcahpsonline.org/files/HCAHPS%20Quality%20Assurance%20Guidelines%20V7.0%20March%202012.pdf. 
The survey items that comprise the CTM-3 that we propose to add to 
HCAHPS meet these protocols. The addition of select items to HCAHPS is 
consistent with the survey's original design, development and NQF 
endorsement. Further, the CTM-3 was designed by its developers to be 
consistent and compatible with extant HCAHPS items and HCAHPS sampling 
and survey administration protocols. The original, NQF-endorsed

[[Page 53514]]

CTM-3 items and response options are as follows:
     The hospital staff took my preferences and those of my 
family or caregiver into account in deciding what my health care needs 
would be when I left the hospital.
    [squ] Strongly Disagree
    [squ] Disagree
    [squ] Agree
    [squ] Strongly Agree
    [squ] Don't Know/Don't Remember/Not Applicable
     When I left the hospital, I had a good understanding of 
the things I was responsible for in managing my health.
    [squ] Strongly Disagree
    [squ] Disagree
    [squ] Agree
    [squ] Strongly Agree
    [squ] Don't Know/Don't Remember/Not Applicable
     When I left the hospital, I clearly understood the purpose 
for taking each of my medications.
    [squ] Strongly Disagree
    [squ] Disagree
    [squ] Agree
    [squ] Strongly Agree
    [squ] Don't Know/Don't Remember/Not Applicable
    In order to make the CTM-3 items more fully consistent and 
compatible with the original HCAHPS Survey items, we have made a few 
small modifications. Specifically, in the FY 2013 IPPS/LTCH PPS 
proposed rule (77 FR 28038), we proposed: (1) To slightly reword the 
first care transition item by adding the phrase, ``During this hospital 
stay;'' (2) to delete the ``Don't Know/Don't Remember/Not Applicable'' 
response option from each item; and (3) to add a new response option, 
``I was not given any medication when I left the hospital,'' to the 
third care transition item. These small modifications preserve the 
integrity and utility of the HCAHPS Survey as it is expanded to 
encompass a new dimension of patients' experience of hospital care. The 
developer of the CTM-3 has agreed to these modifications, which we 
believe are consistent with the NQF endorsement of the original 27-item 
HCAHPS Survey and the CTM-3.
    After incorporating these modifications, the CTM-3 items that we 
proposed to add to the HCAHPS Survey are as follows:
     During this hospital stay, staff took my preferences and 
those of my family or caregiver into account in deciding what my health 
care needs would be when I left.
    [squ] Strongly disagree
    [squ] Disagree
    [squ] Agree
    [squ] Strongly agree
     When I left the hospital, I had a good understanding of 
the things I was responsible for in managing my health.
    [squ] Strongly disagree
    [squ] Disagree
    [squ] Agree
    [squ] Strongly agree
     When I left the hospital, I clearly understood the purpose 
for taking each of my medications.
    [squ] Strongly disagree
    [squ] Disagree
    [squ] Agree
    [squ] Strongly agree
    [squ] I was not given any medication when I left the hospital
    We also proposed to add two items to the ``About You'' section of 
the HCAHPS survey beginning with January 2013 discharges. These two 
items would not be included in public reporting of the HCAHPS survey 
but may be employed in the patient-mix adjustment of survey responses.
    The two proposed ``About You'' items are as follows:
     During this hospital stay, were you admitted to this 
hospital through the Emergency Room?
    [squ] Yes
    [squ] No
     In general, how would you rate your overall mental or 
emotional health?
    [squ] Excellent
    [squ] Very good
    [squ] Good
    [squ] Fair
    [squ] Poor
    The two new ``About You'' items were developed and tested in the 
Three-State Pilot Study of HCAHPS in 2003. Neither item was adopted in 
the national implementation of HCAHPS in 2006; however, current 
circumstances, as explained below, warrant the addition of these items 
to the HCAHPS survey at this time.
    We invited public comment on the three proposed CTM-3 items.
    Comment: Commenters expressed support for the CTM-3 items.
    Response: We thank the commenters for their support for the CTM-3 
items. Inclusion of these tested and well-accepted questions will 
enable HCAHPS to report on transition of care measures as part of its 
overall public reporting program.
    Comment: One commenter stated that the response options for the 
CTM-3 items are different from those of existing HCAHPS questions and 
that this may confuse respondents as well as pose a challenge for 
hospital public reporting.
    Response: The current HCAHPS questionnaire includes a variety of 
response sets, depending upon the questions being asked. It is standard 
practice within survey research to use different response sets for 
different questions within a single questionnaire. Asking respondents 
to agree or disagree with statements is a common response set option. 
We have no evidence that a variety of response sets confuses 
respondents or poses a significant challenge for hospital public 
reporting.
    Comment: Some commenters stated that some of the CTM-3 items appear 
to be redundant with items already on the HCAHPS survey and are not 
distinct enough to warrant inclusion.
    Response: Similar items do exist in the current survey, but they 
are asked in contexts other than care transitions. For example, current 
HCAHPS questions about medications are asked in the context of the 
hospital environment, rather than care transitions. Accordingly, we 
believe the CTM-3 is appropriate for inclusion in the HCAHPS survey.
    Comment: One commenter believed that the CTM-3 item on medications 
will not be answered accurately or will confuse patients and should be 
limited to new medications.
    Response: Testing has not revealed any issues with this item. In 
addition, the wording of the item reflects a wide variety of scenarios, 
including situations in which patients were handed prescriptions, or 
actual medications, when they left the hospital. The item is intended 
to measure the degree to which patients feel they understand the 
purpose for all of their medications as they transition to another care 
location. It is not intended to focus solely on new medications that 
may have been prescribed at the hospital.
    Comment: Commenters expressed their belief that the CTM-3 item 
regarding ``care needs'' is really about patient preferences, not care 
transitions.
    Response: The CTM-3 item regarding ``care needs'' asks patients 
about an issue that patients have identified in qualitative studies as 
critically important to care coordination when leaving the hospital.
    Comment: Comments suggested that the CTM-3 items be reworded for 
clarity, to make them easier to read, to avoid questions that ask 
patients about both their own preferences and those of the patient's 
family or caregiver, and to make the response items more similar to 
other response items already included in the HCAHPS survey.
    Response: We carefully reviewed the CTM-3 items for both content 
and style before proposing their inclusion in the HCAHPS Survey and 
found no reason to make substantial changes. In terms of content, the 
CTM-3 was developed to be compatible with HCAHPS Survey.

[[Page 53515]]

While the style of the CTM-3 items differs slightly from existing 
HCAHPS Survey items, our testing indicates this not a problem for 
patients. In addition, hospitals that currently use the CTM-3 have not 
reported problems with item wording or confusion with questions that 
ask patients about their preferences and those of their family or 
caregiver (which are considered a unit). Finally, the CTM-3 items have 
been tested by their developer and are NQF-endorsed. While we made some 
minor modifications to the CTM-3 items and their response options to 
make them more compatible with other items on the HCAHPS Survey, we are 
not free to substantially alter either the wording of NQF-endorsed 
items or to change their response sets without re-submitting them for 
endorsement.
    Until 2010, ``emergency room admission'' as a point of origin for 
hospital patients was an administrative code provided by hospitals and 
was used as a patient-mix adjustment for HCAHPS scores. However, since 
July 2010, the ``Point of Origin for Admission or Visit'' code for 
Emergency Room has been discontinued for use by Medicare payment 
systems and, thus became unavailable for HCAHPS patient-mix adjustment. 
In the original HCAHPS mode experiment, we determined empirically that 
emergency room admission status both vary across hospitals and have an 
important bearing on patient experience of care: http://www.hcahpsonline.org/files/Final%20Draft%20Description%20of%20HCAHPS%20Mode%20and%20PMA%20with%20bottom%20box%20modedoc%20April%2030,%202008.pdf. The inclusion of a new 
patient-reported survey item will allow us to again use emergency room 
admission as a patient-mix adjustment variable.
    We have received numerous inquiries and requests from hospitals and 
researchers to add a survey item concerning the patient's overall 
mental health. The survey item we proposed to add, which is very 
similar in structure to the existing ``overall health'' item, will 
allow us to introduce a patient-mix adjustment for this characteristic 
in the future. Although we chose not to add a survey item about 
patient's overall mental health status in the national implementation 
of HCAHPS in 2006, we continue to receive inquiries and requests from 
hospitals and researchers on this topic. Some researchers claim that 
mental health status is an important factor in how patients respond to 
HCAHPS survey items. The continuing interest in this topic, coupled 
with the direct impact of HCAHPS performance on hospital payments 
beginning in October 2012, led to the decision to add an overall mental 
health item to the HCAHPS survey. The overall mental health survey item 
we have chosen very closely resembles the Overall General Health item 
in the HCAHPS Survey, has been extensively tested, and is currently 
included in several other CAHPS surveys.
    We proposed to add these two ``About You'' items to the existing 
HCAHPS survey, with required collection beginning January 1, 2013. More 
detail regarding HCAHPS requirements is included in the Form, Manner 
and Timing section of this preamble for this program. We invited public 
comment on the proposed addition of these items for the FY 2015 payment 
determination.
    Comment: Commenters on the mental/emotional health status rating 
question believed that the item is too sensitive and that it 
constitutes a self-diagnosis of psychiatric conditions. Commenters also 
asked whether the item has been tested and how it will be used in case-
mix adjustment and expressed concern that responses to this question 
might put the hospital in the position of having information that might 
or might not be in the medical record.
    Response: Cognitive testing across a variety of populations, 
including commercial, Medicare and Medicaid populations, has revealed 
no respondent hesitancy to answer this question. This item does not 
request self-diagnoses, but merely a rating of perceived mental or 
emotional health status. There is a body of literature to indicate that 
single-item health perception measures (overall ratings) are 
substantially correlated with long-form (multi-item) measures of 
physical and emotional health. This is a well-established approach to 
capturing general health perceptions. The mental/emotional health item 
is one of the oldest and best-validated items in patient surveys; it 
has been successfully fielded on Medicare CAHPS surveys since 2002. The 
HCAHPS project team has received many requests to adjust HCAHPS scores 
for perceived mental/emotional health status. We will be looking at the 
feasibility of making patient mix adjustments using this item. Asking 
patients for a self-assessment of their mental and/or physical health 
is a well-established survey item that has been successfully used in 
many contexts, including other CAHPS surveys. Patient responses to this 
and other HCAHPS items are collected after discharge, and thus, are not 
in hospitals' possession during the hospitalization or part of the 
patient medical record. Finally, responses to this item do not 
constitute a clinical assessment of the patient's mental or emotional 
health, nor do they constitute a self-diagnosis. They relate to the 
patient's perception of his or her mental or emotional health.
    Comment: Commenters on the question about being admitted through 
the hospital ED believed that patients may not be able to accurately 
report whether they were admitted through the ED and that 
administrative data are preferable to self-reports as a source of this 
information. One commenter said the item has the potential to decrease 
the confidence of their patients because the patients may perceive that 
the hospital should already know this information. A commenter asked 
whether the validity of the item had been tested.
    Response: The ``Point of Origin for Admission or Visit'' code for 
Emergency Room was discontinued for use by Medicare payment systems in 
July 2010 and became unavailable for HCAHPS patient-mix adjustment. The 
inclusion of a new patient-reported survey item will allow us to again 
use emergency room admission as a patient mix adjustment variable if it 
is shown to influence response tendencies. The emergency room admission 
self-report question was included in the original HCAHPS three-State 
pilot study in 2003. In that study we were able to compare patient 
self-reports with administrative data and found that the patient self-
report is a valid indicator of whether the patient had been admitted 
through the ED. Prior testing did not reveal a pattern of decreased 
patient confidence resulting from this item. Patients who are unsure 
about their admission origin may leave this question unanswered.
    Comment: Commenters suggested that the addition of the CTM-3 and 
two About You items will increase the survey's length, resulting in a 
reduced response rate, more administrative difficulties, and higher 
costs for hospitals. Commenters suggested that we develop a core set of 
items, plus a rotating set of items in order to keep the survey short, 
but allow for the inclusion of new topics.
    Response: We have not found issues with survey administration of 
instruments that are more than twice as long as Hospital CAHPS. Many 
vendors currently add questions to the HCAHPS questionnaire. As many as 
25 additional items are now being successfully fielded as part of the 
HCAHPS survey. We believe that adding five items is unlikely to 
substantially impact either the cost or the difficulty of administering 
the survey. We are, however, concerned that using a set of rotating 
questions would unnecessarily

[[Page 53516]]

increase the complexity, cost, and difficulty of survey administration 
for both hospitals and vendors.
    After consideration of the public comments we received, we are 
adopting the proposed changes as final.
(B) New Claims-Based Measures for the FY 2015 Payment Determination and 
Subsequent Years
(i) Hip/Knee Complication: Hospital-Level Risk-Standardized 
Complication Rate (RSCR) Following Elective Primary Total Hip 
Arthroplasty (THA) and Total Knee Arthroplasty (TKA) (NQF 
1550)
    The THA and TKA are commonly performed procedures for the Medicare 
population to improve quality of life. In 2003, there were 202,500 THAs 
and 402,100 TKAs performed,\55\ and the number of procedures performed 
annually has increased steadily over the past decades. Annual hospital 
charges are projected to increase by 340 percent to $17.4 billion for 
THA and by 450 percent to $40.8 billion for TKA by 2015.\56\ The post-
operation complications of these procedures are high considering these 
are selective procedures and usually the complications are devastating 
to patients. For example, rates for periprosthetic joint infection, a 
rare but devastating complication, have been reported at 2.3 percent 
for THA/TKA patients with rheumatoid arthritis,\57\ and 1.6 percent in 
primary elective TKA patients after 1 and 2 years of follow up, 
respectively.\58\ Two studies reported 90-day death rates following THA 
at 0.7 percent \59\ and 2.7 percent.\60\ Reported rates for pulmonary 
embolism following TKA range from 0.5 percent to 0.9 
percent.61,62,63,64 Reported rates for septicemia range from 
0.1 percent, during the index admission \65\ to 0.3 percent, 90 days 
following discharge for primary TKA.\66\ Rates for bleeding and 
hematoma following TKA have been reported at 0.94 percent \67\ to 1.7 
percent.\68\ In 2005, annual hospital charges totaled $3.95 billion and 
$7.42 billion for primary THA and TKA, respectively.\69\ Combined, THA 
and TKA procedures account for the largest payments for procedures 
under Medicare.\70\
---------------------------------------------------------------------------

    \55\ 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.
    \56\ 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.
    \57\ Bongartz, T, Halligan CS, Osmon D, et al. Incidence and 
risk factors of prosthetic joint infection after total hip or knee 
replacement in patients with rheumatoid arthritis. Arthritis Rheum. 
2008; 59(12):1713-1720.
    \58\ Kurtz S, Ong K, Lau E, Bozic K, Berry D, Parvizi J. 
Prosthetic joint infection risk after TKA in the Medicare 
population. Clin Orthop Relat Res. 2010;468:5.
    \59\ Cram P, Vaughan-Sarrazin MS, Wolf B, Katz JN, Rosenthal GE. 
A comparison of total hip and knee replacement in specialty and 
general hospitals. J Bone Joint Surg Am. Aug 2007;89(8):1675-1684.
    \60\ Soohoo NF, Farng E, Lieberman JR, Chambers L, Zingmond DS. 
Factors That Predict Short-term Complication Rates After Total Hip 
Arthroplasty. Clin Orthop Relat Res. Sep 2010;468(9):2363-2371.
    \61\ Cram P, Vaughan-Sarrazin MS, Wolf B, Katz JN, Rosenthal GE. 
A comparison of total hip and knee replacement in specialty and 
general hospitals. J Bone Joint Surg Am. Aug 2007;89(8):1675-1684.
    \62\ Mahomed NN, Barrett JA, Katz JN, et al. Rates and outcomes 
of primary and revision total hip replacement in the United States 
medicare population. J Bone Joint Surg Am. Jan 2003;85-A(1):27-32.
    \63\ Khatod M, Inacio M, Paxton EW, et al. Knee replacement: 
epidemiology, outcomes, and trends in Southern California: 17,080 
replacements from 1995 through 2004. Acta Orthop. Dec 
2008;79(6):812-819.
    \64\ Solomon DH, Chibnik LB, Losina E, et al. Development of a 
preliminary index that predicts adverse events after total knee 
replacement. Arthritis & Rheumatism. 2006;54(5):1536-1542.
    \65\ Browne, JA, Cook C, Hofmann A, Bolognesi MP. Postoperative 
morbidity and mortality following total knee arthroplasty with 
computer navigation. Knee. 2010;17(2):152-156.
    \66\ Cram P, Vaughan-Sarrazin MS, Wolf B, Katz JN, Rosenthal GE. 
A comparison of total hip and knee replacement in specialty and 
general hospitals. J Bone Joint Surg Am. Aug 2007;89(8):1675-1684.
    \67\ Browne, JA, Cook C, Hofmann A, Bolognesi MP. Postoperative 
morbidity and mortality following total knee arthroplasty with 
computer navigation. Knee. 2010;17(2):152-156.
    \68\ Huddleston JI, Maloney WJ, Wang Y, Verzier N, Hunt DR, 
Herndon JH. Adverse Events After Total Knee Arthroplasty: A National 
Medicare Study. The Journal of Arthroplasty. 2009;24(6, Supplement 
1):95-100.
    \69\ 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.
    \70\ 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.
---------------------------------------------------------------------------

    Both hip and knee arthroplasty procedures improve the function and 
quality of life of patients with disabling arthritis, and the volume 
and cost associated with these procedures are very high. We believe it 
is important to assess the quality of care provided to Medicare 
beneficiaries who undergo one or both of these procedures.
    The Hip/Knee Complication: Hospital-Level Risk-Standardized 
Complication Rate (RSCR) Following Elective Primary Total Hip 
Arthroplasty (THA) and Total Knee Arthroplasty (TKA) measure (NQF 
 1550) is an outcome measure. In the FY 2013 IPPS/LTCH PPS 
proposed rule (77 FR 28039), we proposed this measure for the Hospital 
IQR Program because outcome measures are priority areas for the 
Hospital IQR Program. We believe it is important to assess the quality 
of care provided to Medicare beneficiaries who undergo one or both of 
these procedures and publicly report the hospital rates for consumer 
choice of care.
    The proposed measure assesses complications occurring after THA and 
TKA surgery from the date of the index admission to 90 days post date 
of the index admission. The outcome is one or more of the following 
complications: Acute myocardial infarction, pneumonia, or sepsis/
septicemia within 7 days of admission; surgical site bleeding, 
pulmonary embolism or death within 30 days of admission; or mechanical 
complications, periprosthetic joint infection or wound infection within 
90 days of admission. The data indicated that the median hospital-level 
risk-standardized complication rate for 2008 was 4.2 percent, with a 
range from 2.2 percent to 8.9 percent in hospitals. The variation in 
complication rates suggest that there are important differences in the 
quality of care delivered across hospitals, and that there is room for 
quality improvement.
    In 2010, we developed a hospital-level risk-standardized 
complication rate (RSCR) following elective primary THA and TKA 
surgery. NQF endorsed this THA and TKA complication measure in February 
2012 (NQF 1550). In its Pre-Rulemaking Report for 2012, the 
MAP also recommended the inclusion of this measure in the Hospital IQR 
Program. In the FY 2013 IPPS/LTCH PPS proposed rule (77 FR 28040), we 
proposed to adopt the Hospital-Level Risk-Standardized Complication 
Rate (RSCR) Following Elective Primary Total Hip Arthroplasty (THA) and 
Total Knee Arthroplasty (TKA) measure for the Hospital IQR Program for 
the FY 2015 payment determination and subsequent years. This measure is 
NQF-endorsed (NQF 1550); therefore, the measure meets the 
selection criteria under section 1886(b)(3)(B)(viii)(IX)(aa) of the 
Act. The measure specifications can be found at: http://www.qualityforum.org/Projects/Surgery_Maintenance.aspx#t=2&s=&p=.
    The proposed measure uses the same hierarchical logistic modeling 
(HLM) methodology that is specified for other NQF-endorsed CMS 
inpatient outcome measures previously adopted for this program, 
including AMI, HF, and PN readmission and mortality measures because 
this modeling has already been subjected to NQF review, and has been 
determined to appropriately account for the types of patients a 
hospital treats, the number of patients it treats, and the quality of 
care it provides. The HLM model estimates risk-standardized 
complications rates. Medicare Part A

[[Page 53517]]

and Part B (FFS) claims are the data source we used to develop the 
measure and that we proposed to use to calculate the measure if 
finalized. Index admission diagnoses and in-hospital comorbidities 
would be assessed using Medicare Part A claims. Additional 
comorbidities prior to the index admission would be assessed using Part 
A inpatient, outpatient, and Part B office visit Medicare claims in the 
12 months prior to index (initial) admission. Enrollment and post-
discharge mortality status would be obtained from Medicare's enrollment 
database which contains beneficiary demographic, benefit/coverage, and 
vital status information.
    The proposed Total Hip and Total Knee Arthroplasty Complication 
measure includes Medicare FFS beneficiaries, aged 65 years or older, 
admitted to non-Federal acute care hospitals for THA or TKA. The 
measure methodology identifies eligible index admissions, using the 
following ICD-9-CM procedure codes: 81.51 Total Hip Arthroplasty; and 
81.54 Total Knee Arthroplasty in Medicare Part A inpatient claims data. 
The measure specifications will be updated yearly and will be specified 
using ICD-10.
    In addition, the proposed measure includes patients who have had 
continuous enrollment in Medicare FFS for one year prior to the date of 
index admission to ensure full data availability for risk adjustment. 
We restrict the sample to admissions of patients enrolled in Medicare 
FFS coverage in the 12 months prior to and including the time of their 
index admission to a non-Federal acute care hospital because of the 
availability of complete administrative data for most Medicare FFS 
patients.
    The proposed measure does not include beneficiaries enrolled in 
Medicare Managed Care (``Medicare Advantage'') plans because only 
partial administrative data are reported to CMS. We would not have 
complete data on these Medicare Advantage enrollees. Patients under age 
65 (the qualifying age for Medicare coverage for those not considered 
disabled or with end-stage renal disease) or for whom we otherwise have 
incomplete information--for example, those enrolled in a Medicare 
Advantage plan during any part of the relevant time period--will also 
be excluded to ensure data comparability. These restrictions on the 
data also allow for an appropriately comprehensive risk-adjustment for 
patient case-mix and comorbidity that would not be possible without 
access to data available to this population.
    The proposed measure excludes patients with hip fractures (patients 
with hip fractures have higher mortality, complication rates and the 
procedure (THA) is not elective); patients undergoing revision 
procedures (may be performed at a disproportionately small number of 
hospitals and are associated with higher mortality, complication and 
readmission rates); patients undergoing partial hip arthroplasty 
(primarily done for hip fractures and are typically performed on 
patients who are older, more frail, and with more comorbid conditions); 
patients undergoing resurfacing procedures (different type of procedure 
which is typically performed on younger, healthier patients); patients 
who are transferred to the index hospital (it is likely that the 
procedure is not elective); patients who leave the hospital against 
medical advice (it is likely that the procedure is not elective); 
patients with more than two THA/TKA procedure codes during the index 
hospitalization (unlikely that patients would receive more than two 
THA/TKA procedures in one hospitalization, and this pattern may reflect 
coding errors); and patients with multiple admissions for THA/TKA in 
the 12 months studies.
    Consistent with the requirements in section 
1886(b)(3)(B)(viii)(VIII) of the Act, the proposed measure is risk-
adjusted. It takes into account the patient case-mix to assess hospital 
performance. The patient risk factors are defined using the 
Hierarchical Condition Categories (CC), which are clinically relevant 
diagnostic groups of ICD-9-CM codes.\71\ The CCs used in the risk 
adjustment model for this measure, are provided at: http://www.qualitynet.org/dcs/ContentServer?c=Page&pagename=QnetPublic%2FPage%2FQnetTier4&cid=1182785083979. The proposed measure meets the statutory requirement because it 
adjusted for hospital patient mix including age and comorbidities to 
ensure that hospitals that care for a less healthy patient population 
are not penalized unfairly. The measure methodology defines 
``complications'' as Acute myocardial infarction; Pneumonia; Sepsis/
septicemia; Pulmonary embolism; Surgical site bleeding; Death; Wound 
infection; Periprosthetic joint infection; and Mechanical complication 
within 30 to 90 days post the index date of admission, depending on the 
complication. The decision on the appropriate follow-up period was 
based on our analysis of 90-day trends in complication rates using the 
2008 Medicare FFS Part A Inpatient Data. We found that rates for 
mechanical complications are elevated until 90 days post the date of 
index admission. We found that the rates for four other complications--
death, surgical site bleeding, wound infection, and pulmonary 
embolism--are elevated for 30 days, and that AMI, pneumonia, and 
sepsis/septicemia level off 7 days post date of index admission. The 
following table presents the follow-up period for each complication.
---------------------------------------------------------------------------

    \71\ Pope G, Ellis R, Ash A, et al., Principal Inpatient 
Diagnostic Cost Group Models for Medicare Risk Adjustment. Health 
Care Financing Review. 2000;21(3):26.

                     Complication Follow-Up Periods
------------------------------------------------------------------------
                                                               Follow-up
                        Complication                            period
                                                                (days)
------------------------------------------------------------------------
Death.......................................................          30
Mechanical complications....................................          90
Periprosthetic joint infection (PJI)........................          90
Surgical site bleeding......................................          30
Wound infection.............................................          30
Pulmonary embolism..........................................          30
AMI.........................................................           7
Pneumonia...................................................           7
Sepsis/septicemia...........................................           7
------------------------------------------------------------------------

    We proposed to calculate the hospital risk-standardized 
complication rate by producing a ratio of the number of ``predicted'' 
complications (that is, the adjusted number of complications at a 
specific hospital based on its patient population) to the number of 
``expected'' complications (that is, the number of complications if an 
average quality hospital treated the same patients) for each hospital 
and then multiplying the ratio by the national raw complication rate.
    We invited public comment on the proposed inclusion of the 
Hospital-Level Risk-Standardized Complication Rate (RSCR) Following 
Elective Primary Total Hip Arthroplasty (THA) and Total Knee 
Arthroplasty measure in the Hospital IQR Program for the FY 2015 
payment determination and future years.
    Comment: Many commenters strongly supported this NQF-endorsed and 
MAP-recommended hip/knee complication measure, stated that the measure 
will provide valuable data for improvement and enhance patient care, 
and commended CMS for considering the measure for patients undergoing 
inpatient joint procedures. Commenters stated that this measure is 
important in capturing patient outcomes during the post-discharge 
period, and provides hospitals access to data to which they may not 
have access otherwise, including a limited set of complications that 
occur after the patient has left the hospital. A commenter stated that 
hip

[[Page 53518]]

and knee replacements are often non-emergent procedures, therefore 
information on outcomes will give consumers an opportunity to research 
the quality of care provided in their local hospitals.
    Several commenters also supported our exclusion criteria for the 
hip/knee complication measure, the hierarchical logistic modeling for 
risk-adjustment, and the inclusion of major bleeds in the list of 
complications.
    Response: We thank the commenters for the support and recognizing 
the significance of this measure.
    Comment: Several commenters did not support this claims-based 
measure and asserted that the infection data obtained from claims 
significantly differs from post-operative infection data recorded in 
medical records and reported to NHSN, which is a better indicator of 
surgical site infections.
    Response: The claims-based hip/knee complications measure underwent 
a medical record validation process. We found a high level of 
consistency between the complications found in claims with those found 
in the medical records. Using the current specifications, 99 percent of 
patients were found to have a complication in the claims as well as in 
the medical records.
    Comment: A few commenters noted this measure does not have adequate 
adjustment for socioeconomic status (SES) and psycho-social support, 
and recommended such adjustments be made prior to implementation.
    Response: The measure does not adjust for SES or other patient 
factors such as psycho-social support because we do not want to hold 
hospitals to different standards of patient care simply because they 
treat a large number of low SES patients. Moreover, we do not want to 
mask potential disparities in care or minimize incentives to improve 
the outcomes of care for disadvantaged populations. This is also 
consistent with the NQF's position regarding risk adjustment, which is 
that risk-adjusted measures should not include variables such as SES 
and race that would adjust away disparities in care.
    During development and review of the hip/knee measures some 
stakeholders and experts expressed concerns regarding the influence of 
patient SES on hip/knee readmission and complication rates. We 
conducted preliminary analyses to explore disparities by SES (http://www.nysna.org/images/pdfs/practice/nqf_ana_outcomes_draft10.pdf) 
focusing on the readmission measure where concerns were greatest. We 
used Medicaid eligibility status identified in the Medicare claims 
enrollment database (EDB) as a proxy for SES. Patients were categorized 
into two groups, based on their eligibility status for Medicaid (yes/
no). The Medicaid eligible population represents lower SES status. We 
then estimated the odds ratio for this SES variable by adding it to the 
hip/knee risk-adjustment model. The results showed that although SES 
was an independent predictor of readmission risk (odds ratio of 1.2), 
adding the variable to the model did not improve the model's overall 
ability to predict patient readmission risk. When the SES variable was 
added, the strength of clinical variables in the model was attenuated 
and the model c-statistic was essentially unchanged. This analysis 
suggested that the clinical variables in the model are adequately 
accounting for differences in patients' risk of readmission. The 
results were presented to the national Technical Expert Panel for the 
hip/knee measures. Based on these analyses, we did not include SES as a 
risk-adjuster in either of the hip/knee measures.
    However, we are committed to tracking this issue and will continue 
to evaluate disparities in care and the impact of the hospital risk- 
standardized complication rates on providers of vulnerable populations.
    Comment: One commenter was concerned about the unintended 
consequence of the Hip/Knee Complications measure for rheumatoid 
arthritis patients who are at high risk for infection. In particular, 
the commenter was concerned that this measure could cause hospitals to 
hesitate to perform the total hip/knee arthroplasty procedure on 
patients with rheumatoid arthritis.
    Response: The hip/knee measures include risk-adjustment in order to 
level the playing field and account for differences in the risk between 
the case-mix at different hospitals. Rheumatoid arthritis is one of the 
risk-adjustment variables, so any increased risk associated with 
patients that have rheumatoid arthritis will be accounted for by the 
measure.
    Comment: A few commenters requested clarifications regarding 
several aspects of the proposed measure: Complications attributable to 
the process of care, unrelated complications, POA complications, and 
the measurement period. Another commenter was concerned that data 
analysis of this measure is challenging and difficult for consumers to 
interpret. The commenter inquired about the level of data that will be 
made available to providers and suggested that providing detailed 
information regarding the count by complication and cohort would help 
quality improvement efforts.
    Response: The commenter appears to be asking for clarification 
about why complications attributable to the processes of care and 
unrelated complications are included. The hip/knee complications 
measure is designed to capture complications related to both the 
surgical and medical care provided for elective hip/knee procedures. 
The outcome, therefore, includes both medical and surgical 
complications. The timeframe for each was chosen based on the typical 
window in which each of these complications occurs. Specifically, the 
measure counts in the outcome: AMI, pneumonia, or sepsis/septicemia 
during the admission or within 7 days of the admission date; surgical 
site bleeding, pulmonary embolism or death during the admission or 
within 30 days of admission; or mechanical complications or PJI or 
wound infection during the admission or within 90 days of admission. We 
included these outcomes because they are clinically related to care 
provided as documented in the literature and informed by extensive 
expert input. The measure is structured so that it does not count 
complications that are present on admission. For example, patients with 
mechanical complications on admission are excluded from the measure. To 
help hospitals with their quality improvement effort, we will provide 
hospitals with their hospital-specific report with detailed information 
about the patients included in the measure. We will share with 
hospitals this report prior to posting of the measures on the Hospital 
Compare Web site during the 30-day preview period for the Hospital IQR 
Program. We welcome specific suggestions on additional data that would 
be helpful for hospital quality improvement.
    Comment: A commenter requested the publication of the ICD-10-CM/PCS 
versions of the measure specifications in the final rule.
    Response: We are working on specifying the measures using the ICD-
10-CM/PCS and will make the specifications available to the public as 
soon as possible.
    After consideration of the public comments we received, we are 
finalizing the proposed Hip/Knee Complication: Hospital-Level Risk-
Standardized Complication Rate (RSCR) Following Elective Primary Total 
Hip Arthroplasty (THA) and Total Knee Arthroplasty (TKA) measure for 
the FY 2015 payment determination and subsequent years as proposed.

[[Page 53519]]

(ii) Hip/Knee Readmission: Hospital-Level 30-Day All-Cause Risk-
Standardized Readmission Rate (RSRR) Following Elective Total Hip 
Arthroplasty (THA) and Total Knee Arthroplasty (TKA) (NQF 
1551)
    As previously stated, outcome measures such as complications and 
readmissions are the priority areas for the Hospital IQR Program. The 
THA and TKA are commonly performed procedures that improve quality of 
life. The complications are usually devastating to the patient and 
costly to the Medicare program. Furthermore, we believe that there is 
an opportunity for quality improvement by hospitals to improve quality 
of life for the patient. The 2008 Medicare FFS claims data indicate 
that 30-day hospital-level risk-standardized readmission rates ranged 
from 3.06 percent to 50.94 percent among hospitals with a median rate 
of 6.06 percent. The mean risk-standardized readmission rate was 6.3 
percent. This variation suggests there are important differences in the 
quality of care received across hospitals, and that there is room for 
improvement. Given the high volume and high cost associated with these 
hip and knee procedures (relative to other elective procedures 
performed in the Medicare population), we believe that it is imperative 
to assess the quality of care provided to Medicare beneficiaries who 
undergo one or both of these procedures. A measure that addresses 
readmission rates following THA and TKA provides an opportunity to 
provide targets for efforts to improve the quality of care and reduce 
costs for patients undergoing these elective procedures. The measure 
also increases transparency for consumers and provides patients with 
information that could guide their choices. Finally, it has the 
potential to lower health care costs associated with readmissions. The 
development of risk-adjusted measures of patient readmission outcomes 
can provide a critical perspective on the provision of care, and 
support improvements in care for the Medicare patient population 
following THA/TKA hospitalization.
    In the FY 2013 IPPS/LTCH PPS proposed rule (77 FR 28041), we 
proposed to adopt the Hip/Knee Readmission: Hospital 30-Day All-Cause 
Readmission Following Elective Total Hip Arthroplasty (THA) and Total 
Knee Arthroplasty (TKA) measure for the Hospital IQR Program for the FY 
2015 payment determination and subsequent years. This measure is NQF-
endorsed; therefore, the measure meets the selection criteria under 
section 1886(b)(3)(B)(viii)(IX)(aa) of the Act. The measure 
specification for this measure can be found on the Web site at: http://www.qualityforum.org/Projects/Surgery_Maintenance.aspx#t=2&s=&p=. In 
its Pre-Rulemaking Report, the MAP recommended the inclusion of this 
measure in the Hospital IQR Program. The objective of this proposed 
measure is to assess readmission from any cause within 30 days of the 
initial total hip arthroplasty and total knee arthroplasty admissions 
for patients discharged from the hospital following elective primary 
THA and TKA.
    The proposed measure uses the same HLM methodology that is 
specified for the NQF-endorsed AMI, HF, and PN 30-day risk-adjusted 
all-cause readmission measures in the Hospital IQR Program because it 
has already been subjected to NQF review and has been determined to 
appropriately account for the types of patients the hospital treats, 
the number of patients it treats, and the quality of care it provides. 
The HLM model estimates risk-standardized readmission rates. The data 
source we used to develop the measure and that we would use to 
calculate the measure if finalized is Medicare Part A (FFS) claims. 
Index admission diagnoses and in-hospital comorbidity data would be 
assessed using Medicare Part A claims. Additional comorbidities prior 
to the index admission would be assessed using Part A inpatient, 
outpatient, and Part B office visit Medicare claims in the 12 months 
prior to index (initial) admission. Enrollment status would be obtained 
from Medicare's enrollment database which contains beneficiary 
demographic, benefit/coverage, and vital status information.
    The proposed measure includes admissions for patients who were 
Medicare FFS beneficiaries, aged 65 years or older, admitted to non-
Federal acute care hospitals with an ICD-9-CM code for THA or TKA. 
Eligible index admissions would be identified using the following ICD-
9-CM procedure codes: 81.51 (Total hip arthroplasty); and 81.54 (Total 
knee arthroplasty) in Medicare Part A inpatient claims data.
    In addition, patients must have had continuous enrollment in 
Medicare FFS for one year prior to the date of index admission to 
ensure full data availability for risk adjustment. We restrict the 
included cases to admissions of patients enrolled in Medicare FFS 
coverage in the 12 months prior to and including the time of their 
index admission to a non-Federal acute care hospital because of the 
availability of complete administrative data for most Medicare FFS 
patients.
    We proposed not to include beneficiaries enrolled in Medicare 
Managed Care (``Medicare Advantage'') plans because only partial 
administrative data are reported to CMS. We would not have complete 
data on these Medicare Advantage enrollees. Patients under age 65 (the 
qualifying age for Medicare coverage for those not considered disabled 
or with end-stage renal disease) or for whom we otherwise have 
incomplete information--for example, those enrolled in a Medicare 
Managed Care plan during any part of the relevant time period-- will 
also be excluded to ensure data comparability.
    We proposed to exclude patients with hip fractures (patients with 
hip fractures have higher mortality, complication and readmission rates 
and the procedure (THA) is generally not elective) patients undergoing 
revision procedures (may be performed at a disproportionately small 
number of hospitals and are associated with higher readmission rates); 
patients undergoing partial hip arthroplasty (partial arthroplasties 
are primarily done for hip fractures and are typically performed on 
patients who are older, more frail, and with more comorbid conditions); 
patients undergoing resurfacing procedures (resurfacing procedures are 
a different type of procedure which are typically performed on younger, 
healthier patients); patients who are transferred into the index 
hospital (it is likely that the procedure is not elective); patients 
who are admitted for the index procedure and subsequently transferred 
to another acute care facility (attribution of readmission to the index 
hospital would not be possible in these cases); patients who leave the 
hospital against medical advice (providers do not have the opportunity 
to provide the highest quality care for these patients); patients with 
more than two THA/TKA procedure codes during the index hospitalization 
(unlikely that patients would receive more than two THA/TKA procedures 
in one hospitalization and this may reflect a coding error); patients 
without at least 30-days post-discharge enrollment in Medicare FFS (the 
30-day readmission outcome cannot be assessed for the standardized time 
period); and patients who die during the index admission (patients who 
die during the initial hospitalization are not eligible for 
readmission).
    The proposed measure methodology does not count readmissions that 
are associated with a subsequent ``planned'' THA/TKA procedure within 
30 days of discharge from index hospitalization. Some patients may 
elect to stage their orthopedic replacement procedures across 
hospitalizations (for example, a

[[Page 53520]]

patient may have the left and right knees replaced within one or two 
weeks of each other, potentially across multiple hospitalizations). The 
planned readmissions are defined as a second admission with a procedure 
code for THA or TKA AND a primary discharge diagnosis of 
osteoarthritis, rheumatoid arthritis, osteonecrosis, or arthropathy 
(excluding septic arthropathy).
    Consistent with the requirements in section 
1886(b)(3)(B)(viii)(VIII) of the Act, the proposed measure is risk-
adjusted. It takes into account patient age and comorbidities to allow 
a fair assessment of hospital performance. The measure defines the 
patient risk factors for readmission using diagnosis codes collected 
from all patient claims one year prior to patient index hospitalization 
for THA and TKA. The patient diagnosis codes are grouped using 
Hierarchical Condition Categories (CCs), which are clinically relevant 
diagnostic groups of ICD-9-CM codes.\72\
---------------------------------------------------------------------------

    \72\ Pope G, Ellis R, Ash A, et al., Principal Inpatient 
Diagnostic Cost Group Models for Medicare Risk Adjustment. Health 
Care Financing Review. 2000;21(3):26.
---------------------------------------------------------------------------

    The CCs used in the risk adjustment model for this measure are 
provided at: http://www.qualitynet.org/dcs/ContentServer?c=Page&pagename=QnetPublic%2FPage%2FQnetTier4&cid=1219069856694. Patient risk factors are used to determine how sick the patients 
are on admission (that is, patient comorbidities). The hospital measure 
rates are calculated taking into account how sick their patients are. 
In summary, age and comorbidities present at the time of admission 
would be adjusted for differences in hospital case mix (patient risk 
factors).
    The proposed measure uses the HLM methodology for risk adjustment. 
As we do for all the other 30-day readmission measures adopted for the 
Hospital IQR Program, we would calculate (using the HLM) the hospital 
risk-standardized readmission rate by producing a ratio of the number 
of ``predicted'' readmissions (that is, the adjusted number of 
readmissions at a specific hospital) to the number of ``expected'' 
readmissions (that is, the number of readmissions if an average quality 
hospital treated the same patients) for each hospital and then 
multiplying the ratio by the national raw readmission rate.
    While the hip and knee complications measure will inform quality 
improvement efforts targeted toward minimizing medical and surgical 
complications during surgery and in the recovery phase, the hip and 
knee readmission measure portrays a broader range of medical and 
surgical outcomes affected by in-hospital care and the transition to 
post-acute care. This measure was endorsed by the NQF (1551) 
and recommended by the MAP for the Hospital IQR Program in its Pre-
Rulemaking report for 2012.
    We proposed to include the Hospital-Level 30-Day All-Cause Risk-
Standardized Readmission Rate (RSRR) Following Elective Total Hip 
Arthroplasty (THA) and Total Knee Arthroplasty (TKA) measure in the 
Hospital IQR Program for the FY 2015 payment determination and future 
years. We invited public comment on this proposal.
    Comment: Many commenters supported this measure because elective 
total hip and knee procedures are on the rise on Medicare 
beneficiaries; also, the measure is NQF-endorsed and is recommended by 
the MAP. The commenters believed that hip and knee arthroplasty 
readmissions are an important measure of patient outcomes and that the 
measure would positively reduce patient readmissions overall. Another 
commenter stated that hip and knee replacements are often non-emergent 
procedures, therefore information on outcomes will give consumers an 
opportunity to research the quality of care provided in their local 
hospitals to select where to have these procedures performed.
    Response: We thank the commenters for the support and sharing our 
goal to focus on improving patient outcomes in hip/knee surgical 
procedures.
    Comment: A few commenters supported our exclusion criteria for the 
hip/knee complication measure and the hierarchical logistic modeling 
for risk-adjustment. Nonetheless, several commenters argued that there 
are flaws in its methodology because it does not: differentiate between 
planned and unplanned readmissions or between related and unrelated 
readmissions; exclude extreme circumstances (transplant, ESRD, burn, 
trauma, psychosis, and substance abuse); or adjust for patient 
characteristics (dual eligible status, race/ethnicity, and SES). 
Commenters noted that this measure would require extensive measure 
specification revisions should CMS adopt it for the Hospital 
Readmissions Reduction Program.
    Response: We thank the commenters that supported the risk-
adjustment model and the exclusion criteria of this measure. We 
disagree with commenters that the measure does not differentiate 
between planned and unplanned readmissions. The measure does identify 
and not count certain planned readmissions. For example, some patients 
are admitted within 30 days of the index hospitalization to undergo 
another elective primary THA/TKA procedure. If a patient undergoes a 
second elective primary THA/TKA within 30 days of the discharge date 
for the index admission, and the admission is associated with a primary 
discharge diagnosis of osteoarthritis, rheumatoid arthritis, 
osteonecrosis, or arthropathy (excluding septic arthropathy), the 
readmission is considered ``planned'' and is not counted as a 
readmission in the measure.
    We used all-cause readmission, rather than narrowly related 
readmission, to assess performance for several reasons. First, from the 
patient perspective, readmission for any reason is likely to be an 
undesirable outcome of care after an acute hospitalization. Second, 
readmissions not directly related to hip/knee replacement may still be 
a result of the care received during hospitalization for the procedure. 
For example, a patient hospitalized for a hip/knee replacement who 
developed renal failure may ultimately be readmitted for care. It would 
be inappropriate to treat this readmission as unrelated to the care the 
patient received during the index hospitalization. Furthermore, the 
range of potentially avoidable readmissions also includes those not 
directly related to the initial hospitalization, such as those 
resulting from poor communication at discharge or inadequate follow-up. 
In addition, readmissions for rare reasons completely unrelated to 
hospital care, such as car accidents involving the patient as a 
passenger, are likely to be distributed randomly across hospitals and 
are not expected to introduce any bias into the measure results. We 
appreciate the concern expressed by the commenters that patients of 
these ``extreme circumstances'' clinically could be sicker and likely 
to be readmitted. The measures address clinical differences in 
hospitals' case-mix through risk adjustment rather than through 
excluding patients from the measure as suggested by the commenter. The 
goal in developing outcomes measures is to create a clinically cohesive 
cohort that includes as many patients as possible admitted with the 
given condition. Greatly expanding our list of exclusions would result 
in a measure that was less useful and meaningful because it would 
reflect the care of fewer patients. In addition, we believe that by 
excluding patients with significant comorbidities, the measure would 
not assess the quality of care for those patients. To fairly profile 
hospitals' performance, it is critical to

[[Page 53521]]

place hospitals on a level playing field and account for their 
differences in the patients that present for care. This is accomplished 
through adequate risk-adjustment for patients' clinical presentation 
rather than exclusion of patients.
    Consistent with NQF guidelines, this measure does not risk-adjust 
for SES factors, such as race or dual eligibility, because we do not 
want to hold hospitals to different standards for the outcomes of their 
low SES patients. We do not want to mask potential disparities or 
minimize incentives to improve the outcomes of disadvantaged 
populations by adjusting for these factors. The findings from our 
analyses of disparities by SES in the past (discussed in our responses 
to comments on the Hospital-Level Risk-Standardized Complication Rate 
(RSCR) Following Elective Primary Total Hip Arthroplasty (THA) and 
Total Knee Arthroplasty (TKA) (NQF 1550)) indicated that 
although SES is a significant predictor of readmission at the patient 
level, it does not affect overall hospital performance in the risk-
adjusted readmission model. We are committed to tracking SES issues and 
will continue to evaluate disparities in care and the impact of the 
hospital risk standardized readmission rates on providers of vulnerable 
populations.
    With respect the commenters' concern that this measure would 
require extensive measure specification revisions should we adopt it 
for the Hospital Readmissions Reduction Program, in the FY 2013 IPPS/
LTCH PPS proposed rule, we proposed use of the measure only for the 
Hospital IQR Program and not for Hospital Readmissions Reduction 
Program. We will propose additional readmission measures for Hospital 
Readmissions Reduction Program through future rulemaking.
    Comment: A commenter requested the post-discharge time period be 
shortened to 7 days.
    Response: The measure uses 30 day time frame versus 7 days as 
suggested by the commenter because it is a clinically meaningful and 
sufficient time period for hospitals to show the result of their 
efforts to reduce readmissions. These efforts include ensuring that 
patients are clinically ready at discharge, reducing risk of infection, 
reconciling medications, improving communication with community 
providers participating in transitions of care, educating patients 
adequately upon discharge, and assuring patients understand follow-up 
care upon discharge. Furthermore, our analyses show that risk of 
readmission is highest within the first two weeks post discharge of the 
index admission. The rate plateaus between 30 and 45 days post 
discharge, suggesting that a 30-day window would capture the period of 
highest risk of readmission. In addition, the 30-day timeframe is 
consistent with the other CMS readmissions measures that are NQF-
endorsed and publicly reported by CMS.
    Comment: A commenter was uncertain of the impact of the 3-day 
waiver policy on readmission rates, and cautioned there may be 
potential negative implications of the waiver policy on this measure. 
The commenter encouraged CMS to adopt a time period that will ensure 
sufficient data and rates that are statistically significant and also 
requested clarification regarding the measurement period for this 
measure.
    Response: We appreciate the commenter's concern and suggestions. It 
appears that the issue that the commenter is concerned about is whether 
implementation of the measure would have an impact on use of outpatient 
services, such as use of ED or observation services 3 days prior to 
hospitalization. It is our intent to track use of these services as 
unintended consequences. We plan to use 3 years of data to calculate 
the hospital rates. We believe this time period would ensure sufficient 
data for meaningful statistical analysis.
    Comment: A commenter requested that CMS clarify whether a single 
year of data or three years of data will be used for display on 
Hospital Compare in the future. The commenter believed that three years 
of data yields more robust and reliable results.
    Response: We agree with the commenter that 3 years of data will 
yield more robust and reliable results. We plan to use 3 years of data 
to calculate the measure for display on Hospital Compare.
    Comment: A few commenters requested the publication of the ICD-10-
CM/PCS versions of the measure specifications in the final rule.
    Response: We are working on specifying the measures using the ICD-
10-CM/PCS and will make the specifications available to the public as 
soon as possible.
    Comment: A commenter opposed the proposed adoption of this measure 
as the commenter believed readmission rates are more closely related to 
patient expectations, community standards, health literacy, and other 
unknown factors during hospitalization, which are not accounted for in 
the risk models articulated in the rule. The commenter suggested that 
there is little correlation between quality of care provided and 
overall readmission rates.
    Response: We believe that readmissions are related to quality of 
care provided by hospitals during hospitalization as well as transition 
from inpatient to outpatient settings. We chose to measure readmission 
within 30 days of discharge because during this period, readmission can 
be strongly influenced by hospital care and the early transition to the 
outpatient setting. The timeframe of 30 days is a clinically meaningful 
period for hospitals to collaborate with their communities in an effort 
to reduce readmissions. Such efforts may include ensuring patients are 
clinically ready at discharge, reducing risk of infection, reconciling 
medications, improving communication with community providers 
participating in transitions of care, educating patients adequately 
upon discharge, and assuring patients understand follow-up care upon 
discharge. The commenter suggested that patient factors such as patient 
expectations and health literacy are closely related to readmissions. 
The CMS measure takes into account patient health/clinical factors at 
the time of admission but not patients' SES factors. One reason is that 
we want to encourage hospitals to work with their communities to help 
patients with low SES (for example, low health literacy) transition to 
post-acute care. The other reason is that risk adjusting for patient 
SES, we would adjust away potential disparities of care by hospitals.
    After consideration of the public comments we received, we are 
finalizing the proposed Hip/Knee Readmission: Hospital-Level 30-Day 
All-Cause Risk-Standardized Readmission Rate (RSRR) Following Elective 
Total Hip Arthroplasty (THA) and Total Knee Arthroplasty measure for 
the FY 2015 payment determination and subsequent years as proposed.
(iii) Hospital-Wide Readmission (Tentative NQF 1789)
    During 2003 and 2004, over 2.3 million Medicare patients (almost 
one fifth of all Medicare beneficiaries) were rehospitalized within 30 
days of discharge from an acute care hospital, and it was estimated 
that readmissions within 30 days of discharge cost Medicare more than 
$17 billion annually.\73\ In its 2007 Report to the Congress, MedPAC 
estimated that in 2005, 17.6 percent of hospital patients were 
readmitted within 30 days of

[[Page 53522]]

discharge.\74\ MedPAC estimated that the average payment for a 
``potentially preventable'' readmission was approximately $7,200. A 
2006 Commonwealth Fund Report estimated that if national readmission 
rates were lowered to the levels achieved by the top performing 
regions, Medicare would save $1.9 billion annually.\75\ We believe that 
reducing preventable readmissions will bring down healthcare costs.
---------------------------------------------------------------------------

    \73\ Jencks SF, Williams MV, Coleman EA. Rehospitalizations 
among patients in the Medicare fee-for-service program. N Engl J 
Med. Apr 2 2009; 360(14):1418-1428.
    \74\ Medicare Payment Advisory Commission (MedPAC), Report to 
the Congress: Promoting Greater Efficiency in Medicare. 2007.
    \75\ The Commonwealth Fund, Why Not the Best? Results from a 
National Scorecard on U.S. Health System Performance. 2006: 
Harrisburg, PA.
---------------------------------------------------------------------------

    Since 2009, we have publicly reported risk-standardized readmission 
rates (RSRRs) for three conditions: heart failure (HF), pneumonia (PN) 
and acute myocardial infarction (AMI) on Hospital Compare (http://www.hospitalcompare.hhs.gov/), as part of the efforts to improve 
quality of care and lower health care costs. However, these three 
conditions account for only a relatively small proportion of total 
hospital readmissions. High RSRRs and substantial variations in 
hospital RSRRs were found. The median 30-day RSRRs across hospitals is 
19.9 percent for AMI (range from 15.3 percent to 26.8 percent); 24.8 
percent for HF (range from 17.0 percent to 33.0 percent); and 18.4 
percent for PN (range from 13.8 percent to 26.4 percent).\76\
---------------------------------------------------------------------------

    \76\ Bernheim S, Wang Y, Grady J, et al. Measures Maintenance 
Technical Report: Acute Myocardial Infarction. Heart Failure, and 
Pneumonia 30-day Risk Standardized Mortality Measures. 2011; 
Available at: http://www.qualitynet.org/.
---------------------------------------------------------------------------

    A hospital's readmission rate is affected by complex and critical 
aspects of care such as communication between providers or between 
providers and patients; prevention of, and response to, complications; 
patient safety; and coordinated transitions to the outpatient 
environment. While disease-specific measures of readmission are useful 
in identifying deficiencies in care for specific groups of patients, 
they account for only a small minority of total readmissions.\77\ By 
contrast, a hospital-wide, all-condition readmission measure could 
portray a broader sense of the quality of care in hospitals. 
Consequently, hospital-wide, all-condition readmission measures can 
promote hospital quality improvement and better inform consumers about 
care quality.
---------------------------------------------------------------------------

    \77\ Jencks SF, Williams MV, Coleman EA. Rehospitalizations 
among patients in the Medicare fee-for-service program. N Engl J 
Med. Apr 2 2009; 360(14):1418-1428.
---------------------------------------------------------------------------

    Studies have estimated the rate of preventable readmissions to be 
as low as 12 percent and as high as 76 percent.78,79 Some 
readmissions are unavoidable, for example, those that result from 
inevitable progression of disease or worsening of chronic conditions. 
However, readmissions may also result from poor quality of care or 
inadequate transitional care. Randomized controlled trials 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 20-40 
percent.80,81,82,83,84,85,86 Evidence that hospitals have 
been able to reduce readmission rates through these quality-of-care 
initiatives illustrates the degree to which hospital best practices can 
affect readmission rates.
---------------------------------------------------------------------------

    \78\ Benbassat J, Taragin M. Hospital readmissions as a measure 
of quality of health care: advantages and limitations. Arch Inter 
Med 2000; 160(8):1074-81.
    \79\ Medicare Payment Advisory Commission (U.S.). Report to the 
Congress promoting greater efficiency in Medicare. Washington, DC: 
Medicare Payment Advisory Commission, 2007.
    \80\ 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.
    \81\ 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.
    \82\ 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.
    \83\ 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.
    \84\ 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.
    \85\ 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.
    \86\ 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.
---------------------------------------------------------------------------

    Our Quality Improvement Organizations (QIOs) began projects to 
improve care transitions during the 9th Statement of Work in 14 
communities by applying successful interventions learned from clinical 
trials, such as medication reconciliation, increased patient education, 
follow up after discharge, and post-discharge instructions for 
patients.\87\ Important interventions to integrate care for populations 
and communities now continue among all 53 QIOs on a national scale in 
the QIO 10th Statement of Work which began August 2011.
---------------------------------------------------------------------------

    \87\ 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.
---------------------------------------------------------------------------

    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 that it is appropriate to include an all-
condition readmission rate as a quality measure in the Hospital IQR 
Program. Promoting quality improvements leading to successful 
transition of care for patients from acute care to outpatient setting, 
and reducing short term, preventable hospital-wide readmission rates 
are CMS' priority objectives.
    To provide a broader assessment of the quality of care at 
hospitals, especially for hospitals with too few AMI/HF/PN readmissions 
to count separately, we have developed a Hospital-Wide Readmission 
(HWR) measure using 2008 Medicare FFS data. Detailed information and 
specifications for this measure can be found on the NQF Web site at: 
http://www.qualityforum.org/Projects/Readmissions_Endorsement_Maintenance.aspx#t=2&s=&p=7%7C6%7C5%7C4%7C. The objective of the 
proposed HWR measure is to assess the hospital-level, risk-standardized 
rate of unplanned, all-cause readmissions after admissions for any 
eligible condition within 30 days of hospital discharge. The proposed 
measure comprises a single summary score, derived from the results of 
five different models, one for each of the following specialty cohorts 
(groups of discharge condition categories or procedure categories): 
medicine, surgery/gynecology; cardiorespiratory; cardiovascular; and 
neurology.
    In the FY 2013 IPPS/LTCH PPS proposed rule (77 FR 28043), we 
proposed to use one year of data to calculate the measure rate for the 
HWR measure, which we believe is sufficient to calculate this measure 
in a statistically reliable manner. This is because the reliability of 
a hospital's measure rate is related to its sample size. For its rate 
to be calculated reliably statistically, a hospital needs to have a

[[Page 53523]]

sufficient number of patient cases to which the measure applies. 
Because the proposed HWR measure addresses over 90 percent of Medicare 
FFS hospitalizations for patients aged 65 and older (a much larger 
number of patients than the condition-specific measures for AMI, Heart 
Failure, Pneumonia, and Total Hip/Knee procedures), we believe one year 
of data would yield a sufficient number of cases to assess hospital 
performance in a statistically reliable manner. In contrast, for the 
condition-specific readmission measures for AMI, Heart Failure and 
Pneumonia, each of which address a smaller proportion of Medicare FFS 
Hospitalizations than the HWR measure, we must use three years of data 
to have enough patient cases to calculate the rates for these measures. 
We also believe that use of one year of data for the HWR measure is 
appropriate because it allows us to calculate up-to-date hospital 
performance for the most recent year, rather than calculating hospital 
performance over the course of three years, as we must do for the AMI, 
HF, and PN readmission measures. The proposed measure methodology is 
described in greater detail below.
    The proposed measure uses 30 days following the index admission as 
the timeframe for assessing hospital performance because within this 
timeframe, readmissions are more likely attributable to care received 
during the index hospitalization and during the transition to the 
outpatient setting. For example, hospitals, in collaboration with their 
medical communities take actions to reduce readmission, such as 
ensuring patients are clinically ready at discharge, reducing risk of 
infection, reconciling medications, improving communications among 
providers involved in management principles, and educating patients 
about symptoms to monitor, whom to contact with questions, and where 
and when to seek follow-up care. Furthermore our ``time-to-event 
curve'' analyses showed a readmission curve with rapid early accrual of 
readmissions with a stable and consistent readmission rate thereafter; 
the curve typically stabilized within 30 days of discharge. Finally, 
the proposed 30-day timeframe is consistent with the other publicly 
reported CMS readmission measures endorsed by the NQF.
    The proposed HWR measure defines the outcome as ``all-cause'' 
unplanned readmissions. Unplanned readmissions are acute clinical 
events experienced by a patient that require urgent hospital admission. 
Higher than expected unplanned readmission rates suggest lower quality 
of care and are the focus of quality measurement as part of quality 
improvement efforts. Because planned readmissions are not a signal of 
quality of care, we chose to exclude planned readmissions from being 
considered as an outcome for this measure. The proposed measure 
includes hospitalizations of patients who were age 65 or older (at the 
time of admission) who were in Medicare Fee-for-Service (FFS) for 12 
months prior to the index admission, and who remained in Medicare FFS 
for at least 30 days post-discharge. The measure excludes patients who 
died during the index admission; patients who were transferred to 
another acute care hospital; patients who were discharged against 
medical advice; and patients who died within the 30-day post-discharge 
period. The measure also excludes admissions for medical treatment of 
cancer; for primary psychiatric disease (patients admitted for 
psychiatric treatment are typically cared for in separate psychiatric 
or rehabilitation centers which are not comparable to acute care 
hospitals); or for physical rehabilitation and prosthetic services.
    The proposed measure excludes patients undergoing medical treatment 
for their cancer as their primary procedure because we concluded that 
readmission may not be a good quality indicator for this cohort of 
patients compared to other cohorts. For example, the cancer cohort had 
more than twice the post-discharge mortality of any other cohort. It 
also has a planned readmission rate six times that of any other 
cohort--41 percent of readmissions in this cohort were considered 
planned. This indicates that readmission in this population is a 
different phenomenon than for other cohorts. Most importantly, this 
cohort's risk standardized readmission ratio (SRR) was poorly 
correlated with the composite hospital-wide SRR of all other cohorts. 
Statistically this implies that readmission for the cancer cohort is 
likely measuring an aspect of quality very different from that for 
other cohorts. Consequently, we elected to exclude this subset of 
cancer patients from the measure.
    For this measure, a patient is considered to have been readmitted 
if they experience one or more inpatient admissions within the 30 days 
after being discharged from an initial inpatient admission, whether the 
patient was readmitted to the same hospital or another. The proposed 
measure identifies ``planned readmissions'' in claims data that will 
not count as readmissions in the measure using an algorithm that 
identifies readmissions that are likely to be planned as opposed to 
readmissions due to probable complications. The algorithm was based on 
two main principles:
     The ``planned'' readmissions are those in which one of a 
pre-specified list of procedures took place (we refer readers to the 
measure methodology documentation on the NQF Web site at: http://www.qualityforum.org/Projects/Readmissions_Endorsement_Maintenance.aspx#t=2&p=2/3/&s for the list), or those for maintenance 
chemotherapy or rehabilitation. Maintenance chemotherapy and 
rehabilitation are common planned readmissions that are reliably 
distinguishable in the data even though they are not accompanied by 
procedures.
     Admissions for acute illness or for complications of care 
are likely not ``planned.'' Clinically, any procedure completed during 
an admission for an acute illness is not likely to have been planned, 
even if that procedure is usually planned in other non-acute cases.
    Therefore, the proposed measure uses procedure codes and discharge 
diagnosis categories for each readmission to identify planned 
readmissions. Readmissions that occur for planned procedures (we refer 
readers to the measure methodology report on the NQF Web site at: 
http://www.qualityforum.org/Projects/Readmissions_Endorsement_Maintenance.aspx#t=2&p=2/3/&s for the list) and which are not for acute 
diagnoses or complications of care (listed below) are identified as 
planned.
    For example, some patients have their gallbladders removed after 
having been identified as having symptomatic gallstones. Usually this 
is a surgery that is planned in advance and scheduled. However, 
occasionally a patient becomes acutely ill or has sudden inflammation 
or infection that requires a gallbladder surgery that was not planned 
in advance. The measure uses the patients' principal discharge 
diagnosis to differentiate between patients coming in for gallbladder 
removal with chronic gallstones (biliary disease) and patients acutely 
ill with inflamed gallbladders (cholecystitis) who are having an 
unplanned gallbladder removal.
    Therefore, the proposed HWR measure defines planned readmissions 
which are excluded from the measure as any readmission:
     In which any of these procedures set out in the table 
below are performed if the discharge condition category is

[[Page 53524]]

not acute or a complication of care, as discussed below; or
     For maintenance chemotherapy.
    All other readmissions are considered unplanned and are counted as 
readmissions in the measure.
    The following is the list of planned procedures based on the full 
AHRQ Clinical Classification Software (CCS) procedure category list.

   Procedure Categories Considered Planned Depending on the Discharge
                                Condition
------------------------------------------------------------------------
                                                   Description
------------------------------------------------------------------------
45....................................  Percutaneous transluminal
                                         coronary angioplasty (PTCA).
                                        Rehabilitation (condition CCS
                                         254).
84....................................  Cholecystectomy and common duct
                                         exploration.
157...................................  Amputation of lower extremity.
44....................................  Coronary artery bypass graft
                                         (CABG).
78....................................  Colorectal resection.
51....................................  Endarterectomy; vessel of head
                                         and neck.
113...................................  Transurethral resection of
                                         prostate (TURP).
99....................................  Other OR gastrointestinal
                                         therapeutic procedures.
48....................................  Insertion; revision;
                                         replacement; removal of cardiac
                                         pacemaker or cardioverter/
                                         defibrillator.
                                        Maintenance Chemotherapy
                                         (condition CCS 45).
211...................................  Therapeutic radiology for cancer
                                         treatment.
3.....................................  Laminectomy; excision
                                         intervertebral disc.
43....................................  Heart valve procedures.
152...................................  Arthroplasty knee.
158...................................  Spinal fusion.
55....................................  Peripheral vascular bypass.
52....................................  Aortic resection; replacement or
                                         anastomosis.
36....................................  Lobectomy or pneumonectomy.
153...................................  Hip replacement; total and
                                         partial.
60....................................  Embolectomy and endarterectomy
                                         of lower limbs.
85....................................  Inguinal and femoral hernia
                                         repair.
104...................................  Nephrectomy; partial or
                                         complete.
1.....................................  Incision and excision of CNS.
124...................................  Hysterectomy; abdominal and
                                         vaginal.
167...................................  Mastectomy.
10....................................  Thyroidectomy; partial or
                                         complete.
114...................................  Open prostatectomy.
74....................................  Gastrectomy; partial and total.
119...................................  Oophorectomy; unilateral and
                                         bilateral.
154...................................  Arthroplasty other than hip or
                                         knee.
                                        Radical laryngectomy, revision
                                         of tracheostomy, scarification
                                         of pleura (ICD-9 codes 30.4,
                                         31.74, 34.6).
166...................................  Lumpectomy; quadrantectomy of
                                         breast.
64....................................  Bone marrow transplant.
105...................................  Kidney transplant.
176...................................  Other organ transplantation.
                                        Electroshock therapy (ICD-9
                                         codes 94.26, 94.27).
------------------------------------------------------------------------

    The algorithm is designed to identify admissions for acute illness 
or complication of care as ``unplanned'' readmissions. The acute and 
complication discharge condition categories for unplanned readmissions 
are listed below.

Discharge Condition Categories Considered Acute or Complications of Care
------------------------------------------------------------------------
               AHRQ CCS                            Description
------------------------------------------------------------------------
237...................................  Complication of device; implant
                                         or graft.
106...................................  Cardiac dysrhythmias.
                                        Fracture (condition CCS 207,
                                         225, 226, 227, 229, 230, 231,
                                         232).
100...................................  Acute myocardial infarction.
238...................................  Complications of surgical
                                         procedures or medical care.
108...................................  Congestive heart failure;
                                         nonhypertensive.
2.....................................  Septicemia (except in labor).
146...................................  Diverticulosis and
                                         diverticulitis.
105...................................  Conduction disorders.
109...................................  Acute cerebrovascular disease.
145...................................  Intestinal obstruction without
                                         hernia.
233...................................  Intracranial injury.
116...................................  Aortic and peripheral arterial
                                         embolism or thrombosis.
122...................................  Pneumonia (except that caused by
                                         TB or sexually transmitted
                                         disease).
131...................................  Respiratory failure;
                                         insufficiency; arrest (adult).
157...................................  Acute and unspecified renal
                                         failure.
201...................................  Infective arthritis and
                                         osteomyelitis (except that
                                         caused by TB or sexually
                                         transmitted disease).
153...................................  Gastrointestinal hemorrhage.

[[Page 53525]]

 
130...................................  Pleurisy; pneumothorax;
                                         pulmonary collapse.
97....................................  Peri-; endo-; and myocarditis;
                                         cardiomyopathy.
127...................................  Chronic obstructive pulmonary
                                         disease and bronchiectasis.
55....................................  Fluid and electrolyte disorders.
159...................................  Urinary tract infections.
245...................................  Syncope.
139...................................  Gastroduodenal ulcer (except
                                         hemorrhage).
160...................................  Calculus of urinary tract.
112...................................  Transient cerebral ischemia.
                                        All condition categories.
------------------------------------------------------------------------

    To compare readmission performance across hospitals, the proposed 
measure accounts for differences in patient characteristics (patient 
case mix) as well as differences in mixes of services and procedures 
offered by hospitals (hospital service-mix). The proposed measure 
includes 93.4 percent of Medicare FFS hospitalizations occurring in 
2008, and includes 92.1 percent of readmissions following those 
hospitalizations.
    The proposed measure uses the conditions and procedures defined by 
the AHRQ CCS, which is a widely used and accepted method of grouping 
patients into diagnostic categories. The AHRQ CCS collapsed the more 
than 17,000 different ICD-9-CM diagnosis and procedure codes into 285 
clinically-coherent, mutually-exclusive condition categories and 231 
mutually-exclusive procedure categories. We created five major 
specialty cohorts based on organization of care (medical, surgery/
gynecology, cardiorespiratory, cardiovascular, and neurology), and 
assigned each condition category to a cohort. Admissions that included 
major surgical procedures (regardless of condition category) were 
assigned to the surgery/gynecology cohort. We estimated separate 
adjustment coefficients for each cohort using a single set of risk 
factors. We used hierarchical logistic regression to adjust for 
differences in hospital case mix and to account for the clustering of 
patients within a hospital. We adjusted for case mix differences among 
hospitals by risk-adjusting for patients' comorbid conditions 
identified in inpatient episodes of care for the 12 months prior to the 
index admission as well as those present at admission. We did not risk 
adjust for diagnoses that may have been a complication of care during 
the index admission. We used CMS Condition Category groups (CMS-CCs) to 
define the comorbid risk adjusters and used a fixed set of comorbid 
risk variables across models. We risk adjusted for service mix 
differences among hospitals within each major cohort by including 
indicator variables for discharge condition categories (as defined by 
AHRQ CCS) in each model.
    Finally, we used each of the five cohort models to calculate 
predicted and expected numbers of readmissions for each hospital in 
each cohort. We then derived a single summary score from the results of 
the five models by calculating the volume-weighted log average of the 
predicted over expected ratios from each model and multiplying the 
resulting ratio by the average national readmission rate. This approach 
allowed us to take into account the variation in hospital specialty 
cohort mix.
    The proposed HWR measure was recommended to the NQF board of 
directors for endorsement in March 2012 by the NQF Consensus Standards 
Approval Committee (CSAC). The MAP supported selection of the HWR 
measure for the Hospital IQR Program contingent on NQF endorsement. 
This measure is in the final stages of the NQF measure endorsement 
process, and we expect its endorsement to be finalized in the coming 
months.
    We proposed to adopt this measure in the Hospital IQR Program for 
the FY 2015 payment determination and subsequent years under the 
exception authority in section 1886(b)(3)(B)(IX)(bb) of the Act. 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), 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 the NQF-endorsed measures, and we were unable to 
identify any other NQF-endorsed measures that assess hospital-wide 
readmissions. We also are not aware of any other hospital-wide 
readmission measures that have been endorsed or adopted by a consensus 
organization other than NQF. The one other hospital-wide readmissions 
measure of which we are aware is the Risk-Adjusted 30-Day All-Cause 
Readmission Rate measure (formerly NQF 0329). This measure was 
endorsed by NQF, but NQF removed the measure's endorsement during a 
recent consensus development project that recommended endorsement of 
the HWR measure. Accordingly, we proposed to adopt the HWR measure 
under the Secretary's authority set forth at section 
1886(b)(3)(B)(IX)(bb) of the Act. We invited public comment on this 
proposal.
    Comment: Two commenters supported the proposed measure and added 
that avoidable readmission can result from poor quality of care or 
inadequate transitional care. The commenters anticipate that the HWR 
measure will be a robust measure to identify deficiencies in 
communication and gaps in care as it would enable hospitals to examine 
all facets of their hospital operations.
    Response: We thank the commenters for their support.
    Comment: Many commenters appreciated CMS' newly added exclusion 
criteria (such as medical treatment of cancer, transplants and primary 
psychiatric diagnoses) for certain planned readmissions for this 
measure and recommended that for harmonization efforts, CMS should 
harmonize measure exclusions for the condition-specific readmission 
measures in the Hospital IQR Program and the Hospital Readmissions 
Reduction Program.
    Response: We are currently updating the planned readmissions for 
other CMS condition-specific readmission measures using the newly added 
criteria in the HWR measure and will submit the updated measures to the 
NQF for re-endorsement.
    Comment: Many commenters did not support the inclusion of this 
measure in

[[Page 53526]]

the Hospital IQR Program because it was not targeted to a specific 
condition. Commenters attributed success from the implementation of the 
AMI, HF and PN readmission measures to the condition-specific nature of 
these measures which allow hospitals to target their intervention 
efforts on specific causes of readmissions for each condition. The 
commenters stated that, in contrast, the proposed hospital-wide, all-
cause, all-condition readmission measure does not highlight any 
specific condition and, therefore, it will only serve to detract away 
from successful condition-specific strategies.
    Response: We agree that it is helpful to assess readmission rates 
and hence target quality improvement for specific groups for patients 
with specific conditions, as indicated by the commenters. However, we 
are mindful that these conditions account for only a small proportion 
of total hospital readmissions. That is the reason for our proposal of 
the hospital-wide readmission measure, which would provide a broader 
assessment of the quality of care provided to hospital patients who 
have medical conditions other than AMI, HF, and PN. The hospital-wide 
measure will allow for a more comprehensive evaluation of a hospital's 
quality. The hospital-wide measure is designed with five distinct 
cohorts, which allow for quality improvement efforts within particular 
service lines. Overall the hospital-wide measure and condition-specific 
measures should be complementary in allowing both for profiling overall 
hospital quality and promoting quality improvement.
    Comment: Some commenters specifically opposed our proposal to 
account for the variations in hospital specialty cohort mix with a 
single summary score obtained from calculating the volume-weighted log 
average of the predicted over expected ratios from each of the five 
models and multiplying the resulting ratio by the average national 
readmission rate.
    Response: The commenters opposed, but did not provide the rationale 
for opposing, using a single summary score obtained from 5 models for 
the measure. We explain our rationale for using it here. The measure 
approach allows us to take into account the variation in hospital 
specialty cohort mix. In particular, we wanted to be careful to fully 
account for the differences in readmission risk between surgical and 
non-surgical patients. Our analyses found that even within the same 
discharge condition, patient risk for readmission was strongly affected 
by whether a surgical procedure was performed during hospitalization. 
Patients undergoing surgical procedures typically had better outcomes 
than patients who did not undergo a procedure but were admitted with 
the same discharge condition. In short, using five models rather than a 
single model improves model performance and patient-level 
discrimination, and will significantly improve the usability of the 
measure.
    Comment: Some commenters were concerned that hospitals might have 
difficulties in using the measure which is based on the AHRQ Clinical 
Classification Software (CCS) for acute and complication discharge 
condition categories for unplanned readmissions, whereas hospitals use 
the ICD-9 DRGs for claims purposes. The CCS codes do not match the 
Medicare Severity Diagnosis related groups-driven claim data that the 
hospitals are using. Therefore, the commenters recommended organizing 
readmissions in a manner consistent with current hospital claim data 
such as specific ICD-9 codes and future ICD-10 codes.
    Response: Although hospitals are paid by DRG, the claims that 
hospitals submitted to CMS contain diagnoses (the primary and secondary 
diagnoses) in the ICD-9 format. The AHRQ software groups patients into 
CCS using the ICD-9 codes. Hospitals should have no problems crosswalk 
between the AHRQ CCS (maintained for both ICD-9 and ICD-10 codes) and 
the diagnosis on hospital claims.
    Comment: Many commenters did not support this measure and perceived 
the measure as lacking in: (1) Differentiation between related and 
unrelated readmissions; and identification of all planned readmissions; 
(2) sufficient risk-adjustments for patient characteristics (dual 
eligible status, race/ethnicity, and SES factors); and (3) exclusions 
for extreme circumstances (transplant, end-stage renal disease burn, 
trauma, psychosis, and substance abuse). Commenters were particularly 
concerned that the lack of adjustments for SES factors will have 
unintended consequences of unfairly penalizing hospitals treating 
disadvantaged patients as well as impairing patients, access to 
hospitals.
    Response: The measure does not differentiate between related and 
unrelated readmission for a number of reasons. First, from the patient 
perspective, readmission for any reason is likely to be an undesirable 
outcome of care after an acute hospitalization. Second, readmissions 
not directly related to the index hospitalization may still be a result 
of the care received during hospitalization. For example, a patient 
hospitalized COPD who develops a hospital-acquired infection may 
ultimately be readmitted for sepsis. It would be inappropriate to treat 
this readmission as unrelated to the care the patient received during 
the index hospitalization. Furthermore, the range of potentially 
avoidable readmissions also includes those not directly related to the 
initial hospitalization, such as those resulting from poor 
communication at discharge or inadequate follow-up. In addition, 
readmissions for rare reasons completely unrelated to hospital care, 
such as car accidents involving the patient as a passenger, are likely 
to be distributed randomly across hospitals and are not expected to 
introduce any bias into the measure results. Thus, the goal of this 
measure is not to reduce readmissions to zero, but to instead assess 
hospital performance relative to what is expected given the performance 
of other hospitals with similar case mixes.
    We appreciate the concern expressed by the commenters that patients 
of these ``extreme circumstances'' clinically could be sicker and 
likely to be readmitted. The measure addresses clinical differences in 
hospitals' case-mix through risk adjustment rather than through 
excluding patients from the measure as suggested by the commenter. The 
goal in developing outcomes measures is to create a clinically cohesive 
cohort that includes as many patients as possible admitted with the 
given condition. Greatly expanding our list of exclusions would result 
in a measure that was less useful and meaningful, because it would 
reflect the care of fewer patients. In addition, we believe that by 
excluding patients with significant comorbidities, the measure would 
not assess of the quality of care for those patients. To fairly profile 
hospitals' performance, it is critical to place hospitals on a level 
playing field and account for their differences in the patients that 
present for care. This is accomplished through adequate risk-adjustment 
for patients' clinical presentation rather than exclusion of patients.
    Comment: A few commenters opposed the proposed adoption of this 
measure as the commenters believed readmission rates are more closely 
related to patient expectations, community standards, health literacy, 
and other unknown factors during hospitalization which are not 
accounted for in the risk models articulated in the rule. The 
commenters suggested that there is little correlation between quality 
of care provided and overall readmission rates.

[[Page 53527]]

    Response: Risk-standardized readmission rates provide an important 
quality signal. Readmission of patients who were recently discharged 
after hospitalization with AMI, HF, or pneumonia represents an 
important, expensive, and often modifiable adverse outcome. The risk of 
readmission can be modified by the quality and type of care provided to 
these patients. There is ample evidence that hospitals can reduce their 
readmission rates through such efforts as: ensuring patients are 
clinically ready at discharge, reducing risk of infection, reconciling 
medications, improving communication with community providers 
participating in transitions of care, educating patients adequately 
upon discharge, and assuring patients understand follow-up care upon 
discharge.
    Comment: A commenter raised some methodological questions on the 
HWR measure. First, the commenter noted that the HWR model was 
originally estimated using 2008 data and the commenter asked for the 
anticipated lag between finalization and when the measure is 
implemented for FY 2015 payment determination. Second, the commenter 
asked whether it was methodologically appropriate to view statistical 
power as additive between the five individual models for the five 
specialty cohorts identified by the model developers. Finally, the 
commenter asked for the sample size of the five cohort models in the 
2008 data.
    Response: For 2013 public reporting, we plan to use one year of 
data to calculate the measure. We note that all of the patients in the 
five models contribute to the statistical power of the measure. The 
measure is divided into five specialty cohorts in order to enable 
hospitals to focus improvement efforts within clinically coherent 
specialties. CMS evaluated the appropriateness of combining the 5 
specialty cohort scores into a single score by looking at the 
correlation among the specialty cohort scores and calculating 
Cronbach's alpha, a statistic that measures the internal consistency of 
a composite. The correlations among the coefficients ranged from 0.35 
to 0.65, and the Cronbach alpha result was 0.83, indicating good 
internal consistency. Both of these analyses confirmed the 
appropriateness of combining the 5 scores into a composite score. These 
findings were included in the technical report submitted to the 
National Quality Forum. Finally, the sample size of the five cohort 
models in the 2008 data for the Medicine group is 3,086,792, Surgery/
gynecology 2,163,279, Cardiorespiratory 1,405,267, Cardiovascular 
843,373, and Neurology 7,957,901.
    Comment: A commenter asked if the new proposed readmission 
exclusion criteria would be applied to the existing condition-specific 
measures before the October implementation of the Hospital Readmissions 
Reduction Program.
    Response: In the FY 2013 IPPS/LTCH PPS proposed rule, we proposed 
to use the current NQF-endorsed AMI, HF, and pneumonia condition-
specific measure specifications for the Hospital Readmissions Reduction 
Program. However, in response to stakeholder input, we will update the 
condition-specific measures to include more planned readmissions which 
would not be counted as readmissions. The updated measures will be 
submitted to NQF for approval. Should NQF approve these changes to the 
measures, because we have already adopted these NQF endorsed measures 
in the IQR and Hospital Readmission Reduction, we would adopt these 
updates to the measures for future use in these programs through the 
subregulatory process we are finalizing in this rule.
    Comment: Many commenters believed it is premature to include the 
30-day all-cause hospital-wide readmission measure at this time. The 
commenters indicated several reasons for not supporting this measure. 
The commenters stated that the measure is still under appellate review 
by the NQF and endorsement is still pending. The commenters believed 
that CMS is risking the disengagement of the provider community by 
proposing a non-NQF-endorsed measure.
    Some commenters were concerned over the suitability of this measure 
for public reporting and future ties to payment policy because the 
claims data used is between 18 to 30 months old. The commenters 
contended that older data does not afford hospitals the opportunity for 
meaningful feedback needed for immediate improvement opportunities. 
Commenters inquired if hospitals will have the opportunity to verify 
and/or appeal their HWR discrepancies. The commenters recommended that 
CMS provide calculated actionable data results on a quarterly basis, 
rather than the annual posting currently used for the conditions-
specific measures.
    Finally, the commenters believed the measure creates potential for 
significant and harmful unintended consequences by resulting in more ED 
visits or more repeated observation stays during the 30-day period. The 
commenters also cautioned that publicly reporting readmission rates 
without monitoring potentially adverse unintended consequences as 
stated in the comment could undermine patient-centered care.
    Response: We note that NQF endorsed the Hospital-Wide Readmission 
(tentative NQF 1789) measure in the summer of 2012. Therefore 
the measure we proposed is an NQF-endorsed measure. For public 
reporting of this measure, we intend to use one year of data. This 
would allow the measures to be calculated using the most recent data. 
There will be one year lag when the data are finally posted on Hospital 
Compare. It is because we need to build in sufficient time for data 
production and data display and for hospitals to preview their data 
before they are posted on Hospital Compare. We appreciate the 
commenters' request for timely, quarterly data and we are considering 
options for providing hospitals with unadjusted all-hospital 
readmission data on a more frequent basis to assist hospitals in their 
quality improvement efforts.
    We want to assure the commenters that we have a solid review, 
correction and payment process in place that would appropriately link 
submitted data to payment. The hospital-wide readmission measures are 
calculated based on the claims that hospitals submitted to and were 
paid by CMS. We will share with hospitals their measure data using the 
same ``preview'' process that we have been implementing for the 
Hospital IQR Program. We will transmit to hospitals through QualityNet 
their hospital-specific reports containing their individual patient 
data and their measure rates 30 days prior to posting their measures on 
Hospital Compare Web site. Hospitals are encouraged to verify their 
data during this 30-day preview period. If hospitals find errors in the 
claims they submitted to CMS for calculating the measure, they can 
submit the corrections in accordance with the normal claims adjustment 
and timely filing rules specified in the Medicare Claims Processing 
Manual Pub. 100-04, Chapter 1. During the preview period, hospitals' 
hospital-specific reports we will include data to track where their 
patients were readmitted in their hospital-specific report, which 
should help hospitals with their quality improvement efforts. Regarding 
the concern whether we are applying the exclusion criteria of the 
measure methodology correctly, the preview process can be helpful. 
Hospitals will have the opportunity to verify and monitor the cases 
being included in the measures.
    We appreciate the commenter's suggestion to monitor for unintended 
consequences such as more ED visits and observations services and CMS

[[Page 53528]]

plans to conduct analyses to monitor these consequences.
    Comment: A few commenters recommended that with the implementation 
of the 30-day all-cause hospital-wide readmission, the 30-day risk-
standardized readmission measures for AMI, HF, and PN should be removed 
from the Hospital IQR Program measure set so that these three 
conditions would not be counted twice.
    Response: We appreciate the comment, however, we see value in 
reporting both the condition-specific measures and the hospital-wide 
measure. The condition-specific measures give hospitals detailed 
information and results on well-defined clinical groups of patients 
that account for a disproportionate number of hospital readmissions, 
and we expect that these results can provide important benchmarks for 
hospitals and inform quality improvement. In contrast, the hospital-
wide measure will provide hospitals with information on how it compares 
to other hospitals with similar patients hospital-wide and inform 
strategies for lowering readmission risk across the board for all 
patients. CMS intends to publicly report both the hospital-wide and 
condition-specific readmission measures as we believe both measures 
help present a more comprehensive picture of the quality of care in 
hospitals.
    Comment: A commenter encouraged CMS to recognize a patient's 
responsibility regarding hospital readmissions as hospitals should not 
be held accountable for patient behavior.
    Response: We recognize the role of patient compliance and the role 
of primary care and post acute care providers in preventing 
readmissions. However, currently approximately one out of five 
admissions resulted in readmission. We believe that this rate is too 
high. We recognize that reducing readmission is a multi-facet effort 
that requires collaboration among different stakeholders in the 
communities. However there is ample evidence that hospitals can reduce 
their readmission rates through such efforts as: Ensuring patients are 
clinically ready at discharge, reducing risk of infection; reconciling 
medications; improving communication with community providers 
participating in transitions of care; educating patients adequately 
upon discharge; and assuring patients understand follow-up care upon 
discharge. The measure encourages hospitals to improve patient care 
transitions and collaborate with the providers and other resources in 
their communities to reduce readmissions.
    After consideration of the public comments we received, we are 
finalizing the HWR measure for the FY 2015 payment determination and 
subsequent years as proposed.
(C) New Chart-Abstracted Measure: Elective Delivery Prior to 39 
Completed Weeks Gestation: Percentage of Babies Electively Delivered 
Prior to 39 Completed Weeks Gestation (NQF 0469)
    In the FY 2013 IPPS/LTCH PPS proposed rule (77 FR 28046), we 
proposed for the FY 2015 payment determination and subsequent years to 
add a chart-abstracted measure, Elective Delivery Prior to 39 Completed 
Weeks Gestation: Percentage of Babies Electively Delivered Prior to 39 
Completed Weeks Gestation. In launching the Strong Start Initiative 
(http://www.innovation.cms.gov/initiatives/strong-start/) to help 
reduce preterm births, the HHS Secretary indicated in a press release 
that more than half a million infants are born prematurely in America 
each year, and that this trend has increased 36 percent over the last 
20 years. Preterm births may require additional medical attention and 
early intervention services. Some recent research indicates that 
elective deliveries before 39 weeks increase the risk of significant 
complications for mother and baby, as well as long-term health 
problems.88,89,90,91 Preterm births are a growing public 
health problem that has significant consequences for families well into 
a child's life.
---------------------------------------------------------------------------

    \88\ Glantz, J. (Apr. 2005). Elective induction vs. spontaneous 
labor associations and outcomes. J Reprod Med. 50(4):235-40.
    \89\ Vardo, J., Thornburg, L., Glantz J., (2011). Maternal and 
neonatal morbidity among nulliparous women undergoing elective 
induction of labor. J. report med. 56(1-2): 25-30.
    \90\ Tita, A., Landon, M., Spong, C., Lai, Y., Leveno, K., 
Varner, M., et al. (2009). Timing of elective repeat cesarean 
delivery at term and neonatal outcomes. [Electronic Version]. NEJM. 
360:2, 111-120.
    \91\ Clark, S., Miller, D., Belfort, M., Dildy, G., Frye, D., & 
Meyers, J. (2009). Neonatal and maternal outcomes associated with 
elective delivery. [Electronic Version]. Am J Obstet Gynecol. 
200:156.e1-156.e4.
---------------------------------------------------------------------------

    As a public campaign to reduce preterm births, the Strong Start 
Initiative's objective is to test ways to reverse this trend by helping 
provide expectant mothers with the care they need for a healthy 
delivery and a healthy baby, and by focusing on reducing early elective 
deliveries, which can lead to a variety of health problems for mothers 
and infants.
    The Strong Start Initiative cuts across many agencies within HHS 
and involves external organizations including the March of Dimes, and 
the American College of Obstetricians and Gynecologists (ACOG). We 
believe that a reduction in the number of nonmedically indicated 
elective deliveries at >=37 to =37 and 120 days; and 
enrolled in clinical trials.
    We proposed to adopt this measure for the Hospital IQR Program 
because we believe this measure furthers the National Quality 
Strategy's three-part aim of better health care for individuals, better 
health for populations, and low costs for health care. In addition, we 
have determined that the measure is relevant to the nearly 2 million 
Medicare beneficiaries who are aged 44 and under, most of whom are dual 
eligible beneficiaries, who have the potential to be impacted by pre-
term births. This is evidenced by the fact that, in 2011, Medicare paid 
for roughly 14,000 births. The measure is NQF-endorsed; therefore, the 
measure meets the selection criteria under section 
1886(b)(3)(B)(viii)(IX)(aa) of the Act. The measure is currently under 
NQF maintenance review. In its Pre-Rulemaking report for 2012, the MAP 
also recommended the inclusion of this measure in the Hospital IQR 
Program. TJC is the measure steward of this measure and the detailed 
measure specification can be found on the TJC Web site at: http://manual.jointcommission.org/releases/TJC2012A/MIF0166.html.
    We proposed to add this measure to the Hospital IQR Program for the 
FY 2015 payment determination, with collection beginning with January 
1, 2013 discharges. Although this measure is chart-abstracted, we 
proposed that

[[Page 53529]]

this measure would be collected in aggregated numerator, denominator, 
and exclusion counts per hospital via a Web-based tool (as opposed to 
collecting patient-level data from hospitals). Specific details 
regarding this proposed approach to data collection are included in 
section VIII.A.5. of this preamble on the form, manner, and timing of 
quality data submission for the Hospital IQR Program. We anticipate 
that the e-specifications of this measure will be completed in the 
summer of 2012. We intend to move to EHR-based collection of this and 
other measures once the necessary infrastructure to do so is in place. 
We invited public comment on our proposal to adopt this measure.
    Comment: A commenter suggested that preterm delivery is better 
defined as delivery ``prior to 37 completed weeks of gestation'' rather 
than ``prior to 39 completed weeks of gestation'' as indicated in the 
proposed measure.
    Response: After reviewing the comment, we recognize that in the FY 
2013 IPPS/LTCH PPS proposed rule (77 FR 28046), we incorrectly used the 
term ``pre-term births'' to describe the measure, which refers to early 
elective deliveries occurring >=37 weeks and =37 weeks and 8 years of age. We are 
not restricting the population to Medicare patients for this or any 
other chart abstracted measures used in the Hospital IQR Program.
    Comment: Two commenters suggested induction should be defined as 
when cervical drugs are administered, outpatient cervical ripening 
occurs, or cervical ripening occurs in non-delivery admissions when 
patients are sent home and admitted later for delivery. The commenters 
also suggested that gestational age should be defined as cervical 
ripening, AROM, or oxytocin started. One commenter believed the current 
definition of gestational age used by CMS is inadequate, and recommends 
that CMS amend the acceptable sources for determination of gestational 
age.
    Commenters recommended risk-adjustment as well as the inclusion of 
membrane stripping and cervical ripening agents in this measure as an 
induction. Commenters preferred data collection from registries rather 
than a Web-based tool. For the future, one commenter recommended 
including patients within a medical necessity category that may benefit 
from a gestation period greater than 39 weeks.
    Response: Regarding the definition of induction and gestational 
age, data collection for measure calculation from registry data and 
refining the measure inclusion criteria, we will take these 
recommendations into consideration and collaborate with the steward of 
the measure to address these concerns. We note that the measure is 
endorsed with the current methodology. Should the measure steward 
change the current measure methodology by the addition of risk 
adjustment and/or make changes to induction definitions or inclusion 
criteria, the measure could change substantially and place the measure 
at risk for losing its endorsement status. We will take these 
definitions and recommendations into consideration prior to the next 
measure maintenance review.
    Comment: One commenter requested clarification regarding the 
definition of elective and recommends CMS exclude cases of prior 
cesarean or myomectomy.
    Response: In the context of this measure and as defined by the 
measure steward, elective deliveries are those that occur without 
medical indication. In the context of this measure and as defined by 
the measure steward, elective deliveries are those that occur without 
medical indication. For those situations in which a history of prior 
myomectomy or cesarean section are clear medical indications for 
delivery prior to 39 weeks, the measure allows for the abstractors to 
indicate that delivery was medically indicated. We will also convey the 
recommended exclusions of cases with a history of medical indication of 
prior cesarean or myomectomy to the measure steward for consideration.
    Comment: A commenter pointed out that this measure is part of the 
required clinical quality measures proposed for Stage 2 meaningful use 
of certified EHR technology. The commenter recommended that CMS defer 
the

[[Page 53530]]

implementation of this measure until the measure can be reported as an 
eMeasure.
    Response: Because we believe that the data reporting based on the 
current measure specification is not burdensome, we do not see a need 
to delay the implementation of this measure in the Hospital IQR 
Program. Once e-specification of the measure is completed, we will 
consider the option of e-reporting.
    Comment: A few commenters supported the proposed aggregate data 
reporting but were unclear how would this data collection method would 
alleviate burden on hospitals.
    One commenter requested that CMS clarify the frequency of data 
reporting as well as how the data would be displayed accurately without 
validation. The commenter was encouraged that TJC is working on the e-
specification of this measure and the commenter requested CMS to 
consult with TJC for any recent changes in the measure.
    Response: We appreciate the importance of having adequate resources 
when performing quality health assessments. We believe that methods of 
collecting data for this measure should minimize additional hospital 
burden because the measure data are submitted for the hospital's 
aggregate numerator, denominator and exclusions through a Web-based 
entry tool rather than submitting data on each of the hospital's 
individual patient cases. Display of measure results on Hospital 
Compare is required as part of the Hospital IQR Program, and we note 
that not all measure results on Hospital Compare are validated, but 
that hospitals are responsible for ensuring completeness and accuracy 
of the data regardless of whether CMS independently validates that 
data. We will work closely with TJC to implement the measure. The 
frequency of reporting this measure is addressed in the Form, Manner 
and Timing section of this program.
    Comment: A commenter urged CMS to allow hospitals to authorize an 
ORYX vendor to submit the same data that the vendor is submitting to 
TJC.
    Response: We will consider this suggestion for future 
implementation.
    Based on the public comments we received, we are finalizing the 
Elective Delivery Prior to 39 Completed Weeks Gestation: Percentage of 
Babies Electively Delivered Prior to 39 Completed Weeks Gestation 
measure for FY 2015 payment determination and subsequent years as 
proposed. The data collection requirements for this measure are 
detailed in the ``Form, Manner, and Timing of Quality Data Submission'' 
section of this preamble.
    In summary, we are adopting all the Hospital IQR Program measures 
adopted in previous payment determinations, with the exception of the 
17 measures (1 chart-abstracted measure and 16 claims-based measures) 
that we are removing. We are finalizing new survey-based measure items 
for inclusion in the HCAHPS survey measure, 3 claims-based measures, 
and 1 chart-abstracted measure, for a total of 59 measures for the FY 
2015 payment determination and subsequent years. These 59 measures are 
listed below.

------------------------------------------------------------------------
                                    Hospital IQR program measures for FY
               Topic                   2015 payment determination and
                                              subsequent years
------------------------------------------------------------------------
Acute Myocardial Infarction (AMI)    AMI-2 Aspirin prescribed at
 Measures.                           discharge.
                                     AMI-7a Fibrinolytic
                                     (thrombolytic) agent received
                                     within 30 minutes of hospital
                                     arrival.
                                     AMI-8a Timing of Receipt of
                                     Primary Percutaneous Coronary
                                     Intervention (PCI).
                                     AMI-10 Statin Prescribed at
                                     Discharge.
Heart Failure (HF) Measures.......   HF-1 Discharge
                                     instructions.
                                     HF-2 Evaluation of left
                                     ventricular systolic function.
                                     HF-3 Angiotensin Converting
                                     Enzyme Inhibitor (ACE-I) or
                                     Angiotensin II Receptor Blocker
                                     (ARB) for left ventricular systolic
                                     dysfunction.
Stroke (STK) Measure Set..........   STK-1 VTE prophylaxis.
                                     STK-2 Antithrombotic
                                     therapy for ischemic stroke.
                                     STK-3 Anticoagulation
                                     therapy for Afib/flutter.
                                     STK-4 Thrombolytic therapy
                                     for acute ischemic stroke.
                                     STK-5 Antithrombotic
                                     therapy by the end of hospital day
                                     2.
                                     STK-6 Discharged on Statin.
                                     STK-8 Stroke education.
                                     STK-10 Assessed for rehab.
VTE Measure Set...................   VTE-1 VTE prophylaxis.
                                     VTE-2 ICU VTE prophylaxis.
                                     VTE-3 VTE patients with
                                     anticoagulation overlap therapy.
                                     VTE-4 Patients receiving un-
                                     fractionated Heparin with doses/
                                     labs monitored by protocol.
                                     VTE-5 VTE discharge
                                     instructions.
                                     VTE-6 Incidence of
                                     potentially preventable VTE.
Pneumonia (PN) Measures...........   PN-3b Blood culture
                                     performed in the emergency
                                     department prior to first
                                     antibiotic received in hospital.
                                     PN-6 Appropriate initial
                                     antibiotic selection.
Surgical Care Improvement Project    SCIP INF-1 Prophylactic
 (SCIP) Measures.                    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         Acute Myocardial Infarction
 Patients).                          (AMI) 30-day mortality rate.
                                     Heart Failure (HF) 30-day
                                     mortality rate.
                                     Pneumonia (PN) 30-day
                                     mortality rate.
Patients' Experience of Care         HCAHPS survey (expanded to
 Measures.                           include one 3-item care transition
                                     set and two new ``About You''
                                     items).

[[Page 53531]]

 
Readmission Measures (Medicare       Acute Myocardial Infarction
 Patients).                          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       Complication/patient safety
 (PSIs) Composite Measures.          for selected indicators
                                     (composite).
AHRQ PSI and Nursing Sensitive       PSI-4 Death among surgical
 Care.                               inpatients with serious treatable
                                     complications.
Structural Measures...............   Participation in a
                                     Systematic Database for Cardiac
                                     Surgery.
                                     Participation in a
                                     Systematic Clinical Database
                                     Registry for Stroke Care.
                                     Participation in a
                                     Systematic Clinical Database
                                     Registry for Nursing Sensitive
                                     Care.
                                     Participation in a
                                     Systematic Clinical Database
                                     Registry for General Surgery.
Healthcare-Associated Infections     Central Line Associated
 Measures.                           Bloodstream Infection.
                                     Surgical Site Infection.
                                     Catheter-Associated Urinary
                                     Tract Infection.
                                     MRSA Bacteremia.
                                     Clostridium Difficile
                                     (C.Diff).
                                     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)            ED-1 Median time from
 Throughput Measures.                emergency department arrival to
                                     time of departure from the
                                     emergency room for patients
                                     admitted to the hospital.
                                     ED-2 Median time from admit
                                     decision to time of departure from
                                     the emergency department for
                                     emergency department patients
                                     admitted to the inpatient status.
Prevention: Global Immunization      Immunization for Influenza.
 (IMM) Measures.                     Immunization for Pneumonia.
Cost Efficiency...................   Medicare Spending per
                                     Beneficiary.
Perinatal Care....................   Elective delivery prior to
                                     39 completed weeks of gestation.*
------------------------------------------------------------------------
* New measures/items for the FY 2015 payment determination and
  subsequent years.

(D) Clarifications Regarding Existing Hospital IQR Program Measures 
That Have Undergone Changes During NQF Measure Maintenance Processes
    As discussed previously, once adopted, we retain measures in the 
Hospital IQR Program unless specifically stated otherwise. Recently the 
CLABSI and CAUTI measures were expanded to pertain to non-ICU locations 
in hospitals and to other types of care settings as part of NQF 
maintenance review. These measures retained their original NQF numbers 
as these changes were not considered substantive by NQF. However, we 
will continue to require hospitals to submit data for these two 
measures on ICU locations only for the Hospital IQR Program. We sought 
comment from hospitals on the feasibility and timing of expanding 
collection of these measures to include non-ICU locations in hospitals. 
We address these comments below in the VIII.A.4., Possible New Quality 
Measures and Measure Topics for Future Years section.
    NQF, in addition to expanding the care settings to which the CLABSI 
and CAUTI measures could apply, also changed how these measures are 
calculated. The original endorsed versions of the measures calculated 
an infection rate per 1,000 central line days for CLABSI and for 1,000 
urinary catheter days for CAUTI. In the course of its maintenance 
review, NQF changed the way the measures are calculated from an 
infection rate per 1,000 days to a standardized infection ratio 
(``SIR''), which is comprised of the actual rate of infection over the 
expected rate of infection. We note that although the previously 
endorsed versions of the CAUTI and CLABSI measures did not include the 
SIR calculation, we have reported the CDC-calculated SIR for both 
measures on the Hospital Compare Web site. While use of this 
calculation is different from the original NQF-endorsed measure output, 
we believe the SIR is a more accurate way to calculate the CLABSI and 
CAUTI measures for comparative purposes rather than the rate per 1,000 
infection days because it takes into account hospitals' case mix. We 
will continue to report SIRs for both measures because this calculation 
is now consistent with NQF's endorsement of the measures. We also note 
that use of the SIR calculation does not change the type of data that 
hospitals submit on the CLABSI and CAUTI measures.
c. Hospital IQR Program Quality Measures for the FY 2016 Payment 
Determination and Subsequent Years
    In the CY 2012 OPPS/ASC final rule with comment period (76 FR 
74466), we adopted the Safe Surgery Checklist Use measure for the 
Hospital OQR Program for the CY 2014 payment determination. In the same 
rule, we adopted this measure for the ASCQR Program for the CY 2015 
payment determination (76 FR 74507). This structural measure assesses 
whether a hospital outpatient department utilizes a Safe Surgery 
checklist that assesses whether effective communication and safe 
practices are performed during three distinct perioperative periods: 
(1) The period prior to the administration of anesthesia; (2) the 
period prior to skin incision; and (3) the period of closure of 
incision and prior to the patient leaving the operating room. The use 
of such checklists has been credited with dramatic decreases in 
preventable harm, complications and post-surgical mortality.\92\ Like 
hospital outpatient settings and ambulatory surgical centers, acute 
care hospitals also perform many surgical procedures. Therefore, we 
believe this measure is also applicable for hospital inpatient settings 
in strengthening patient safety precautions in hospitals and in the FY 
2013 IPPS/LTCH PPS proposed rule (77 FR 28048), we proposed to adopt 
this measure for the Hospital IQR Program for FY 2016 payment 
determination and subsequent years.
---------------------------------------------------------------------------

    \92\ Haynes, A.B.; Weiser, T.G.; Berry, W.G. et al. (2009). ``A 
Surgical Safety Checklist to Reduce Morbidity and Mortality in a 
Global Population.'' New England Journal of Medicine. 360: 491-499.
---------------------------------------------------------------------------

    For this proposed structural measure, a hospital inpatient 
department would

[[Page 53532]]

indicate whether or not it uses a safe surgery checklist for its 
surgical procedures that includes safe surgery practices during each of 
the three critical perioperative periods discussed above. The measure 
would not require a hospital to report whether it uses a checklist in 
connection with each individual inpatient procedure. We refer readers 
to the CY 2012 OPPS/ASC final rule with comment period (76 FR 74505 
through 74506) for a detailed discussion of the Safe Surgery Checklist 
Use measure.
    We proposed to adopt this Safe Surgery Checklist structural 
measure, which is not NQF-endorsed, under the exception authority 
provided in section 1886(b)(3)(B)(IX)(bb) of the Act. 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. We reviewed the NQF-endorsed measures, and 
we were unable to identify any NQF-endorsed measures that assess use of 
safe surgery checklists. We also are not aware of any other safe 
surgery checklist use measures that have been endorsed or adopted by a 
consensus organization other than NQF. Accordingly, we propose to adopt 
the Safe Surgery Checklist measure under the Secretary's authority set 
forth at section 1886(b)(3)(B)(IX)(bb) of the Act.
    This measure was included on the pre-rulemaking list for 
consideration by the MAP, and this multi-stakeholder organization 
comprised of affected parties supported the direction of this measure 
pending availability of specifications. These specifications will be 
made available in an upcoming manual release for the ASCQR Program 
which will be available on Quality Net Web site at http://www.qualitynet.gov. The proposed safe surgery checklist measure 
assesses the adoption of a best practice for surgical care that is 
broadly accepted and in widespread use among affected parties. In 
addition to being adopted by The World Federation of Societies of 
Anesthesiologists, the use of a safe surgery checklist is one of the 
safe surgery principles endorsed by the Council on Surgical and 
Perioperative Safety, which is comprised of the American Association of 
Nurse Anesthetists, the American College of Surgeons, the American 
Association of Surgical Physician Assistants, the American Society of 
Anesthesiologists, the American Society of PeriAnesthesia Nurses, the 
AORN, and the Association of Surgical Technologists. Two State agencies 
(Oregon and South Carolina), the Veterans Health Administration,\93\ 
numerous hospital systems, State hospital associations (such as 
California and South Carolina), national accrediting organizations, and 
large private insurers have endorsed the use of a safe surgery 
checklist as a best practice for reducing morbidity, mortality, and 
medical errors.94,95 Although there is not currently an NQF 
endorsed measure for safe surgery checklist use, because the use of a 
safe surgery checklist is a widely accepted best practice for surgical 
care, we believe that the proposed structural measure of Safe Surgery 
Checklist use reflects consensus among affected parties. We also note 
that TJC included safe surgery checklist practices among those to be 
used to achieve National Patient Safety Goals (NPSGs) adopted for 2011 
for surgeries performed in ambulatory settings and hospitals.
---------------------------------------------------------------------------

    \93\ Neily, J; Mills, PD, Young-Xu, Y. (2010). ``Association 
between implementation of a Medical Team Training Program and 
Surgical Mortality.'' JAMA. 304 (15): 1693-1700.
    \94\ Haynes, AB; Weiser, TG; Berry, WR et al. (2009) ``A 
Surgical Safety Checklist to Reduce Morbidity and Mortality in a 
Global Population.'' NEJM. 360:491-499.
    \95\ Birkmeyer, JD (2010) ``Strategies for Improving Surgical 
Quality--Checklists and Beyond.'' NEJM. 363: 1963-1965.
---------------------------------------------------------------------------

    Given that this measure is pivotal in preventing human errors in 
surgical operations which are commonly performed by acute care 
hospitals, we proposed to adopt this measure for the Hospital IQR 
Program for the FY 2016 payment determination and subsequent years. 
This proposal would achieve our goal to align measures across settings.
    Comment: Many commenters supported the proposed measure if a 
specific checklist is not mandated.
    Response: We appreciate the support for the measure, which was 
designed to assess the adoption of a best practice for surgical care to 
reduce preventable medical errors and mortality while giving hospitals 
the flexibility to develop their own checklist that meets their needs. 
We chose not to finalize any specific checklist but will consider 
providing links to specific examples of Surgical Safety Checklists as 
an Appendix in the Specification Manual.
    Comment: Many commenters did not support the Safe Surgery Checklist 
measure, and believed that the proposed measure is merely a concept and 
not a fully developed measure. Some commenters noted that CMS should 
first seek NQF endorsement for the measure. Commenters also stated that 
the MAP only supports the general concept and direction of the measure 
but did not recommend the measure for inclusion in the Hospital IQR 
Program.
    A commenter stated that managing the processes involved in surgical 
care is what improves quality of care, not the mere use of a checklist.
    Response: We agree that good management of processes around 
surgical care is critical to high quality surgical care, however, we 
also believe that the use of a surgical checklist facilitates 
management and communication of these processes. In addition, the MAP 
2012 Pre-Rulemaking Report indicated that the MAP supported the 
direction of this measure pending further specification. We have since 
specified this measure for implementation in the Hospital OQR Program 
and the ASCQR Program, and specifications are available on the 
QualityNet Web site in the Specifications Manuals for these two 
programs at: https://www.qualitynet.org/. We also note that non-
endorsed measures that we believe to be important in assessing the 
quality of hospital care can be adopted for the Hospital IQR Program 
through our exception authority in section 1886(b)(3)(B)(IX)(bb) of the 
Act. 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), 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 believe the Safe Surgery Checklist 
complements the management of surgical care processes and ultimately 
contributes to better patient outcomes by increasing safe surgery 
practices, reducing preventable human error, and minimizing 
complications and post-surgical mortality. To that end, we believe it 
warrants inclusion in the Hospital IQR Program.
    Comment: A commenter provided examples of other safeguards that are 
already in place to address safe surgeries. The commenter also noted 
that the introduction of this measure would create an undue burden on 
hospitals because the Medicare National Coverage Determinations already 
specify no Medicare reimbursement for any adverse event from any 
aspects of a surgery. The commenter presumed that this is a strong 
incentive for hospitals to take steps to ensure safe

[[Page 53533]]

surgeries. Furthermore, the commenter noted that TJC surveys all 
accredited institutions for surgery checklists as part of its patient 
safety requirements. Therefore, the commenter concluded that there is 
already adequate use of the safe surgery checklist among hospitals 
performing surgeries.
    Response: In our view, the widespread use of safe surgery 
checklists affirms our view regarding the significance of this 
structural measure. We believe that reporting information about the 
implementation of these safeguards to consumers is important for 
transparency and awareness. This is why this measure has been adopted 
for the Hospital OQR and ASCQR Programs as well. Public reporting of 
this measure is not occurring; therefore, we believe that including 
this measure in the Hospital IQR Program and publicly reporting the 
measure data is not redundant. This measure imposes a minimal reporting 
burden on hospitals.
    Comment: One commenter requested that CMS provide sources of 
surgical safety checklists, which include safe surgery practices during 
each of the three critical perioperative periods. A few commenters 
stated that the WHO Safe Surgery Checklist Implementation Manual 
described one time pause, and not three as stated in the proposed rule. 
Commenters agreed that the pauses are important but a series of three 
time outs are disruptive and impracticable. Commenters recommended CMS 
clarifies and ensures that surgeons can implement and modified CMS' 
sample Safe surgery Checklist and are not mandated to incorporate the 
three ``pauses.''
    Response: We did not propose to require the use of any particular 
checklist for this measure. In the discussion of the Safe Surgery 
Checklist Use measure in the proposed rule we referred readers to the 
discussion of this measure in the CY 2012 OPPS/ASC final rule with 
comment period (76 FR 74464 through 74466). In that final rule with 
comment period, we presented examples of typical safe surgery practices 
corresponding to three critical preoperative periods. Although the 
discussion in the CY 2012 OPPS/ASC final rule with comment period noted 
that the WHO Surgical Safety Checklist ``lists safe surgery practices 
during each of these three perioperative periods,'' we agree with the 
commenters that the WHO Safe Surgery Checklist Implementation Manual 
only specifies a single pause. However, we did not propose to adopt the 
WHO checklist and, under our proposal, hospitals have the flexibility 
to determine the use of a safe surgery checklist with the number of 
pauses they feel are necessary to elicit the safest surgical practices. 
The measure does not assess the process or content of their safe 
surgery checklists, nor does the Safe Surgery Checklist Use measure 
finalized for the Hospital OQR Program or ASCQR Program. The measure 
does not prescribe for facilities the processes for completion of (for 
example, number of pauses) or content of a safe surgery checklist (for 
example, which items to check on). Instead, the measure just requires 
hospitals to report whether or not they use a safe surgery checklist.
    Comment: A commenter recommended that after implementation, CMS 
should evaluate the appropriate implementation and utilization of the 
use of the safe surgery checklist by providers as indicated in this 
measure. Commenters were concerned that the use of a surgical checklist 
may result in a ``check the box'' process which does not result in the 
improved delivery of care for which the checklist is intended. A 
commenter suggested focusing on specifying standardized criteria to be 
followed in using the safe surgery checklist instead of whether the 
checklist is in place.
    Response: We agree with the commenters that the use of a safe 
surgery checklist as indicated in this measure should be implemented 
appropriately to achieve improved delivery rather than just creating an 
additional documentation requirement. The use of a checklist is 
intended to help prevent serious medical errors involving surgical care 
such as anesthesia dosing errors and allergic reactions, wrong site 
surgery, wrong procedure or wrong patient surgery, and the retention of 
foreign objects in the body. During our measure maintenance process, we 
will review the improvement potential for this measure, like all the 
measures we adopted for the Hospital IQR Program, for indication of 
best practices, among other review criteria.
    Comment: A commenter was skeptical that the proposed Safe Surgery 
Checklist attestation could be validated by CMS and therefore, does not 
warrant consideration as a structural measure.
    Response: At this time we have not proposed to validate this 
measure or other structural measures previously adopted in the Hospital 
IQR Program.
    After consideration of public comments we received, we are 
finalizing the Safe Surgery Checklist use measure as proposed for a 
total of 60 measures for the FY 2016 payment determination and 
subsequent years. The data collection requirements for this measure are 
detailed in the ``Form, Manner, and Timing of Quality Data Submission'' 
section of this preamble. The 60 measures for the FY 2016 payment 
determination and subsequent years are listed below.

------------------------------------------------------------------------
                                    Hospital IQR program measures for FY
               Topic                   2016 payment determination and
                                              subsequent years
------------------------------------------------------------------------
Acute Myocardial Infarction (AMI)    AMI-2 Aspirin prescribed at
 Measures.                           discharge.
                                     AMI-7a Fibrinolytic
                                     (thrombolytic) agent received
                                     within 30 minutes of hospital
                                     arrival.
                                     AMI-8a Timing of Receipt of
                                     Primary Percutaneous Coronary
                                     Intervention (PCI).
                                     AMI-10 Statin Prescribed at
                                     Discharge.
Heart Failure (HF) Measures.......   HF-1 Discharge
                                     instructions.
                                     HF-2 Evaluation of left
                                     ventricular systolic function.
                                     HF-3 Angiotensin Converting
                                     Enzyme Inhibitor (ACE-I) or
                                     Angiotensin II Receptor Blocker
                                     (ARB) for left ventricular systolic
                                     dysfunction.
Stroke Measure (STK) Set..........   STK-1 VTE prophylaxis.
                                     STK-2 Antithrombotic
                                     therapy for ischemic stroke.
                                     STK-3 Anticoagulation
                                     therapy for Afib/flutter
                                     STK-4 Thrombolytic therapy
                                     for acute ischemic stroke.
                                     STK-5 Antithrombotic
                                     therapy by the end of hospital day
                                     2.
                                     STK-6 Discharged on Statin.
                                     STK-8 Stroke education.
                                     STK-10 Assessed for rehab.
VTE Measure Set...................   VTE-1 VTE prophylaxis.
                                     VTE-2 ICU VTE prophylaxis.
                                     VTE-3 VTE patients with
                                     anticoagulation overlap therapy.

[[Page 53534]]

 
                                     VTE-4 Patients receiving un-
                                     fractionated Heparin with doses/
                                     labs monitored by protocol.
                                     VTE-5 VTE discharge
                                     instructions.
                                     VTE-6 Incidence of
                                     potentially preventable VTE.
Pneumonia (PN) Measures...........   PN-3b Blood culture
                                     performed in the emergency
                                     department prior to first
                                     antibiotic received in hospital.
                                     PN-6 Appropriate initial
                                     antibiotic selection.
Surgical Care Improvement Project    SCIP INF-1 Prophylactic
 (SCIP) Measures.                    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         Acute Myocardial Infarction
 Patients).                          (AMI) 30-day mortality rate.
                                     Heart Failure (HF) 30-day
                                     mortality rate.
                                     Pneumonia (PN) 30-day
                                     mortality rate.
Patients' Experience of Care         HCAHPS survey (expanded to
 Measures.                           include one 3-item care transition
                                     set* and two new ``About You''
                                     items).
Readmission Measures (Medicare       Acute Myocardial Infarction
 Patients).                          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       Complication/patient safety
 (PSIs) Composite Measures.          for selected indicators
                                     (composite).
AHRQ PSI and Nursing Sensitive       PSI-4 Death among surgical
 Care.                               inpatients with serious treatable
                                     complications.
Structural Measures...............   Participation in a
                                     Systematic Database for Cardiac
                                     Surgery.
                                     Participation in a
                                     Systematic Clinical Database
                                     Registry for Stroke Care.
                                     Participation in a
                                     Systematic Clinical Database
                                     Registry for Nursing Sensitive
                                     Care.
                                     Participation in a
                                     Systematic Clinical Database
                                     Registry for General Surgery.
                                     Safe Surgery Checklist
                                     Use.**
Healthcare-Associated Infections     Central Line Associated
 Measures.                           Bloodstream Infection.
                                     Surgical Site Infection.
                                     Catheter-Associated Urinary
                                     Tract Infection.
                                     MRSA Bacteremia.
                                     Clostridium Difficile
                                     (C.Diff).
                                     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)            ED-1 Median time from
 Throughput Measures.                emergency department arrival to
                                     time of departure from the
                                     emergency room for patients
                                     admitted to the hospital.
                                     ED-2 Median time from admit
                                     decision to time of departure from
                                     the emergency department for
                                     emergency department patients
                                     admitted to the inpatient status.
Prevention: Global Immunization      Immunization for Influenza.
 (IMM) Measures.                     Immunization for Pneumonia.
Cost Efficiency...................   Medicare Spending per
                                     Beneficiary.
Perinatal Care....................   Elective delivery prior to
                                     39 completed weeks of gestation.*
------------------------------------------------------------------------
* New measures/items for FY 2015 payment determination and subsequent
  years.
** New measures for FY 2016 payment determination and subsequent years.

4. Possible New Quality Measures and Measure Topics for Future Years
    We anticipate that, as EHR technology evolves and more 
infrastructure is put in place, we will have the capacity to accept 
electronic reporting of many of the clinical chart-abstracted measures 
that are currently part of the Hospital IQR Program or have been 
proposed for adoption into the program. We intend for this future 
progress to significantly reduce the administrative burden on hospitals 
under the Hospital IQR Program. We recognize that considerable work 
needs to be done by measure owners and developers to make this possible 
with respect to the clinical quality measures that we proposed. This 
includes completing electronic specifications for measures, pilot 
testing, reliability and validity testing, and implementing such 
specifications into EHR technology to capture and calculate the 
results, and implementing the systems. We believe that at a future 
date, such as 2015, CMS and hospitals will be able to use EHR-based 
reporting for many chart-abstracted measures for the Hospital IQR 
Program, and we intend to work diligently toward this goal. 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.
    Once the e-specifications and the EHR-based collection mechanism 
are available for the smoking and alcohol cessations measures developed 
by TJC, we intend to propose two TJC smoking and alcohol cessation 
measure sets for inclusion in the Hospital IQR Program.

[[Page 53535]]

Each of these TJC sets consists of four measures:
     Smoking Cessation Set--(1) TAM-1 Tobacco Use Screening; 
(2) TAM-2 Tobacco Use Treatment Provided or Offered; (3) TAM-3 Tobacco 
Use Treatment Management at Discharge; and (4) TAM-4 Assessing Status 
after Discharge, and
     Alcohol Cessation Set--(1) TAM-5 Alcohol Use Screening; 
(2) TAM-6 Alcohol Use Brief Intervention Provided or Offered; (3) TAM-7 
Alcohol and Other Drug Use Disorder Treatment Provided or Offered at 
Discharge; and (4) TAM-8 Substance Use: Assessing Status after 
Discharge.
    These measure sets were recommended by the MAP for inclusion in the 
Hospital IQR Program, provided they complete the NQF endorsement 
process prior to inclusion. We invited public comment on our intention 
to propose these measure sets.
    Comment: Roughly equal numbers of commenters supported and opposed 
the two TJC smoking and alcohol cessation measure sets for inclusion in 
the Hospital IQR Program. A commenter did not support the TAM-4 
Assessing Status after Discharge and TAM-8 Substance Use: Assessing 
Status after Discharge measures as data collection after discharge was 
perceived to be very labor intensive. A commenter urged CMS to align 
the Smoking and Alcohol Cessation measure names with TJC's measure 
names should CMS propose the measures in the future.
    A few commenters highlighted some limitations of e-specifications 
and EHR-based collection and added that a high validation rates such as 
95 percent, across electronic data capture method and manual chart-
abstraction is crucial.
    Response: We thank the commenters for their input on the 
prospective TJC alcohol and smoking cessation measure sets. We will 
take this input into consideration in future rulemakings.
    We intend to propose the following measure domains in the Hospital 
IQR Program measure set in future measurement proposals for the 
Hospital IQR Program: clinical quality (for example, the AMI, HF, PN, 
STK, and VTE measures), care coordination (for example, the mortality 
measures), patient safety (for example, the SCIP and HAI measures), 
patient and caregiver experience of care (for example, the HCAHPS 
measure), population/community health (for example, the global 
immunization measures), and efficiency (for example, the Medicare 
Spending per Beneficiary measure). This approach will enhance better 
patient care while bringing the Hospital IQR Program in line with our 
other established quality reporting and pay-for-performance programs.
    Comment: We received many suggestions for future measure domains or 
measure topics including:

 HAIs measures collected via NHSN
 Risk-adjusted, rate-based HAC measures
 Beta blockers prescribed to HF patients
 Beta blocker therapy for left ventricular systolic dysfunction
 Post-discharge appointment for HF patients
 AAA mortality measures
 Cardiac Rehabilitation Referral
 Discharge appointment measure for heart failure patients
 Coronary artery and heart disease
 Medication safety
 Surgical outcome measures
 Sepsis and septic shock
 Registry-based CABG composite score
 Potentially avoidable complication
 A comprehensive COPD measure set
 Pain assessment
 Alzheimer's disease/cognitive impairment quality measures
 Efficiency, resource use, and appropriateness of care measures
 Malnutrition
 Patient-reported outcomes and engagement
 Pediatric care

    In addition, some commenters opposed the future inclusion of 
measures that require a global population. A commenter requested CMS to 
provide a detailed list of measures under consideration in the proposed 
rulemakings.
    Response: We thank the commenters for their valuable input for the 
suggestions regarding future measures and will take them into 
consideration for future rulemakings.
    We also noted that consistent with the updated NQF endorsements of 
the CLABSI (NQF 139) and CAUTI (NQF 138) measures, we 
intend to propose to collect data for non-ICU patients as well for 
these two measures when feasible at a future time, and we sought public 
comment on the feasibility and timing of expanding data collection to 
non-ICU locations for acute care hospitals.
    Comment: A few commenters highlighted the prevalence of CLABSI in 
ICUs in hospitals and noted that the morbidity and mortality from these 
types of infections are preventable. The commenters strongly encouraged 
CMS to move forward with data collection from non-ICU locations as soon 
as possible.
    Response: We thank the commenter for the encouragement to advance 
our goal to reduce central line associated blood-stream infections.
    Comment: Many commenters stated that expansion of the CLABSI and 
CAUTI measures into the non-ICU locations in hospitals is a good long-
term goal. However, commenters requested delaying the proposal to 
expand these two measures to include non-ICU locations until hospitals 
have gained several years of experience with data collection and 
validation in ICUs. Two commenters perceived the expansion of data 
collection to non-ICU locations as burdensome and strongly urged CMS 
not to expand data collection beyond ICU units. A commenter questioned 
the capability of the NHSN to handle the influx of data from the 
expansion of the CLABSI measures into non-ICU locations.
    Response: We will take these comments into consideration in 
determining an appropriate time to propose to expand collection of 
these measures in non-ICU locations. As more and more acute care 
hospitals reduce CLABSI and CAUTI incidence in ICU locations and 
prioritize reductions of CLABSI and CAUTI incidence in other hospital 
locations, extending CLABSI and CAUTI reporting to those locations will 
yield benefits for prevention and quality improvement and will justify 
extending the scope of CLABSI and CAUTI reporting to non-ICU locations. 
We anticipate that NHSN infrastructure would be enhanced as needed to 
handle any expansion of CLABSI and CAUTI reporting requirements.
    Comment: A commenter strongly supported using the NHSN as the core 
component of HAI data reporting. Another commenter expressed concerns 
that the functionality of the NHSN database as is not user-friendly. 
According to this commenter, there are significant limitations for 
uploading data. For example, a hospital may have an incomplete data set 
to upload into the surgical site infection application for colon and 
hysterectomy patients, but the data cannot be saved in a temporary file 
until it is complete. In addition, the database does not accept simple 
spreadsheets to be uploaded. The commenter urged CMS to collaborate 
with the CDC to improve the usability of the NHSN database.
    Response: We thank the commenter for the support of using NHSN as 
the mechanism to collect HAI measure data. We understand that CDC 
continues to use input from users and systematic field studies of its 
own to improve the usability of NHSN's Web interface. CDC requires 
healthcare facilities to submit complete healthcare-associated 
infection data records via the NHSN system, to avoid storing volumes of 
incomplete records while substantial

[[Page 53536]]

back-and-forth communication between CDC and the reporting facility is 
pending during close out for the facility's reporting for a specified 
reporting interval. The importance of requiring complete records is 
heightened by the use of NHSN for mandatory healthcare-associated 
infection reporting in 29 states (including Washington, DC) and use of 
NHSN for CMS quality reporting programs. CDC informed us that NHSN 
accepts comma separated value (CSV) files for importation of patient 
demographic data, procedure data, and surgeon data. These CSV files can 
be readily created from spreadsheets and uploaded into NHSN, 
eliminating the need for manual data entry of patient demographic data, 
procedure data, and surgeon data.
    We thank the commenters for their input on the feasibility and 
timing of expanding collection of these measures to include non-ICU 
locations in hospitals. We will take them into consideration in future 
rulemakings.
5. 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 quality data 
in a form and manner, and at a time, specified by the Secretary. CMS 
requires that hospitals submit data in accordance with the 
specifications for the appropriate discharge periods. 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 2015 Payment Determination and 
Subsequent Years
    The Hospital IQR Program procedural requirements are now codified 
in regulation at 42 CFR 412.140. Hospitals should refer to the 
regulation for participation requirements. In the FY 2013 IPPS/LTCH PPS 
proposed rule (77 FR 28051), for the FY 2015 payment determination and 
future years, we proposed to modify the following procedural 
requirements and the corresponding regulation text.
     In order to ensure that hospitals that participate in the 
Hospital IQR Program are submitting data for a full year, we proposed 
that hospitals that would like to participate in the Hospital IQR 
Program for the first time, or that previously withdrew from the 
Program and would like to participate again, must submit to CMS a 
completed Notice of Participation by December 31 of the calendar year 
preceding the first quarter of the calendar year in which the chart-
abstracted Hospital IQR data submission is required for any given 
fiscal year. For example, if a hospital wishes to participate in FY 
2015, it must submit a pledge by December 31, 2012, and submit data 
beginning with January 1, 2013 discharges. We also proposed to modify 
our regulations at 42 CFR 412.140(a)(3)(i) to reflect this proposed 
requirement.
     Currently, CMS will accept Hospital IQR Program withdrawal 
forms from hospitals on or before August 15 of the fiscal year 
preceding the fiscal year for which a Hospital IQR payment 
determination will be made. In order to decrease the time between final 
submission of Hospital IQR data and Hospital IQR payment determination 
notification for the hospitals, we proposed that a subsection (d) 
hospital may withdraw from the Hospital IQR Program by submitting to 
CMS a withdrawal form that can be found in the secure portion of the 
QualityNet Web site. The hospital must submit the withdrawal form by 
May 15 prior to the start of the payment year affected. For example, if 
a hospital seeks to withdraw from the FY 2015 payment determination, 
the hospital must submit the withdrawal form to CMS by May 15, 2014. If 
a hospital withdraws from the Program, it will receive a reduction 
until such time as it meets the participation requirements. This 
proposal will also align with the final abstraction data submission 
deadline, which will eliminate the burden of one extra deadline for 
providers and vendors. We also proposed to modify our regulations at 42 
CFR 412.140(b) to reflect this proposed requirement.
    Comment: A few commenters supported the proposed changes in the 
data submission requirements regarding the timing of notifications for 
participating in and withdrawing from the Hospital IQR Program.
    Response: We would like to thank the commenters for their support.
    After consideration of the public comments we received, we are 
finalizing these participation changes and modifying the associated 
regulation text at 42 CFR 412.140(a)(3)(i) and 42 CFR 412.140(b).
c. Data Submission Requirements for Chart-Abstracted Measures
    In the FY 2013 IPPS/LTCH PPS proposed rule (77 FR 28051), for FY 
2015 and subsequent years, we proposed to retain the 4\1/2\ months 
quarterly submission deadline for chart-abstracted quality measures. We 
also proposed to retain 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 
proposed the same 14-day period after the aggregate population and 
sample size count deadline to submit the required patient-level 
records. For the FY 2015 payment determination and subsequent years, 
hospitals must submit data for four consecutive calendar year discharge 
quarters. For example, for FY 2015, the submission quarters are as 
follows: 1Q CY 2013, 2Q CY 2013, 3Q CY 2013 and 4Q CY 2013.
    We received no comments on this proposal; therefore, we are 
finalizing our proposal to retain the 4\1/2\ months quarterly 
submission deadline for chart-abstracted quality measures and the 
aggregate population and sampling deadline of 4 months for the FY 2015 
payment determination and subsequent years.
    We proposed to collect a new chart-abstracted measure for FY 2015, 
Elective Delivery Prior to 39 Completed Weeks Gestation: Percentage of 
Babies Electively Delivered Prior to 39 Completed Weeks Gestation. 
Although this is a chart-abstracted measure, we proposed that this 
measure would be collected in aggregated numerator, denominator, 
exclusion counts and total population per hospital via a Web-Based 
Measure Tool. The complete data submission requirements, submission 
deadlines, and data submission mechanism, known as the Web-Based

[[Page 53537]]

Measure Tool, will be posted on the QualityNet Web site at: http://www.qualitynet.org/. The Web-Based Measure Tool will be an Internet 
database for hospitals to submit their aggregate data. We proposed that 
hospitals submit data in accordance with the specifications for the 
appropriate reporting periods to the Web-Based Measure Tool that will 
be found in the hospital section on the QualityNet Web site (http://www.qualitynet.org/).
    Comment: One commenter opposed the use of aggregate reporting 
because many hospitals already report this measure to TJC in a patient-
level format.
    Response: We thank the commenter for the input and appreciate that 
hospitals that submit to TJC will need to submit their aggregate totals 
to the Web tool. However, we believe this aggregate submission will be 
less burdensome for hospitals that do not already collect this measure.
    Comment: Several commenters supported the aggregate collection of 
the data for the Elective Delivery Prior to 39 Completed Weeks 
Gestation measure.
    Response: We thank the commenters for their support.
    Comment: Several commenters support the aggregate collection of the 
measure but wanted more details on the submission deadlines and 
requirements.
    Response: We thank the commenters for their input and reiterate our 
statement from the proposed rule that we consider the Elective Delivery 
Prior to 39 Completed Weeks Gestation measure to be a chart-abstracted 
measure. Accordingly, we are clarifying that the deadlines that we are 
finalizing for submission of patient-level data for all of the chart-
abstracted measures also apply to submission of aggregate numerator, 
denominator, exclusion counts and total population and sample size for 
this measure. The only difference between the submission requirements 
for this measure and the other chart-abstracted measures is that the 
method hospitals will follow will vary somewhat, while the actual 
deadlines will not.
    In particular, we provide hospitals with the opportunity to begin 
submitting patient-level charts for the other chart-abstracted measures 
as candidate cases occur during the quarter at issue. It is not 
necessary for us to provide this same mechanism for the Elective 
Delivery Prior to 39 Completed Weeks Gestation measure because 
hospitals will not know their aggregate counts for a particular quarter 
until the quarter has ended. In addition, hospitals should need less 
time to submit data for this measure because, unlike the other chart-
abstracted measures, hospitals are only required to submit several 
aggregate counts instead of potentially numerous patient-level charts. 
We note that submission of this measure places less burden on hospitals 
than the other chart-abstracted measures because of the ease with which 
hospitals can simply submit their aggregate counts using our Web-Based 
Measure Tool through the QualityNet Web site.
    In summary, the data submission deadline for all of the chart-
abstracted measures, including the Elective Delivery Prior to 39 
Completed Weeks Gestation measure, is 4\1/2\ months after the end of 
the discharge quarter. For example, the deadline for submission of data 
for all chart-abstracted measures for the first calendar quarter of 
2013 is August 15, 2013. The only difference in timing for submission 
of data for the Elective Delivery Prior to 39 Completed Weeks Gestation 
measure and the other chart-abstracted measures is the duration of the 
submission periods. For the Elective Delivery Prior to 39 Completed 
Weeks Gestation measure the submission period for the first quarter of 
2013 will be July 1st, 2013-August 15th, 2013 and for the other chart-
abstracted measures the submission period is for the first quarter of 
2013 will be January 1, 2013-August 15, 2013. While the submission 
periods differ, the deadlines for each quarter will be the same for all 
chart-abstracted measures, including the Elective Delivery Prior to 39 
Completed Weeks Gestation measure.
    Comment: Several commenters were concerned about including this 
measure in the Hospital VBP Program because it is would be difficult to 
validate since there are no underlying patient records from which to 
pull the data.
    Response: We thank the commenters for their input. We point out 
that the measure was not proposed for the Hospital VBP Program at this 
time. We also have not proposed to validate this measure.
    After consideration of the public comments we received, we are 
finalizing the aggregate data collection and submission requirements 
for the Elective Delivery Prior to 39 Completed Weeks Gestation: 
Percentage of Babies Electively Delivered Prior to 39 Completed Weeks 
Gestation measure.
d. Sampling and Case Thresholds Beginning With the FY 2015 Payment 
Determination
    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 proposed rule (77 FR 28051), we did not 
propose 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.
    Comment: Several commenters expressed concern about changes to 
QualityNet feedback reports. In addition, several commenters expressed 
concern that QualityNet's role in validation is being expanded at a 
time when the system is not functioning properly.
    Response: We thank the commenters for their concerns. The 
QualityNet reporting system recently underwent significant changes as a 
result of a Hospital IQR Program and Hospital OQR Program system 
alignment and re-design. The format of standard QualityNet reports 
should be consistent at this time, with changes being applied only to 
accommodate changes in data collection, updates necessary to support 
changes in program requirements. We believe QualityNet is reliable and 
that the system will continue to be capable of supporting the uploads 
necessary for validation.
    Comment: One commenter expressed concern that electronic medical 
records owners be given assistance from vendors or have access to 
programming to assure correct documentation and obstetric reporting.
    Response: We thank the commenter and encourage submitters to work 
with their vendors to assure correct documentation and obstetric 
reporting.
e. HCAHPS Requirements for the FY 2014, FY 2015, and FY 2016 Payment 
Determinations
    In the FY 2012 IPPS/LTCH PPS final rule (76 FR 51641 through 
51643), 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.
    Other than this change, we did not make any other changes to the 
HCAHPS requirements for the FY 2013 and FY

[[Page 53538]]

2014 Hospital IQR Program payment determinations, which were adopted in 
the FY 2011 IPPS/LTCH PPS final rule (75 FR 50220).
    In the FY 2013 IPPS/LTCH PPS proposed rule (77 FR 28051), for the 
FY 2016 Hospital IQR payment determinations, we proposed to continue 
these HCAHPS 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 2016 Hospital IQR 
Program, we proposed that the HCAHPS data would be based on discharges 
from January 1, 2014 through December 31, 2014.
    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 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, hospitals and survey vendors must participate in all 
oversight activities. As part of the oversight process, during the 
onsite visits or conference calls, the HCAHPS Project Team will review 
the hospital's or survey vendor's survey systems and assess protocols 
based upon the most recent HCAHPS Quality Assurance Guidelines. All 
materials relevant to survey administration will be subject to review. 
The systems and program review includes, but is not limited to: (a) 
Survey management and data systems; (b) printing and mailing materials 
and facilities; (c) telephone and Interactive Voice Response (IVR) 
materials and facilities; (d) data receipt, entry and storage 
facilities; and (e) written documentation of survey processes. 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 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 again are encouraging hospitals to regularly check the HCAHPS 
Web site at http://www.hcahpsonline.org for program updates and 
information. We invited public comment on our proposal to continue 
using these HCAHPS requirements for the FY 2016 payment determination.
    We did not receive any public comments and we are adopting the 
HCAHPS requirements for the FY 2014, FY 2015, and FY 2016 payment 
determinations, as proposed.
f. Data Submission Requirements for Structural Measures
    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 registry 
participation 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 proposed rule (77 FR 
28052), we

[[Page 53539]]

proposed to continue this policy for FY 2015 and subsequent years. For 
the FY 2015 payment determination, 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 
will be between April 1, 2014 and May 15, 2014, with respect to the 
time period of January 1, 2013 through December 31, 2013. We invited 
public comment on this proposal.
    Comment: One commenter supported the timing of collection for 
structural measures for FY 2015 and subsequent years.
    Response: We thank the commenter for the support.
    After consideration of the public comment we received, we are 
finalizing our proposal to align the structural measure submission with 
the final submission quarter for each fiscal year for FY 2015 and 
subsequent years.
g. 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 2014 payment determination align with the submission timeframes for 
chart abstracted measures. The data submission deadlines are posted on 
the QualityNet Web site at: http://www.QualityNet.org org/.
    Hospitals will have until the Hospital IQR Program final submission 
deadline to submit their quarterly data to NHSN. After the final 
Hospital IQR Program submission deadline has occurred for each calendar 
quarter of CY 2013, for FY 2015 quarters, CMS 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 proposed rule (77 FR 28052), we 
proposed to continue this policy, with the two exceptions discussed 
below, for the FY 2015 payment determination and subsequent years.
    The HAI measures that will be included in the FY 2015 payment 
determination are included in the following chart:

------------------------------------------------------------------------
                                       FY 2015 Payment determination:
               Topic                    Hospital associated infection
                                             measures (CDC/NHSN)
------------------------------------------------------------------------
                                    Central Line Associated Blood Stream
                                     Infection.
                                    Surgical Site Infection.
                                    Catheter Associated Urinary Tract
                                     Infection.
                                    MRSA Bacterimia.
                                    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. We proposed to provide 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 Surgical Site Infection (SSI) measure that the 
data may not be meaningful for Hospital Compare or sufficiently 
reliable to be utilized for payment determination.
    We proposed to provide 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 2012 would not be required to report the SSI measure 
in 2014. We proposed 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 will be available on QualityNet. We invited 
public comment on this proposal.
    Comment: Several commenters supported the CMS proposal to provide 
an exception from NHSN reporting for hospitals without ICU locations or 
that perform a combined total of 10 or fewer colon and abdominal 
hysterectomy procedures.
    Response: We thank these commenters for their support.
    Comment: One commenter suggested that a combined total of 25 colon 
and abdominal hysterectomy procedures may be more appropriate.
    Response: We proposed to exempt hospitals performing 10 or fewer 
colon or abdominal hysterectomy procedures because we believe that 
facilities performing this number of procedures may not have data for 
the Surgical Site Infection (SSI) measure that is sufficiently 
meaningful for a measure score to be displayed on Hospital Compare for 
this measure. However, we believe that setting the minimum number of 
procedures as low as is possible for SSI is essential to ensuring the 
availability of the most data possible for Hospital Compare reporting 
for this critical HAI measure. We thank the commenter for the 
suggestion and will re-evaluate this policy when more data are 
available.
    After consideration of the public comments we received, we are 
finalizing the proposed exception process 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 as defined above.
6. Supplements to the Chart Validation Process for the Hospital IQR 
Program for the FY 2015 Payment Determination and Subsequent Years
    In the FY 2013 IPPS/LTCH PPS proposed rule (77 FR 28053 through 
28059), for the FY 2015 payment determination and subsequent years, we 
proposed to continue using, with some modifications, the validation 
requirements and methods we adopted in the FY 2011 IPPS/LTCH PPS final 
rule (75 FR 50227 through 50229) and the FY 2012 IPPS/LTCH PPS final 
rule (76 FR 51645 through 51648). The modifications we proposed, 
explained in detail below, are as follows: (a) Using separate 
validation approaches for chart-abstracted clinical process of care and 
HAI measures; (b) changing the number of hospitals included in the base 
annual validation random sample; and (c) using targeted selection of 
supplemental hospitals to be added to the base sample. As described 
below, these proposals are intended to strengthen the Hospital IQR 
Program by validating a larger set of measures, increasing 
opportunities to detect poor reporting through different approaches to 
targeting and scoring, and increasing the rigor associated with our 
validation process, all while ensuring that the

[[Page 53540]]

wider scope and greater rigor only modestly increases the burden of 
validation activities on hospitals relative to prior years. We invited 
public comment on each of these proposals.
a. Separate Validation Approaches for Chart-Abstracted Clinical Process 
of Care and Healthcare Associated Infection (HAI) Measures
(1) Background and Rationale
    We finalized reporting to the Hospital IQR Program of 25 chart-
abstracted measures in 7 topic areas: Acute myocardial infarction 
(AMI); heart failure (HF); pneumonia (PN); surgical care improvement 
project (SCIP); emergency department throughput (ED); immunization 
(IMM); and HAIs for the FY 2014 payment determination and subsequent 
years in the FY 2012 IPPS/LTCH PPS final rule (76 FR 51628 through 
51629). In the FY 2013 IPPS/LTCH PPS proposed rule (77 FR 28053), for 
the FY 2015 payment determination and subsequent years, we proposed to 
continue validating the chart-abstracted clinical process of care 
measures with the exception of the SCP-VTE-1 measure, which we proposed 
for removal from the Hospital IQR Program starting with the FY 2015 
payment determination. We also proposed to continue validating the one 
HAI measure--CLABSI--that we finalized for validation in the FY 2012 
IPPS/LTCH PPS final rule (76 FR 51646). We also proposed to validate 
two additional HAI measures, catheter-associated urinary tract 
infection (CAUTI) and surgical site infection (SSI), which were 
finalized for inclusion in the Hospital IQR Program for the FY 2014 
payment determination and subsequent years in the FY 2012 IPPS/LTCH PPS 
final rule (76 FR 51628 through 61629). We proposed to add these two 
measures to those we validate so that we can ensure data reliability on 
all chart-abstracted measures on which hospitals will have been 
reporting data under the Hospital IQR Program for at least one year 
prior to the FY 2015 payment determination.
    The inclusion of the three chart-abstracted HAI measures--CLABSI, 
CAUTI, and SSI--in the Hospital IQR Program reflects HHS' priority to 
increase patient safety by preventing HAIs. As finalized in the FY 2012 
IPPS/LTCH PPS final rule (76 FR 51640 through 51645), the mechanism for 
reporting HAI measures is different from the mechanism for reporting on 
the chart-abstracted clinical process of care measure sets (AMI, ED, 
IMM, HF, PN, SCIP). In addition, the infection events for which 
hospitals would report on the HAI measures occur rarely relative to the 
events for which hospitals would report on the clinical process of care 
measure sets. We cannot report a single number describing the national 
incidence for these three HAIs collectively or individually because 
infection rates vary by the type of hospital, their patient 
populations, device utilization rates, and performance of different 
types of surgeries.\96\ However, we know that these events are 
sufficiently rare that if we did not find a way to target records with 
a higher probability of including an HAI, many hospitals would have to 
submit virtually all records per quarter to effectively validate the 
HAI measure set. For these reasons, we proposed, and we describe below 
in section VIII.A.6.a.(3) of this preamble to separate the approaches 
for targeting and sampling of records for HAI validation from the 
approaches finalized for validation of the chart-abstracted clinical 
process of care measure sets in the FY 2012 IPPS/LTCH PPS final rule 
(76 FR 51647 through 51648), and summarized in VIII.A.6.a.(2) of this 
preamble, and we proposed to calculate separate scores for the group of 
clinical process of care measure sets and the HAI measure set as 
described in VIII.A.6.a.(4) of this preamble.
---------------------------------------------------------------------------

    \96\ Dudeck MA, Horan TC, Peterson KD, et al. National 
Healthcare Safety Network (NHSN) Report, data summary for 2010, 
device-associated module. Am J Infect Control. 2011 Dec;39(10):798-
816. Edwards JR, Peterson KD, Mu Y, et al. National Healthcare 
Safety Network (NHSN) report: Data summary for 2006 through 2008, 
issued December 2009. Am J Infect Control 2009 Dec; 37:783-805.
---------------------------------------------------------------------------

    Comment: Several commenters expressed general support for the 
validation proposal. Many commenters acknowledged that validation of 
the chart-abstracted clinical process of care and HAI measures should 
be separated. In fact, many commenters suggested that CDC should manage 
HAI validation efforts because of its responsibility for defining and 
maintaining the NHSN system. Others encouraged CMS ``to work closely 
with NHSN in its validation development.''
    Response: We appreciate these comments, and agree that CDC is 
responsible for defining and maintaining the NHSN system and is an 
important partner in validating HAI measures. However, we wish to 
clarify that validation of Hospital IQR Program data is our 
responsibility because the authority to perform this function is vested 
in us by statute. We also wish to clarify that QIO contractor 
regulatory authority (42 CFR 476.78(c)) is used to require hospitals to 
provide copies of medical record documentation. This regulatory 
authority is critical to ensuring complete submission of hospital 
documentation for validated hospitals. CDC is unable to use this same 
regulatory authority to gain access to records. Moreover, by retaining 
control over the HAI validation process, we are also able to reduce 
burden on hospitals by only requesting a record once in the event that 
a record is sampled for validation of both clinical process of care and 
HAI measure sets. We administer the Hospital IQR clinical process of 
care measure collection and validation without any CDC direct role, so 
CDC does not have any access to clinical process of care measure 
records submitted for validation. Accordingly, if CDC had sole 
responsibility for validating HAI measures, hospitals could potentially 
have to submit the same records twice for both clinical process of care 
and HAI measures. For all of these reasons, we do not agree that CDC 
should manage the Hospital IQR Program HAI validation process.
    We emphasize that we have collaborated closely with CDC on all 
aspects of HAI reporting, including last year's final rule for CLABSI 
validation, the positive blood culture template distributed on 
QualityNet at: http://www.qualitynet.org, the instructions for CDAC 
abstractors performing validation, and this year's proposal for HAI 
validation.
    In recognition that the HAI and clinical process of care measures 
are collected through different data collection systems, and after 
consideration of the public comments we received, we are finalizing our 
proposal for the FY 2015 payment determination and subsequent years to 
separate the approaches for HAI validation from the approaches 
finalized for validation of the chart-abstracted clinical process of 
care measure sets, with one exception. We will not require hospitals to 
receive separate passing scores on both clinical process of care and 
HAI measures. This policy is described further in response to comments 
in section VIII.A.6.a.(4) of this preamble.
(2) Selection and Sampling of Clinical Process of Care Measures for 
Validation
    The approach to selection and sampling of clinical process of care 
measure sets for validation was finalized in the FY 2012 IPPS/LTCH PPS 
final rule (76 FR 51645 through 51648) for the 2014 payment 
determination and subsequent years. These measures and measure sets are 
shown in the table below.

[[Page 53541]]

   Hospital Inpatient Quality Reporting (IQR) Program Chart-Abstracted
    Clinical Process of Care Measures To Be Validated for the FY 2014
               Payment Determination and Subsequent Years
------------------------------------------------------------------------
               Topic                              Measures
------------------------------------------------------------------------
Acute Myocardial Infarction (AMI)    AMI-2 Aspirin prescribed at
 Measures.                           discharge.
                                     AMI-7a Fibrinolytic
                                     (thrombolytic) agent received
                                     within 30 minutes of hospital
                                     arrival.
                                     AMI-8a Timing of Receipt of
                                     Primary Percutaneous Coronary
                                     Intervention (PCI).
                                     AMI-10 Statin Prescribed at
                                     Discharge.
Heart Failure (HF) Measures.......   HF-1 Discharge
                                     instructions.
                                     HF-2 Evaluation of left
                                     ventricular systolic function.
                                     HF-3 Angiotensin Converting
                                     Enzyme Inhibitor (ACE-I) or
                                     Angiotensin II Receptor Blocker
                                     (ARB) for left ventricular systolic
                                     dysfunction.
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 INF-1 Prophylactic
 (SCIP) Measures.                    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 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 INF-VTE-1 Surgery
                                     patients with recommended Venous
                                     Thromboembolism (VTE) prophylaxis
                                     ordered.*
                                     SCIP-VTE-2 Surgery patients
                                     who received appropriate VTE
                                     prophylaxis within 24 hours pre/
                                     post surgery.
Emergency Department Throughput      ED-1 Median time from
 (ED) Measures.                      emergency department arrival to
                                     time of departure from the
                                     emergency room for patients
                                     admitted to the hospital.
                                     ED-2 Median time from admit
                                     decision to time of departure from
                                     the emergency department for
                                     emergency department patients
                                     admitted to the inpatient status.
Prevention: Global Immunization      Immunization for Influenza.
 (IMM) Measures.                     Immunization for Pneumonia.
------------------------------------------------------------------------
* We are removing this measure from the Hospital IQR Program starting
  with the FY 2015 payment determination.

    We describe the validation approach for these measures, which was 
finalized in FY 2012 IPPS/LTCH PPS final rule (76 FR 51645 through 
51648), for informational purposes only. A total of 15 records will be 
selected per quarter for the chart-abstracted clinical process of care 
measures. Three records per quarter will be sampled from among all 
records submitted to the Warehouse in each of four groups defined as 
part of the AMI, HF, PN, and SCIP measure sets. In addition, three 
records per quarter will be sampled from among the remaining 
submissions to the Warehouse and will be validated for the ED and IMM 
measure sets. CMS will also abstract data regarding the ED and IMM 
measure sets from records submitted for the AMI, HF, PN, and SCIP 
measure sets.
    We finalized our proposal in the FY 2012 IPPS/LTCH PPS final rule 
(76 FR 51648) to abstract ED and IMM data from all cases selected from 
other measure sets (AMI, HF, PN, SCIP, and CLABSI). In the FY 2013 
IPPS/LTCH PPS proposed rule (77 FR 28054), for the FY 2015 payment 
determination and subsequent years, we proposed to discontinue 
abstracting ED and IMM data from cases selected for the CLABSI measure. 
We proposed this change in order to be consistent with the policy 
described in section VIII.A.6.a.(1) of this preamble to calculate 
separate scores for HAI and chart-abstracted clinical process of care 
measure sets.
    Comment: One commenter requested clarification as to whether a 
hospital is required to submit ED/IMM data on all AMI, HF, PN, and SCIP 
cases submitted to the warehouse to support the process wherein CDAC 
will abstract ED and IMM measures from all AMI, HF, PN, and SCIP cases 
selected for validation. The commenter further stated that ``the 
sampling methodology described in the specifications manual does not 
work if a hospital does 100 percent review of AMI, HF, PN, and SCIP 
cases on a weekly basis, but samples the global population at the end 
of the month, when all possible cases in the population are available 
for sampling.''
    Response: We welcome the opportunity to clarify the sampling 
process for ED/IMM. The CDAC process to abstract ED and IMM data from 
all cases sampled for AMI, HF, PN, and SCIP validation does not 
necessitate that hospitals themselves submit ED and IMM data from all 
of their AMI, HF, PN, and SCIP cases in the Hospital IQR Program, only 
a sample of them. Operational guidance on how to sample records for 
submission of Hospital IQR data is provided in our Hospital IQR Program 
Specifications Manual on QualityNet at http://www.qualitynet.org. The 
Specifications Manual calls for a representative random sample of the 
global population; the AMI, HF, PN, and SCIP populations are subsets of 
this global population. Therefore, using random sampling methodology to 
identify the global population sample will also randomly sample AMI, 
HF, PN, and SCIP cases for which hospitals will provide ED and IMM 
data. The validation sample of AMI, HF, PN, and SCIP cases will not 
perfectly overlap with those AMI, HF, PN, and SCIP cases for which ED 
and IMM data are submitted. However, the ED/IMM data submitted and 
validated will be representative of the underlying global population, 
which is what matters for the global measures (ED/IMM). We anticipate 
that the validation approach will support adequate reliability 
assessment of the global measures. We intend to provide additional 
training on monthly sampling during 2012.
    While we did not receive any comments specifically addressing our

[[Page 53542]]

proposal to discontinue abstracting ED and IMM data from records 
sampled for CLABSI, we did receive numerous comments supporting our 
proposal to separate the validation processes for the clinical process 
of care and HAI measure sets, which this proposal was intended to 
support. Accordingly, we are finalizing our proposal to discontinue 
abstraction of ED and IMM data from records sampled for CLABSI.
(3) Selection and Sampling of HAI Measures for Validation
    As explained in section VIII.A.6.a.(1) of the FY 2013 IPPS/LTCH PPS 
proposed rule (77 FR 28053), we proposed separate selection, sampling, 
and validation scoring for HAI measures. The HAI measures we proposed 
to validate for the FY 2015 payment determination and subsequent years 
are CLABSI, CAUTI, and SSI (77 FR 28054).

 HAI Measures in the Hospital Inpatient Quality Reporting (IQR) Program
  To Be Validated for the FY 2015 Payment Determination and Subsequent
                                  Years
------------------------------------------------------------------------
 
-------------------------------------------------------------------------
Measures Continued for Validation for the FY 2014 Payment Determination
     Central line-associated blood stream infection (CLABSI)
     among intensive care unit (ICU) patients.
Additional Measures Proposed for Validation for the 2015 Payment
 Determination.
     Surgical Site Infection (SSI) among patients with
     procedures for colon surgery or abdominal hysterectomy.
     Catheter-associated urinary tract infection (CAUTI) among
     ICU patients.
------------------------------------------------------------------------

    Because the events reported in the HAI measure set occur rarely, 
they require a targeted approach to validation. For the FY 2015 payment 
determination and subsequent years, we proposed to validate these 
measures by identifying records that are ``candidate HAI events,'' 
which we define below. We would construct three separate lists of 
candidate events, one for each HAI measure. The proposed process to 
construct these lists is detailed further below. Each listing of 
candidate events will include both actual HAI events as well as many 
non-events. The purpose in creating these listings would be to identify 
records that are more likely to contain HAI events than CMS could 
obtain through a simple random sample of hospital discharges each 
quarter. In each case, this proposed process would minimize burden to 
hospitals while enriching the validation sample by targeting candidate 
events. As described later in this section, a combined list of 
candidate HAI events would be created from the three separate candidate 
HAI lists (for CLABSI, CAUTI, and SSI). The final list would be used to 
generate a random sample of medical records to be reviewed and 
evaluated for the presence or absence of one or more of the HAI events. 
We describe the proposed sample size later in this section and describe 
the scoring process in section VIII.A.6.a.(4) of this preamble.
    Comment: Two commenters recommended that CMS should add no more 
than one new HAI measure to the validation process in a single year.
    Response: We disagree with this recommendation. In response to our 
proposals regarding the Hospital VBP Program in section VIII.C.3.b. of 
the FY 2013 IPPS/LTCH PPS proposed rule (77 FR 28079), many commenters 
emphasized the need for rigorous validation of HAI measures before 
their inclusion in the Hospital VBP Program. Our validation efforts are 
designed to ensure accurate baseline data for potential future Hospital 
VBP Program years.
    After consideration of the public comments we received, we are 
finalizing our proposal to validate the CLABSI, CAUTI, and SSI measures 
by producing a list of candidate HAI events as detailed below in this 
section.
(i) Selecting Cases for CLABSI and CAUTI Validation
    In the FY 2013 IPPS/LTCH PPS proposed rule (77 FR 28055), we 
proposed to discontinue the practice finalized in FY 2012 IPPS/LTCH 
final rule (76 FR 51648) of abstracting CLABSI data from the records 
selected for the chart-abstracted clinical process of care measure sets 
(AMI, ED/IMM, HF, PN, SCIP). We proposed this change in order to be 
consistent with the policy described in section VIII.A.6.a.(1) of this 
preamble to calculate separate scores for HAI and chart-abstracted 
clinical process of care measure sets. We invited comments on this 
proposal.
    Comment: A few commenters supported our proposal to discontinue 
abstracting CLABSI data from the clinical process of care measures.
    Response: We agree that abstracting CLABSI data from the clinical 
process of care measures should be discontinued, as proposed.
    After consideration of the public comments we received, we are 
finalizing our proposal to discontinue abstracting CLABSI data from 
records submitted for the clinical process of care measure sets for the 
FY 2015 payment determination and future years.
    We finalized a two-phase process for identifying and constructing 
lists of candidate CLABSI events in the FY 2012 IPPS/LTCH PPS final 
rule (76 FR 51645 through 51648). This process is summarized for the 
readers' information. In the first phase, each sampled hospital 
quarterly provides CMS with listings of positive blood cultures drawn 
from ICU patients. The listings include ``all blood cultures positive 
for infection status taken from ICU patients conducting CLABSI 
surveillance \97\ during the discharge quarter'' (76 FR 51646). These 
listings are annotated to identify each ICU patient on this list who 
had a central venous catheter (CVC). The listings are then reviewed by 
a CMS contractor who produces a list of unique episodes of care for ICU 
patients with a CVC and that include either at least one positive blood 
culture for a known pathogen, or at least two positive blood cultures 
for the same common commensal. A blood culture which is positive for a 
common commensal may reflect a contaminated sample. Therefore, when the 
only positive blood culture result is for a common commensal, the 
second culture bearing the same result must be drawn from the patient 
within 48 hours of the first; this would confirm that the first 
positive common commensal result is not a consequence of contamination. 
A list of common commensals is provided by CDC.\98\
---------------------------------------------------------------------------

    \97\ http://www.cdc.gov/nhsn/PDFs/FINAL-ACH-CLABSI-Guidance.pdf.
    \98\ http://www.cdc.gov/nhsn/XLS/Common-Skin-Contaminant-List-June-2011.xlsx.
---------------------------------------------------------------------------

    In the FY 2013 IPPS/LTCH PPS proposed rule (77 FR 28055), we 
proposed to modify this process for FY 2015 and subsequent years by 
requiring the Medicare health insurance claim (HIC) number to be added 
to the positive blood culture list if a patient has one. As explained 
further below, we proposed this addition specifically so that we may 
identify candidate CLABSIs that we also identify as candidate SSIs. 
Because the candidate SSIs would be identified through claims, the HIC 
number is needed to match patients from the candidate CLABSI list with 
those from the candidate SSI list. To

[[Page 53543]]

protect this sensitive information, we proposed that positive blood 
culture lists be submitted through the Secure Data Exchange on the 
QualityNet Web site. We invited public comment on each of these 
proposed modifications to the identification of candidate CLABSI 
events.
    In the FY 2013 IPPS/LTCH PPS proposed rule (77 FR 20855) for the FY 
2015 payment determination and subsequent years, we proposed to adapt 
the process finalized to identify candidate CLABSI events in the FY 
2012 IPPS/LTCH PPS final rule (76 FR 51645 through 51648) to identify 
candidate CAUTI events. In the first stage of this process, a CMS 
contractor would request a listing of positive urine cultures among ICU 
patients from the hospitals targeted for validation. The culture list 
would indicate the name of each pathogen detected and the number of 
colony forming units per ml. For the same reasons and following the 
same processes as those explained for CLABSI above, we proposed to 
require the hospital to report the Medicare HIC number for Medicare 
patients included on this list.
    In the second stage of this process, the CMS contractor would apply 
NHSN criteria to eliminate those urine cultures that are not consistent 
with the definition of an ICU-associated CAUTI. The contractor would 
then remove duplicates from the same patient to produce a list which 
would include only one entry per ICU patient. Our intent is to target a 
set of patient discharges with a higher probability of having a CAUTI 
event than one could obtain from a simple random sample of patient 
discharges. We invited public comments on this proposal.
    Comment: Numerous commenters supported rigorous HAI validation and 
separating the HAI validation process from the validation process for 
chart-abstracted measures. Commenters emphasized the value of 
validating CLABSI before including it in the Hospital VBP Program, and 
the importance of validating both CLABSI and CAUTI before expanding the 
specifications for these measures for the Hospital IQR Program beyond 
the ICU setting. In addition, several commenters specifically supported 
the `individualized approach' to sampling each HAI included in 
validation.
    Response: We agree that HAI validation is important and that a 
rigorous and individualized approach to HAI validation is needed, and 
have sought to take such an approach through our proposal.
    Comment: Many commenters opposed both the current CLABSI process 
and CMS' specific proposals to expand it to CAUTI due to the level of 
burden. Some commenters opposed any data submission beyond submission 
to the NHSN. One commenter stated that CDC's process was ``strict 
enough.''
    Response: We appreciate the many concerns related to the burden of 
HAI validation. We disagree with commenters who feel that no burden is 
appropriate above and beyond that associated with NHSN submission. 
Although the NHSN data entry process does provide users with feedback 
regarding consistency of information to minimize data entry errors, 
this process cannot replace the assessment of reliability made by 
comparing the hospital's submission with that of an independent 
abstraction.
    Moreover, HAI reduction is a HHS priority, quality reporting is an 
important component of HAI reduction, and quality reporting is not 
meaningful if data quality have not been evaluated and shown to be 
reliable. Therefore, HAI validation is needed to support HAI reduction. 
We also note that section 1886(B)(3)(b)(viii)(XI) of the Act requires 
the Secretary to establish a process to validate Hospital IQR measures 
as appropriate. We believe that this proposal meets this statutory 
requirement and ensures the accuracy of publicly reported data for the 
HAI measures. Therefore, although we continuously work to minimize 
burden associated with validation under the Hospital IQR Program, we 
believe that the value of validation for these measures justifies some 
added burden.
    Comment: A few commenters explained that burden arises from the 
requirement for submission of information from multiple data streams, 
which are difficult for hospitals to link, or that may require a manual 
process in some hospitals. One commenter specifically referenced the 
difficulty in correlating the dates that positive blood cultures are 
drawn with the dates of the patients' stays in the ICU to ensure that 
the positive blood cultures were obtained during the pertinent time 
period for the CLABSI measure during the ICU stay or within 48 hours 
thereafter.
    Response: We understand that some hospitals' systems might not be 
set up to handle the current CLABSI and proposed CAUTI processes 
efficiently at this time. However, under the current process some 
hospitals already successfully submitted the required data for CLABSI 
validation an entire month before the first submission deadline. As 
hospitals become more familiar with our requirements for these 
validation activities, we anticipate that they will have better 
capabilities to support the required validation.
    We recognize, however, as one commenter noted, that identifying the 
positive blood cultures that align with the correct timeframes for the 
CLABSI measure can be particularly challenging. Accordingly, in 
response to this comment, we are reducing the burden on hospitals 
associated with validating CLABSI by redefining ``positive blood 
cultures among ICU patients'' for purposes of validating CLABSI. 
According to NHSN specifications, ICU units are supposed to conduct 
surveillance on positive blood cultures attributable to an ICU patient 
if they are drawn within 48 hours of discharge or transfer from the 
ICU.\99\ Therefore, CMS has previously interpreted the universe of 
``positive blood cultures among ICU patients'' for purposes of CLABSI 
validation to include those cultures drawn within 48 hours of transfer 
from the ICU.\100\ However, as the commenter noted, identifying the 
positive blood cultures that align with the correct timeframes may be 
especially challenging because finding those cultures can require that 
hospitals access different systems. If hospitals are not required to 
obtain blood cultures taken within the 48 hour period after discharge 
or transfer from the ICU, some hospitals may be able to use the 
patient's location at the time of the blood draw to identify positive 
blood cultures for ICU patients. For these hospitals, we believe using 
this location to identify the appropriate blood cultures and not having 
to access different systems will alleviate the burden associated with 
this process.
---------------------------------------------------------------------------

    \99\ http://www.cdc.gov/nhsn/PDFs/pscManual/4PSC_CLABScurrent.pdf.
    \100\ Hospital Inpatient Quality Reporting (IQR) Program Quick 
Reference Guide: Central Line-Associated Bloodstream Infection 
(CLABSI), www.qualitynet.org http://www.qualitynet.org.
---------------------------------------------------------------------------

    Therefore, we are redefining ``positive blood culture'' for 
purposes of CLABSI validation to include only those blood cultures 
drawn from ICU patients during their actual ICU stay during the 
discharge quarter for the FY 2014 payment determination and future 
years. Consistent with this change, hospitals would only be required to 
report on the positive blood culture list cultures identified during 
the ICU stay even if this means that our validation support contractor 
is unable to confirm, and therefore cannot include in the validation 
sample, a common commensal with a second culture that was drawn within 
48 hours after ICU discharge. We recognize that this means excluding 
from validation sampling a limited number of cases that must be

[[Page 53544]]

reported for the CLABSI measure. We believe, however, that the 
potential reduced burden for hospitals more than compensates for the 
potential inability to validate what we believe will be a limited 
number of CLABSI cases. We are adopting this change to the definition 
of ``positive blood culture'' beginning with the FY 2014 payment 
determination. However, for the FY 2014 payment determination only we 
will accept as submitted all templates either including or excluding 
positive blood cultures drawn within 48 hours of ICU discharge or 
transfer, and will not penalize hospitals during scoring for including 
cases drawn within 48 hours of ICU discharge. For the FY 2014 payment 
determination only, we will score these records but will not penalize 
hospitals if records submitted from this time frame do not match 
records in NHSN. Beginning with the FY 2015 payment determination, we 
will require hospitals to submit records consistent with the new 
definition of ``positive blood culture.''
    One other way that we are reducing burden now is, as discussed 
further below, by reducing the base annual random sample size by 50 
percent, which reduces total burden nationally even if burden may be 
somewhat higher for hospitals selected for validation in a given year.
    We will also work with CDC to consider proposing the inclusion of 
the HIC number as a required field for Hospital IQR Program reporting 
of NHSN measures in the future. This may further alleviate some of the 
burden associated with the demographic data elements that we currently 
require hospitals to submit for CLABSI validation and that will be 
required as part of CAUTI validation. These elements are necessary to 
link records selected for CLABSI and CAUTI validation with records 
included in the NHSN database. Hospitals would no longer be required to 
include these elements with the other information that they submit for 
validation of CLABSI and CAUTI, however, if Medicare beneficiaries' 
records could be identified in NHSN through the HIC number provided 
when hospitals report the CLABSI and CAUTI measures.
    Comment: Many commenters viewed the proposed HAI validation efforts 
as duplicative in States that already have validation, but supported a 
more rigorous process in States that have no validation process. Some 
commenters acknowledged the need for national validation because State-
based CLABSI validation efforts are not standardized.
    Response: We understand that some hospitals in States with their 
own rigorous validation methodologies will experience multiple 
validation activities, and that each activity has burden associated 
with it. However, as many commenters noted, State-based efforts are not 
standardized at this time, and therefore, we believe it is still very 
important to validate hospitals in these States. In addition, we note 
that section 1886(B)(3)(b)(viii)(XI) of the Act requires us to 
establish a process to validate Hospital IQR Program measures that 
includes the auditing of a number of randomly selected hospitals 
sufficient to ensure validity of the program as a whole. It is our 
responsibility to ensure that, through our validation process, we 
ensure the validity of the Hospital IQR Program.
    Comment: One commenter indicated that only HAIs identified in NHSN 
should be validated.
    Response: We do not agree that validation should be limited to 
events detected in NHSN. Evaluation of CLABSI and CAUTI events not 
reported to the NHSN is an important component of validation because of 
the rarity of these infection events relative to events to which the 
clinical process of care measures apply. If validation were restricted 
to events already included in the NHSN, we would have no capacity to 
evaluate under-reporting. Moreover, evaluation of unreported infection 
events is an important component of State validation efforts, which are 
coordinated by CDC. As noted by many commenters, to have a less 
rigorous process nationally would disadvantage hospitals in those 
States that have more rigorous infection control processes.
    Comment: Some commenters specifically opposed the proposed 
additions of the data elements ``colony forming units (CFUs) per ml'' 
for CAUTI and ``HIC number'' for both CLABSI and CAUTI.
    Response: Based on these comments, to reduce the burden associated 
with the validation process for CAUTI, we will not require hospitals to 
submit the ``colony forming units (CFUs) per ml'' data element for this 
measure. To eliminate this data element, we will restrict the proposed 
requirement for `all positive urine cultures among ICU patients' to 
just those positive urine cultures with concentrations of greater than 
or equal to 10\3\ CFUs/ml.
    We believe that the inclusion of the HIC number is essential. As 
explained in the proposed rule (77 FR 28055), the HIC number is needed 
to align sampling for CLABSI and CAUTI with the proposed SSI validation 
process described further below. Moreover, as discussed above in this 
section, requiring hospitals to submit HIC numbers as part of 
validation may in the long run support a streamlined validation process 
by making it easier to link records selected for validation with 
records in the NHSN database.
    Comment: Several commenters expressed opposition to the proposed 
CAUTI process because it was not sufficiently detailed to be evaluated, 
but stated that if we were proposing to use the same process as the one 
we adopted for CLABSI, they could not support it because of the burden. 
Another commenter stated more generally that the proposed HAI 
validation methodology was `not well defined.''
    Response: As we explained in the proposal, the methodology for 
validating CAUTI is an adaptation of the methodology we will use to 
validate CLABSI. The template for CLABSI is available at https://www.qualitynet.org/dcs/ContentServer?c=Page&pagename=QnetPublic%2FPage%2FQnetTier2&cid=1228760487021. The CAUTI process we proposed differed from the CLABSI process 
in two ways. First, positive urine cultures (defined >=10\3\ colony 
forming units (CFUs) per ml) were to be reported instead of positive 
blood cultures. Second, the current process for CLABSI requires 
hospitals to annotate which patients had central lines, but we did not 
propose to require hospitals to annotate which patients had urinary 
catheters for CAUTI. By not requiring identification of patients with 
urinary catheters, the resulting process proposed for CAUTI is simpler 
than the process for CLABSI.
    In addition, because we have proposed to utilize the same 
validation process for CAUTI that we use for CLABSI, we are making the 
same change to the definition of ``positive urine culture'' for 
purposes of validating the CAUTI measure that we made to the definition 
of ``positive blood culture'' for purposes of validating CLABSI. In 
particular, for purposes of validating the CAUTI measure for FY 2015 
and subsequent years, we will not require hospitals to submit positive 
urine cultures drawn within 48 hours after discharge or transfer from 
the ICU for the same reasons we stated above for changing the 
definition of ``positive blood culture'' for CLABSI.
    Comment: One commenter recommended pilot testing of CLABSI and 
CAUTI processes prior to finalization because so many steps are 
involved in validation. A few commenters indicated that HAI validation 
should not be expanded beyond CLABSI until hospitals had more 
experience with CLABSI.
    Response: We do not agree that the CLABSI and CAUTI processes must 
be

[[Page 53545]]

piloted further before a process for validation can be finalized. The 
process proposed for CLABSI validation for the FY 2015 and future 
years' payment determinations is the same as that finalized for the FY 
2014 payment determination with only the addition of HIC number.
    CMS and hospitals have already begun to gain the kinds of 
experience that they might obtain from a pilot through the process that 
was finalized for the FY 2014 payment determination in the FY 2012 
IPPS/LTCH PPS final rule (76 FR 51645 through 51648) for CLABSI. Some 
hospitals have already successfully submitted positive blood culture 
templates, and as reflected above in this section, we are already using 
our experience to reduce burden by eliminating the validation 
requirement to include positive blood cultures for patients discharged 
from the ICU within the past 48 hours. Moreover, because the validation 
process for CAUTI will be so similar to that for CLABSI, we believe 
that hospitals that have prepared themselves for CLABSI validation are 
prepared to handle the CAUTI validation process as well.
    Comment: Some commenters observed that the proposed processes for 
CLABSI and CAUTI do not include validation of denominator data. These 
commenters described this limitation as ``a significant flaw'' because 
it ``allows for improper reporting by over-reporting denominators.'' 
These commenters argued that CLABSI cannot be included in the Hospital 
VBP Program until the validation process includes validation of the 
denominator, and similarly that the Hospital IQR Program should not 
expand the CLABSI and CAUTI measures to include non-ICU settings until 
the validation process includes validation of a denominator.
    Response: We recognize that not validating denominator data is a 
limitation of the proposed CLABSI and CAUTI processes, but we disagree 
that it is such a significant flaw that validation is meaningless 
without it. Attribution of bloodstream and urinary tract infections to 
central lines and urinary catheters, respectively, is an extremely 
complex process that requires a significant amount of clinical 
judgment. In contrast, recognizing and reporting the number of device 
days associated with a particular patient is considerably easier. 
Therefore, hospitals need more detailed assessment and feedback on the 
process of numerator reporting than they need on denominator reporting. 
In addition, CLABSI and CAUTI are both very rare events. Therefore, an 
error made in reporting even one or two infections has the potential to 
greatly influence the total rate reported. In contrast, because central 
line and urinary catheter days are much more numerous, a misstatement 
of a few line [or catheter?] days makes a much smaller difference in 
terms of the overall accuracy of the rates reported for these measures. 
For both of these reasons, validation of numerator data is much more 
crucial to overall validation than validation of denominator data. In 
light of the many comments regarding burden associated with validating 
numerator data for CLABSI and CAUTI, we disagree that it would be 
appropriate to add any new burden at this time by adding denominator 
validation.
    Comment: One commenter indicated that CMS should require the CMS 
auditors that review NHSN data be qualified with certification and 
proof of competency in the use of the NHSN module. Two other commenters 
``hoped that CMS contractors will go through the same training as the 
field and comment to CMS on their experience because NHSN contractor 
feedback is critical to improvement processes.''
    Response: We agree with the observation that personnel conducting 
HAI validation need specialized training in the use of NHSN. All CMS 
validation abstraction will be conducted by the employees of CMS' 
validation contractor, who will receive training similar to the 
training hospitals receive from CDC. In addition, some of our employees 
plan to attend this training and will monitor contractor feedback 
closely.
    After consideration of the public comments we received, we are 
finalizing the proposals to identify candidate CLABSI as proposed. The 
differences between the policy we are finalizing and the policy 
finalized for the FY 2014 payment determination and subsequent years 
(76 FR 51645-51648) are the requirements that hospitals include the HIC 
number as a data element on the positive blood culture template \100\ 
and that hospitals submit the blood culture template through the Secure 
Data Exchange on the QualityNet Web site, as well as the redefinition 
of ``positive blood culture'' for purposes of CLABSI validation to 
include only those cultures obtained during a patient's stay in the 
ICU.
    In addition, for the FY 2015 payment determination and future 
years, we are finalizing the process to identify candidate CAUTI as 
proposed, including HIC number, except that we will restrict the list 
of positive urine cultures to those with >= 10\3\ CFU/ml, and will not 
require hospitals to provide the concentration of CFUs in the urine on 
the urine culture template we provide. Moreover, consistent with the 
change we are making to the definition of ``positive blood culture'' 
for CLABSI validation, we are redefining positive urine cultures from 
ICU patients for CAUTI validation to include only those cultures 
sampled during the patient's actual ICU stay during the discharge 
quarter being validated, and not those cultures sampled during the 48 
hour period following discharge from the ICU.
    We will also consider proposing in future rulemaking that hospitals 
participating in the Hospital IQR Program must report the HIC number to 
their NHSN for CLABSI, CAUTI, SSI, MRSA, and Clostridium Difficile 
infection events. We believe that this information would reduce burden 
by allowing us to link NHSN information to demographic and clinical 
information on Medicare claims. We believe that this linkage would 
reduce burden to hospitals by reducing the number of data elements 
requested in blood and urine culture lists used in our validation 
process, which we could obtain directly from NHSN.
(ii) Targeting SSI for Validation
    In the FY 2013 IPPS/LTCH PPS proposed rule (77 FR 28055-28056), the 
final HAI measure we proposed for targeted validation is SSI. 
Consistent with Hospital IQR Program reporting requirements for this 
measure, we proposed that validation will target SSIs among patients 
with colon surgeries and abdominal hysterectomy procedures.\101\ We 
proposed a process for identifying candidate SSIs that is different 
from that which we proposed for candidate CLABSI and CAUTI both because 
post-discharge follow-up is so critical to proper ascertainment and 
because SSIs are reported more consistently in claims data than CLABSI 
and CAUTI. Thus, claims data provide a resource for selecting candidate 
events for SSI using a methodology which limits burden to hospitals.
---------------------------------------------------------------------------

    \101\ http://www.cdc.gov/nhsn/PDFs/FINAL-ACH-SSI-Guidance.pdf.
---------------------------------------------------------------------------

    Accordingly, we proposed to select candidate events from among 
Medicare FFS claims for patients who have had colon surgeries or 
abdominal hysterectomies as defined by NHSN.\5\ For each Medicare FFS 
patient who had a relevant surgery in the period under validation, a 
CMS contractor would review the index claim (that is, the one denoting 
the surgery) and all subsequent readmissions to the index hospital 
within a 30 day post-discharge period. To identify ``candidate SSI 
events,'' we

[[Page 53546]]

would look specifically for discharge diagnoses on the index claim and 
all inpatient claims in the 30 days post-discharge that might indicate 
infection. Examples of such diagnoses include ``post-operative shock'' 
(ICD-9-CM: 998.0), ``post-operative wound disruption (ICD-9-CM: 998.3), 
and postoperative infection (ICD-9-CM: 998.5). A description of our 
general approach, and a list of ICD-9-CM codes which we proposed to use 
to identify applicable candidate SSIs is included in Appendix 1 of 
``Platt R, Kleinman K, Thompson K, et al. Using automated health plan 
data to assess infection risk from coronary artery bypass surgery. 
Emerg Infect Dis. 2002 Dec;8(12):1433-41,'' which may be accessed 
online at http://www.cdc.gov/eid/content/8/12/pdfs/v8-n12.pdf.\102\
---------------------------------------------------------------------------

    \102\ Platt R, Kleinman K, Thompson K, et al. Using automated 
health plan data to assess infection risk from coronary artery 
bypass surgery. Emerg Infect Dis. 2002 Dec;8(12):1433-41.
---------------------------------------------------------------------------

    Comment: Several commenters requested that the addition of SSI not 
add any new burden to the HAI validation process.
    Response: The proposed process to target candidate SSI cases for 
validation requires only that hospitals submit HIC numbers for CLABSI 
and CAUTI. We will compile the list of candidate SSI events using 
claims data, and then we will be able to remove duplicates from the 
three lists of candidate HAI events using the HIC numbers that are 
reported for CLABSI and CAUTI. As discussed above, submission of HIC 
numbers may ultimately provide an opportunity to streamline CLABSI and 
CAUTI validation efforts. Therefore, we believe that the proposed 
sampling process introduces little new burden to hospitals.
    Comment: Several commenters indicated that all of the denominator 
data necessary to validate SSI is available from the NHSN database, 
such that this measure could be validated ``in the customary way,'' 
which we interpret to mean using the same process as the clinical 
process of care measures.
    Response: We understand that the SSI data differ from CLABSI and 
CAUTI in that it would be possible to draw a sample of data for 
patients who had the colon and abdominal hysterectomy procedures from 
within the NHSN database, and that therefore it would be possible to 
validate SSI reporting in the ``customary way,'' or the same way we 
validate chart-abstracted measures. However, like CLABSI and CAUTI, SSI 
is a rare event. Therefore, to effectively evaluate under-reporting, a 
sample rich in actual SSI events is needed. The ``customary sample'' 
from Medicare claims without using any targeting criteria would have a 
low yield of any actual SSI events (less than 6 percent for colon 
surgeries, less than 2 percent for abdominal hysterectomy 
surgeries),\103\ and would therefore be ineffective in producing a 
sample rich in actual SSI events. We estimate that our proposal for 
identifying candidate SSIs for validation using targeted diagnosis and 
procedures codes for these procedures would generate a much richer 
yield (about 33 percent for colon and about 50 percent for abdominal 
hysterectomy).\104\
---------------------------------------------------------------------------

    \103\ Mu Y, Edwards JR, Horan TC, Berrios-Torres SI, Fridkin S. 
``Improving Risk-Adjusted Measures of Surgical Site Infection for 
the National Healthcare Safety Network,'' Infection Control and 
Hospital Epidemiology,Vol. 32, No. 10 (October 2011), pp. 970-986.
    \104\ Letourneau AR, Calderwood MS, Huang SS, Bratzler DW, Ma A, 
Platt R, Yokoe D, for the CDC Prevention Epicenters Program. Claims-
Based Surveillance Improves Detection of Surgical Site Infections 
Following Hysterectomy and Colorectal Surgery. IDWeek (1st Annual 
Joint Meeting of IDSA, SHEA, HIVMA, and PIDS), October 17-21, 2012 
(San Diego, CA).
---------------------------------------------------------------------------

    Comment: Two commenters objected to the proposal to introduce a 
process for SSI validation that differed from the process for CLABSI 
and CAUTI. These same commenters stated that CMS should only introduce 
one new validation process per year. In contrast, many commenters 
opposed making the SSI validation process the same as the proposed 
CLABSI and CAUTI validation processes.
    Response: Although we appreciate the commenters' concerns about 
adding new processes, we also recognize that we must have a process to 
support validation of HAIs to ensure accuracy of hospital reported HAI 
quality data. Moreover, we agree with the many commenters who opposed 
making the SSI validation the same as the proposed CLABSI and CAUTI 
validation processes. Because the proposed process employs claims data 
and does not require submission of supplemental data other than the 
sampled records, we believe that the proposed process for SSI is less 
burdensome for hospitals than adopting a validation data collection 
process similar to the CLABSI or CAUTI process, which would impose an 
added burden by requiring hospitals to submit additional data such as 
culture results. We believe the process we proposed will validate SSI 
effectively while minimizing burden on hospitals.
    Comment: A few commenters supported the SSI validation approach. 
One commenter expressed concern that the specific ICD-9 codes proposed 
to define candidate SSIs were not entirely appropriate for colon 
surgery and abdominal hysterectomy.
    Response: We agree with the commenter who observed that it is 
possible to tailor the SSI process more specifically to the colon 
surgery and abdominal hysterectomy under surveillance. Since the 
release of the proposed rule, two new analyses have become available to 
inform our decision making process.\105,106\ These analyses offer an 
improved evidence base focused more specifically on colon surgery and 
abdominal hysterectomy. Based on these studies and the commenter's 
concern, we have identified a set of ICD-9 diagnosis and procedure 
codes that more strategically target candidate SSIs for these two 
procedures.
---------------------------------------------------------------------------

    \105\ Letourneau AR, Calderwood MS, Huang SS, Bratzler DW, Ma A, 
Platt R, Yokoe D, for the CDC Prevention Epicenters Program. Claims-
Based Surveillance Improves Detection of Surgical Site Infections 
Following Hysterectomy and Colorectal Surgery. IDWeek (1st Annual 
Joint Meeting of IDSA, SHEA, HIVMA, and PIDS), October 17-21, 2012 
(San Diego, CA).
    \106\ Haley VB, Van Antwerpen C, Tserenpuntsag B, et al. Use of 
administrative data in efficient auditing of hospital-acquired 
surgical site infections, New York State 2009-2010. Infection 
Control and Hospital epidemiology 2012;33:565-71.
---------------------------------------------------------------------------

    Therefore, after consideration of the public comments we received, 
we are finalizing the proposal to identify ``candidate SSI events'' by 
using the process as proposed, except that instead of using the ICD-9 
codes contained in the paper by Platt et al. (2002: referenced in text 
above), we will target Medicare claims data using the following set of 
ICD-9 codes:

------------------------------------------------------------------------
            ICD-9 Codes                          Description
------------------------------------------------------------------------
                         Abdominal Hysterectomy
------------------------------------------------------------------------
567.22............................  Peritoneal abscess.
682.2.............................  Other cellulitis and abscess--Trunk.
998.31............................  Disruption of internal operation
                                     (surgical) wound.
998.32............................  Disruption of external operation
                                     (surgical) wound.

[[Page 53547]]

 
998.51............................  Infected postoperative seroma.
998.59............................  Other postoperative infection.
------------------------------------------------------------------------
                              Colon Surgery
------------------------------------------------------------------------
ICD-9 diagnoses:
    567.2.........................  Peritonitis and retroperitoneal
                                     infections--other suppurative
                                     peritonitis.
    567.21........................  Peritonitis (acute) generalized.
    567.22........................  Peritoneal abscess.
    567.29........................  Other suppurative peritonitis.
    567.38........................  Other retroperitoneal abscess.
    569.5.........................  Abscess of intestine.
    569.61........................  Infection of colostomy or
                                     enterostomy.
    569.81........................  Fistula of intestine, excluding
                                     rectum and anus.
    682.2.........................  Other cellulitis and abscess--Trunk.
    879.9.........................  Open wound(s), (multiple) of
                                     unspecified site(s), complicated.
    998.31........................  Disruption of internal (surgical)
                                     operation wound.
    998.32........................  Disruption of external (surgical)
                                     operation wound.
    998.51........................  Infected postoperative seroma.
    998.59........................  Other postoperative infection.
    998.6.........................  Persistent postoperative fistula.
ICD-9 procedures:
    54.0..........................  Incision of abdominal wall.
    54.11.........................  Exploratory laparotomy.
    54.19.........................  Other laparotomy.
    86.04.........................  Other incision with drainage of skin
                                     and subcutaneous tissue.
    86.22.........................  Excisional debridement of wound,
                                     infection, or burn.
    86.28.........................  Nonexcisional debridement of wound,
                                     infection, or burn.
------------------------------------------------------------------------

    Although diagnoses which identify candidate SSIs may also be 
identified during readmission to hospitals other than the index 
hospital, in the FY 2013 IPPS/LTCH PPS proposed rule (77 FR 28055) we 
proposed to exclude these candidate events for validation of SSI for 
the FY 2015 payment determination. We proposed this approach because we 
will be unable to distinguish between a candidate SSI that the index 
hospital determined was not an actual SSI because it did not meet 
properly applied NHSN case definitions, and an actual SSI that the 
index hospital failed to properly identify and document. Although 
records from the readmitting hospital may provide evidence as to the 
likelihood that a candidate SSI was an actual SSI, the index hospital 
may not have had access to this information. Therefore, if the index 
hospital does not report a candidate SSI event associated with a 
readmission to another hospital, and also does not document this event, 
we do not know what information, if any, the index hospital used to 
assess the candidate event.
    This situation arises because although our regulation at 42 CFR 
482.24 requires hospitals to maintain medical records that document 
HAI, it does not require hospitals to document that follow-up was 
performed. We understand that this represents a gap in our validation 
program for SSI, and solicited public comments on how we might fill 
this gap in the future.
    Comment: Some commenters noted that hospitals rarely receive more 
than a phone call to document SSIs detected at readmission to hospitals 
other than their own, with no documentation in the medical record. Thee 
commenters requested clarification on CMS' intended approach to address 
this issue. Another commenter noted that there are other federal and 
State agencies actively working to identify standard practices for 
post-discharge surveillance and urged CMS to delay adoption of post-
discharge surveillance methods until these groups are able to develop 
formal recommendations related to this specific issue. This commenter 
further suggested that CMS CoPs could be changed to incorporate post-
discharge surveillance reporting once a preferred and valid methodology 
is identified.
    Response: We thank the commenters for the information provided 
about the level of documentation available for SSI readmissions 
occurring other than at the index hospitals, and for providing the 
opportunity for us to clarify our plans regarding these readmissions. 
We will use claims data to assess how frequently this situation arises 
in hospitals sampled for validation. However, we do not intend to use 
our claims-based analysis of SSI readmissions to hospitals other than 
the index hospital for Hospital IQR validation-related payment 
determination at this time. We agree that it would be premature to 
develop validation procedures to address this situation. We believe 
that our best approach is to partner with other federal and State 
agencies interested in developing a valid methodology for post-
discharge surveillance. We thank the commenters for the suggestion 
regarding using our CoP to require post-discharge surveillance and will 
consider this suggestion.
    After consideration of the public comments we received, for the FY 
2015 payment determination and future years we are finalizing as 
proposed our proposal to exclude from SSI validation cases identified 
during readmission to hospitals other than the index hospital.
(iii) Sample Size per Hospital for HAI Validation
    After identifying the three separate sets of candidate events for 
CLABSI, CAUTI, and SSI, we will combine the lists and remove any 
duplicates for a given episode of care. Removing duplicates is a 
standard statistical practice which is important for the accuracy of 
the estimates.\107\ Next, we proposed to draw a random sample of 12 
candidate events per quarter from which to assess reliability of HAI 
reporting for the FY 2015 payment determination and subsequent years. 
Over four quarters, this would yield a sample size of 48 candidate 
events per year. Whenever a sample is used to estimate a statistic such 
as reliability for

[[Page 53548]]

the entire population of events, that estimate is said to be made with 
error, commonly referred to as the margin of error. For hospitals with 
480 or more candidate HAI events each year, and assuming a relatively 
constant number of candidates per quarter, the annual sample size will 
be sufficient to estimate a score of 75 percent with a margin of error 
plus or minus 10 points with 90 percent confidence. We believe this is 
the smallest sample size that would be sufficient to identify hospitals 
that are reporting HAI data poorly and have 480 or more candidate 
events.
---------------------------------------------------------------------------

    \107\ ``Duplicate listings'' in Kish L. Survey Sampling, John 
Wiley & Sons, New York: 1995, pp. 58-59.
---------------------------------------------------------------------------

    However, if there are fewer than 480 candidate events per year, the 
finite population correction applies, such that the margin of error 
will decrease as the total number of candidate events per year gets 
smaller.\108\ Based on our analysis of CLABSI data previously reported 
under the Hospital IQR Program, estimating the relative occurrence of 
CLABSI, CAUTI, and SSI, and allowing for the fact that there may be 
many candidates for every confirmed HAI, we expect that most hospitals 
will have fewer than 480 candidate HAI events per year (or 120 per 
quarter), which will allow us to estimate a score of 75 percent for 
these hospitals with a margin of error even less than plus or minus 10 
points with 90 percent confidence. In the event that a hospital has 12 
or fewer candidate HAIs in a given quarter, it is still possible to 
produce accurate estimates of reliability. In quarters in which a 
hospital has 12 or fewer candidate HAI events, we proposed to select 
all candidates, which will allow us to measure reliability without any 
margin of error. These quarterly estimates will have no sampling error 
because we will not be drawing a sample, but rather will be using the 
entire population for that quarter. If a hospital has 12 or fewer cases 
in every quarter, we may estimate reliability of HAI reporting for the 
year without any margin of error. If a hospital has no candidate events 
in the year, we would not be able to estimate a reliability rate. 
Therefore, as discussed in section VIII.A.6.a.(4) of this preamble, we 
would not attempt to estimate an HAI score for hospitals with 0 cases. 
We invited public comment on these proposed sample sizes.
---------------------------------------------------------------------------

    \108\ ``2.6 The finite population correction.'' Cochran WG. 
Sampling Techniques, third edition. John Wiley & Sons, New York, 
1977, pp. 24-25.
---------------------------------------------------------------------------

    Comment: Some commenters stated that the sample size of 27 per 
quarter per hospital for validation, including 15 for the clinical 
process of care measures, which has not changed, and 12 for HAI 
measures, was excessive and diverted time which could be spent on 
quality improvement towards reporting and validation. One commenter 
requested clarification as to how increasing the sample size from 18 to 
27 would reduce burden on hospitals.
    Response: We did not mean to imply that increasing the quarterly 
sample size from 18 to 27 records would decrease burden for individual 
hospitals that participate in validation in a particular year. Instead, 
our proposal in section [insert reference] below to reduce the number 
of hospitals included in the targeted validation sample is intended to 
reduce the overall burden of our validation process because it will 
result in fewer hospitals being validation each year. We understand 
that some medical charts are voluminous, but given that we reimburse 
hospitals for the cost of photocopying, including labor (42 CFR 
476.78(c)) we do not believe that the burden resulting from 
photocopying 27 records per quarter will be excessive, or divert 
resources from quality improvement to validation.
    Comment: Two commenters expressed the opinion that selecting all 
candidate HAIs in hospitals with 12 or fewer candidate events per 
quarter is a flawed process that requires further study.
    Response: We disagree with the commenters that selecting all 
candidate events when a hospital has 12 or fewer candidate HAI events 
for a particular quarter is a flawed process. Unlike selecting a sample 
of a population, which could result in sampling or random errors, 
selecting an entire population as we will do for hospitals with 12 or 
fewer candidate HAI events in a particular quarter has no such sampling 
or random error. Our statistical experts have no reservations about 
selecting the entire population of records with candidate HAIs when 
there are fewer than 12 per quarter. The discipline of sampling 
statistics was developed to address the problem that many populations 
are too large to study in their entirety, however, in the event the 
entire population is selected, as opposed to a sample of the 
population, the resulting estimate will have no sampling (random) 
error.\109\ While every estimate suffers from potential inaccuracies 
arising from non-sampling errors such as incomplete enumeration of the 
population or simple variation from year to year,\15\ the estimates 
obtained from studying all candidate episodes of care with HAIs will be 
at least as accurate as that obtained from a sample, and therefore this 
process is not flawed.
---------------------------------------------------------------------------

    \109\ ``Population values and statistics'', in Kish L, Survey 
Sampling, Wiley Classics Library Edition, New York: 1995, page 9.
---------------------------------------------------------------------------

    After consideration of the public comments we received, for the FY 
2015 payment determination and subsequent years we are finalizing our 
proposal to use a sample size of 12 records per hospital per quarter 
for hospitals with more than 12 candidate events per quarter, and using 
all records with candidate events in hospitals with 12 or fewer records 
with candidate events in a quarter. We did not receive any public 
comments regarding our proposal not to estimate an HAI score for 
hospitals with 0 candidate events per year for the FY 2015 payment 
determination and subsequent years, and accordingly, we are finalizing 
that policy as proposed.
(4) Validation Scoring for Chart-Abstracted Clinical Process of Care 
Measures and HAI Measures
    As noted in section VIII.A.6.a(1) of this preamble, HAIs occur 
rarely relative to the clinical process of care measures. The rarity of 
HAIs creates problems for validation scoring of this measure set. To 
produce an overall score that combines the scores for the individual 
measure sets, CMS computes a weighted average of each measure set score 
for each quarter.\110\ The weight applied to each measure set is 
proportionate to the occurrence of records that were submitted to the 
Warehouse for that measure set. Because CLABSI, CAUTI, and SSI occur 
rarely, we anticipate that the total number of records targeted for 
validation of these measures will account for much less than 25 percent 
of the combined total of all records submitted to the Warehouse. 
Consequently, if the scores for HAI were combined with the other 
measure sets, a hospital could potentially report incorrectly for all 
HAI targeted records, and still meet our established reliability 
criterion of 75 percent, thus passing validation. This would mean that 
our process would fail to offer proper quality control for the HAI 
measure set. Although HAIs are rare, we believe that validation of HAI 
reporting is critical because it supports HHS' priority to reduce these 
infections.
---------------------------------------------------------------------------

    \110\ ``Confidence Interval Calculation'', http://www.qualitynet.org/dcs/ContentServer?c=Page&pagename=QnetPublic%2FPage%2FQnetTier2&cid=1138115987129, last accessed March 19, 2012.
---------------------------------------------------------------------------

    For all of these reasons, we proposed separate scoring processes 
for the HAI and chart-abstracted clinical process of care measure sets, 
and to require hospitals to receive passing scores on both processes to 
pass validation for the FY 2015 payment determination and subsequent 
years. We proposed changes

[[Page 53549]]

to our regulations at Sec.  412.140(d)(2) to address this proposed 
requirement. In particular, our regulation currently states that ``A 
hospital meets the validation requirement with respect to a fiscal year 
if it achieves a 75-percent score as determined by CMS.'' We proposed 
to change this language to state: ``A hospital meets the validation 
requirement with respect to a fiscal year if it achieves a passing 
score, as determined by CMS, on applicable measure sets.'' We proposed 
to define ``passing score'' to mean a score of 75-percent on both of 
the chart-abstracted clinical process of care and HAI measure set 
groupings that apply to the hospital. The proposed computation and 
evaluation of passing for these separate scores are described further 
below.
    Comment: Several commenters supported requiring hospitals to 
receive passing scores for both measure sets.
    Response: We thank these commenters for their support, but have 
revised this proposal based on comments described below.
    Comment: Two commenters expressed concern about the proposal to 
include two scores. While agreeing with the proposed approach of 
assessing the clinical process of care score separate from the HAI 
score, these commenters opposed a requirement to pass both scores on 
their own, particularly because the HAI score would be so new. The same 
commenters believed that the proposed process would give hospitals too 
many opportunities to fail.
    Response: We agree that our proposal requiring hospitals to receive 
passing scores on the clinical process of care and HAI measure sets 
would provide too many opportunities for hospitals to fail validation. 
In particular, the proposed process would weigh the HAI measure and 
clinical process of care measures scores equally and require hospitals 
to pass both scores, even though only 3 of the 24 measures that will be 
validated for FY 2015 are HAI measures, while the remaining 21 measures 
are clinical process of care. The proposed requirement for two passing 
scores, even though one score would be based on validation of just 3 
measures while another would be based on validation of 21 measures, 
would increase opportunities for failure by eliminating the chance for 
hospitals to compensate for poor performance on one set of measures 
with strong performance on the other set of measures.
    Therefore, after consideration of the public comments we received, 
we are not finalizing the proposal to require hospitals to receive 
passing scores on each of the clinical process of care and HAI measure 
sets, nor are we changing our regulations at Sec.  412.140(d)(2) to 
account for this proposal. Instead, for the FY 2015 payment 
determination and subsequent years, we will calculate a total score 
reflecting a weighted average of each of the two individual scores. 
Hospitals will be required to receive a total score of 75 percent, 
consistent with our regulations at Sec.  412.140(d)(2), to pass 
validation.
    For the FY 2015 payment determination and subsequent years, the HAI 
and clinical process of care measures sets' scores will be weighted 
proportionate to the number of measures validated in each set. For the 
FY 2015 payment determination, there are 24 total measures that will be 
validated, 21 of which are clinical process of care measures and 3 of 
which are HAI measures. Therefore, the clinical process of care 
measures would account for 87.5% (21/24) of the total validation score 
and the HAI measures would account for 12.5% (3/24) of the total 
validation score. We will adjust these percentages as necessary in 
future years to reflect the numbers and types of measures we are 
validating. We believe using this weighting scheme while also 
calculating separate scores for the HAI and clinical process of care 
measure sets will allow us to meaningfully validate both types of 
measures while avoiding unduly penalizing hospitals for their reporting 
on one of the two measure sets.
    In the FY 2013 IPPS/LTCH PPS proposed rule (77 FR 28057) for the 
chart-abstracted clinical process of care measures, we did not propose 
any changes to the methodology for reviewing charts, computing the 
score for each measure set, computing a summary score across all 
measure sets, or computing the variance around these summary scores. 
This process was described in the FY 2011 IPPS/LTCH PPS final rule (75 
FR 50226).
    Comment: One commenter observed that the validation process for 
measures that assess time from admission to discharge ``seems very 
stringent.'' The commenter observed that if there is a discrepancy of 
even 1 minute between the time reported for the Hospital IQR Program by 
the hospital for those measures and the time identified when the 
measures are validated, the hospital would fail validation for these 
measures.
    Response: We agree with the commenter that requiring time values to 
match exactly is not realistic based on our historical experience with 
clinical data abstraction, the recognition that hospital clocks may 
vary from system to system such that the same time may be recorded 
differently depending on the source, and the limited clinical 
significance of small deviations in time. We note that this particular 
concern affects the validation score for FY 2014 payment determination 
as well as for future years [because the ED throughput measures will be 
validated beginning with this year?].
    Accordingly, after considering the public comments we received, for 
the FY 2014 payment determination and future years when scoring the 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'' and ED-2: ``Median time from admit decision 
to time of departure from the emergency department for emergency 
department patients admitted to the inpatient status''), we will not 
require these measures to have matching numerator and denominator 
states. Instead, for scoring of these ED throughput measures, we will 
allow a 5 minute variance between the time abstracted by the hospital 
and that abstracted by CDAC.
    In the FY 2013 IPPS/LTCH PPS proposed rule, for the FY 2015 payment 
determination and subsequent years (77 FR 28057), we proposed to use 
the same basic approach to CLABSI scoring that we finalized in the FY 
2012 IPPS/LTCH PPS final rule (76 FR 51647), but to modify this scoring 
process to include consideration of all three HAI measures 
simultaneously. For example, if a sampled record is determined to 
include a CLABSI event and no CAUTI or SSI events, and one CLABSI event 
was reported to NHSN, we proposed to assign the record a score of 1/1. 
If a sampled record had two independent episodes of CLABSI, CAUTI, or 
SSI, or a combination of infections, both events would have to be 
reported to NHSN to receive a score of 1/1. Similarly, if no events 
were reported to NHSN and the medical record indicated there were no 
events, we proposed that the record would receive a score of 1/1. We 
proposed to assign a score of 0/1 to a record if no event was reported 
to NHSN and at least one CLABSI, CAUTI, or SSI was detected, or if an 
event was reported but for the wrong infection. For example, if an SSI 
was reported to NHSN as a CLABSI, the record would receive a 0/1. We 
also proposed to assign a score of 0/1 to a record if an event was 
reported to NHSN for CLABSI, CAUTI, or SSI, and the CMS contractor 
determined that there was no such event.
    In the FY 2013 IPPS/LTCH PPS proposed rule (77 FR 28057) for the FY

[[Page 53550]]

2015 payment determination and subsequent years, we proposed a slightly 
different process for requesting medical records for SSI. Specifically, 
we proposed that when a candidate SSI is identified based on a 
readmission diagnosis, CDAC would request two records per candidate SSI 
event. This proposal is necessary because many SSIs are not diagnosed 
until after patient discharge. In these circumstances, the hospital 
might first become aware of the SSI upon readmission. Therefore, the 
information needed to evaluate the presence or absence of an SSI for 
these candidate events would be divided across two records: (1) the 
medical record for the hospitalization during which surgery was 
performed; and (2) the medical record for the readmission to treat the 
candidate infection. Therefore, we further proposed for the FY 2015 
payment determination and subsequent years that when a candidate SSI is 
identified based on a readmission diagnosis, we evaluate the occurrence 
of an SSI event related to the index hospitalization using data in both 
records. In contrast, we proposed to limit evaluation of CLABSI and 
CAUTI to the record for the index hospitalization. We proposed these 
changes to incorporate CAUTI and SSI into HAI scoring, which were not 
part of previous validation efforts. We invited comments on these 
proposals.
    Comment: A few commenters noted that hospitals need time and 
feedback to learn how to abstract new data elements, and that the 
proposed validation process does not provide hospitals with a grace 
period during which they may better learn the rules for abstracting new 
elements. A commenter urged CMS to release CLABSI validation results 
publicly so that all might learn from the experience.
    Response: We agree that an important purpose of validation is to 
educate hospitals on how to improve their reporting processes. As with 
other Hospital IQR Program measures, CAUTI and SSI were added to the 
Hospital IQR Program in the year before are being added to the Hospital 
IQR Program validation program. Therefore, hospitals will have three 
quarters (Q1-Q3 2012) in which to develop experience reporting CAUTI 
and SSI before they will be validated on these measures. In addition, 
like all IQR program data, CAUTI and SSI data are publicly reported. It 
is therefore important to begin validation soon after new measures are 
added to the Hospital IQR Program.
    In all years, we will work with CDC, our State QIOs, and our 
national validation support contractor to widely disseminate lessons 
learned from HAI validation efforts on a timely basis. Hospitals will 
benefit either from direct participation in the CLABSI validation 
process for the FY 2014 payment determination, or through dissemination 
of lessons learned to help them improve when reporting their CLABSI and 
other NHSN data for the FY 2015 payment determination. Similarly, 
hospitals not validated for the FY 2015 payment determination will 
receive education in the form of lessons learned to help them improve 
their own reporting processes on all three NHSN measures.
    Comment: Two commenters expressed concern that a hospital's 
probability of failure is unfairly increased by giving hospitals a 
maximum of 1 point for each candidate HAI sampled instead of giving 
hospitals a maximum of 3 points per sampling candidate HAI, one for 
each properly reported infection.
    Response: We agree that giving hospitals up to 3 points instead of 
1 per record sampled would increase the probability of success on 
individual cases for particular hospitals, but disagree that we should 
adopt this approach on the grounds that it does not accurately reflect 
the incidence of these infections. Although a patient may conceivably 
acquire both a CLABSI and a CAUTI, this is very rare. An individual HAI 
event can either be CLABSI or CAUTI, but it can never be both. In 
addition, overlap between CLABSI and SSI and CAUTI and SSI is rare. 
Therefore, we anticipate that most records sampled will have at most 
one infection. Were we to give each record up to 3 points, we would 
essentially be offering hospitals a score of 2 for every opportunity 
that we have to evaluate them on reporting of the third infection. In 
other words, to adopt a denominator of 3 per sampled record would give 
hospitals a base score of 67 percent, without having to do anything 
correctly. Given that the requisite score for passing validation is 
75%, we believe this would be an inappropriately lenient standard.
    Comment: Some commenters supported the review of two medical 
records to assess SSI.
    Response: We thank the commenters for their support.
    After consideration of the public comments we received, we are 
finalizing as proposed, the scoring process for CLABSI, CAUTI, and SSI 
for the FY 2015 payment determination and subsequent years. We are also 
finalizing for the FY 2015 payment determination and future years, the 
proposal to request two medical records per candidate SSI event when a 
candidate SSI is identified based on a readmission diagnosis.
    The process finalized above in this section will be used to create 
a mean HAI score for each hospital. The mean will equal the number of 
HAI records correctly classified divided by the total number of HAI 
records scored. As described in section VIII.A.6.a.(3) of this 
preamble, a sample of up to 12 records is to be drawn quarterly, for an 
annual sample of up to 48. The approach of dividing the year into 4 
quarters and drawing an independent random sample from each is known as 
stratified random sampling. When the validation sample includes all of 
the candidate HAI events that a hospital generates in a year, 
reliability is measured without error. In this case, the upper bound of 
the confidence interval will be exactly the same as the estimate of 
reliability. However, when this score is based on only a sample of 
records containing candidate HAIs, we must compute a variance around 
this mean. We proposed to compute the confidence interval by applying 
the appropriate formula for the variance of a proportion in a 
stratified random sample.\111\
---------------------------------------------------------------------------

    \111\ ``Section 5.10 Stratified sampling for proportions'' in 
Cochran WG. Sampling Techniques, third edition. John Wiley and Sons, 
New York,1977, pp. 107-108.
---------------------------------------------------------------------------

    We received no comments directly on this proposal. However, this 
proposal is sensible only in the context of the earlier proposal to 
require hospitals to receive passing scores on both the clinical 
process of care and HAI measures. As we are not finalizing the proposal 
to receive two passing scores, we must also modify this one. Rather 
than computing a confidence interval for the HAI measure set 
specifically, we are finalizing the process to apply the appropriate 
formula for the variance of a proportion in a stratified random sample 
as proposed. We will then obtain a total variance for the combined 
clinical process of care and HAI scores using the appropriate formula 
for the variance of the weighted sum of two independent random 
variables.\112\ A single confidence interval will be computed based on 
this total variance.
---------------------------------------------------------------------------

    \112\ ``Equation 5-40, in Section, 5-4 Linear combination of two 
random variables'' in Wonnacott TH and Wonnacott RJ, ``Introductory 
Statistics for Business and Economics, second edition, John Wiley 
and Sons, New York, 1977, pp. 131.
---------------------------------------------------------------------------

(5) Criteria To Evaluate Whether a Score Passes or Fails
    Historically, we have used two criteria for passing validation in 
the Hospital IQR Program, which were described in FY 2011 IPPS/LTCH PPS 
final rule (75 FR 50226):

[[Page 53551]]

     Require all Hospital IQR Program participating hospitals 
selected for validation to attain at least a 75-percent validation 
score per quarter to pass the validation requirement.
     Use the upper bound of a one-tailed 95 percent confidence 
interval to estimate the validation score.
    In the FY 2013 IPPS/LTCH PPS proposed rule (77 FR 28057), we 
proposed for the FY 2015 payment determination and subsequent years to 
compute validation scores for each of the chart-abstracted and HAI 
measure sets by combining the data across all four quarters, instead of 
by considering the quarters separately. We proposed what we believed 
was a change in our current policy because 4 quarters of data combined 
can provide a more accurate estimate of reliability than could be 
attained from a single quarter.
    We would like to clarify that what we characterized in the FY 2013 
IPPS/LTCH PPS proposed rule as a proposal is actually consistent with 
our current policy, which was finalized in the FY 2011 IPPS/LTCH PPS 
final rule (75 FR 50226). We stated in that rule that we would require 
Hospital IQR Program ``participating hospitals selected for validation 
to attain at least a 75-percent validation score per quarter to pass 
the validation requirement,'' which could suggest that we are requiring 
hospitals to pass validation on a quarterly basis. In actuality, we 
finalized a policy in that rule to calculate ``an annual confidence 
interval,'' or to require hospitals to pass validation annually, not 
quarterly. Accordingly, what we presented in the FY 2013 IPPS/LTCH PPS 
proposed rule as a proposal--computing annual validation scores by 
combining data across all four quarters--is consistent with our current 
policy.
    Comment: Some commenters expressed preference for a quarterly 
score, because the commenters valued receiving timely feedback 
regarding their hospitals' performance.
    Response: We thank the commenters for the opportunity to clarify 
our current process. We will continue to provide hospitals with 
feedback regarding the performance on validation on a quarterly basis. 
However, we will also continue to evaluate a hospital's validation 
score by combining data across all quarters included in the validation 
year and by computing a confidence interval once annually for the basis 
of a payment determination only.
    After consideration of the public comments we received, we are 
continuing for the FY 2015 payment determination and future years our 
current policy of providing hospitals with feedback quarterly and 
producing a single annual confidence interval per hospital.
    In the FY 2013 IPPS/LTCH PPS proposed rule (77 FR 28057) we 
proposed that if a hospital has no candidate CLABSI, CAUTI, or SSI in 
the year to be validated or a hospital has been excepted from NHSN 
reporting for all three HAIs, it will only be required to achieve a 75 
percent score for the chart-abstracted clinical process of care 
measures to pass validation. We made this proposal because, in these 
instances, no HAI score can be computed.
    We did not receive any public comments on this proposal and, 
therefore, we are finalizing this process as proposed.
    In the FY 2013 IPPS/LTCH PPS proposed rule for the FY 2015 payment 
determination and subsequent years, we proposed to replace the use of a 
one-tailed 95 percent confidence interval with a two-tailed 90 percent 
confidence interval. The reason for this proposal is so that we may 
identify hospitals passing our annual 75 percent threshold that also 
have scores within the statistical margin of error for not passing this 
annual requirement. The upper bound of a two-tailed 90 percent 
confidence interval is exactly the same number as the upper bound of a 
one-tailed 95 percent confidence interval. Therefore, this proposal 
will have no impact on the number of hospitals in the base annual 
sample that pass or fail validation. The Government Accountability 
Office (GAO) has noted that CMS does not have a methodology to address 
hospitals, for which ``the statistical margin of error for their 
accuracy included both passing and failing levels.'' \113\ For data 
included in the GAO report, one-quarter to one-third of hospitals fell 
into this category. CMS has subsequently taken steps to address other 
GAO concerns, which has reduced the percentage of hospitals that 
neither passed nor failed validation to 7 percent in the FY 2012 
payment determination.
---------------------------------------------------------------------------

    \113\ Government Accountability Office. ``Hospital Quality Data. 
CMS needs more rigorous methods to ensure reliability of publicly 
released data''. GAO-06-54, January 2006.
---------------------------------------------------------------------------

    Nonetheless, we believe that there is value in looking more closely 
at the remainder of these hospitals. For the FY 2015 payment 
determination and subsequent years, we proposed to identify those 
hospitals which have neither passed nor failed, using a two-tailed 
confidence interval. In addition, for the purpose of payment 
determination in FY 2015 and subsequent years, we proposed to continue 
to pass these hospitals, while also targeting these hospitals for 
validation the next year, which we finalize in section VIII.C.6.c. of 
this preamble.
    If, as in previous years, our only concern was in hospitals with an 
upper bound for the reliability rate below 75 percent, we would have 95 
percent confidence in the upper bound. However, because we proposed to 
identify hospitals for which ``the statistical margin of error for 
their accuracy included both passing and failing levels,'' we must 
consider both an upper and lower confidence bound. Therefore, the same 
interval provides only 90 percent confidence (5 percent of samples will 
have lower interval bounds based on the sample that are higher than the 
actual reliability for the population and 5 percent will have upper 
interval bounds that are lower than the actual reliability rate for the 
population). Computing a two-tailed interval and adjusting its 
confidence level from 95 to 90 percent is the only way to maintain the 
computation for the upper bound using the same formula as that used in 
previous years and also calculate the lower bound\10\\,114\ which will 
allow us to identify hospitals that would otherwise neither pass nor 
fail validation. We invited public comment on this proposal.
---------------------------------------------------------------------------

    \114\ ``Chapter 8 Interval estimation'' in Wonnanut TH, 
Wonnacott RJ. Introductory statistics for business and economics, 
2nd edition, 1977, John Wiley & Sons, New York, pp. 199-201, 231-
232.
---------------------------------------------------------------------------

    Comment: Two commenters expressed concern that the proposed change 
would make passing validation more difficult.
    Response: As stated above, the formula for the proposed two-tailed 
90 percent confidence interval is identical to the formula for the one-
tailed 95 percent confidence interval now used. Therefore, this change 
will not negatively impact hospitals in any given year, but it will 
allow us to accomplish the other policy goals that we have outlined 
above.
    After consideration of the public comments we received, we are 
finalizing this process as proposed for the FY 2015 payment 
determination and subsequent years.
b. Number and Manner of Selection for Hospitals Included in the Base 
Annual Validation Random Sample
    As finalized in the FY 2011 IPPS/LTCH PPS final rule (75 FR 50225-
50227), validation of chart-abstracted measures in the Hospital IQR 
Program uses a base annual random sample of 800 hospitals. In the FY 
2013 IPPS/

[[Page 53552]]

LTCH PPS proposed rule (77 FR 28058), for the FY 2015 payment 
determination and subsequent years, we proposed to reduce the total 
base sample size of hospitals included in the annual validation random 
sample from 800 to 400. One of our goals in targeting a certain number 
of hospitals for our base annual random sample is to estimate the total 
percentage of hospitals that have been reporting unreliable data for 
the Hospital IQR Program. The minimum sample size required to assess 
the percentage of hospitals in the Hospital IQR Program that have been 
reporting unreliable data depends on the expected percentage of 
hospitals that fail validation. Because a very high percentage of 
Hospital IQR Program hospitals pass validation (more than 99 percent of 
the hospitals in the FY 2012 payment determination), we believe that we 
can reduce burden on hospitals by selecting fewer hospitals for the 
base annual random sample without adversely affecting our estimate of 
this percentage. We did not propose to change the criteria for 
selecting the annual validation random sample because we believe that 
these criteria are appropriate for sample selection.
    We proposed no change to the criteria for selecting the annual 
validation random sample, which we provided for informational purposes. 
The finalized definition of a hospital eligible for validation, as 
provided in the FY 2011 IPPS/LTCH PPS final rule (75 FR 50227) are the 
subset of subsection (d) hospitals who successfully submitted ``at 
least one [IQR] case for the third calendar quarter of the year two 
years prior to the year to which the validation.'' For example, for the 
FY 2015 payment determination, we would select the sample in early 
2013, and all Hospital IQR Program-eligible hospitals that submitted at 
least one Hospital IQR case for third quarter 2012 discharges would be 
eligible to be selected for validation. We invited comments on these 
proposals.
    Comment: We received many comments in support of this proposal.
    Response: We thank these commenters for their support.
    Comment: A few commenters raised concern that hospitals already go 
too many years without feedback regarding their performance. In 
contrast, another commenter suggested that hospitals should not have to 
undergo validation at all more often than once every 3 years unless a 
problem was uncovered during the validation process.
    Other commenters expressed concern that CMS could not guarantee 
reliability (for example, what the hospital submitted matches what is 
observed by CDAC) across all hospitals and asked for clarification 
regarding how CMS planned to approach this problem.
    Response: Although we could conduct validation on every hospital 
every year, such an approach to reliability assessment uses 
significantly more CMS and hospital resources than necessary. 
Conducting validation on any individual hospital less frequently 
reduces burden, which we consider to be very important. The basic 
premise behind random sampling is that one can learn something about 
all hospitals by gathering data on just a subset of hospitals. Using an 
estimated passing rate of 99 percent, our power calculations indicate 
that with 400 hospitals, we can be highly confident that least 98 
percent of all hospitals in the IPPS population are achieving the 
requisite reliability score. Hospitals that would like to learn more 
about common pitfalls associated with quality reporting may receive 
this from their QIO and Hospital IQR Program validation support 
contractor.
    We cannot exclude hospitals from validation if they have been 
selected in the previous 3 years as suggested by one commenter, because 
we are required by section 1886(b)(3)(B)(xii) of the Act to randomly 
select hospitals to validate the Hospital IQR measures as a whole. We 
believe that random sampling requires all hospitals to review data 
accuracy, because all hospitals are eligible to be selected in our 
annual random sample. We have a validation support contractor who 
provides QIOs with feedback regarding common pitfalls identified during 
the validation process. Moreover, these QIOs have a contractual 
obligation with CMS to educate hospitals regarding Hospital IQR Program 
requirements. Therefore, each individual hospital has access to 
education about the Hospital IQR Program process, regardless of whether 
it is selected for validation.
    After consideration of the public comments we received, we are 
finalizing the process to reduce the base annual random sample from 800 
to 400 as described above for the FY 2015 payment determination and 
subsequent years.
c. Targeting Criteria for Selection of Supplemental Hospitals for 
Validation
    We have established policies for supplementation to the base annual 
random sample of hospitals. In particular, our supplemental validation 
sample includes all hospitals that fail validation in the previous year 
(75 FR 50227 through 50229), a policy that we do not intend to change. 
We also finalized a policy in the FY 2012 IPPS/LTCH PPS final rule (76 
FR 51645 through 51646), that the validation sample drawn for the FY 
2015 payment determination and subsequent years will include in the 
fourth year all hospitals not randomly occurring in the sample in the 
previous 3 years. We have reassessed this policy.
    We believe that we have identified an approach with comparable 
benefits to reliability which would have a smaller total burden to 
hospitals, and at less cost to CMS. Based on chance alone, we would 
expect that about 1,500 (slightly less than half of all IPPS-eligible) 
hospitals would not have been sampled in the previous 3 years. Of 
these, less than 200 would be expected to be randomly selected as part 
of the base validation sample of 400 hospitals for the FY 2015 payment 
determination. Accordingly, this means that for the FY 2015 payment 
determination, the supplemental sample size would be about 1,300 
hospitals. To increase the sample size by 1,300 hospitals in a single 
year is unnecessarily burdensome; we believe we can have the same 
influence on hospitals that have not been recently validated simply by 
increasing their probability of selection through targeting in 
subsequent years. In the FY 2013 IPPS/LTCH PPS proposed rule (77 FR 
28058), therefore, for the FY 2015 payment determination and subsequent 
years, we proposed to discontinue our policy of including hospitals in 
the supplemental validation sample in the fourth year that have not 
been validated in the previous 3 years. We proposed, however to use the 
lack of recent validation as one of several targeting criteria for a 
supplemental random sample described further below. For the FY 2015 
payment determination and subsequent years, we proposed to add 
targeting criteria as a supplement to the base random sample of up to 
200 additional hospitals. We believe that this proposal would improve 
data quality by increased targeting of hospitals with possible or 
confirmed past data quality issues. As finalized in the FY 2011 IPPS/
LTCH PPS final rule, the supplement will include all hospitals that 
fail validation in the previous year. We invited public comment on the 
proposal to include a targeted sample, and to use the following as 
criteria for targeting the additional hospitals:
     Any hospital with abnormal or conflicting data patterns. 
An example of abnormal data pattern would be if a hospital has 
extremely high or extremely low values for a particular measure. 
Consistent with the Hospital OQR Program, we proposed to define an 
extremely high or low value as one that falls more than 3 standard 
deviations

[[Page 53553]]

from the mean (76 FR 74485). An example of a conflicting data pattern 
would be if two records were identified for the same patient episode of 
care but the data elements were mismatched for primary diagnosis. 
Primary diagnosis is just one of many fields that should remain 
constant across measure sets for an episode of care. Other examples of 
fields that should remain constant across measure sets are patient age 
and sex. Any hospital not included in the base validation annual sample 
and with statistically significantly more abnormal or conflicting data 
patterns per record than would be expected based on chance alone (p 
 Any hospital with rapidly changing data patterns. For this 
targeting criterion, we proposed to define a rapidly changing data 
pattern as a hospital which improves its quality for one or more 
measure sets (that is, AMI, HF, PN, SCIP, ED, IMM, or HAI) by more than 
2 standard deviations from one year to the next, and also has a 
statistically significant difference in improvement (one-tailed p 
 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.
    Comment: Some commenters favored the proposal to target hospitals 
based on the criteria described above.
    Response: We agree that these proposed policies will be useful.
    Comment: Commenters expressed concern that for hospitals failing 
validation, the amount of time elapsing between the determination and 
the deadline for submitting records in the following year may not be 
sufficient to improve the hospital's performance.
    Response: We disagree that the time between the determination that 
a hospital has failed and the time it has to submit data for the 
following year would present difficulties for hospitals, because a 
hospital has no reason to wait until it receives a failing payment 
determination to improve its reporting. As described above in this 
section, we provide feedback on validation quarterly, and QIOs are 
available to provide education and feedback to hospitals regardless of 
their quarterly scores. A poorly performing hospital should receive 
feedback after validation of the very first quarter in a validation 
year. This feedback would come long before the next year's reporting 
process would start. For example, a hospital will receive all feedback 
on data submitted in the 4th quarter of 2012 by the end of October 
2013, but would not be required to complete submission of data for the 
4th quarter of 2013 until May 2014.
    Comment: One commenter questioned whether reserving one-third of 
the sample for targeted validation ``would diminish the randomization 
and thus diminish the validation process.''
    Response: As described above, we approached the problem of sample 
size for the base annual random sample by considering the power needed 
to assess reliability, which we determined to be 400. The random sample 
size needed is unaffected by the size of our targeted validation 
sample. Compared with the current policy, which was finalized for the 
FY 2015 payment determinations and subsequent years in the FY 2012 
IPPS/LTCH PPS final rule (76 FR 51645 through 51646), and which 
targeted all hospitals not included in the three previous years, the 
new proposal to target up to 200 hospitals includes a much lower ratio 
of `targeted' to random sampling. Moreover, the sample targeted under 
current policy is less informative than the proposed targeted sample 
because the current process does not identify and target hospitals most 
likely to need validation based on data previously submitted. 
Accordingly, we do not believe that reserving one third of the sample 
for targeted validation reduces the integrity of the validation 
process, and in fact, we believe it will strengthen validation.
    After consideration of the public comments we received, we are 
finalizing this targeting proposal for the FY 2015 payment 
determination.
    For the FY 2016 payment determination and subsequent years, we 
proposed to add to the targeting criteria proposed for the 2015 payment 
determination by identifying hospitals that passed validation in the 
previous year, but had a two-tailed confidence interval that included 
75 percent. Relative to hospitals whose confidence interval lies 
entirely above the target reliability rate of 75 percent, a confidence 
interval that includes 75 percent would indicate a higher level of 
uncertainty as to the reliability of data for that particular hospital. 
This proposal is related to the proposal to produce a two-sided 
confidence interval (discussed in section VIII.A.6.b of this preamble). 
It is intended to respond to concerns that CMS does not have a 
methodology to address hospitals, for which ``the statistical margin of 
error for their accuracy included both passing and failing levels.'' 
The reason that we proposed implementation of this criterion beginning 
with the 2016 payment determination is that it is not feasible to 
implement this change until after we implement changes to the 
confidence interval, as described in section VIII.A.6.b. of this 
preamble.
    We received no comments on this proposal, and therefore, we are 
finalizing this proposal to add a targeting criterion for the 
supplemental sample of hospitals that passed validation in the previous 
year, but had a two-tailed confidence interval that included 75 
percent. This process will begin with the FY 2016 payment determination 
and continue in subsequent years.
    As noted above, the established procedure for drawing the base 
random sample involves selection of hospitals ``early'' in the calendar 
year two years prior to the payment determination FY 2011 IPPS/LTCH PPS 
final rule (75 FR 50227). For example, the base sample for the FY 2015 
payment determination will be drawn early in 2013. We proposed that the 
selection of hospitals targeted in the supplemental sample for the FY 
2015 payment determination occur after the FY 2014 payment 
determination; this will separate the timing of selection of base and 
supplemental samples. We proposed to do so because CMS may need extra 
time to review hospital data before identifying the hospitals to 
include in the supplemental sample. Moreover, information regarding a 
hospital's status as failing or passing is not known at the time the 
base sample is drawn.
    We received no comments on this proposal, and we are finalizing as 
proposed the process to separate the timing for drawing the base and 
supplemental samples. We provide the reader with the validation 
timeline for finalized in the FY 20111 IPPS/LTCH PPS final rule (75 FR 
50219) for the FY 2013 payment determination and subsequent years for 
informational purposes only. We did not propose any changes or invite 
comment on this timeline. The quarters included in the validation 
effort for each year's payment determination will be the fourth 
calendar quarter of the year that occurs 2 years before the payment 
determination and the first 3 calendar quarters of the following 
calendar year. For example, for the FY 2015 payment determination, the 
quarters included in validation would be the fourth quarter of calendar 
year 2012 through the third quarter of calendar year 2013.

[[Page 53554]]

7. Data Accuracy and Completeness Acknowledgement Requirements for the 
FY 2015 Payment Determination and Subsequent Years
    In the FY 2013 IPPS/LTCH PPS proposed rule (77 FR 28059), we 
proposed to require hospitals to continue to electronically acknowledge 
their data accuracy and completeness once annually. For the FY 2014 
payment determination, the submission deadline for the Data Accuracy 
and Completeness Acknowledgement was aligned with the final submission 
quarter for each fiscal year. We proposed to continue this approach for 
FY 2015 and subsequent years. For example, we proposed that the 
submission deadline for the Data Accuracy and Completeness 
Acknowledgement would be May 15, 2014, with respect to the time period 
of January 1, 2013, through December 31, 2013. We invited public 
comment on this proposal.
    We received no comments on this proposal; therefore, we are 
finalizing our proposal to align the Data Accuracy and Completeness 
Acknowledgement with the final submission quarter for each fiscal year 
for FY 2015 and subsequent years.
8. Public Display Requirements for the FY 2015 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 
proposed rule (77 FR 28059), we did not propose any changes to these 
requirements.
    The Hospital IQR Program quality measures are typically reported on 
the Hospital Compare Web site at: http://www.hospitalcompare.hhs.gov, 
but on occasion are reported on other CMS Web sites. We require that 
hospitals sign a Notice of Participation form when they first register 
to participate in the 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.
9. Reconsideration and Appeal Procedures for the FY 2015 Payment 
Determination
    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 42 CFR 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.
10. Hospital IQR Program Disaster Extensions or Waivers
    The Hospital IQR Program disaster extensions or waiver requirements 
were adopted in the FY 2012 IPPS/LTCH PPS final rule (76 FR 51650 
through 51652) and can be found at 42 CFR 412.140(e) and (c)(2), 
respectively. 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.
11. Electronic Health Records (EHRs)
a. Background
    Starting with the FY 2006 IPPS final rule, we have encouraged 
hospitals to take steps toward the adoption of EHRs (also referred to 
in previous rulemaking documents as electronic medical records) that 
will allow for reporting of clinical quality data from the EHRs 
directly to a CMS data repository (70 FR 47420 through 47421). We 
sought to prepare for future EHR submission of quality measures by 
sponsoring the creation of electronic specifications for quality 
measures under consideration for the Hospital IQR Program.
b. HITECH Act EHR Provisions
    The HITECH Act (Title IV of Division B of the ARRA, together with 
Title XIII of Division A of the ARRA) authorizes payment incentives 
under Medicare for the adoption and use of certified EHR technology 
beginning in FY 2011. Hospitals are eligible for these payment 
incentives if they meet requirements for meaningful use of certified 
EHR technology, which include reporting on quality measures using 
certified EHR technology. With respect to the selection of quality 
measures for this purpose, under section 1886(n)(3)(A)(iii) of the Act, 
as added by section 4102 of the HITECH Act, the Secretary shall select 
measures, including clinical quality measures, that hospitals must 
provide to CMS in order to be eligible for the EHR incentive payments. 
With respect to the clinical quality measures, section 1886(n)(3)(B)(i) 
of the Act requires the Secretary to give preference to those clinical 
quality measures that have been selected for the Hospital IQR Program 
under section 1886(b)(3)(B)(viii) of the Act or that have been endorsed 
by the entity with a contract with the Secretary under section 1890(a) 
of the Act. All measures must be proposed for public comment prior to 
their selection, except in the case of measures previously selected for 
the Hospital IQR Program under section 1886(b)(3)(B)(viii) of the Act.
    We continue to believe there are important synergies with respect 
to the two programs. We believe the financial incentives under the 
HITECH Act for the adoption and meaningful use of certified EHR 
technology by hospitals will encourage the adoption and use of 
certified EHRs for the anticipated future reporting of clinical quality 
measures under the Hospital IQR Program. Through the EHR Incentive 
Programs we expect that the anticipated future submission of quality 
data through EHRs will provide a foundation for establishing the 
capacity of hospitals to send, and for CMS to receive, quality measures 
via hospital EHRs for certain Hospital IQR Program measures in the 
future.
    The HITECH Act requires that the Secretary seek to avoid redundant 
and duplicative reporting, with specific reference to the Hospital IQR 
Program for eligible hospitals. To the extent that quality measures are 
included in both the Hospital IQR Program and the EHR Incentive 
Programs, this would mean that the Hospital IQR Program would need to 
transition to use of certified EHR technology rather than manual chart 
abstraction. We are considering what the most practical approach to 
effect such a transition might be. One option is to select a date after 
which chart-abstracted data would no longer be used in the Hospital IQR 
Program where it is possible to report the data via certified EHR 
technology. This would require sufficient advance notice to hospitals 
for hospitals to report the data via certified EHR technology. At that 
point, we believe that it is likely that nearly all IPPS hospitals will 
have implemented certified EHR technology as incentivized by the HITECH 
Act. Another option would be to allow

[[Page 53555]]

hospitals to submit the same measure for the Hospital IQR Program based 
on either chart-abstraction or, when available, EHR-based reporting. 
This would require extensive testing to ensure equivalence given that 
the data for the Hospital IQR Program supports both the public 
reporting of such information and the Hospital VBP Program. We are 
concerned that this option would not be feasible.
    Ultimately, we do not anticipate having two different sets of 
clinical quality measures for the EHR Incentive Programs and the 
Hospital IQR Program. Rather, we anticipate a single set of hospital 
clinical quality measures, most of which we anticipate would be 
electronically specified. We envision a reporting infrastructure for 
electronic submission as an additional reporting mechanism in the 
future, and will strive to align the hospital quality initiative 
programs to seek to avoid redundant and duplicative reporting of 
quality measures for hospitals. We note that some important Hospital 
IQR Program quality measures such as HCAHPS experience of care measures 
are based on survey data and do not lend themselves to EHR reporting. 
Similarly, certain outcome quality measures, such as the current 
Hospital IQR Program readmission measures, are based on claims data 
rather than clinical data. Thus, not all Hospital IQR Program quality 
measures will necessarily be capable of being submitted through EHRs. 
As a consequence, not all Hospital IQR Program quality measures would 
necessarily be appropriate for inclusion in the EHR Incentive Programs.
    We note that the provisions in this proposed rule do not implicate 
or implement any HITECH statutory provisions. Those provisions are the 
subject of separate rulemaking and public comment.
    Comment: Many commenters strongly supported CMS's direction to move 
toward EHR-based reporting for quality measures. Commenters shared our 
vision to implement a single set of hospital clinical quality measures, 
most of which would be electronically specified. Commenters supported 
the alignment of measures across public reporting programs using EHR 
technology. A commenter believed that use of certified EHR technology 
would be widespread by 2015 among hospitals. One commenter stated that 
some hospitals will still be unprepared for EHR-based reporting by 2015 
and commenter noted that implementing EHR-based reporting prematurely 
may negate quality improvement efforts. One commenter recommended 
postponing EHR-based reporting until all hospitals have reached Stage 3 
of meaningful use under the HITECH Act EHR Incentive Program.
    Response: We appreciate the support of our intention to move toward 
EHR-based reporting for quality measures. We also believe that large 
numbers of hospitals would be able to report quality measures 
electronically from EHRs, which are currently chart-abstracted. We 
expect in the future to propose a specific date for transition from 
chart-abstracted to EHR-based measures for the Hospital IQR Program. We 
expect this to be facilitated by the EHR Incentive Program, which has 
proposed certain clinical quality measures that align with the Hospital 
IQR Program, and the related electronic reporting pilot for hospitals 
(see 75 FR 74489).
    Comment: Many commenters supported a defined strategy to effect a 
transition from chart-abstraction to EHR-based submissions. Several 
commenters indicated that they would like to have the option to submit 
data either using chart-abstractions or via EHR but cautioned that 
extensive pre-implementation testing and validation of e-measures for 
accuracy are crucial. One commenter encouraged CMS to engage in more e-
measure pilot testing. While many commenters supported EHR submission 
as the sole mechanism for data submission, commenters added that the 
existence of a transition period, which accommodates both of the data 
collection mechanism, is necessary.
    Response: We have not decided the best approach to transitioning 
from chart-abstracted measures to EHR-based reporting. We agree that 
significant testing is needed to assure accuracy of EHR-based 
reporting. We do not believe that is practical to provide alternative 
options for the Hospital IQR Program with some hospitals reporting 
based on chart abstracted measures while others use EHR-based 
reporting, where such measures are publicly reported and are the basis 
for value based purchasing. Ultimately, we believe a transition, when 
feasible, needs to be accomplished by all hospitals for the Hospital 
IQR Program.
    Comment: A few commenters suggested registry-based reporting as an 
alternative alongside with EHR-based technology for hospitals.
    Response: We support the use of registries. As stated above, 
however, we do not believe it is practical to have alternative measures 
data sources due to the degree of testing that would be necessary to 
assure equivalence of results.

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 (hereafter 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 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 
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 must 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

[[Page 53556]]

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 
Internet Web site.
    Comment: Several commenters supported the PCHQR Program, and some 
commenters encouraged PCHs to participate in ``public reporting 
programs.''
    Response: We appreciate the commenters for their support.
    Comment: Several commenters stated that there will be a 2-percent 
point reduction to a PCH's rate-of-increase limit if the PCH fails to 
report the PCHQR quality measures.
    Response: We did not propose in the FY 2013 IPPS/LTCH proposed rule 
to adopt a policy on what the consequence would be if a PCH failed to 
report the quality measures specified under the PCHQR Program. We plan 
to address this issue in future rulemaking.
2. Covered Entities
    Section 1886(d)(1)(B)(v) of the Act excludes particular cancer 
hospitals from payment under the IPPS. This final rule covers only 
those PPS-excluded cancer hospitals meeting eligibility criteria 
specified in 42 CFR 412.23(f).
3. Quality Measures for PCHs for the FY 2014 Program and Subsequent 
Program Years
a. 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.
    We have taken a number of principles into consideration when 
developing measures for the PCHQR Program, and many of these principles 
are modeled on those we use for measure development under the Hospital 
IQR Program:
     Public reporting should rely on a mix of standards, 
outcomes, process of care measures, and patient experience of care 
measures, including measures of care transitions and changes in patient 
functional status.
     The measure set should evolve so that it includes a 
focused core set of measures appropriate to cancer hospitals that 
reflects the level of care and the most important areas of service 
furnished by those hospitals. The measures should address gaps in the 
quality of cancer care.
     We also considered input solicited from the public. For 
instance, CMS held a Listening Session on September 8, 2011 for the 
purpose of receiving input from consumers, advocacy groups, and 
providers on the measures under consideration for the PCHQR Program and 
other program implementation issues.
     We considered 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 Measure Application 
Partnership (MAP) and strives for burden reduction whenever possible. 
We refer readers to the discussion of these topics in section 
VIII.A.3.a. of the preamble of this final rule on ``Additional 
Considerations in Expanding and Updating Quality Measures'' under the 
Hospital IQR Program.
    Comment: For burden reduction purposes, a commenter encouraged the 
use of existing registries and data sources to expand the PCHQR 
Program.
    Response: We appreciate the commenter for the suggestions. We took 
the issue of burden into consideration when selecting the measures to 
propose to include in the PCHQR Program for FY 2014 and subsequent 
program years, and if feasible, we will work to develop data collection 
methods that further minimize the burden on PCHs.
b. PCHQR Program Quality Measures for the FY 2014 Program and 
Subsequent Program Years
    In the FY 2013 IPPS/LTCH PPS proposed rule (77 FR 28061), we 
proposed to adopt five quality measures for the FY 2014 program and 
subsequent program years. Specifically, we proposed to adopt two CDC/
NHSN-based HAI quality measures (outcome measures): (1) Central Line-
Associated Bloodstream Infection (CLABSI); and (2) Catheter-Associated 
Urinary Tract Infection (CAUTI); and three cancer 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.
    All five of these proposed measures were reviewed by the MAP, and 
were recommended for inclusion in the PCHQR Program. For details 
regarding MAP input, please refer to the MAP Annual Pre-Rulemaking 
Final Report, which can be accessed at: http://www.qualityforum.org/Setting_Priorities/Partnership/Measure_Applications_Partnership.aspx.
(1) CDC/NHSN-Based Healthcare-Associated Infection (HAI) Measures
    HAIs are among the leading causes of death in the United States. 
CDC estimates that as many as 2 million infections are acquired each 
year in hospitals and result in approximately 90,000 deaths per 
year.\115\ 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 number of days of 
hospitalization required for patients and add considerable health care 
costs.
---------------------------------------------------------------------------

    \115\ McKibben L, Horan T, Guidance on public reporting of 
healthcare-associated infections: Recommendations of the Healthcare 
Infection Control Practices Advisory Committee. AJIC 2005; 33:217-
26.
---------------------------------------------------------------------------

    The reduction of HAIs is a priority for HHS, as evidenced by HHS's 
2009 publication of an Action Plan to Prevent HAIs. This Plan is 
available on the HHS Web site at: http://www.hhs.gov/ash/initiatives/hai/actionplan/. To maximize the efficiency and improve the 
coordination of HAI prevention efforts across the Department, HHS 
established in 2008 a senior-level

[[Page 53557]]

Steering Committee for the Prevention of HAIs. In 2009, a Steering 
Committee, which included scientists and program officials across the 
Government, developed the HHS Action Plan to Prevent HAIs, providing a 
roadmap for HAI prevention in acute care hospitals. In the first 
iteration of the Action Plan, the Steering Committee chose to focus on 
infections in acute care hospitals because the associated morbidity and 
mortality were most severe in that setting and the scientific 
information on prevention and the capacity for measure improvement was 
most complete. Thus, prevention of HAIs in acute care hospitals became 
the first phase of the Action Plan, and it focuses on six high priority 
HAI-related areas.
    HAIs are largely preventable with widely publicized interventions 
such as better hygiene and advanced scientifically tested techniques 
for surgical patients. Therefore, the public reporting of HAIs has been 
of great interest to many health care consumers and advocacy 
organizations because it promotes awareness and permits health care 
consumers to choose the hospitals with lower HAI rates, as well as 
gives hospitals an incentive to improve infection control efforts. We 
note that the House Committee on Appropriations asked in a 2009 Report 
that CMS include in its ``pay for reporting'' system for subsection (d) 
hospitals two infection control measures, one of which was a central 
line-associated bloodstream infections measure (H. Rep. No. 111-220, at 
159 (2009)). In the Report, the Committee stated that ``[i]f the 
measures are included in Hospital Compare, the public reporting of the 
data is likely to reduce HAI occurrence, an outcome demonstrated in 
previous research.''
    In the FY 2013 IPPS/LTCH proposed rule, we proposed to adopt two 
NQF-endorsed HAI measures for the FY 2014 PCHQR Program and subsequent 
program years: (1) National Healthcare Safety Network (NHSN) Central 
Line-Associated Bloodstream Infection (CLABSI) Outcome Measure; and (2) 
National Healthcare Safety Network (NHSN) Catheter-Associated Urinary 
Tract Infection (CAUTI) Outcome Measure. These proposed measures were 
developed by the CDC and are currently collected by the CDC via the 
NHSN. We proposed to adopt these two measures for several reasons. 
First, we believe that these measures support the National Quality 
Strategy priority of patient safety as these measures focus on serious 
infections that can prolong patient hospital stays and increase the 
risk of mortality.\116\ Second, the Technical Expert Panel (TEP) 
convened by our measure development contractor identified CLABSI and 
CAUTI as high priority quality issues for PCHs because they address an 
important area of quality measurement and have potential to promote 
improved outcomes. Third, the MAP reviewed these HAI measures and 
supported inclusion of them in the PCHQR Program because they address 
the National Quality Strategy's priority of safer care (see MAP Annual 
Pre-Rulemaking Final Report at: http://www.qualityforum.org/Setting_Priorities/Partnership/Measure_Applications_Partnership.aspx).
---------------------------------------------------------------------------

    \116\ CDC/NHSN Manual. Device-Associated Module, CLABSI Event. 
Available at http://www.cdc.gov/nhsn/PDFs/pscManual/4PSC_CLABScurrent.pdf, accessed on January 20, 2011.
---------------------------------------------------------------------------

    Fourth, these two HAI measures foster alignment with other our 
quality reporting programs. In the FY 2011 IPPS/LTCH PPS final rule, we 
adopted the CLABSI measure for the Hospital IQR Program. The CLABSI 
measure is currently being collected as part of the FY 2013 Hospital 
IQR Program measure set, and data submission on the measure began with 
January 2011 events.\117\ In the Hospital IQR Program, collection of 
this measure is limited to ICU locations. This measure also has been 
adopted for the FY 2014 payment determination under the LTCHQR Program. 
For the LTCHQR Program, data collection for this measure extends to all 
inpatient locations in the LTCH.
---------------------------------------------------------------------------

    \117\ The CDC captures HAI data based on the onset of an event, 
rather than based on the discharge date.
---------------------------------------------------------------------------

    In the FY 2012 IPPS/LTCH PPS final rule, we adopted the Catheter 
Associated Urinary Tract Infection (CAUTI) rate per 1,000 urinary 
catheter days for Intensive Care Unit Patients measure for both the FY 
2014 Hospital IQR and LTCHQR measure sets. In the Hospital IQR Program, 
collection of this measure is limited to ICU locations; for the LTCHQR 
Program, collection of this measure extends to all inpatient locations 
except neonatal ICUs. This measure is a high priority HAI measure that 
is included among the prevention metrics established in the HHS Action 
Plan to Prevent HAIs, which, as we noted above, underscores the 
importance of reducing HAIs.
    We proposed to collect data for these two HAI measures via the 
NHSN, which is a secure, Internet-based surveillance system maintained 
and managed by the CDC, and can be used by many types of health care 
facilities in the United States, including acute care hospitals, cancer 
hospitals, long term care hospitals, psychiatric hospitals, 
rehabilitation hospitals, outpatient dialysis centers, and ambulatory 
surgery centers. The NHSN enables health care facilities to collect and 
use data about HAIs, adherence to clinical practices known to prevent 
HAIs, the incidence or prevalence of multidrug-resistant organisms 
within their organizations, and other adverse events.
    Some States use the NHSN as a means for health care facilities to 
submit patient-level data on measures mandated through their specific 
State legislation. Currently, 28 States require hospitals to report 
HAIs using the NHSN, and the CDC provides support to more than 5,000 
hospitals that are using the NHSN.
    NHSN data collection occurs via manual data entry into a Web-based 
tool hosted by the CDC provided without charge to providers and via 
electronic reporting by providers directly to NHSN. The NHSN Agreement 
to Participate and Consent Form specifies the purposes to which NHSN 
data are put, including enabling providers, such as cancer hospitals, 
to report data via NHSN to CMS in fulfillment of CMS's quality 
measurement reporting requirements for those data.
    In addition, we understand from the CDC that data submission for 
HAI measures through electronic health record technology (EHRs) may be 
possible in the near future, and this would further reduce the 
reporting burden for PCHs.
    Comment: Two commenters supported using the CDC/NHSN as a data 
collection mechanism for the two proposed HAI measures because it is 
less burdensome than chart abstraction.
    Response: We agree that the NHSN data collection mechanism is less 
burdensome than chart abstraction and aligns with HAI measures in other 
quality reporting programs.
(A) Central Line-Associated Blood Stream Infections Measure ((CLABSI), 
NQF 0139)
    The proposed CLABSI measure was originally developed by CDC to 
assess the percentage of ICU and high-risk nursery patients who, over a 
certain amount of days, acquired central line catheter-associated 
bloodstream infections. CDC recently updated this measure to expand the 
care setting to all inpatient settings (not just ICUs). As indicated 
previously, the measure has been renamed the National Healthcare Safety 
Network (NHSN) Central Line-Associated Bloodstream Infection (CLABSI) 
Outcome Measure and we proposed to adopt this measure for use for the 
FY 2014 program and subsequent program years. This measure is 
considered an outcome measure by the

[[Page 53558]]

NQF because it assesses the results of the quality of care provided to 
patients; it is risk-adjusted in that the observed infection rate for a 
particular location or locations in a hospital is compared to an 
expected infection rate for those locations (which is calculated using 
national NHSN data for those locations in a predictive model). Measure 
specifications may be accessed at: http://www.cdc.gov/nhsn/PDFs/pscManual/4PSC_CLABScurrent.pdf.
    A central line is a catheter that health care providers often place 
in a large vein in the neck, chest, or groin to give medication or 
fluids or to collect blood for medical tests. Many patients are 
discharged from short-term acute care hospital intensive care units 
(ICUs) or ICU stepdown units with these central lines in place.
    Bloodstream infections are usually serious infections typically 
causing a prolongation of hospital stay and increased cost and risk of 
mortality.\118\ An estimated 248,000 bloodstream infections occur in 
U.S. hospitals each year.\119\ Furthermore, despite the preventability 
of these infections, CLABSIs result in thousands of deaths each year 
and billions of dollars in added costs to the U.S. health care system. 
CDC is providing guidelines and tools to the health care community to 
help reduce central line catheter-associated bloodstream infections. 
CLABSIs can be prevented through proper management of the central line. 
CDC's Healthcare Infection Control Practices Advisory Committee (CDC/
HICPAC) Guidelines for the Prevention of Intravascular Catheter-Related 
Infections recommends evidence-based central line insertion practices 
known to reduce the risk of subsequent central line-associated 
bloodstream infection.\120\ These include hand-washing by inserters, 
use of maximal sterile barriers during insertion, proper use of a skin 
antiseptic prior to insertion, and allowing that skin antiseptic to dry 
before catheter insertion. Despite the scientific evidence supporting 
these practices, several reports suggest that adherence to these 
practices remains low in U.S. hospitals.
---------------------------------------------------------------------------

    \118\ CDC/NHSN Manual. Device-Associated Module, CLABSI Event. 
Available at http://www.cdc.gov/nhsn/PDFs/pscManual/4PSC_CLABScurrent.pdf, accessed on January 20, 2011.
    \119\ Klevens RM, Edward JR, et al. Estimating health care-
associated infections and deaths in U.S. hospitals, 2002. Public 
Health Reports 2007; 122:160-166.
    \120\ O'Grady NP, Alexander M, Dellinger EP, Gerberding JL, 
Heard SO, Maki DG, et al., Guidelines for the prevention of 
intravascular catheter-related infections. MMWR 2002; 51 (No. RR-
10:1-26).
---------------------------------------------------------------------------

    This measure is NQF-endorsed and, therefore, meets the requirement 
of section 1866(k)(3)(A) of the Act, which states that quality measures 
selected for the PCHQR Program must be endorsed by the entity with a 
contract under section 1890(a) of the Act.
    We invited public comment on our proposal to adopt the NHSN Central 
Line-Associated Bloodstream Infection (CLABSI) outcome measure for the 
PCHQR Program for collection in both ICU and non-ICU locations for the 
FY 2014 program and subsequent program years.
    Comment: Two commenters supported the inclusion of this measure in 
the PCHQR program. A commenter supported the recently updated measure 
specifications to include non-ICU locations.
    Response: We thank the commenters for the support of the measure 
and its expansion into non-ICU locations. We believe the measure 
expansion beyond ICU locations will provide a more comprehensive 
picture of how prevalent CLABSIs are throughout a PCH.
    Comment: One commenter opposed the inclusion of the CLABSI measure 
in its current form. The commenter was concerned that this measure may 
mislead consumers about the quality of care provided at cancer centers. 
The commenter asserted that cancer patients while under treatment often 
have comprised immune systems, which cause them to be more prone to 
contract HAIs such as CLABSI. The commenter also pointed out that stem 
cell transplantation can sometimes cause bacteria from the 
gastrointestinal tract to enter the bloodstream and cause infection. 
The commenter strongly urged CMS to delay the adoption of this measure 
until the measure is stratified and risk-adjusted based on stakeholder 
input.
    Response: While we recognize the complexity of treating hospital-
acquired infections in patients with compromised immune systems, we 
also believe it is important to track HAI rates at all hospitals for 
all patients--regardless of whether they are immune-compromised or not. 
The current NQF-endorsed CLABSI measure does not contain adjustments 
for immune-compromised patients. For all hospitals, CLABSI is 
stratified by CDC-specified ICU and Specialty Care Area (SCA) 
locations, and oncology locations would be included as SCAs, making the 
measure appropriate for PCHs.
    After consideration of the public comments we received, we are 
finalizing the CLABSI measure (NQF 0139) for the PCHQR Program 
for FY 2014 and subsequent program years.
(B) Catheter Associated Urinary Tract Infection Measure ((CAUTI), NQF 
0138)
    The catheter-associated urinary tract infection (CAUTI) measure was 
developed by CDC to measure the percentage of patients with CAUTIs in 
the ICU context. CDC has recently updated the specifications of this 
measure to include all inpatient settings (not just ICUs). This measure 
has been renamed as National Healthcare Safety Network (NHSN) Catheter-
Associated Urinary Tract Infection (CAUTI) Outcome Measure, and we 
proposed to adopt this measure for use in the FY 2014 program and 
subsequent program years. This measure is considered an outcome measure 
as it relates to the results of the quality of care provided to 
patients; it is risk adjusted by which the observed infection rate for 
a particular location in a hospital is compared to an expected 
infection rate calculated based on the specific location within other 
facilities that report to the NHSN. Measure specifications may be 
accessed at: http://www.cdc.gov/nhsn/PDFs/pscManual/7pscCAUTIcurrent.pdf.
    The urinary tract is the most common site of HAIs, accounting for 
more than 30 percent of infections reported by acute care 
hospitals.\121\ Healthcare-associated urinary tract infections (UTIs) 
are commonly attributed to catheterization of the urinary tract. CAUTI 
can lead to such complications as cystitis, pyelonephritis, gram-
negative bacteremia, prostatitis, epididymitis, and orchitis in males 
and, less commonly, endocarditis, vertebral osteomyelitis, septic 
arthritis, endophthalmitis, and meningitis in all patients. 
Complications associated with CAUTI cause discomfort to the patient, 
prolonged hospital stay, and increased cost and mortality. Each year, 
more than 13,000 deaths are associated with UTIs.\122\ Prevention of 
CAUTIs is discussed in the CDC/HICPAC document, Guideline for 
Prevention of Catheter-associated Urinary Tract Infections, which 
includes recommendations for proper insertion techniques, including 
hand washing, insertion by trained staff, use of sterile gloves, 
drapes, sponges and antiseptic

[[Page 53559]]

or sterile solution for cleaning and lubricant jelly for 
insertion.\123\
---------------------------------------------------------------------------

    \121\ Klevens RM, Edward JR, et al., Estimating health care-
associated infections and deaths in U.S. hospitals, 2002. Public 
Health Reports 2007; 122:160-166.
    \122\ Wong ES., Guideline for prevention of catheter-associated 
urinary tract infections. Infect Control 1981; 2:126-30.
    \123\ Gould CV, Umscheid CA, Agarwal RK, Kuntz G, Pegues DA, et 
al., Guideline for prevention of catheter-associated urinary tract 
infections. Infect Control 2009; 31:319-326.
---------------------------------------------------------------------------

    UTIs are a major cause of morbidity and mortality. The HHS Action 
Plan to Prevent HAIs identified catheter associated urinary tract 
infections as the leading type of HAI that is largely preventable, and 
the occurrence of which can be drastically reduced in order to reduce 
adverse health care related events and avoid excess costs.
    This measure is NQF-endorsed and, therefore, meets the requirement 
of section 1866(k)(3)(A) of the Act, which states that quality measures 
selected for the PCHQR Program be endorsed by the entity with a 
contract under section 1890(a) of the Act, unless section 1866(k)(3)(B) 
of the Act applies.
    We invited public comment on our proposal to adopt the NHSN 
Catheter-Associated Urinary Tract Infection (CAUTI) outcome measure for 
the PCHQR Program for collection in both ICU and non-ICU locations 
within a facility to align with the recently-expanded NQF-endorsed 
measure specifications for the FY 2014 program and subsequent program 
years.
    Comment: Two commenters supported the inclusion of this measure in 
the PCHQR program.
    Response: We thank the commenters for the support of this measure.
    Comment: One commenter opposed the inclusion of the CAUTI measure 
in its current form. The commenter was concerned that this measure may 
mislead consumers about the quality of care provided at cancer centers. 
The commenter asserted that cancer patients while under treatment often 
have comprised immune systems which cause them to be more prone to 
contract hospital-acquired infections such as CAUTI. The commenter 
strongly urged CMS to delay the implementation of this measure until 
the measure is stratified and risk-adjusted based on stakeholders 
input.
    Response: While we recognize the complexity of treating HAIs in 
patients with compromised immune systems, such as those treated at PPS-
exempt cancer hospitals, we also believe it is important to track HAI 
rates at all hospitals for all patients--regardless of whether they are 
immune-compromised or not. The current NQF-endorsed CAUTI measure does 
not contain adjustments for immune-compromised patients. For all 
hospitals, CAUTI is stratified by CDC-specified ICU and Specialty Care 
Area (SCA) locations, and oncology locations would be included as SCAs, 
making the measure appropriate for PCHs.
    After consideration of the public comments we received, we are 
finalizing the CAUTI measure (NQF 0138) for the PCHQR Program 
for FY 2014 and subsequent program years.
(2) Cancer-Specific Measures
    We proposed to adopt three measures related to the treatment of 
colon cancer and two types of breast cancer (hormone receptor-negative 
and hormone receptor-positive). Specifically, these proposed measures 
are: (i) 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); (ii) 
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); and 
(iii) Adjuvant hormonal therapy (NQF 0220). The proposed 
measures were developed by the American College of Surgeons/Commission 
on Cancer.
    We proposed to adopt these three cancer treatment-related quality 
measures for several reasons. First, trends in national cancer 
incidence rates suggest that breast and colon cancer will become two of 
the more common diagnoses \124\ and these cancers are highly prevalent 
among Medicare beneficiaries. We believe the high incidence of these 
types of cancer creates an opportunity for measurements to make an 
impact on the quality of cancer care. Second, these measures support 
the National Quality Strategy's priority to promote the most effective 
prevention and treatment practices for the leading causes of mortality 
due to cancer. Third, the TEP convened by our measure development 
contractor identified the treatment of breast and colon cancer as high 
priority quality issues for PCHs due to the high incidence of these 
types of cancers and rated these measures highest compared to other 
potential program measures based on an assessment of the importance, 
scientific acceptability, usability, and feasibility of these measures. 
Also, participants in a CMS-convened Listening Session on September 8, 
2011 expressed support for the proposed measures. The transcript for 
this Listening Session can be found at: http://www.cms.gov/HospitalQualityInits/05_HospitalHighlights.asp#TopOfPage. Fourth, the 
MAP reviewed these cancer-specific measures and supported inclusion of 
these measures in the PCHQR Program. All of the three proposed cancer-
specific measures are NQF-endorsed; therefore they satisfy the 
requirement of section 1866(k)(3)(A) of the Act relating to the 
selection of endorsed measures for the PCHQR Program. Furthermore, 
section 1866(k)(4) of the Act provides that quality measures reported 
in the PCHQR Program should assess process, structure, outcome, 
patients' perspective on care, efficiency, and costs of care that 
relate to PCHs. We believe these three proposed cancer-specific 
measures meet the above statutory criteria, as they track important 
processes in the treatment of colon and breast cancer.
---------------------------------------------------------------------------

    \124\ Siegel R, Naishadham D, Jemal A. Cancer statistics, 2012. 
CA Cancer J Clin 2012; 62:10-29.
---------------------------------------------------------------------------

    Although these measures are not currently reported in other HHS 
programs, they are reported by over 1,500 cancer programs as part of 
their accreditation by the Commission on Cancer, a program of the 
American College of Surgeons (see http://www.facs.org/cancer/ncdb/index.html), further indicating their importance as the Commission on 
Cancer has taken a leading role in establishing national standards to 
ensure quality in the provision of cancer care.
    We proposed that PCHs would submit the data needed to calculate 
these measures to a CMS contractor.
(A) Adjuvant Chemotherapy Is Considered or Administered Within 4 Months 
(120 days) of Surgery to Patient Under the Age of 80 With AJCC III 
(Lymph Node Positive Colon Cancer) (NQF 0223)
    This proposed measure examines whether adjuvant chemotherapy is 
delivered within a specified period of time after a diagnosis of colon 
cancer. Specifically, it looks at the proportion of patients 18-79 with 
AJCC Stage III (lymph node positive) colon cancer for whom adjuvant 
chemotherapy is considered or administered within 4 months of 
diagnosis. Stage III colon cancer is colon cancer that has spread 
outside the colon to one or more lymph nodes. The adjuvant chemotherapy 
measure is a process measure as it addresses whether a defined 
treatment was delivered to a patient; the measure is not risk adjusted. 
That is, the measure does not attempt to account for hospital patient 
populations or other differences between hospitals. Rather, it only 
assesses the specific process was performed. Detailed specifications 
for this proposed measure can be accessed on the Web site of the 
measure steward, the American College of Surgeons at:

[[Page 53560]]

http://www.facs.org/cancer/ncdb/colonmeasures.pdf. Additionally, CMS 
will provide a link to the Specifications Manual on the QualityNet Web 
site.
    Colorectal cancer plays a sizeable role in affecting both health 
and health care costs in the United States. The American Cancer Society 
estimates that 51,690 Americans will die of colorectal cancer in 2012 
\125\. According to the National Cancer Institute, more than $14.1 
billion was spent on colorectal cancer in 2010.\126\
---------------------------------------------------------------------------

    \125\ Siegel R, Naishadham D, Jemal A. Cancer statistics, 2012. 
CA Cancer J Clin 2012; 62:10-29.
    \126\ Mariotto AB, Yabroff KR, Shao Y, Feuer EJ, and Brown ML. 
Projections of the Cost of Cancer Care in the United States: 2010-
2020. JNCI 2011; 103:117-128.
---------------------------------------------------------------------------

    Appropriate treatment may improve survival rates and reduce the 
likelihood of costly recurrence. Strong evidence suggests that treating 
Stage III colon cancer patients with adjuvant chemotherapy improves 
overall survival and disease-free survival.\127\ In addition to being 
supported by evidence, this measure is consistent with the National 
Comprehensive Cancer Network's (NCCN) guidelines for the treatment of 
colon cancer (COL-4: T3-4, N1-2, MO), which recommend that colon cancer 
patients should receive adjuvant chemotherapy.
---------------------------------------------------------------------------

    \127\ Andr[eacute] T, Boni C, Navarro M, et al. Improved Overall 
Survival With Oxaliplatin, Fluorouracil, and Leucovorin as Adjuvant 
Treatment in Stage II or III Colon Cancer in the MOSIAC Trial. J 
Clin Onc 2009; 27:3109-3116.
---------------------------------------------------------------------------

    Section 1866(k)(3)(A) of the Act requires quality measures selected 
for the PCHQR Program to be endorsed by the entity with a contract 
under section 1890(a) of the Act, unless 1866(k)(3)(B) applies. This 
measure is NQF-endorsed and therefore, it meets the statutory 
endorsement requirements.
    We invited public comment on our proposal to adopt the adjuvant 
chemotherapy is considered or administered within 4 months (120 days) 
of surgery to patient under the age of 80 with AJCC III (lymph node 
positive colon cancer) measure for the PCHQR Program for the FY 2014 
program and subsequent program years.
    Comment: Many commenters supported the inclusion of this measure 
and noted that it is already widely used in PCHs.
    Response: We appreciate the support for this measure.
    After consideration of the public comment we received, we are 
finalizing our adoption of the 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) measure 
(NQF 0223) for FY 2014 and subsequent program years.
(B) 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)
    This proposed measure assesses the proportion of women ages 18-69 
who have their first diagnosis of breast cancer at AJCC Stage IC, II or 
III and whose primary tumor is hormone (estrogen and progesterone) 
receptor negative for whom combination chemotherapy is considered or 
administered within 4 months of diagnosis. Hormone receptor negative 
means that hormones, such as estrogen, do not drive tumor growth. This 
measure is a process measure as it addresses whether a defined 
treatment was delivered to a patient; the measure is not risk adjusted 
in that the measure does not attempt to account for differences in 
hospital patient populations or other differences between hospitals. 
Detailed specifications for this proposed measure can be accessed on 
the Web site of the measure steward, the American College of Surgeons, 
at: http://www.facs.org/cancer/ncdb/breastmeasures.pdf. In addition, 
CMS will provide a link to the Specifications Manual on the QualityNet 
Web site.
    The number of deaths from breast cancer has declined while spending 
has increased. The American Cancer Society estimates that 39,510 
Americans will die of breast cancer in 2012.\128\ Spending on breast 
cancer care is higher than for any other type of cancer. According to 
the National Cancer Institute, more than $16.5 billion was spent on 
breast cancer care in 2010.\129\ Evidence shows that treating hormone 
receptor negative breast cancer patients with combination chemotherapy 
is associated with a reduced risk of relapse or death.\130\ This 
measure is also consistent with NCCN's guidelines for the treatment of 
invasive breast cancer (BINV-4, 7-8), which recommend adjuvant 
chemotherapy for patients with hormone receptor negative tumors, and 
therefore the measure aligns with recognized standards of treatment.
---------------------------------------------------------------------------

    \128\ Siegel R, Naishadham D, Jemal A. Cancer statistics, 2012. 
CA Cancer J Clin 2012; 62:10-29.
    \129\ Mariotto AB, Yabroff KR, Shao Y, Feuer EJ, and Brown ML. 
Projections of the Cost of Cancer Care in the United States: 2010-
2020. J Natl Cancer Inst 2011; 103:117-128.
    \130\ Fisher B, Jeong JH, Anderson S, et al.: Treatment of 
axillary lymph node-negative, estrogen receptor-negative breast 
cancer: Updated findings from National Surgical Adjuvant Breast and 
Bowel Project clinical trials. J Natl Cancer Inst 96 (24): 1823-31, 
2004.
---------------------------------------------------------------------------

    This measure is NQF-endorsed and, therefore, it meets the 
requirements under section 1866(k)(3)(A) of the Act which states that 
quality measures selected for the PCHQR Program be endorsed by the 
entity with a contract under section 1890(a) of the Act, unless section 
1866(k)(3)(B) of the Act applies.
    We invited public comment on our proposal to adopt the 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) quality 
measure for the PCHQR Program for the FY 2014 program and subsequent 
program years.
    Comment: One commenter supported the inclusion of this measure and 
noted that it is already widely used in PCHs.
    Response: We appreciate the support for this measure.
    After consideration of the public comment we received, we are 
finalizing our adoption of the 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 measure (NQF 0559) for FY 2014 and subsequent program 
years.
(C) Adjuvant Hormonal Therapy (NQF 0220)
    This proposed measure assesses whether recommended treatment is 
delivered within a specified period of time from a patient's breast 
cancer diagnosis. Specifically, it tracks the proportion of eligible 
women 18 years or older who have their first diagnosis of breast cancer 
at AJCC T1c or Stage II or III and whose primary tumor is hormone 
(estrogen or progesterone) receptor positive breast cancer for whom 
tamoxifen or a third generation aromatase inhibitor is considered or 
administered within 1 year of diagnosis. Hormone receptor positive 
means that estrogen or progesterone promotes the growth of cancer 
cells. This measure is a process measure as it relates to whether a 
defined treatment was furnished to a patient; it is not risk adjusted. 
Detailed specifications for this proposed measure can be accessed on 
the Web site of the measure steward, the American College of Surgeons, 
at: http://www.facs.org/cancer/ncdb/breastmeasures.pdf. Additionally, 
we will provide a link to the Specifications Manual on the QualityNet 
Web site.
    The American Cancer Society estimates that two-thirds of breast 
cancer cases are hormone receptor

[[Page 53561]]

positive.\131\ As stated previously, appropriate and effective 
treatment is important to both the health and cost outcomes of breast 
cancer care. The measure is consistent with NCCN's guidelines (BINV-5, 
6 and 9 and BINV-E) for the treatment of invasive breast cancer, which 
recommend hormone therapy for patients with hormone receptor positive 
breast cancer, and with the American Society of Clinical Oncology's 
(ASCO) Update on adjuvant endocrine therapy for women with hormone 
receptor positive breast cancer. The ASCO guideline cites a wide body 
of supporting evidence for this method of treatment.
---------------------------------------------------------------------------

    \131\ American Cancer Society. Breast Cancer Hormone Therapy. 
http://www.cancer.org/Cancer/BreastCancer/DetailedGuide/breast-cancer-treating-hormone-therapyLastrevised01/06/2012.
---------------------------------------------------------------------------

    This measure is NQF-endorsed and therefore, it meets the 
requirement under section 1866(k)(3)(A) of the Act, which states that 
quality measures selected for the PCHQR Program be endorsed by the 
entity with a contract under section 1890(a) of the Act, unless section 
1866(k)(3)(B) of the Act applies.
    We invited public comment on our proposal to adopt the adjuvant 
hormonal therapy measure for the PCHQR Program for the FY 2014 program 
and subsequent program years.
    Comment: Many commenters supported the inclusion of this measure 
and noted that it is already widely used in PCHs.
    Response: We appreciate the support for this measure.
    After consideration of the public comment we received, we are 
finalizing the adjuvant hormonal therapy measure (NQF 0220) 
for FY 2014 and subsequent program years.
    After consideration of the public comments we received, we are 
finalizing all five measures as proposed for the FY 2014 PCHQR Program 
and subsequent program years. The measures we are adopted are shown 
below.

------------------------------------------------------------------------
                                      Final measures for PCHQR program
               Topic                 beginning with FY 2014 program and
                                          subsequent program years
------------------------------------------------------------------------
Safety and Healthcare Acquired       (NQF0139) NHSN
 Infections--HAI.                    Central Line-Associated Bloodstream
                                     Infection (CLABSI) Outcome Measure.
                                     (NQF0138) NHSN
                                     Catheter-Associated Urinary Tract
                                     Infections (CAUTI) Outcome Measure.
Cancer-Specific Treatments........   (NQF0223) 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.
                                     (NQF0559)
                                     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.
                                     (NQF0220) Adjuvant
                                     Hormonal Therapy.
------------------------------------------------------------------------

4. 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 cancer hospital setting. Therefore, through future 
rulemaking, we intend to propose new measures 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. In addition, we are 
considering initiating a call for input to assess the following measure 
domains: clinical quality of care, care coordination, patient safety, 
patient and caregiver experience of care, population/community health 
and efficiency. We believe this approach 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 OQR Program, the ESRD QIP, and others within 
CMS' purview.
    We welcomed public comment and suggestions for these, or other, 
measurement areas.
    Comment: One commenter urged CMS to expand the PCHQR Program to 
include measures regarding patient-centered outcomes specific to 
oncology, quality of life, and functional assessment. Specifically, the 
commenter recommended the Comfortable Dying: Pain Brought to a 
Comfortable Level Within 48 Hours of Initial Assessment (NQF 
0209) and Proportion Receiving Chemotherapy in the Last 14 
Days of Life (NQF 0210) measures. Further, the commenter noted 
CMS should expand the PCHQR Program to include measures for additional 
cancer types. Specifically, the commenter recommended the Recording of 
Clinical Stage for Lung Cancer (and Esophageal Cancer Resection (NQF 
0455) and Recording of Performance Status Prior to Lung 
Esophageal Cancer Resection (NQF 0457) measures.
    Response: We appreciate the commenter for the suggestions and will 
take them into consideration for future measure selection.
    Comment: One commenter recommended the development or adoption of a 
measure to address the risk of febrile neutropenia in cancer patients 
undergoing myelosuppressive chemotherapy since this is consistent with 
a measure gap identified by NQF.
    Response: We thank the commenter for the suggestion and will take 
it into consideration for future measure selection.
    Comment: One commenter suggested a measure to detect early 
diagnosis of cancer. Another commenter requested that CMS focus on 
measures that provide data on risk-adjusted state-specific survival 
curves for various types of cancer and report these measures in three 
separate perspectives: stage, overall survival, and disease-free 
survival.
    Response: We agree with the commenters that these are important 
aspects in cancer detection and treatment. We thank the commenters for 
the suggestions and will take them into consideration for future 
measure selection.
5. 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

[[Page 53562]]

changes that we believe do not substantially change the nature of the 
measure. Examples of such changes could be updated diagnosis or 
procedure codes, 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 proposed rule (77 FR 28066), we proposed that if 
the NQF updates an endorsed measure that we have adopted for the PCHQR 
Program in a manner that we consider to not substantially change the 
nature of the measure, we would use a subregulatory process to 
incorporate those updates to the measure specifications that apply to 
the program. Specifically, we would 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 would also post 
the updates on the CMS QualityNet Web site at https://www.QualityNet.org. We would provide sufficient lead-time for PCHs to 
implement the changes where changes to the data collection systems 
would be necessary.
    We would continue to use the rulemaking process to adopt changes to 
measures that we consider to substantially change the nature of the 
measure. We believe that this proposal adequately balances our need to 
incorporate NQF updates to NQF-endorsed PCH 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 
invited public comment on this proposal.
    We also proposed to provide a Specifications Manual that will 
contain links to measure specifications, data abstraction information, 
data submission information, and other information necessary for PCHs 
to participate in the PCHQR Program. This Specifications Manual would 
be posted on the QualityNet Web site at: https://www.QualityNet.org. We 
would maintain the technical specifications for the quality measures by 
updating this Manual periodically, which would include detailed 
instructions for PCHs to use when collecting and submitting data on the 
required measures. These updates would be accompanied by notifications 
to PCHQR Program-participating users, providing sufficient time between 
the change and effective dates in order to allow users to incorporate 
changes and updates to the measure specifications into data collection 
systems. We would revise the Specifications Manual and provide links to 
reflect such endorsement changes which also would be posted on the 
QualityNet Web site at: https://www.QualityNet.org. We invited public 
comment on the previously described proposed policy on maintenance of 
technical specifications for quality measures.
    Comment: One commenter objected to the proposed subregulatory 
process to incorporate updates arising from NQF maintenance review on 
an endorsed measure adopted for the PCHQR Program. The commenter 
believed CMS should provide an opportunity for the public to comment on 
the updates.
    Response: 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 
PCHQR Program so that these measures remain up-to-date. We also 
recognize that some changes the NQF might make to is endorsed measures 
are substantive in nature and might not be appropriate for adoption 
using a subregulatory process. Therefore, after consideration of the 
public comments we received, we are finalizing a policy under which we 
will use a subregulatory process to make nonsubstantive updates to NQF-
endorsed measures used for the PCHQR Program. With respect to what 
constitutes a substantive versus nonsubstantive change, we expect to 
make this determination on a case-by-case basis. Examples of 
nonsubstative 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 used 
in the Hospital IQR and Hospital VBP Programs). We also believe that 
nonsubstantive changes might include updates to NQF-endorsed measures 
based upon changes to guidelines upon which the measure are based.
    We will continue to use rulemaking to adopt substantive updates 
made by the NQF to the endorsed measures we have adopted for the PCHQR 
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 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 
nonsubstantive changes would apply to all PCHQR Program measures.
    After consideration of the public comments we received, we are 
adopting a policy for making updates to PCHQR Program measures as 
explained in the response to the comment above.
6. Public Display Requirements for the FY 2014 Program and Subsequent 
Program Years
    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 proposed rule (77 FR 28066), 
we proposed to publicly display the submitted data on the Hospital 
Compare Web site (http://www.hospitalcompare.hhs.gov/). Before the data 
are publicly displayed, we proposed that PCHs will have the opportunity 
to review their data prior to the public reporting of the measure rates 
consistent with section 1866(k)(4) of the Act. We proposed that PCHs 
have the opportunity to review their data 30 days prior to the public 
reporting of the measure rates because that aligns with our established 
preview process under the Hospital IQR Program.
    The Hospital Compare Web site serves to encourage consumers 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

[[Page 53563]]

improve the quality of care that they furnish.
    However, some information that may not be relevant to or easily 
understood by beneficiaries and information for which there are 
unresolved display issues or design considerations that may not make 
them suitable for inclusion on the Hospital Compare Web site may be 
made available on other CMS Web sites, such as http://www.cms.gov and/
or http://www.qualitynet.org. In such circumstances, affected parties 
would be notified via CMS listservs, CMS email blasts, and QualityNet 
announcements regarding the release of confidential hospital-specific 
preview reports to individual hospitals followed by the posting of data 
on a CMS Web site other than Hospital Compare.
    We invited public comment on the previously described proposals 
regarding the public display of quality measures.
    After consideration of the public comments we received we are 
adopting our proposals, without modification, regarding the public 
display of data submitted under the PCHQR Program.
7. Form, Manner, and Timing of Data Submission for FY 2014 Program and 
Subsequent Program Years
a. Background
    Section 1866(k)(2) of the Act requires that, for the FY 2014 
program and each subsequent program year, 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 
will be posted on the QualityNet Web site at: http://www.QualityNet.org/. In general, in the FY 2013 IPPS/LTCH PPS proposed 
rule (77 FR 28067), we proposed that PCHs submit data to the CDC for 
the HAI measures (CLABSI and CAUTI), and the CMS contractor for the 
three cancer-specific measures (Adjuvant Chemotherapy for Stage III 
Colon Cancer; Combination Chemotherapy for AJCC T1c or Stage II or III 
Hormone Receptor-Negative Breast Cancer; and Adjuvant Hormonal 
Therapy). As described below, we proposed to utilize the data 
submission and reporting standard procedures that have been established 
by CDC for NHSN participation in general and for submission of the 
proposed HAI measures to NHSN. We refer readers to the CDC's Web site 
for detailed data submission and reporting procedures. We also proposed 
procedures for PCHs to follow when submitting data on the three 
proposed cancer-specific measures.
b. Procedural Requirements for FY 2014 Program and Subsequent Program 
Years
    In order to participate in the PCHQR Program for the FY 2014 
program and subsequent program years, we proposed that PCHs must comply 
with the procedural requirements outlined in this section. We stated 
that we have aligned these proposed procedural requirements with the 
Hospital IQR Program to the extent possible to streamline the 
procedural requirements across different types of providers. In the FY 
2013 IPPS/LTCH PPS proposed rule (77 FR 28067), we proposed that PCHs 
must do the following:
     Register with QualityNet prior to reporting and regardless 
of the method used for submitting the data.
     Identify QualityNet Administrator(s) who will follow the 
registration process located on the QualityNet Web site (http://www.QualityNet.org).
     Complete an online Data Accuracy and Completeness 
Acknowledgement (DACA) via QualityNet, which states that the quality 
measure results and any and all data including numerator and 
denominator data provided, are accurate and complete. We proposed that, 
beginning with the FY 2015 program, the deadline for submitting the 
DACA would be August 31 of the preceding fiscal year. For more 
information on DACA, please refer to the section below entitled, ``Data 
Accuracy and Completeness Acknowledgement (DACA) Requirements for the 
FY 2014 Program and Subsequent Program Years.''
     Enroll in CDC/NHSN and register with the CMS contractor 
collecting the cancer-specific measures prior to reporting.
    We strongly encouraged PCHs to complete an online Notice of 
Participation (NOP) via QualityNet. This form would grant CMS written 
authorization from the PCH to publicly report the PCH's measure rate on 
a CMS Web site. We believe that requiring PCHs to complete this form 
will inform and educate them about program and other related 
requirements.

             Proposed CMS Notice of Participation Timeframe
------------------------------------------------------------------------
                                               Notice of Participation
        Program year (fiscal year)                 (NOP) deadline
------------------------------------------------------------------------
FY 2014...................................  August 15, 2013.
FY 2015...................................  August 15, 2014.
Subsequent Fiscal Years...................  August 15 of the preceding
                                             fiscal year.
------------------------------------------------------------------------

    Comment: One commenter supported NHSN and CMS QualityNet enrollment 
and registration prior to data submission.
    Response: We appreciate the commenter for the support of our 
proposal.
    Comment: Several commenters urged CMS to use American College of 
Surgeons (ACoS) to serve as the CMS contractor for the following 
reasons: 10 out of 11 PCHs are currently submitting the cancer-specific 
measures to ACoS; ACoS is the cancer-specific measures developer and 
maintains the rights to these measures; and ACoS has in place sound 
methodologies for data validation and measure calculations. One 
commenter stated that the PCHQR Program data submission requirement 
could pose a ``sizeable expense for each participating institution and 
a significant time investment.''
    Response: We recognize the concerns surrounding the burden of 
participating in the PCHQR Program and the possibility that PCHs might 
be reporting similar or the same cancer-specific measure data to two 
different entities. We are currently procuring the services of a 
contractor to collect the cancer-specific measure data. We intend to 
align as much as possible with the ACoS data infrastructure and 
reporting format in an effort to minimize the reporting burden, because 
we recognize that this is the process already being used by the 
majority of PCHs to report this data.
    Comment: Commenters asked for more information regarding 
registering with the CMS contractor and the flow of data from the PCHs 
to CMS' QualityNet Web site.
    Response: We intend to procure a CMS contractor, which will collect 
the cancer-specific measure data from the PCHs, calculate the measure 
rates, and submit those rates to CMS. Once we have procured a 
contractor, PCHs will have to register with the contractor prior to the 
time when they begin to submit cancer-specific measure data. We 
anticipate awarding a contract in the fall of 2012, and will outline 
more detailed instructions at that time.
    After consideration of the public comments we received, we are 
finalizing the procedural requirements for the FY 2014 program and 
subsequent program years.
c. Reporting Mechanisms for the FY 2014 Program and Subsequent Program 
Years

[[Page 53564]]

    For the purpose of reporting quality measures under the PCHQR 
Program, we proposed to adopt the following data submission mechanisms. 
In the FY 2013 IPPS/LTCH PPS proposed rule (77 FR 28067), with respect 
to the proposed HAI measures (CLABSI and CAUTI), we proposed that PCHs 
submit the data to the CDC through the NHSN database. We proposed to 
use the data submission and reporting standard procedures that have 
been set forth by CDC for NHSN participation in general and for 
submission of the proposed HAI measures 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, CMS will obtain the PCH-specific calculations that 
have been generated by the NHSN for the PCHQR Program.
    With respect to the three proposed cancer-specific measures, we 
proposed that PCHs submit the data to the CMS contractor. The CMS 
contractor would then calculate the quality measures rates and submit 
those rates to CMS on a quarterly basis.
    We invited public comment on our proposed reporting mechanisms.
(1) Reporting Mechanism for the HAI Measures
    We proposed to adopt a quarterly submission process for the 
proposed HAI measures--CLABSI AND CAUTI--that uses a reporting 
mechanism similar to the one finalized for the Hospital IQR program (75 
FR 50223) starting with October 1, 2012 infection events. We have 
successfully implemented this reporting mechanism in the Hospital IQR 
program and intend to use similar reporting mechanism to collect data 
for the PCHQR Program. We welcomed public comment on this proposal.
    Comment: One commenter supported reporting HAI measures to NHSN.
    Response: We appreciate the commenter's support.
(2) Reporting Mechanism for the Cancer-Specific Measures
    We proposed to collect the three cancer-specific measures data 
using a CMS contractor starting with the FY 2014 program. Similar to 
the reporting mechanism we proposed to adopt the proposed HAI measures, 
we anticipate that PCHs would report their measure data to the 
contractor, which would then calculate the measure rates and submit 
those rates to CMS. We stated that if these proposed measures were 
finalized, we would publish the technical specifications and file 
layouts necessary for reporting in enough time to enable PCHs to 
incorporate any necessary changes to their information systems. We 
invited public comment on our proposed reporting requirements.
    Comment: A commenter suggested leveraging existing ACoS data 
reporting requirements to reduce financial burden because the PCHQR 
program could pose a ``sizeable expense for each participating 
institution and a significant time investment.''
    Response: We understand that the PCHQR Program will create a new 
reporting burden for PCHs, and as we have stated above, one of our 
goals is to minimize that burden as much as possible. For that reason, 
we intend to align the data collection process for the cancer-specific 
measures after the process currently used by the ACoS, the measure 
steward for these measures, because we recognize that this is the 
process already being used by the majority of PCHs to report this data.
    After consideration of the public comment we received, we are 
finalizing the data reporting mechanisms described above.
d. Data Submission Timelines for the FY 2014 Program and Subsequent 
Program Years
    In the FY 2013 IPPS/LTCH PPS proposed rule (77 FR 28067 through 
28068), we proposed that PCHs must adhere to certain timelines in 
reporting their measure data.

                Proposed PCHQR Data Submission Timelines
------------------------------------------------------------------------
                                                         CMS submission
   Time line (calendar year)      Quality measures *        deadline
------------------------------------------------------------------------
Q4 (October-December 2012)....  (NQF 0139)     May 15, 2013.
                                 NHSN CLABSI Outcome
                                 Measure **.
                                (NQF 0138)     May 15, 2013.
                                 NHSN CAUTI Outcome
                                 Measure **.
                                (NQF 0223)     August 15, 2013.
                                 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 0559)     August 15, 2013.
                                 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)     May 15, 2014.
                                 Adjuvant Hormonal
                                 Therapy+.
Q1 (January-March 2013).......  (NQF 0139)     August 15, 2013.
                                 NHSN CLABSI Outcome
                                 Measure **.
                                (NQF 0138)     August 15, 2013.
                                 NHSN CAUTI Outcome
                                 Measure **.
                                (NQF 0223)     November 15,
                                 Adjuvant Chemotherapy   2013.
                                 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 0559)     November 15,
                                 Combination             2013.
                                 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)     August 15, 2014.
                                 Adjuvant Hormonal
                                 Therapy+.
Subsequent calendar quarters..  (NQF 0139)NHSN CLABSI      each respective
                                 Outcome Measure **.     year.
                                (NQF 0138)     November 15 of
                                 NHSN CAUTI Outcome      each respective
                                 Measure **.             year.
                                (NQF 0223)     February 15 of
                                 Adjuvant Chemotherapy   each respective
                                 is considered or        year.
                                 administered within 4
                                 months (120 days) of
                                 surgery to patients
                                 under the age of 80
                                 with AJCC Stage III
                                 (lymph node positive)
                                 colon cancer+.

[[Page 53565]]

 
                                (NQF 0559)     February 15 of
                                 Combination             each respective
                                 Chemotherapy is         year.
                                 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)     November 15 of
                                 Adjuvant Hormonal       each respective
                                 Therapy+.               year.
------------------------------------------------------------------------
* Referred to as the HAI and Cancer-Specific Treatment Quality Measures.
** HAI event occurred in applicable quarter.
+ Initial diagnosis in applicable quarter.

    We stated that our principal rationale for these proposed 
timeframes is to align the HAI measure submission deadlines with 
existing CMS deadlines to collect the same quality measure information. 
We also seek to align our timeframes with those of the ACoS, which 
separately collects the same type of cancer-specific measure data from 
many PCHs. By aligning these deadlines by measure, we strive to reduce 
the reporting burden by using information already collected by many 
PCHs in their own quality measurement and improvement efforts. The 
proposed quarterly CDC/NHSN submission timeframes and deadlines also 
match the existing Hospital IQR quarterly submission timeframes for the 
same HAI measures. In the case of the three cancer-specific quality 
measures, we also believe that these proposed submission timeframes 
will give PCHs enough time to measure follow-up chemotherapy (4 months 
following the cancer diagnosis) and hormone therapy visits (12 months 
following the cancer surgery), as well as identify and correct 
discordant submitted data (2 months for the two proposed chemotherapy 
measures, and 3 months for the proposed adjuvant hormone therapy 
measure).
    We invited public comment on the proposed data submission methods 
and timelines.
    Comment: One commenter pointed out that PCHs may not have adequate 
time to submit HAI data by May 15, 2013 because PCHs may not be 
familiar with the data reporting processes and the reliability and 
validity of measures will not be fully tested in the new settings such 
as the PCHs.
    Response: In further assessing the proposed data submission 
timeline, we agree with the commenter's concerns. We have also been 
informed by CDC that modifications to its IT infrastructure (for 
example, defining and mapping new locations) are on-going and will not 
be completed in time for the proposed first quarter of data submission 
(Q4 of 2012 [October-December, 2012]). Therefore, in response to this 
comment, we will finalize a one quarter data collection period for the 
two HAI measures (CLABSI and CAUTI) for purposes of the FY 2014 PCHQR 
Program. PCHs will be required to report data on this measure for 1st 
quarter 2013 events (that is, January 1-March 31, 2013 events), and 
that data will be due to the CDC on or before August 15, 201.
    We believe that the reliability and validity of these two HAI 
measures is sufficient for purposes of the PCHQR Program. This 
reliability and validity has been demonstrated through collection of 
these measures in the Hospital IQR Program, and existing HAI reporting 
mandates in over 20 States. The NQF also endorsed these measures, and 
the MAP recommended these measures for purposes of PCHQR data 
collection.
    We also strive to align data collection processes, public reporting 
of data, outreach, and education to PCHs with the Hospital IQR Program 
and other quality reporting programs to the extent feasible and 
clinically appropriate.
    Comment: One commenter believed that this proposed reporting 
timeline violates the statute and its intent. The commenter viewed two 
provisions of the statute authorizing the PCHQR Program as relevant: 
the provision in section 1866(k)(2) of the Act, which requires that for 
FY 2014 and each subsequent fiscal year, PCHs ``shall submit to the 
Secretary data on quality measures specified under paragraph (3)''; and 
the provision in section 1866(k)(3)(C) of the Act which requires the 
Secretary to publish the measures applicable with respect to fiscal 
year 2014 by October 1, 2012. The commenter believed that it was 
unreasonable for CMS to conclude that Congress, in enacting this 
provision, would require the Secretary to announce the measures on the 
date that the measurement would begin. The commenter believed that 
Congress intended for the measures to be announced with sufficient lead 
time--a minimum of two years--for the PCHs to begin reporting. The 
commenter urged CMS to adopt a delay in mandatory reporting and to 
start mandatory measurement reporting no earlier than October 1, 2014.
    Response: We believe that our proposals are consistent with 
sections 1866(k)(2) and (k)(3)(C) of the Act, and note that they are 
consistent with our approach we have taken in a number of other new 
quality reporting programs, including the Long-Term Care Hospital 
Quality Reporting (LTCHQR) Program and the Inpatient Rehabilitation 
Hospital (IRF) Quality Reporting Program.
    However, we recognize that it may be difficult for PCHs to start 
reporting the cancer-specific measure data starting with 4th calendar 
quarter 2012 data because we do not expected to award a contract for 
the collection of this data until fall 2012. We believe that deferring 
the initial data reporting period until January 1, 2013 for the cancer-
specific measure data addresses this concern, as well as makes the 
starting quarter for data collection consistent with that we are 
finalizing for the HAI measures. Accordingly, we are finalizing that 
the reporting period will begin on January 1, 2013 for all measures. 
This change is reflected in the table below.
    Comment: Some commenters asked CMS to provide more information 
about the timeline for data submission and the frequency of public data 
displayed under the PCHQR Program for all measures. Commenters also 
requested alignment of the data submission timeline with that used for 
the Hospital IQR Program measures.
    Response: We agree that the quality information displayed on the 
Hospital Compare Web site increases the transparency of the quality of 
care provided at PCHs and we appreciate the commenters for their 
support.
    We recognize that we update many measures, including the two HAI 
measures, on a quarterly basis under the Hospital IQR Program. Because 
acute care hospitals already report HAI data

[[Page 53566]]

on a quarterly basis for purposes of the Hospital IQR Program, we 
believe that quarterly reporting of HAI data is also feasible for PCHs. 
We seek to align our public reporting and data collection frequency of 
PCH HAI data with Hospital IQR Program quarterly updates of HAI data. 
We believe that requiring quarterly data submissions beginning with 1st 
calendar quarter 2013 discharges will provide the public with more 
current information on the Hospital Compare Web site than our current 
annual data submission proposal.
    We also intend to provide the public with the most currently 
available information on the three cancer-specific measures. We 
recognize that the ACoS currently collects data for these measures on a 
quarterly basis. We believe that our data collection schedule for the 
cancer-specific measures should align with some of the measures 
currently reported on the Hospital Compare Web site, which is on a 
quarterly basis. Data for many Hospital IQR and OQR chart-abstracted 
process of care measures are collected using quarterly submission 
deadlines, and measure rates are publicly displayed on the Hospital 
Compare Web site using quarterly updates to reflect the most current 
data.
    We believe that quarterly data collection of both HAI and cancer-
specific measure data is not unduly burdensome for PCHs because we 
understand that the vast majority of PCHs are currently reporting these 
data to the CDC and ACoS on at least a quarterly basis. We believe that 
aligning the data collection frequency and deadlines with other 
programs collecting similar information has the potential to reduce the 
data reporting burden for PCHs.
    Accordingly, we are finalizing that beginning with the FY 2014 
PCHQR Program, PCHs will be required to submit data on a quarterly 
basis. For purposes of the FY 2014 program, the only data that we will 
require is 1st quarter 2013 data, with that data being due by August 
15, 2013 for the two HAI measures, and November 15, 2013 for: (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 measure; and (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 measure. Data will be due on 
May 15, 2014 for the adjuvant hormonal therapy measure. We are changing 
the due date for the adjuvant hormonal therapy measure because the 
measure is specified to include an assessment of the 12-month 
therapeutic effect from the time of diagnosis to hormonal therapy.
    PCHs will also be required to submit data on all measures on a 
quarterly basis, and data will be due on or before the deadlines shown 
in Table 1 below. We are revising these deadlines because the timelines 
are in alignment with some of the current measures reported on the 
Hospital Compare Web site. For purposes of determining whether a PCH 
has met the reporting requirements for a particular program year, we 
will look at the data quarters submitted during the 12 months preceding 
the applicable fiscal year. For example, CMS would assess only CLABSI 
and CAUTI data submitted by August 15, 2013, for purposes of the FY 
2014 payment determination. For the FY 2015 payment determination, we 
would assess quarterly data submission deadlines occurring between 
October 1, 2013 and September 30, 2014. In subsequent payment 
determination years, we would assess quarterly submission deadlines 
occurring in the previous fiscal year. The applicable discharge 
quarters applicable to an annual payment determination would vary by 
measure because the quarterly submission deadlines vary by measure.
    After consideration of the public comments we received, we are 
finalizing data submission timelines for the PCHQR Program for FY 2014 
and subsequent program years. PCHs will submit the data on the HAI and 
cancer-specific measures beginning with Q1 of CY 2013 (January through 
March 2013). Information on the data submission timeline for both the 
HAI measures and cancer-specific measures is listed in the table below.

                  Final PCHQR Data Submission Timelines
------------------------------------------------------------------------
                                                         CMS submission
  Time Line  (calendar year)      Quality measures *        deadline
------------------------------------------------------------------------
Q1 2013 (January-March 2013)..  (NQF 0139)     August 15, 2013.
                                 NHSN CLABSI Outcome
                                 Measure **.
                                (NQF 0138)     August 15, 2013.
                                 NHSN CAUTI Outcome
                                 Measure **.
                                (NQF 0223)     November 15,
                                 Adjuvant Chemotherapy   2013.
                                 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 0559)     November 15,
                                 Combination             2013.
                                 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)     May 15, 2014.
                                 Adjuvant Hormonal
                                 Therapy \+\.
Subsequent calendar quarters..  (NQF 0139)     4 and \1/2\
                                 NHSN CLABSI Outcome     months
                                 Measure **.             following last
                                                         quarterly event
                                                         date.
                                (NQF 0138)     4 and \1/2\
                                 NHSN CAUTI Outcome      months
                                 Measure **.             following last
                                                         quarterly event
                                                         date.
                                (NQF 0223)     7 and \1/2\
                                 Adjuvant Chemotherapy   months
                                 is considered or        following last
                                 administered within 4   quarterly
                                 months (120 days) of    admission date.
                                 surgery to patients
                                 under the age of 80
                                 with AJCC Stage III
                                 (lymph node positive)
                                 colon cancer \+\.
                                (NQF 0559)     7 and \1/2\
                                 Combination             months
                                 Chemotherapy is         following last
                                 considered or           quarterly
                                 administered within 4   admission date.
                                 months (120 days) of
                                 diagnosis for women
                                 under 70 with AJCC
                                 T1c, or Stage II or
                                 III hormone receptor
                                 negative Breast
                                 Cancer \+\.
                                (NQF 0220)     13 and \1/2\
                                 Adjuvant Hormonal       months
                                 Therapy +.              following last
                                                         quarterly
                                                         admission date.
------------------------------------------------------------------------
* Referred to as the HAI and Cancer-Specific Treatment Quality Measures.
** HAI event occurred in applicable quarter, begins on January 1, 2013
  and beyond.
\+\ Initial diagnosis in applicable quarter, begins on January 1, 2013
  and beyond.

[[Page 53567]]

e. Data Accuracy and Completeness Acknowledgement (DACA) Requirements 
for the FY 2014 Program and Subsequent Program Years
    In the FY 2013 IPPS/LTCH PPS proposed rule (77 FR 28068), we 
proposed that PCHs acknowledge their data accuracy and completeness 
once annually. PCHs would submit an electronic acknowledgement that the 
data provided to meet the applicable annual PCHQR Program data 
submission requirement is accurate and complete to the best of the 
facility's knowledge at the time of data submission. We proposed to 
begin annual DACA submission starting with the FY 2015 program, and 
such submission deadline would be due to CMS no later than August 31, 
2014. We proposed to begin the DACA with the FY 2015 program in an 
effort to provide ample opportunity for the PCHs to become familiar 
with the reporting processes. Therefore, we did not propose submission 
of a DACA for the PCHQR Program for FY 2014. We proposed that the DACA 
submission deadline for each program year, beginning with FY 2015, be 
August 31 preceding the respective PCHQR Program year. We proposed 
August 31 as the DACA deadline for two reasons. First, requiring PCHs 
to acknowledge their data's accuracy and completeness by August 31 
preceding the respective PCHQR Program year provides us with sufficient 
time to ensure compliance with the program by October 1, the start of 
the fiscal year. Secondly, we proposed this date to align our DACA 
deadline with other quality reporting programs, such as the Hospital 
IQR Program.
    We invited public comment on our proposed data accuracy and 
completeness acknowledgement requirements.
    Comment: Several commenters supported the proposed DACA 
requirements for the PCHQR Program.
    Response: We appreciate the commenters for their support of our 
proposal.
    Comment: One commenter stated that the process by which PCHs 
complete the DACA form does not ensure that publicly reported quality 
measures will be accurate because CMS has not proposed to validate the 
data.
    Response: We are finalizing a requirement that, beginning with the 
FY 2015 PCHQR Program, PCHs participating in the PCHQR Program 
acknowledge the accuracy and completeness of their data to their best 
knowledge, which will provide us with some assurance that the submitted 
data are accurate. We would like to provide PCHs with an opportunity to 
become familiar with the new program before we consider establishing a 
process to validate the quality measure data. This approach is 
consistent with our approach to validation in the Hospital OQR Program 
during the initial years of the program. Initially, we want to 
encourage PCHs to begin reporting quality data and using the quality 
measure information for quality improvement purposes.
    After consideration of the public comments we received, we are 
finalizing the DACA requirements for the FY 2014 and subsequent program 
years. These timeframes are shown below.

     Final CMS Data Accuracy and Completeness Acknowledgement (DACA)
                               Timeframes
------------------------------------------------------------------------
                                                  Data accuracy and
                                                    completeness
        Program year  (fiscal year)            acknowledgement (DACA)
                                                      deadline
------------------------------------------------------------------------
FY 2014...................................  Not required.
FY 2015...................................  August 31, 2014.
Subsequent Fiscal Years...................  August 31 of the preceding
                                             fiscal year.
------------------------------------------------------------------------

C. 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 will 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 will be 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), that we 
categorized into two domains (76 FR 26495 through 26511). We grouped 
the

[[Page 53568]]

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 will assess 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 will then calculate 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 will be 
clinical process of care = 70 percent, patient experience of care = 30 
percent), and adding together the weighted domain scores. We will 
convert each hospital's TPS into a value-based incentive payment 
percentage using a linear exchange function and will then convert the 
value-based incentive payment percentage into a per discharge value-
based incentive payment amount. We will incorporate the reduction to 
each hospital's base operating DRG payment amount for each discharge, 
as well as the value-based incentive payment amounts that the hospital 
earned as a result of its performance (if applicable) into our claims 
processing systems in January 2013, and these adjustments will apply to 
FY 2013 discharges. We refer readers to the Hospital Inpatient VBP 
Program final rule for further explanation of the details of the FY 
2013 Hospital VBP Program (76 FR 26490 through 26547).
    We proposed to codify in our regulations at 42 CFR 412.160 a number 
of definitions that we previously finalized for the Hospital VBP 
Program in the Hospital Inpatient VBP final rule, including definitions 
of the terms achievement threshold, benchmark, domain, domain score, 
hospital, improvement threshold, performance period, and TPS. We did 
not receive any comments on the specific regulation text that we 
proposed with respect to these terms. In this final rule, we are making 
a number of technical, clarifying changes to these definitions and 
otherwise adopting them as final.
    We also proposed to codify in our regulations at 42 CFR 412.164 
that, as we previously finalized, we will select measures for purposes 
of the Hospital VBP Program, and that we will post data on each measure 
on the Hospital Compare Web site for at least one year prior to the 
beginning of the performance period for the measure under the Hospital 
VBP Program. We did not receive any comments on the specific regulation 
text that we proposed, and we are finalizing Sec.  412.164 with one 
technical change.
    We proposed to codify in our regulations at 42 CFR 412.165 and 42 
CFR 412.166 the performance standards and performance scoring 
methodologies that we previously finalized for the Hospital VBP 
Program. We did not receive any comments on the specific regulation 
text that we proposed. We are finalizing this regulation text with a 
few technical changes, including combining the two provisions into one 
provision at 42 CFR 412.165.
3. FY 2014 Hospital VBP Program Measures
    For FY 2014, we have 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 date 
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).
    Set out below is a complete list of the measures adopted for the FY 
2014 Hospital VBP Program:

    Clinical Process of Care, Patient Experience of Care and Outcome
              Measures for the FY 2014 Hospital VBP Program
------------------------------------------------------------------------
          IV. 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.
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.

[[Page 53569]]

 
    SCIP-VTE-2....................  Surgery Patients Who Received
                                     Appropriate Venous Thromboembolism
                                     Prophylaxis Within 24 Hours Prior
                                     to Surgery to 24 Hours After
                                     Surgery.
------------------------------------------------------------------------
 
V. Measure ID                       Measure description
------------------------------------------------------------------------
                   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.

4. Other Previously Finalized Requirements for the Hospital VBP Program
    In the CY 2012 OPPS/ASC final rule with comment period (76 FR 74532 
through 74547), we finalized a number of other policies for the FY 2014 
Hospital VBP Program including: The minimum number of cases that a 
hospital must report to receive a score on a mortality measure; the 
minimum number of measures that a hospital must report in order to 
receive a score on the Outcome domain; the baseline and performance 
periods; the performance standards for the clinical process of care and 
patient experience of care measures (we previously finalized the 
performance standards for the 3 mortality outcome measures in the 
Hospital Inpatient VBP Program final rule (76 FR 26513)); the scoring 
methodology; and the domain weighting methodology. We also finalized 
for all years of the Program a process that will allow hospitals to 
review and correct the data that they submit to the QIO Clinical 
Warehouse on clinical process of care measures, their clinical process 
of care measure rates, their HCAHPS data, and their patient-mix and 
mode adjusted HCAHPS scores.
5. Hospital VBP Program Payment Adjustment Calculation Methodology
a. Definitions of the Term ``Base Operating DRG Payment Amount'' for 
Purposes of the Hospital VBP Program
    Section 1886(o)(7)(D) of the Act generally defines the base 
operating DRG payment amount, with respect to a hospital for a fiscal 
year, as ``the payment amount that would otherwise be made under 
section 1886(d) (determined without regard to subsection (q) [the 
Hospital Readmissions Reduction Program]) for a discharge if [the 
Hospital VBP Program] 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); and * * * such 
other payments under subsection (d) determined appropriate by the 
Secretary.'' Paragraphs (5)(A), (5)(B), (5)(F), and (12) of section 
1886(d) of the Act refer to outlier payments, indirect medical 
education (IME) payments, disproportionate share (DSH) payments, and 
low-volume hospital payments, respectively.
    We stated in the FY 2013 IPPS/LTCH PPS proposed rule (77 FR 28070) 
that the payment that would otherwise be made with respect to a 
discharge is 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), which is often referred to as ``the wage-adjusted DRG 
operating payment.'' The payment amount that would otherwise be made 
with respect to a discharge also includes any adjustments to the wage-
adjusted DRG operating payment that the hospital qualifies for, 
including an outlier adjustment (under section 1886(d)(5)(A) of the 
Act), an IME adjustment (under section 1886(d)(5)(B) of the Act), a 
disproportionate share payment adjustment (under section 1886(d)(5)(F) 
of the Act), a low-volume payment adjustment (under section 1886(d)(12) 
of the Act), an adjustment for new medical services or technologies 
under section 1886(d)(5)(K) of the Act (often referred to as ``new 
technology add-on payments''), and/or any other adjustment determined 
appropriate by the Secretary.
    In the FY 2013 IPPS/LTCH PPS proposed rule (77 FR 28070), 
consistent with section 1886(o)(7)(D) of the Act, we proposed to 
generally define the term ``base operating DRG payment amount'' for 
purposes of the Hospital VBP Program as the wage-adjusted DRG operating 
payment plus any applicable new technology add-on payment. We proposed 
to include the new technology add-on payment amount in the definition 
of base operating DRG payment amount for the Hospital VBP Program 
because the provision of a new technology to a Medicare beneficiary is 
a treatment decision, unlike the other add-on payments which are 
excluded by statute (for example, IME and DSH add-ons). We believe that 
it represents a cost to the Medicare program that should be subject to 
the applicable percent reduction to the base operating DRG payment 
amount which creates the funding pool for value-based incentive 
payments. We also note that this proposed definition is consistent with 
the definition of ``base operating DRG payment amount'' that we 
proposed to adopt for the Hospital Readmissions Reduction Program, and 
we believe that maintaining consistency to the extent possible with 
other Medicare incentive payment programs is an important goal for the 
Hospital VBP Program. There are no other subsection (d) payment 
adjustments that would otherwise apply to the discharge on a per-claim 
basis. As required by the statute, the ``base operating DRG payment 
amount'' would not include an outlier, IME, DSH, or

[[Page 53570]]

low-volume payment adjustment that would otherwise apply to the 
discharge.
    We proposed to codify the definition of the term ``wage-adjusted 
DRG operating payment'' and the definition of the term ``base-operating 
DRG payment amount'' as it would apply to most subsection (d) hospitals 
in our regulations at 42 CFR 412.160. We welcomed public comment on 
these proposed definitions.
    Comment: The majority of commenters supported our proposed general 
definition of base-operating DRG payment amount. A few commenters 
suggested that applicable new technology add-on payments should not be 
included in the definition. These commenters expressed the belief that 
new technology add-on payments are extrinsic to the base rate and that 
their inclusion in the base operating DRG payment amount definition 
would be in conflict with ensuring adequate payment for new 
technologies. Two commenters suggested that CMS clarify the handling of 
capital costs in defining the base operating DRG payment amount, with 
one suggesting they should be included in the definition and one 
suggesting they should be excluded.
    Response: We thank the commenters for their support of our proposed 
general definition of base operating DRG payment amount for the 
Hospital VBP Program. With respect to the new technology add on 
payments, we disagree with the commenters who suggested that they 
should be excluded from the definition of the term ``base operating DRG 
payment amount.'' We acknowledge that new technology add on payments 
could be viewed as extrinsic to the base rate, but we disagree that 
their inclusion in the definition of the term base operating DRG 
payment amount would be in conflict with ensuring adequate payments for 
the provision of new technologies. Under the Hospital VBP Program, 
hospitals that perform well on the selected measures may earn back more 
than the applicable percent reduction used to fund the value based 
incentive payments. Therefore, a hospital that provides an effective 
new technology and performs well on the measures would be able to earn 
an additional payment under the Program. We continue to believe that 
these payments represent treatment decisions made by hospitals, and are 
therefore appropriately captured in our definition for this Program. 
Further, we value consistency with the definition being used for the 
Hospital Readmissions Reduction Program, which includes new technology 
add-on payments. With respect to capital payments, we did not propose 
to include them in the definition of base operating DRG payment amount 
because section 1886(o)(7)(D)(i) of the Act defines the base operating 
DRG payment amount, with respect to most subsection (d) hospitals as 
``the payment amount that would otherwise be made under section 
1886(d)'' with certain exclusions. Capital payments are paid to most 
acute care hospitals under section 1886(g) of the Act and, therefore, 
are not included in the payment amount that would otherwise be made 
under section 1886(d) of the Act.
    Comment: One commenter suggested that the transfer payment 
adjustment should be included in the definition of base-operating DRG 
payment amount.
    Response: We agree with this comment and are revising our 
definition of the term ``wage-adjusted DRG operating payment'' at 42 
CFR 412.160 to include an applicable payment adjustment for a transfer 
under 42 CFR 412.4(f). The transfer adjustment is a reduction to the 
payment amount, which we apply when a patient leaves the hospital 
before the average length of stay for their DRG, and continues to 
receive treatment in either another acute hospital or a post acute 
setting. We believe that the transfer adjustment is appropriately 
included in the adjustment to the standardized amount for resource 
utilization because the transfer adjustment is applied in order to make 
the payment that would otherwise be made to a subsection (d) hospital 
that transfers a patient commensurate with the resources that the 
hospital used to treat that patient.
    After consideration of the public comments we received, we are 
finalizing the definition of the term ``wage-adjusted DRG operating 
payment'' as the applicable average standardized amount adjusted for 
(i) Resource utilization by the applicable MS-DRG relative weight, (ii) 
differences in geographic costs by the applicable area wage index (and 
by the applicable COLA for hospitals located in Alaska and Hawaii), and 
(iii) an applicable transfer under 42 CFR 412.4(f). We are also 
finalizing the definition of the term ``base operating DRG payment 
amount'' as that term applies to most subsection (d) hospitals as the 
wage-adjusted DRG operating payment plus any applicable new technology 
add-on payments under 42 CFR 412.4(f). We are finalizing that this 
amount is determined without regard to any payment adjustments under 
the Hospital Readmissions Reduction Program, and that it 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, or a low volume of discharges 
under Sec.  412.101. We are codifying these definitions in our 
regulations at 42 CFR 412.160.
    Section 1886(o)(7)(D)(ii)(I) of the Act states that in the case of 
a Medicare-dependent, small rural hospital (MDH) (with respect to 
discharges occurring during FY 2012 or FY 2013) or a sole community 
hospital (SCH), the base operating DRG payment amount is defined as the 
payment amount that would otherwise be made under section 1886(d) of 
the Act without regard to certain factors that affect payments to these 
categories of hospitals (sections 1886(b)(3)(I) and (L) of the Act, and 
section 1886(d)(5)(D) of the Act for SCHs, and section 1886(d)(5)(G) of 
the Act for MDHs). In the FY 2013 IPPS/LTCH PPS proposed rule (77 FR 
28071), consistent with the definition we proposed to adopt for other 
subsection (d) hospitals, we proposed to define the term ``base 
operating DRG payment amount'' for MDHs and SCHs as the wage-adjusted 
DRG operating payment amount plus any applicable new technology add-on 
payment. The proposed base operating DRG payment amount for SCHs and 
MDHs would not include an outlier, IME, DSH, or low-volume payment 
adjustment that would otherwise apply to the discharge. Consistent with 
section 1886(o)(7)(D)(ii)(I) of the Act, we also proposed to exclude 
from this definition of base operating DRG payment amount the 
difference between the hospital-specific payment rate and the Federal 
payment rate. This proposed definition is consistent with that being 
proposed under the Hospital Readmissions Reduction Program (discussed 
in section IV.A. of this preamble). We proposed to codify this 
definition in our regulations at 42 CFR 412.160.
    We welcomed public comment on this proposed definition of the base 
operating DRG payment amount for MDHs and SCHs under the Hospital VBP 
Program. We note that, under current law, the MDH program is set to 
expire at the end of FY 2012, after which all MDH hospitals would be 
paid in the same manner as other subsection (d) hospitals, unless they 
qualify for SCH status, as discussed in section VIII.C.5.b. of this 
preamble.
    Comment: Commenters were supportive of our proposed definition of 
``base operating DRG payment amount'' for SCHs and MDHs. One commenter 
asked that we clarify that we would exclude the difference between the 
applicable hospital-specific payment rate and the Federal payment rate 
for

[[Page 53571]]

both SCHs and for MDHs, should the MDH provision be extended beyond FY 
2012.
    Response: We thank the commenters for their support of the proposed 
definition of base operating DRG payment amount for SCHs and MDHs and 
are adopting it as final. If the MDH program is extended beyond FY 
2012, we will continue to use this definition for MDHs. For an SCH or 
an MDH, the payment adjustment under the Hospital VBP Program for each 
discharge will be calculated by multiplying the SCH or MDH's value-
based incentive payment adjustment factor by the base-operating DRG 
payment amount that is exclusive of the amount by which the hospital-
specific payment rate exceeds the Federal payment rate. The resulting 
payment adjustment will then be added to or subtracted from the 
hospital's payment for the discharge, regardless of whether the 
hospital is paid based on the Federal rate or its hospital-specific 
rate. We finalize the methodology for calculating individual hospitals' 
value-based incentive payment adjustment factors below, in section 
VIII.C.5.c. of this preamble.
    After consideration of the public comments we received, we are 
finalizing the definition of the term ``base operating DRG payment 
amount,'' with respect to a Medicare-dependent, small rural hospital 
that receives payments under Sec.  412.108(c) or a sole community 
hospital that receives payments under Sec.  412.92(d), as the wage-
adjusted DRG operating payment plus any applicable new technology add-
on payments under subpart F of 42 CFR Part 412. We are finalizing that 
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 42 CFR Part 412, or a low volume of 
discharges under Sec.  412.101. This amount also does not include the 
difference between the hospital-specific payment rate and the Federal 
payment rate.
    Section 1886(o)(7)(D)(ii)(II) of the Act states that in the case of 
a hospital that is paid under section 1814(b)(3) of the Act, ``the term 
`base operating DRG payment amount' means the payment amount under that 
section.'' Acute care hospitals located in the State of Maryland are 
not paid under the IPPS but are, instead, paid under a special waiver 
provided by section 1814(b)(3) of the Act. In the FY 2013 IPPS/LTCH PPS 
proposed rule (77 FR 28071), for these hospitals, we proposed that the 
term ``base operating DRG payment amount'' means the payment amount 
under section 1814(b)(3) of the Act. This proposed definition is 
consistent with the definition we proposed under the Hospital 
Readmissions Reduction Program (discussed in section IV.A. of this 
preamble). We proposed to codify this definition in our regulations at 
42 CFR 412.160. We welcomed public comment on the proposed definition 
of base operating DRG payment amount for Maryland hospitals under the 
Hospital VBP Program.
    Comment: One commenter suggested that the definition of base 
operating DRG payment amount for Maryland hospitals should not be the 
payment made under section 1814(b)(3) of the Act because that payment 
is inclusive of payments for medical education, treatment of a 
disproportionate share of low income patients, uncompensated care, 
labor-market adjusters, and assessments to fund other initiatives. This 
commenter suggested that CMS should work with Maryland to develop an 
alternative definition. Another commenter also noted that the payment 
received by Maryland hospitals differs significantly from that received 
by other subsection (d) hospitals, urging that we continue to allow 
Maryland the flexibility to continue existing State-based initiatives 
for improvement in quality of care.
    Response: Maryland hospitals are currently paid 94 percent of 
charges, and the Maryland Health Services Cost Review Commission 
includes IME, DSH, uncompensated care, and labor market adjusters in 
the charges that it submits to the Secretary for purposes of 
calculating the payment amounts for these hospitals under section 
1814(b)(3) of the Act. We believe that as long as these amounts are 
included in the payment amounts made to these hospitals under section 
1814(b)(3) of the Act, they are appropriately included in the 
definition of the base operating DRG payment amount for these hospitals 
under the Hospital VBP Program. With regard to the comment that 
Maryland should be allowed to continue existing State-based incentives, 
we note that acute care hospitals located in the State of Maryland have 
been granted an exemption from the Hospital VBP Program for FY 2013 
based on the State's submission of a report describing how a similar 
State program achieves or surpasses the measured results in terms of 
patient health outcomes and cost savings established under the Hospital 
VBP Program. The State will also have the opportunity to request that 
these hospitals be exempted from future years of the Program, as 
discussed more fully in section VIII.C.13 of this preamble.
    After consideration of the public comments we received, we are 
finalizing the definition of the term ``base operating DRG payment 
amount'' for hospitals that are paid under section 1814(b)(3) of the 
Act as the payment amount made under section 1814(b)(3) of the Act.
    We are also codifying the definition of the term base-operating DRG 
payment amount, as that term is applied to SCHs, MDHs, and hospitals 
paid under section 1814(b)(3) of the Act, in our regulations at 42 CFR 
412.160.
b. Calculating the Funding Amount for Value-Based Incentive Payments 
Each Year
    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. To implement these sections, and create the funding pool for 
value-based incentive payments for each fiscal year, in the FY 2013 
IPPS/LTCH PPS proposed rule (77 FR 28071), we proposed that beginning 
with FY 2013 discharges, every hospital that meets the definition of a 
hospital in section 1886(o)(1)(C) of the Act (referred to here as an 
eligible hospital) would receive a reduction to its base operating DRG 
payment amount for each discharge in a fiscal year, regardless of 
whether we have determined that the hospital has earned a value-based 
incentive payment for that fiscal year. The total amount of the 
reductions across all eligible hospitals for a fiscal year would 
constitute the total amount available from which we could make value-
based incentive payments for that fiscal year. We proposed to estimate 
the total amount of the reductions across all eligible hospitals and 
the size of the funding pool prior to the start of each fiscal year 
because that is the only way, operationally, that we can calculate each 
hospital's value-based incentive payment percentage in a manner such 
that the estimated sum total of the value-based incentive payments for 
hospitals for the fiscal year would be equal to the estimated total 
amount available for value-based incentive payments to all eligible 
hospitals.
    The data we proposed to use to estimate these amounts is inpatient 
claims data from the Medicare Provider Analysis and Review (MedPAR) 
file. We believe that the use of MedPAR data is appropriate because we 
also use this

[[Page 53572]]

data to calculate other IPPS payment adjustment amounts, including the 
DRG relative weights, budget neutrality factors, outlier thresholds, 
and standardized amounts. The proposed use of claims data from the 
MedPAR file is also consistent with our proposal to determine 
applicable hospitals' base operating DRG payment amounts, for purposes 
of determining the readmissions payment adjustment factor under the 
Hospital Readmissions Reduction Program (section IV.A. of this 
preamble).
    We proposed to run the MedPAR data for purposes of estimating the 
base operating DRG payment reduction amounts, as well as the size of 
the funding pool that will apply to a fiscal year, in December of the 
previous fiscal year so that we can provide preliminary estimates in 
the IPPS/LTCH PPS proposed rule. We also proposed to provide the final 
estimates in the IPPS/LTCH PPS final rule using the March update. The 
data will contain inpatient claims information related to discharges 
from the fiscal year that ended the previous September. For example, 
with respect to the FY 2014 Hospital VBP Program, we would run the 
MedPAR data in December, 2012 and that data would contain claims 
related to FY 2012 discharges. We would use that data to provide 
preliminary estimates in the FY 2014 IPPS/LTCH PPS proposed rule. The 
March 2013 update of this MedPAR data would then be used to provide 
final estimates in the FY 2014 IPPS/LTCH PPS final rule.
    We believe that this proposed approach will enable us to gather the 
most recent Medicare utilization data available in order to estimate 
the total amount of the base operating DRG payment amount reductions 
and the size of the value based incentive payment funding pool for the 
applicable fiscal year. We also believe that this approach will enable 
us to calculate each hospital's value based incentive payment 
adjustment factor that will apply to its discharges in the applicable 
fiscal year, and to notify each hospital of such at the same time that 
we proposed to notify each hospital regarding its performance for 
purposes of making this information publicly available under section 
1886(o)(10)(A) of the Act. In this way, hospitals will be able to 
consider this information during the review and correction period 
(which is discussed below). We believe that it is important to notify a 
hospital of its value-based incentive payment adjustment factor at the 
start of review and corrections, so that hospitals can consider the 
payment impact of the TPS in their determination of whether or not to 
request review and corrections.
    In order to estimate the total base operating DRG payment 
reductions across all hospitals for a fiscal year, we proposed to sum 
the estimated total base operating DRG payment amount per discharge for 
each hospital in that fiscal year. We would then multiply that 
estimated total annual base operating DRG payment amount by the 
applicable percent, which we proposed to define in our regulations at 
Sec.  412.160 as the percentages specified in section 1886(o)(7)(C) of 
the Act. The product of the estimated total annual base operating DRG 
amount for a hospital and the applicable percent would be equal to 
taking the applicable percent reduction from each individual base 
operating DRG payment amount per hospital and then summing those 
reductions. We welcomed public comment on this proposed approach to 
calculating the available pool of funds for value-based incentive 
payments.
    Comment: Commenters were supportive of our proposals.
    Response: We thank the commenters for their support of these 
proposals and we are adopting them as final.
    After consideration of the public comments we received, we are 
finalizing our proposal to estimate the total amount of the reductions 
across all eligible hospitals and the size of the funding pool for 
value-based incentive payments under the Hospital VBP Program, prior to 
the start of each fiscal year, using MedPAR data. We are finalizing our 
proposal to use the December update to MedPAR for the purposes of 
providing the estimates in the IPPS/LTCH PPS proposed rule each year, 
and to utilize the March update to provide the final estimates in the 
IPPS/LTCH PPS final rule each year. We are also finalizing the 
definition of the term ``applicable percent'' in 42 CFR 412.160 of our 
regulations as the percentages specified in section 1886(o)(7)(C) of 
the Act. Finally, we are finalizing our proposal to sum the estimated 
total base operating DRG payment amount per discharge for each hospital 
in a fiscal year and then multiply that amount by the applicable 
percent in order to estimate the total base operating DRG payment 
reductions across all hospitals for a fiscal year.
    For the purpose of estimating the total amount available for value-
based incentive payments for a fiscal year, we proposed to apply an 
inflation factor so that our estimate of the available pool of funds 
will more accurately reflect estimated total base operating DRG 
payments in the fiscal year in which the value-based incentive payments 
will actually be made. For example, in estimating the size of the FY 
2013 funding pool, we inflated the FY 2011 MedPAR data to FY 2013 
dollars because the value-based incentive payment amounts will actually 
be paid in FY 2013.
    Our actuaries provided us with this inflation factor, which 
included assumptions on changes in Medicare fee-for-service case mix 
and discharge levels. According to this proposed methodology, we 
originally estimated the available amount for FY 2013 value-based 
incentive payments to be $956 million. We then issued a correction 
notice, because reductions to base operating DRG payment amounts for 
Maryland hospitals had inadvertently been included in the total 
estimated amount available for FY 2013 when Maryland hospitals have 
been excluded from the Hospital VBP Program for FY 2013. The revised 
estimated available amount was $917 million (CMS-1588-CN). As noted 
above, under our proposed methodology, we proposed that we would update 
this estimate using the March 2012 update of the FY 2011 MedPAR data 
for purposes of finalizing it in the FY 2013 IPPS/LTCH PPS final rule.
    We note that, for the purposes of calculating the value-based 
incentive payment adjustment factors under the Hospital VBP Program, we 
would be able to use FY 2011 claims to accurately calculate the value-
based incentive payment percentage, without application of this 
inflation factor. This is because a constant inflation factor applied 
across all hospitals' total annual base-operating DRG payment amounts 
will not change the slope of the linear exchange function which we 
previously adopted for use in determining each hospital's value-based 
incentive payment amount. Application of an inflation factor would, 
therefore, not impact the amount of a hospital's value-based incentive 
payment amount under the Hospital VBP Program for the fiscal year.
    We considered adopting a different approach that would apply only 
to the FY 2013 Hospital VBP Program because we do not anticipate 
beginning to make value-based incentive payments to hospitals for that 
program year until January 2013. Under this approach, we would have 
estimated the total amount of funding available to make the value-based 
incentive payments using the latest available FY 2011 claims data from 
MedPAR, with payment amounts modeled using the rates, factors and 
policies finalized in the FY 2013 IPPS/LTCH PPS final rule. This data 
would include claims information that was not

[[Page 53573]]

available at the time we ran the March update. However we did not 
propose to adopt this approach, because we believe that is important to 
establish a consistent process for annually estimating the total amount 
available to make value-based incentive payments to hospitals, as well 
determining the value-based incentive payment adjustments that will be 
made to hospitals as a result of their performance under the Hospital 
VBP Program. Beginning with the FY 2014 Hospital VBP Program, we intend 
to make the value-based incentive payments to hospitals as part of the 
claims payment process, beginning at the start of the fiscal year, so 
it would not be possible to use the modeled base-operating DRG payment 
amount estimates based on the finalized rates, factors and policies 
established in the IPPS/LTCH PPS final rule applicable to the fiscal 
year, as they will typically not be finalized in time to notify 
hospitals of their value-based incentive payment adjustments at the 
start of the review and corrections process.
    Further, these factors, rates, and policies would not typically be 
finalized in time for us to notify hospitals of the net result of the 
base operating DRG payment amount reduction and the value-based 
incentive payment adjustment no later than 60 days prior to the start 
of the fiscal year, as required by section 1866(o)(8) of the Act. We 
also believe that our proposal to use the March update of the MedPAR 
file represents an accurate estimate of annual base operating DRG 
amounts because it reflects the most recently available utilization 
data, while preserving the interest in notifying hospitals of the 
payment impact in time for them to request review and correction.
    We proposed to use a different methodology for purposes of 
estimating the reduced annual base operating DRG payment amounts for 
SCHs and MDHs. In general, eligible hospitals in the Hospital VBP 
Program include SCHs and current MDHs (we note that MDH status is set 
to expire under current law after FY 2012 and would, therefore, no 
longer exist in FY 2013), because they meet the definition of a 
``subsection (d)'' hospital. SCHs are paid in the interim (prior to 
cost report settlement) on a claim by claim basis at the amount that is 
the higher of the payment based on the hospital-specific rate or the 
IPPS Federal rate based on the standardized amount. At cost report 
settlement, the fiscal intermediary or A/B MAC determines if the 
hospital would receive higher aggregate operating IPPS payments using 
the hospital-specific rate (for all claims) or the Federal rate (for 
all claims). MDHs are paid the sum of the Federal payment amount plus 
75 percent of any amount by which the hospital-specific rate payment 
exceeds the Federal rate payment amount.
    Although MDH status is to expire at the end of FY 2012, the 
payments reflected on FY 2011 claims for current MDHs may be based on 
the hospital-specific rate. As discussed above, we generally proposed 
to use historical MedPAR data to determine the base operating DRG 
payment amounts that would be used to estimate the amount of funding 
available for value-based incentive payments for the FY 2013 Hospital 
VBP Program. In the FY 2013 IPPS/LTCH PPS proposed rule (77 FR 28072), 
consistent with that proposal, for SCHs and hospitals that have MDH 
status in FY 2012, we proposed to use MedPAR data to model the reduced 
base operating DRG payment amount for each claim as if it were paid 
based on the Federal standardized amount, rather than using the payment 
information on the claim (that is, regardless of whether a claim was 
paid under the hospital-specific rate or the Federal rate, the reduced 
base operating DRG payment amounts for SCHs and current MDHs would be 
estimated using the Federal rate).
    We welcomed public comment on these proposals. We also welcomed 
comment on other suggested approaches to most accurately estimate these 
amounts.
    Comment: One commenter asked CMS to verify that Maryland hospitals 
had not been included in the estimated available funding pool for 
value-based incentive payments in FY 2013. One commenter questioned 
whether the amount stated in the proposed rule was correct, because 
they arrived at significantly different number.
    Response: We inadvertently included reductions to payments for 
Maryland hospitals in the estimated total amount available for value-
based incentive payments under the Hospital VBP Program for FY 2013, in 
the FY 2013 IPPS/LTCH PPS proposed rule. As noted above, we 
subsequently issued a correction notice (CMS-1588-CN; 77 FR 34326), 
including a new estimated $917 million total amount available for 
value-based incentive payments under the Hospital VBP Program for FY 
2013. Both the original and the corrected estimates were calculated 
using the December 2011 update to the FY 2011 MedPAR data and with the 
application of an inflation factor of 9.75 percent. As stated in the 
proposed rule, this inflation factor was provided by CMS actuaries and 
included assumptions regarding changes in Medicare fee-for-service 
case-mix and discharge levels. We verified with our actuaries that the 
estimated $917 million total amount available was correct.
    After consideration of the public comments we received, we are 
adopting our proposed methodology for estimating the total amount 
available for value-based incentive payments in a fiscal year under the 
Hospital VBP Program. The final estimate for FY 2013, based on the 
March, 2012 update to the FY 2011 MedPAR file, is $963 million.
c. Methodology to Calculate the Value-Based Incentive Payment 
Adjustment Factor
    In accordance with section 1886(o)(6)(C)(i) of the Act, for each 
eligible hospital that receives a TPS greater than zero with respect to 
a fiscal year, we proposed to calculate a value-based incentive payment 
percentage for that hospital for that fiscal year. We proposed that, in 
accordance with section 1886(o)(6)(C)(ii) of the Act, the value-based 
incentive payment percentage that we calculate for the hospital will be 
based on that hospital's individual TPS, and the total amount of value-
based incentive payments to all hospitals in the fiscal year will be 
equal to the total amount available for value-based incentive payments 
for the fiscal year, as estimated by the Secretary. In the FY 2013 
IPPS/LTCH PPS proposed rule (77 FR 28073), we proposed to define the 
term ``value-based incentive payment percentage'' in Sec.  412.160 as 
the percentage of the total base operating DRG payment amount that a 
hospital has earned back, based on its TPS for that fiscal year. The 
hospital may earn a value-based incentive payment percentage that is 
less than, equal to, or more than the applicable percent. The 
applicable percent that we will use to reduce the base operating DRG 
payment amount for each FY 2013 discharge is 1.0 percent.
    A hospital may earn a value-based incentive payment percentage that 
is greater than the applicable percent, which would result in that 
hospital receiving a value-based incentive payment adjustment factor 
that is greater than one and a higher base operating DRG payment amount 
for each discharge than it would have received in the absence of the 
Hospital VBP Program. The proposed calculation of the value-based 
incentive payment adjustment factor is discussed in further detail 
below. A hospital may earn a value-based incentive payment percentage 
that is equal to the applicable percent, which would result in the 
hospital receiving a value based incentive payment adjustment factor of

[[Page 53574]]

1 and the same base operating DRG payment amount that it would have 
received for each discharge in the absence of the Hospital VBP Program. 
Alternatively, a hospital may earn a value-based incentive payment 
percentage that is less than the applicable percent, which would result 
in the hospital receiving a value-based incentive payment adjustment 
factor that is less than one and a lower base operating DRG payment 
amount for each discharge than it would have received in the absence of 
the Hospital VBP Program.
    In order to convert a hospital's TPS into a value-based incentive 
payment factor that would be applied to each discharge in the 
applicable fiscal year, we proposed to use the linear exchange function 
that we finalized in the Hospital Inpatient VBP Program final rule (76 
FR 26534). Under this proposed methodology, we would use the following 
computed amounts:
     The hospital's estimated total annual base-operating DRG 
amount for all discharges for the applicable fiscal year;
     The applicable percent for the fiscal year (1.0 percent in 
FY 2013);
     The (linear) exchange function slope; and
     The hospital's TPS.
    The following six (6) steps illustrate our proposed methodology:
    Step 1: Estimate the hospital's total annual base-operating DRG 
amount. First, we would estimate each hospital's total annual base 
operating DRG amount for all discharges in the applicable fiscal year. 
As we discussed above, we proposed to estimate this amount using 
Medicare inpatient claims data taken directly from the most recently 
available MedPAR files.
    Step 2: Calculate the total annual estimated base operating DRG 
payment reduction amount across all eligible hospitals. Second, we 
proposed to estimate the total base operating DRG reduction amount 
across all eligible hospitals (which is the total amount available for 
value-based incentive payments) according to the following two steps:
    Step 2a: Repeat Step 1 for all eligible hospitals, and multiply the 
estimated total amount for each hospital by the applicable percent. For 
FY 2013, the applicable percent is 1.0 percent; then
    Step 2b: Add together the amount for each hospital calculated under 
Step 2a. This sum is the total amount available for value-based 
incentive payments, and the numerator of the linear exchange function 
slope that is calculated in Step 3 below.
    Step 3: Calculate the linear exchange function slope. Third, we 
would calculate the linear exchange function slope. As noted above, we 
finalized the use of a linear exchange function for the purpose of 
converting a hospital's TPS into a value-based incentive payment 
percentage. We would calculate the linear exchange function slope using 
the following steps:
    Step 3a: Convert the TPS for each hospital into a decimal by 
dividing it by 100. The TPS may range from zero to 100. In this step, 
we express it as a number between zero and 1.
    Step 3b: Multiply each hospital's estimated total base-operating 
DRG payment reduction amount for the applicable fiscal year (from Step 
2a above) by the hospital's TPS (decimal between zero and one from Step 
3a above).
    Step 3c: Add together the numbers computed in Step 3b above. This 
sum represents the denominator of the linear exchange function slope 
that is calculated in Step 3d below.
    Step 3d: The exchange function slope equals the sum computed in 
Step 2b above divided by the sum computed in Step 3c above.
    Step 4: For each hospital, calculate the hospital's value-based 
incentive payment percentage for the fiscal year. We proposed to use 
the exchange function slope (from Step 3) and the hospital's TPS to 
calculate the hospital's value-based incentive payment percentage that 
it earned as a result of its performance under the Hospital Inpatient 
VBP Program for the fiscal year. We could calculate the value-based 
incentive payment percentage by multiplying the applicable percent by 
the amount computed for the hospital in Step 3a and the exchange 
function slope as computed in Step 3d above. This is the mathematical 
approach to locating the place along the linear exchange function where 
a given hospital's TPS score would be located and identifying the 
corresponding value-based incentive payment percentage. As we note 
above, the value-based payment percentage could be greater than, equal 
to, or less than the applicable percent that is applied to reduce the 
base operating DRG payment amount for each discharge.
    Step 5: Compute the net percentage change in the hospital's base-
operating DRG payment amount for each discharge. Fifth, we proposed to 
calculate the net percentage change to the hospital's base operating 
DRG payment amount for each discharge in the applicable fiscal year. We 
would calculate the net change as an intermediate step, in order to 
determine the value-based incentive payment adjustment factor described 
in Step 6, below. The net percentage change in the hospital's base 
operating DRG payment amount for each discharge would be the difference 
between the applicable percent and the value-based incentive payment 
percentage. We would calculate this net change for each hospital by 
subtracting the applicable percent used in Step 2a (1 percent for FY 
2013) from the value based incentive payment percentage computed for 
the hospital in Step 4. This net change in the base-operating DRG 
payment amount would be expressed as a percentage and could be 
positive, zero, or negative, depending on the hospital's TPS and the 
exchange function slope.
    Step 6: Calculate the value-based incentive payment adjustment 
factor. To calculate this factor, we would convert the hospital's 
individual net percentage change in its base-operating DRG payment 
amount, from Step 5, from a percentage into a number (by removing the 
percent sign and dividing it by 100) and add it to 1. The 1 would 
reflect the base operating DRG payment amount that the hospital would 
have received for a discharge in the absence of the Hospital VBP 
Program. The result is that a hospital with a positive net percentage 
change to its total base operating DRG payment amount would have a 
value-based incentive payment adjustment factor that is greater than 
one. This means that we would multiply the hospital's base operating 
DRG payment amount for each discharge occurring in the applicable 
fiscal year by a number greater than one.
    A hospital with no net percentage change to its total base 
operating DRG payment amount percentage would have a value-based 
incentive payment adjustment factor of one. This means that we would 
multiply its base operating DRG payment amount for each discharge 
occurring in the applicable fiscal year by 1, and its base-operating 
DRG payment amount would be equal to what it would have been in the 
absence of the Hospital VBP Program.
    A hospital with a negative net percentage change to its total base-
operating DRG payment amount percentage would have a value-based 
incentive payment adjustment factor that is less than one. This means 
that we would multiply the hospital's base operating DRG payment amount 
for each discharge occurring in the applicable fiscal year by a number 
less than one.
    Example Calculation of the Value-Based Incentive Payment Adjustment 
Factor:

[[Page 53575]]

    As an example, assume the following information:
     The hospital's estimated total annual base operating DRG 
payment amount for all discharges in the applicable fiscal year = 
$1,000,000;
     The applicable percent that is applied to all discharges 
of eligible hospitals in FY 2013 = 1.0 percent;
     The exchange function slope = 2.0;
     The hospital's TPS = 80
    Under our proposal, we would replicate the six steps to convert a 
hospital's TPS into a value-based incentive payment adjustment factor 
as follows:
    Step 1: Estimate the hospital's total annual base operating DRG 
payment amount. We would add together the estimated base-operating DRG 
payment amount for each FY 2013 discharge. In this example, we assume 
this total amount would be $1,000,000.
    Step 2: Calculate the total annual estimated base operating DRG 
payment reduction amount across all eligible hospitals. Second, we 
would:
    Step 2a: Repeat Step 1 for all eligible hospitals, and multiply the 
total amount for each hospital by the applicable percent, which is 1.0 
percent in this example: $1,000,000 * 0.01 = $10,000; and
    Step 2b: Add together the amount for each hospital calculated in 
Step 2a above. In this example, we assume this amount is a given. We 
note that computing this amount requires knowledge of all eligible 
hospitals' estimated total base operating DRG payment reduction amount.
    Step 3: Calculate the linear exchange function slope, which we 
assume in this example to be 2.0. We note that computing the slope 
requires knowledge of all eligible hospitals' estimated total base 
operating DRG payment reduction amount and their TPS to compute the 
relevant sums that are used in the numerator and denominator of the 
slope.
    Step 4: Calculate the hospital's value-based incentive payment 
percentage. The hospital's value-based payment percentage would be 
computed as follows: 0.01 (the applicable percent would be multiplied 
by 0.80 (the hospital's TPS divided by 100) and 2.0 (the exchange 
function slope)). Mathematically, 0.01 * 0.80 * 2.0 = 0.016, which can 
be written as 1.60 percent. Therefore, the hospital's value-based 
incentive payment percentage for the FY 2013 Hospital VBP Program would 
be 1.60 percent ($16,000 in this example).
    Step 5: Compute the net percentage change in the hospital's base-
operating DRG payment amount for each discharge by subtracting 1.0 
percent (the applicable percent) from the value-based incentive payment 
percentage that the hospital earned based on its TPS.
    In this example, the net percentage change would equal 1.60 percent 
minus 1.00 percent, or 0.60 percent. In this example, the net 
percentage change is positive and corresponds to a dollar amount of 
0.60 percent of the estimated total annual base operating DRG payment 
amount for the hospital of $1,000,000(0.60 percent * $1,000,000 = 
$6,000).
    Step 6: Compute the value-based incentive payment adjustment factor 
as equal to: the net percentage change (calculated in Step 5), 
expressed as a number, plus one. In this example, the hospital's value-
based incentive payment adjustment factor would equal the sum of 0.006 
(0.60 percent expressed as a number) plus one.
    Therefore, this hospital's value-based incentive payment adjustment 
factor would equal 1.006, and this factor would be multiplied by the 
base operating DRG payment amount for each discharge occurring in FY 
2013. This hospital had a positive net percentage change to its total 
base operating DRG payment amount and would have a value-based 
incentive payment adjustment factor that is greater than one, so we 
would multiply the hospital's base operating DRG payment amount for 
each discharge occurring in the applicable fiscal year by a number 
greater than one. In this example, the hospital would earn a total 
value-based incentive payment estimated at $16,000 for all discharges 
in the fiscal year), which is greater than the 1.0 percent base 
operating DRG payment reduction amount applied to each discharge in the 
fiscal year (estimated $10,000 total reduction), which would result in 
the hospital receiving a higher payment amount for each discharge 
occurring in FY 2013 than it otherwise would have received, in the 
absence of the Hospital VBP Program (an estimated $6000 total increase 
in base operating DRG payments for the fiscal year).
    We welcomed comments on this proposal.
    We proposed to codify in our regulations at Sec.  412.160 
definitions of value-based incentive payment adjustment factor and 
value-based incentive payment percentage.
    We proposed to codify in our regulations at Sec.  412.162 the 
process for reducing the base operating DRG payment amount and applying 
the value-based incentive payment amount adjustment under the Hospital 
Value-Based Purchasing (VBP) Program. We also proposed regulation text 
at Sec.  412.162 regarding the value-based incentive payment amount for 
a discharge; the total amount available for value-based incentive 
payments; the methodology for calculating the value-based incentive 
payment amount; the methodology for calculating the value-based 
incentive payment percentage; and the methodology for calculation of 
the value-based incentive payment adjustment factor.
    Comment: Commenters supported our proposed methodology to calculate 
the value-based incentive payment adjustment factor for each hospital. 
Some commenters requested that CMS provide hospitals with a statement 
at the beginning and end of each fiscal year. These commenters also 
suggested that this statement contain the hospital's TPS, estimated and 
actual payments withheld, estimated and actual gross incentive 
payments, and estimated and actual net incentive payments made.
    Response: We appreciate the commenters' support of these proposals 
and appreciate their interest in receiving a summary report. We will 
provide each hospital with a hospital-specific report detailing its TPS 
and value-based incentive payment adjustment factor prior to 
implementation of payment adjustments, each fiscal year. We will 
provide this report after the end of the performance period for the 
applicable fiscal year. We do not intend to estimate the resulting 
payment differences, because these will vary, depending on the 
hospital's discharge volume and case mix in the applicable fiscal year. 
We may explore the possibility of providing a payment summary report at 
the end of the fiscal year, in the future.
    Comment: Some commenters expressed concern that CMS or its 
contractors might inadvertently include payments for IME, DSH, and 
outliers in the base operating DRG payment amount to which value-based 
incentive payment adjustment factors are applied under this Program. 
The commenters further suggested that CMS articulate and allow comment 
on how we will instruct contractors to apply the payment adjustments, 
to ensure that these payments are not affected.
    Response: We appreciate the importance of ensuring that the base 
operating DRG payment amounts are calculated correctly for purposes of 
applying the value-based incentive payment adjustment factor. We do not 
believe it is necessary to propose and solicit public comment on the 
operational instructions that we will provide to our contractors, but 
we will make every effort to ensure that the

[[Page 53576]]

payment adjustments under the Hospital VBP Program are appropriately 
processed.
    Comment: One commenter noted that CMS did not indicate the 
performance period or exchange function slope used to calculate the 
proxy value-based incentive payment adjustment factors used in Table 16 
of proposed rule.
    Response: The value-based payment incentive adjustment factors that 
we used for purposes of generating Table 16 were based on baseline and 
performance periods of April 1 through December 31 of 2008 and 2010, 
respectively. We note that these are not actual Hospital VBP Program 
baseline or performance periods. We used these periods to calculate the 
FY 2013 Hospital VBP proxy adjustment factors because at the time we 
issued the proposed rule, they were the most recently available periods 
for which we had data to calculate hospital TPSs. We were unable to use 
the actual TPS scores for the FY 2013 performance period to calculate 
these factors for the final rule, because hospitals had not yet had the 
opportunity to review their own performance. We note that these proxy 
adjustment factors will not be used to adjust hospital payments. The 
exchange function slope, calculated based on the TPSs and base 
operating DRG payment reduction amounts for all hospitals eligible for 
this simulated performance period, was 1.931871792. As discussed above, 
we have updated the estimated total amount available for value-based 
incentive payments in FY 2013, using the March, 2012 update to the FY 
2011 MedPAR file. The use of this MedPAR update affects the linear 
exchange function slope and the resulting proxy value-based payment 
incentive adjustment factors, and we have updated Table 16 to reflect 
these new figures. The new linear exchange function slope used for 
these calculations in this final rule is 1.93621799.
    We are also taking this opportunity to clarify that the slope of 
the payment exchange function will be calculated before hospitals 
receive their initial confidential reports at the start of the review 
and corrections period. This slope will then be applied to each 
hospital's TPS, in order to calculate the hospital's value-based 
incentive payment adjustment factor for discharges occurring in a 
fiscal year. Should a hospital identify an error that requires us to 
recalculate its TPS, we will not recalculate the exchange function 
slope. Rather, we will apply the established payment exchange function 
slope for the fiscal year to the newly calculated TPS score. We believe 
that this is the most straightforward approach to calculating value-
based incentive payment adjustment factors, taking into account the 
review and corrections and appeals periods.
    Comment: One commenter suggested that CMS increase the applicable 
percent reduction to the base operating DRG payment amounts to 2 
percent sooner than the FY 2017 program year, if CMS believes hospitals 
have met or exceeded current quality measure standards.
    Response: We agree that incentivizing high performance on measures 
is an important goal; however, the applicable percent reduction for 
each fiscal year is specifically defined in section 1886(o)(7)(C) of 
the Act. We believe that this gradual increase in the applicable 
percent is valuable, because it allows hospitals time to gain 
experience with the Hospital VBP Program before their payments are more 
significantly impacted.
    After consideration of the public comments we received, we are 
finalizing our proposal to calculate the value-based incentive payment 
adjustment factor for each eligible hospital each fiscal year under the 
Hospital VBP Program using the six steps detailed above.
    We received no comments on our proposed regulatory definitions of 
value-based incentive payment adjustment factor and value-based 
incentive payment percentage, and we are finalizing them, with 
revisions. We are codifying in our regulations at Sec.  412.160 that 
the value-based incentive payment adjustment factor is defined as the 
number by which we will multiply the base operating DRG payment amount 
for each discharge from a hospital, during a fiscal year, in order to 
adjust the hospital's payment, as a result of its performance under the 
Hospital VBP Program. We are also codifying in our regulations at Sec.  
412.160 that value-based incentive payment percentage is defined as the 
percentage of the base operating DRG payment amount for each discharge 
that a hospital has earned with respect to a fiscal year, based on its 
total performance score for that fiscal year.
    We received no public comments on our proposed regulatory language 
at Sec.  412.162, regarding the process for reducing the base operating 
DRG payment amount and applying the value-based incentive payment 
amount adjustment under the Hospital VBP Program; the value-based 
incentive payment amount for a discharge; the total amount available 
for value-based incentive payments; the methodology for calculating the 
value-based incentive payment amount; the methodology for calculating 
the value-based incentive payment percentage; or the methodology for 
calculation of the value-based incentive payment adjustment factor. We 
are codifying the proposed regulatory text, with technical revisions.
    We are codifying in our regulations at Sec.  412.162 that, in 
general, if a hospital meets or exceeds the performance standards that 
apply to the Hospital VBP Program for a fiscal year, we will make 
value-based incentive payments to the hospital under the requirements 
and conditions specified in this section.
    We are codifying in our regulations at Sec.  412.162 that the 
value-based incentive payment amount for a discharge is the portion of 
the payment amount that is attributable to the Hospital VBP Program and 
that the total amount available for value based incentive payments to 
all hospitals for a fiscal year is equal to the total amount of base-
operating DRG payment reductions for that fiscal year, as estimated by 
the Secretary.
    We are codifying in our regulations at Sec.  412.162 that the 
value-based incentive payment amount is calculated by multiplying the 
base operating DRG payment amount by the value-based incentive payment 
percentage.
    We are codifying in our regulations at Sec.  412.162 that the 
value-based incentive payment percentage is calculated as the product 
of: the applicable percent as specified in this section, the hospital's 
TPS divided by 100, and the linear exchange function slope.
    We are codifying in our regulations at Sec.  412.162 that the 
value-based incentive payment adjustment factor is determined by 
subtracting the applicable percent as specified in paragraph (d) of 
this section from the value-based incentive payment percentage and then 
adding that difference to one.
    Finally, we are codifying in our regulations at Sec.  412.160 a 
definition of linear exchange function. We previously finalized this 
definition in the Hospital Inpatient VBP Program final rule (76 FR 
26531) as the means to translate a hospital's TPS into a value-based 
incentive payment percentage such that:
    (1) Each eligible hospital's value-based incentive payment 
percentage is based on its TPS; and
    (2) The total amount of value-based incentive payments to all 
hospitals in a fiscal year is equal to the total amount available for 
value-based incentive payments in such fiscal year.

[[Page 53577]]

d. Timing of the Base Operating DRG Payment Amount Reduction and Value-
Based Incentive Payment Adjustment for FY 2013 and Future Hospital VBP 
Program Years
    The applicable percent reduction and the value-based incentive 
payment adjustment are distinct adjustments which we are required to 
make to base operating DRG payment amounts for eligible hospitals under 
the Hospital VBP Program. In this section, we outline our proposals for 
applying these adjustments to the base-operating DRG payment amounts.
    In the Hospital Inpatient VBP Program final rule, for the FY 2013 
Hospital VBP Program, we established that we would incorporate the 
value-based incentive payment adjustment into our claims processing 
system in January 2013, and that the adjustment would apply to all FY 
2013 discharges, including those that occurred beginning on October 1, 
2012 (76 FR 26536). Because of this January 2013 application of the 
value-based incentive payment adjustment, in the FY 2013 IPPS/LTCH PPS 
proposed rule (77 FR 28075), we proposed that we would not apply the 
1.00 percent applicable reduction to the base operating DRG payment 
amount for each discharge until we apply the value-based incentive 
payment adjustment factor. In other words, we would add the value-based 
incentive payment amount to the hospital's reduced base-operating DRG 
payment amount for each FY 2013 discharge at the same time that we 
apply the 1.00 percent reduction to the base operating DRG payment 
amount. The simultaneous application of the 1.00 percent reduction to 
the base-operating DRG payment amounts and the value-based incentive 
payment amount (if applicable, based on the hospital's TPS) would 
prevent hospitals from receiving a 1.00 percent reduction to their base 
operating DRG payment amounts before they receive their value-based 
incentive payment amount adjustment. Accordingly, under our proposal, 
beginning in January 2013, a hospital would receive a base operating 
DRG payment amount for each discharge occurring in FY 2013 that is the 
net result of the application of the 1.00 percent reduction and the 
application of the hospital's individual value-based incentive payment 
amount adjustment.
    In FY 2014 and future years of the Hospital VBP Program, we 
proposed to apply both the applicable percent reduction and the value-
based incentive payment amount adjustment to the base operating DRG 
payment amount for a discharge during the regular claim payment 
process, beginning in October of each fiscal year. These adjustments 
would be made simultaneously with respect to each discharge.
    We invited public comment on this proposal.
    Comment: Commenters supported the proposal to delay application of 
the reduction to the base-operating DRG payment amounts in FY 2013 
until those reductions can be applied simultaneously with the value-
based incentive payment adjustments. Commenters also supported the 
proposal to apply the applicable percent reduction and the value-based 
incentive payment adjustment factor to the base operating DRG payment 
amount simultaneously, beginning in January 2013, when the adjustments 
are incorporated into the claims processing system.
    Response: We thank the commenters for their support of these 
proposals and we are adopting them as final.
    After consideration of the public comments we received, we are 
finalizing our proposal to delay the application of the 1.00 percent 
applicable reduction to the base operating DRG payment amount for each 
discharge occurring in FY 2013 until we apply the value-based incentive 
payment adjustment factor. We are also finalizing our proposal that 
beginning with the incorporation of value-based incentive payment 
adjustments into the claims processing system in January 2013, a 
hospital would receive a base operating DRG payment amount for each 
discharge occurring in FY 2013 that is the net result of the 
application of the 1.00 percent reduction and the application of the 
hospital's individual value-based incentive payment amount adjustment. 
We are also finalizing our proposal that, beginning with October 1, 
2013 discharges, we will simultaneously apply both the applicable 
percent reduction and the value-based incentive payment adjustment to 
the base operating DRG payment amount for each discharge during the 
regular claim payment process.
e. Process for Reducing the Base Operating DRG Payment Amount and 
Applying the Value-Based Incentive Payment Adjustment for FY 2013
    In developing our proposal for FY 2013, we considered two different 
methodologies for applying the 1.00 percent reduction to the base 
operating DRG payment amount for each discharge, and for applying the 
value-based incentive payment adjustment to the reduced base operating 
DRG payment amount: (1) Reprocessing the claims submitted prior to 
January 2013, which is when we expect to incorporate the value-based 
incentive payment adjustments into our claims processing system; and 
(2) modifying the exchange function slope in such a way as to 
redistribute the value-based incentive payment adjustments for 
discharges occurring prior to incorporating the adjustments into our 
claims processing system. Neither approach would require hospitals to 
resubmit claims.
    In the FY 2013 IPPS/LTCH PPS proposed rule (77 FR 28075), we 
proposed to reprocess the claims submitted by hospitals for discharges 
occurring between October 1, 2012 and such time as the value-based 
incentive payment adjustments are incorporated into the claims 
processing system. We believe that this approach is the most 
straightforward way to address the January implementation of FY 2013 
value-based incentive payment adjustments. For the second methodology 
we considered, we would need to modify the exchange function slope, 
because adjustments would not have been made beginning on October 1, 
2012, the start of FY 2013. As described in section VIII.C.5.c. of this 
preamble, calculation of the exchange function slope is based on the 
hospital's TPS and the estimated amount available for value-based 
incentive payments. The total amount available to make value based 
incentive payments to eligible hospitals is equal to the total of their 
base-operating DRG payment reduction amounts, as estimated by the 
Secretary, according to section 1886(o)(7)(A) of the Act.
    Under this approach, we would account for this delay in 
implementation of applicable percent reductions and value-based 
incentive payment adjustment factors by modifying the computed exchange 
function slope so that we could use it to calculate a value-based 
incentive payment adjustment factor for each hospital that would 
distribute the total amount available for value based incentive 
payments between January and September 30, 2013. We would modify the 
exchange function to accomplish this by multiplying its slope by the 
following fraction: the total number of days in the fiscal year/
(divided by) the number of days between the date we incorporate 
adjustments and the end of the fiscal year. For example, if the date 
the value-based adjustment is incorporated into the system is January 
15, then the number of days between January 15, 2013 and September 30, 
2013 is 258. Therefore, we would multiply the exchange function slope 
by 365/258, in

[[Page 53578]]

order to redistribute the value-based incentive payment adjustments 
that occur on or after January 15, 2013 in such a manner that they also 
account for discharges occurring between October 1, 2012 and January 
15, 2013. For purpose of calculating the exchange function slope 
modification, we would assume that hospitals' base operating DRG 
payments are constant throughout the fiscal year (that is, DRG payments 
are not concentrated in the beginning or the end of the year, for 
example).
    We believe that this alternative approach could cause confusion 
regarding payment amounts for discharges that occur between the 
beginning of the fiscal year and the implementation of the value-based 
incentive payment adjustments but are not billed until after the 
implementation of the value-based incentive payment adjustments. Those 
claims would be paid as though the applicable percent reduction and the 
value-based incentive payment adjustments were not in effect, because 
they would be based on date of discharge.
    We invited public comment on our proposed approach to reprocess 
hospital inpatient claims that are billed between October 1, 2012 and 
such time as we are able to incorporate the value-based incentive 
payment adjustments into our claims processing system in January 2013. 
We recognize that hospitals would be responsible for maintaining their 
own internal accounting systems in order to accommodate the 
reprocessing of these claims in January 2013; therefore, we also 
invited public comment on the alternative approach described above of 
modifying the exchange function slope to redistribute the value-based 
incentive payment adjustments, or any other approaches which might 
minimize the administrative burden imposed upon hospitals.
    Comment: The majority of commenters supported the proposal to 
reprocess claims, in order to account for the January 2013 
implementation of FY 2013 value-based incentive payment adjustment 
factors, because they believed that the approach is the most 
straightforward and least burdensome to hospitals. Many of these 
commenters noted that reprocessing does pose some administrative burden 
to hospitals, and they requested that CMS perform a timely reprocess or 
even a dedicated one.
    Response: We thank the commenters for their support of the proposal 
to reprocess claims in January 2013 and acknowledge the concern that 
this places an administrative burden on hospitals. We appreciate the 
importance of timely reprocessing hospital claims to reflect the 
adjustment. While we are unable to guarantee a dedicated reprocess for 
payment adjustments under the Hospital VBP Program, we will make every 
effort to reprocess claims as quickly as practicable.
    Comment: Some commenters stated that they did not support our 
proposal to reprocess claims. A few of these commenters expressed a 
preference for settlement at cost report. One commenter stated that a 
lump sum adjustment would be preferable, that adjusting the value-based 
incentive payment adjustments across the remainder of the year would be 
next in order of preference, and that claims reprocessing would be the 
least preferred option, indicating that it places a burden on hospitals 
to track, validate, and reconcile claims, long after the services were 
furnished. This commenter expressed concern with the amount of time CMS 
might take to reprocess these claims, asking that it be completed no 
later than March 31, 2013, should this option be selected. Another 
commenter expressed preference for an adjustment to the linear exchange 
function slope, in order to distribute the payment adjustments across 
the remainder of the fiscal year, stating that this approach would 
alleviate financial, operational, and administrative challenges 
associated with reprocessing.
    Response: We do not believe a lump sum adjustment or cost report 
settlement will be feasible, because neither of these adjustments would 
be reflected in Medicare claims history. Either a lump sum adjustment 
or the cost report settlement would be made outside of the claims 
processing system. This would mean that the claim would appear in 
Medicare claims history to have been paid without any value-based 
incentive payment adjustment factor when, in reality, an adjustment 
would have been made outside of the claims system. Given that we use 
Medicare claims data for a number of programs and initiatives across 
the agency, we believe that reprocessing claims is the most 
straightforward approach and that it allows us to maintain an accurate 
claims history. Further, we do not wish to delay high-performing 
hospitals' receipt of their value-based incentive payment amounts or 
delay low-performing hospitals incurring payment reductions until the 
cost report is finalized. We believe that delaying the settlement of 
these value-based incentive payments until cost report settlement would 
add a degree of uncertainty to hospital payments, which might not be 
reconciled for several years.
    We appreciate the comment that an adjustment to the linear exchange 
function might alleviate some administrative burden; however, we 
believe that such an adjustment might create confusion regarding the 
payment amounts made for discharges occurring prior to the January 2013 
implementation of the value-based incentive payment adjustments but 
processed after the implementation. Further, as noted above, we are 
concerned that this result might create an inaccurate claims history 
that would impact other CMS programs for which this claims history is 
used. If we were to adjust claims paid after the January incorporation 
of value-based incentive payment adjustment factors into the claims 
processing system, then the claims history would show a portion of the 
year during which claims were not subject to any value-based incentive 
payment adjustments. The claims paid during the remainder of the year 
would then reflect an adjustment that distributes incentives across 
less than a full fiscal year. The concentration of a fiscal year's 
worth of incentives across less than the full fiscal year might skew 
calculations done under other CMS programs that rely on Medicare claims 
data.
    Comment: A few commenters expressed general concern that CMS would 
not have the value-based incentive payment adjustment factors for FY 
2013 in place, in the claims processing system, until January 2013.
    Response: As noted above, we finalized the January 2013 application 
of the value-based incentive payment adjustment factors, for discharges 
occurring in FY 2013, in the Hospital Inpatient VBP Program final rule 
(76 FR 26536). We acknowledge that this results in additional 
complexities; however, we previously finalized this policy in order to 
meet the statutory posting and notification deadlines of the Hospital 
VBP Program.
    After consideration of the public comments we received, we are 
finalizing our proposal to reprocess the claims submitted by hospitals 
for discharges occurring between October 1, 2012 and the January 2013 
incorporation of the value-based incentive payment adjustments into the 
claims processing system.
6. Review and Corrections Processes
a. Background
    Section 1886(o)(10)(A)(i) of the Act requires that the Secretary 
make information available to the public regarding individual hospital 
performance in the Hospital VBP

[[Page 53579]]

Program, including: (1) The performance of the hospital on each measure 
that applies to the hospital; (2) the performance of the hospital with 
respect to each condition or procedure; and (3) the hospital's TPS. To 
comply with this requirement, we stated in the Hospital Inpatient VBP 
Program final rule that we intended to publish hospital scores with 
respect to each measure, each hospital's condition-specific score (that 
is, the performance score with respect to each condition or procedure, 
for example, AMI, HF, PN, and SCIP), each hospital's domain-specific 
score, and each hospital's TPS on the Hospital Compare Web site (76 FR 
26534 through 26536).
    Section 1886(o)(10)(A)(ii) 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 public with respect to each 
hospital under section 1886(o)(10)(A)(i) of the Act prior to such 
information being made public. In the CY 2012 OPPS/ASC final rule with 
comment period (76 FR 74545), we finalized procedures that will enable 
hospitals to review and correct both the underlying data and measure 
rates for the clinical process of care measures and HCAHPS dimensions 
under the Hospital VBP Program (76 FR 74545 through 74547).
    In the FY 2013 IPPS/LTCH PPS proposed rule (77 FR 28076), we made 
additional proposals that will enable hospitals to review and correct 
their claims-based measure rates, as well as their condition-specific 
scores, domain-specific scores, and TPSs.
b. Review and Corrections Process for Claims-Based Measure Rates
    We use claims/administrative data to calculate measure rates for 
measures that we have adopted for a number of pay for reporting and pay 
for performance programs, such as the Hospital VBP Program. For claims-
based measures used in the Hospital IQR Program, we currently provide 
hospitals with confidential reports containing the measure rate 
calculations and accompanying confidential detailed discharge-level 
information prior to making the rates available to the public. With 
respect to the claims-based measures we adopt for the Hospital VBP 
Program, we proposed to deliver the same type of confidential reports 
and accompanying confidential detailed discharge-level information for 
purposes of providing hospitals an opportunity to review and submit 
corrections for their claims-based measure rates under section 
1886(o)(10)(A)(ii) of the Act.
    The confidential reports would contain the claims-based measure 
rate calculations and would be accompanied by additional confidential 
discharge-level information based on the most recent administrative 
data available at the time we run the data for purposes of calculating 
the rates. As we discuss below, we proposed to create extracts of the 
data to be used for measure rate calculation purposes approximately 90 
days after the last discharge date in the performance period for the 
measure. Our intent in providing the confidential reports and 
accompanying discharge-level data to hospitals is twofold: (1) To 
provide hospitals with an opportunity to review and submit corrections 
for the measure rates that we will make available to the public; and 
(2) to facilitate hospitals' quality improvement efforts with respect 
to the measures. The discharge-level information would contain data 
derived from claims and administrative data that were used in the 
calculation of the measure rates. Depending on the measure, this 
discharge level information might include data elements such as dates 
of admission, dates of discharge, patient risk factors, primary and 
secondary diagnoses, procedures, dates of death, dates of service after 
discharge by the same or other providers/suppliers, and provider/
supplier numbers. The confidential reports and accompanying discharge 
level data would be delivered to each hospital via its secure 
QualityNet account.
    We proposed to provide hospitals a period of 30-days to review and 
submit corrections for the claims-based measure rates contained in 
their confidential reports. This 30-day period would begin the day 
hospitals' confidential reports and accompanying discharge-level data 
are posted to QualityNet. These measure rates will be used for 
performance scoring, value-based incentive payment amount calculations, 
and public reporting for the Hospital VBP Program. Based on our 
previous experience with public reporting of measures under the 
Hospital IQR Program, including the 30-day risk standardized mortality 
rates and the AHRQ Patient Safety Indicators, we believe this 30-day 
period will allow enough time for hospitals to review their data and 
notify us of suspected errors in the measure rate calculations, and for 
us to incorporate appropriate corrections to the calculations. During 
the review and correction period, hospitals should notify us of 
suspected errors using the technical assistance contact information 
provided in their confidential reports.
    The review and correction process we proposed to adopt for the 
claims-based measure rates would not allow hospitals to submit 
corrections related to the underlying claims data we used to calculate 
the measure rates, or allow hospitals to add new claims to the 
performance period data set that we ran to calculate the rates. 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 claims-based measures using claims and corrections 
to claims submitted by hospitals that were incorporated into our claims 
database during the approximately 90 day period following the last date 
of discharge to be included in the measure calculation.
    We recognize that under our current timely claims filing policy, 
hospitals have up to one year from the date of discharge to submit a 
claim. However, in using claims and other administrative data to 
calculate measure rates for the Hospital VBP Program, we proposed to 
create data extracts using claims information as it exists in our 
Common Working File (CWF) approximately 90 days after the last 
discharge date in the performance period for the measures. For example, 
if the last discharge date in the performance period for a measure is 
June 30, 2011, we would create the data extraction on or about 
September 30, 2011 and use that data to calculate the measure rates for 
that performance period. Hospitals would then receive the measure rates 
in their confidential reports and accompanying data, and they would 
have an opportunity to review and submit corrections to those rates. As 
we stated above, hospitals would not be able to submit corrections to 
the underlying data that we extracted on or about September 30, 2011, 
and would also not be able to add claims to the data set. We would 
consider the underlying claims and administrative data to be complete 
for purposes of the Hospital VBP Program claims-based measure rate 
calculations at the conclusion of the approximately 90 day period 
following the last date of discharge used in the performance period.
    We considered a number of factors in determining that an 
approximately 90 day ``run-out'' period is appropriate for purposes of 
calculating the claims-based measure rates. 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 as close in time to 
the applicable performance period as possible. Finally,

[[Page 53580]]

we seek to have as complete a data set as possible, recognizing that 
hospitals have up to one year from the date of discharge to submit a 
claim under our timely claims filing policy.
    After we run the data and create the data extract for purposes of 
calculating the measure rate for a claims-based measure, it takes 
several months to incorporate other data needed to complete the rate 
calculation (particularly in the case of a risk-adjusted and/or episode 
based measure). We then need to generate and check the rate 
calculations, as well as program, populate, and deliver the 
confidential reports and accompanying data to hospitals. We are also 
aware that hospitals would like to receive performance information 
under the Hospital VBP Program as close in time to the performance 
period as possible. If we were to wait to run the data for purposes of 
calculating the claims-based measure rates until at least 12 months 
after the last discharge date in the performance period, we would not, 
for operational reasons, be able to provide the measure rates to 
hospitals 18 to 24 months after the performance period ended. We 
believe that this would create an unacceptably long delay both for 
hospitals that are interested in receiving timely measure rate 
calculations for their own quality improvement efforts, and for us to 
(1) calculate TPSs for a program year and (2) publicly report hospital 
performance on the Hospital Compare Web site. Therefore, we proposed to 
extract the data needed to calculate a claims-based measure rate 
approximately 90 days after the last discharge date for the measure's 
performance period so that we can best balance our need to provide 
timely program information to hospitals against the need to calculate 
the claims-based measures using as complete a data set as possible.
    During the 30-day review and correction period, hospitals should 
notify us of suspected errors in our calculation of the measure rates 
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. Should we 
confirm that we made an error in calculating one or more claims-based 
measure rates included in a hospital's confidential report, we would 
correct the calculation(s) and issue a new confidential report to the 
hospital. We proposed that once the 30-day review and corrections 
period has concluded, we would not accept any additional corrections 
submitted by a hospital.
    We invited public comment on the proposed review and correction 
process for claims-based measure rates to be used in the Hospital VBP 
Program.
    Comment: A number of commenters supported our proposals on review 
and correction of claims-based performance measure data.
    Response: We thank commenters for their support.
    Comment: Some commenters urged us to allow up to 60 days for 
hospitals to review and correct their claims-based measure data under 
the Hospital VBP Program, noting that hospitals will receive discharge-
level information on claims-based measures for the first time.
    Response: We believe that the proposed 30 day review and correction 
period is adequate for reviewing Hospital VBP measure rates and 
performance scores. This 30 day time period is the same amount of time 
used in Hospital Compare measure rate previews, and this time period 
has proved to be adequate for hospitals to review their measure rates. 
We are also concerned about the delay that would result in making 
value-based incentive payments if we allowed hospitals 60 days to 
review and correct their claims-based measure data. We believe that we 
have a responsibility to provide hospitals with timely reimbursements, 
and allowing 60 days for review and corrections would unacceptably 
further delay our ability to make incentive payments under the Program. 
Our experience with delivering similar reports to hospitals on similar 
measures indicates that 30 days is sufficient time for hospitals to 
download their reports and verify the accuracy of the measure 
calculations and troubleshoot any suspected discrepancies with the help 
of our contractor. In light of the fact that we will be providing even 
more detailed information than we have previously provided to hospitals 
under the Hospital IQR Program, we believe that 30 days is sufficient 
time for hospitals to review and submit corrections to the claims-based 
measure rates that will be used in the Hospital VBP Program.
    After consideration of the public comments we received, we are 
finalizing the claims-based measure rate review and correction process 
as proposed for FY 2014 and all subsequent payment determinations.
c. Review and Correction Process for Condition-Specific Scores, Domain-
Specific Scores and Total Performance Scores
    In the FY 2013 IPPS/LTCH PPS proposed rule (77 FR 28077), we 
proposed to adopt a review and corrections process that will enable 
hospitals to review and submit corrections with respect to their 
performance on each condition (the condition-specific score), their 
performance on each domain (the domain-specific score) and their TPSs. 
Under this proposed process, we would provide each hospital with a TPS 
Report (this would be a different report than the hospital confidential 
report and accompanying data described above, and the reports described 
in previous rules that will enable hospitals to review and correct 
their chart-abstracted and HCAHPS measure data). A hospital would have 
30 days from the date we post the report on its QualityNet account to 
review the TPS Report and submit any necessary corrections to us via 
QualityNet. This proposed requirement will enable us to evaluate 
corrections requests and provide decisions on those requests in a 
timely manner. As discussed further below, we also proposed that the 
submission of a correction through this process be a prerequisite to a 
hospital being able to submit an appeal of the calculation of its 
performance assessment with respect to the performance standards and/or 
its TPS under section 1886(o)(11)(A) of the Act.
    Hospitals would not be able to use this proposed review and 
correction process to ask us to reconsider a hospital's eligibility 
under section 1886(o)(1)(C) of the Act to participate in the Hospital 
VBP Program for a fiscal year. However, we sought public comment on 
whether our determination regarding a hospital's eligibility should be 
subject to correction.
    We believe that this proposed review and corrections process will 
ensure that hospitals are able to fully and fairly review their 
condition-specific scores, domain-specific scores, and TPS. We invited 
public comment on this proposal. We note that we anticipate posting FY 
2013 hospital performance information on Hospital Compare in April 
2013. We proposed to codify the process for posting hospital-specific 
information under the Hospital VBP Program in our regulations at 42 CFR 
412.163.
    We view the review and corrections process as separate and distinct 
from the appeals process. Each process is aimed at allowing hospitals 
to seek certain reconsiderations from CMS. The review and corrections 
process is aimed at correcting data that will be made public on the 
Hospital Compare Web site, while the appeals process allows hospitals 
to seek reconsideration for errors that may have been introduced during 
the TPS calculation that may affect hospitals' payments.

[[Page 53581]]

    Comment: Many commenters urged us to allow up to 60 days for 
hospitals to review and correct their TPSs under the Hospital VBP 
Program.
    Response: As discussed above, we are concerned about the delay in 
making value-based incentive payments to hospitals that would result if 
we allowed hospitals 60 days to review and correct their TPSs. The 
proposed 30 day review and correction period is the same length of time 
that we have long allowed hospitals to preview the data to be made 
public under the Hospital IQR Program, and we believe that this time 
period has proven to be adequate for hospitals to review their measure 
rates. We believe that we have a responsibility to provide hospitals 
with timely reimbursements, and allowing 60 days for review and 
corrections of TPSs would, in our view, unacceptably further delay 
incentive payments under the Hospital VBP Program.
    After consideration of the public comments we received, we are 
finalizing our proposals on review and corrections as proposed. We are 
also codifying these policies at 42 CFR 412.163.
7. Appeal Process Under the Hospital VBP Program
a. Background
    Section 1886(o)(11)(A) of the Act requires the Secretary to 
establish a process by which hospitals may appeal the calculation of a 
hospital's performance assessment with respect to the performance 
standards (section 1886(o)(3)(A) of the Act) and the hospital 
performance score (section 1886(o)(5) of the Act).
    Under section 1886(o)(11)(B) of the Act, there is no administrative 
or judicial review under section 1869 of the Act, section 1878 of the 
Act, or otherwise of the following: (1) The methodology used to 
determine the amount of the value-based incentive payment under section 
1886(o)(6) of the Act and the determination of such amount; (2) the 
determination of the amount of funding available for the value-based 
incentive payments under section 1886(o)(7)(A) of the Act and the 
payment reduction under section 1886(o)(7)(B)(i) of the Act; (3) the 
establishment of the performance standards under section 1886(o)(3) of 
the Act and the performance period under section 1886(o)(4) of the Act; 
(4) the measures specified under section 1886(b)(3)(B)(viii) of the Act 
and the measures selected under section 1886(o)(2) of the Act; (5) the 
methodology developed under section 1886(o)(5) of the Act that is used 
to calculate hospital performance scores and the calculation of such 
scores; or (6) the validation methodology specified in section 
1886(b)(3)(B)(viii)(XI) of the Act.
b. Appeal Process
    We solicited public comments on the general structure and 
procedures we should consider when developing an appeals process for 
the Hospital VBP Program in the Hospital Inpatient VBP Program proposed 
rule (76 FR 2484). We took these comments into consideration when we 
developed the proposed appeals process that appears below. In the FY 
2013 IPPS/LTCH PPS proposed rule (77 FR 28077), we proposed to 
implement an administrative appeals process that provides hospitals 
with the opportunity to appeal the calculation of their performance 
assessment with respect to the performance standards, as well as their 
TPS.
    We proposed to codify this proposed appeals process and the 
limitations on administrative and judicial review in our regulations at 
42 CFR 412.167.\132\
---------------------------------------------------------------------------

    \132\ We inadvertently also proposed to include regulation text 
on the limitations on review at 42 CFR 412.162(e).
---------------------------------------------------------------------------

    Under our proposed appeals process, if a hospital is seeking to 
appeal a calculation of the TPS, measure/dimension score, condition-
specific score, domain specific score, or measure rate/data for which 
the hospital could have submitted a correction during the review and 
correction process we have both previously finalized (with respect to 
chart-abstracted and HCAHPS data) and proposed to adopt in this 
proposed rule, we would require that the hospital first submit a 
correction to that calculation, and receive an adverse determination 
from us, as part of that process before the hospital could challenge it 
under the appeals process. We proposed to adopt this requirement 
because we believe that we will be able to resolve many hospital claims 
through the review and corrections process, and thus eliminate the need 
for an appeal. To the extent that a hospital seeks to appeal a 
calculation that was the subject of a correction request, we proposed 
that the deadline for the hospital to submit an appeal under section 
1886(o)(11)(A) of the Act would be 30 days from the date we informed 
the hospital through QualityNet of our decision on the correction 
request. For any other appeals requests, we proposed that hospitals 
have up to 30 days after the conclusion of the review and corrections 
period specified above to submit an appeal. We sought public comment on 
the appropriateness of this proposed appeals timeline and whether we 
should consider any other possible deadlines.
    We proposed that all appeals be submitted through QualityNet and 
that they contain the following information:
     Hospital's CMS Certification Number (CCN)
     Hospital Name
     Hospital's basis for requesting an appeal. This must 
identify the hospital's specific reason(s) for appealing the hospital's 
TPS or performance assessment with respect to the performance 
standards.
     CEO contact information, including name, email address, 
telephone number, and mailing address (must include the physical 
address, not just the post office box).
     QualityNet System Administrator contact information, 
including name, email address, telephone number, and mailing address 
(must include the physical address, not just the post office box).
    Consistent with sections 1886(o)(11)(A) and (B) of the Act, we 
proposed that hospitals would be able to submit an appeal on the 
following issues:
     CMS' decision to deny a hospital's correction request that 
the hospital submitted under the review and corrections process;
     Whether the achievement/improvement points were calculated 
correctly;
     Whether CMS properly used the higher of the achievement/
improvement points in calculating the hospital's measure/dimension 
score;
     Whether CMS correctly calculated the domain scores, 
including the normalization calculation;
     Whether CMS used the proper lowest dimension score in 
calculating the hospital's HCAHPS consistency points;
     Whether CMS calculated the HCAHPS consistency points 
correctly;
     Whether the correct domain scores were used to calculate 
the TPS;
     Whether each domain was weighted properly;
     Whether the weighted domain scores were properly summed to 
arrive at the TPS; and
     Whether the hospital's open/closed status (including 
mergers and acquisitions) is properly specified in CMS' systems.
    We invited public comment on this proposed administrative appeal 
process.
    Comment: Commenters generally expressed support for CMS' proposed 
appeals process for the Hospital VBP Program. Some commenters requested 
additional detail on CMS' timeframe for resolving appeals.

[[Page 53582]]

    Response: We thank the commenters for their support. We regret that 
we are not able to provide further detail on a timeframe for resolving 
appeals requests at this time. The Hospital VBP Program is new, and we 
therefore have no basis on which to estimate the number or magnitude of 
appeals requests that we will need to review. We intend to resolve all 
appeals requests under the Hospital VBP Program as quickly as possible 
given available resources.
    Comment: Some commenters opposed CMS' proposed appeals process, 
arguing that, despite their best efforts, hospitals miss errors during 
their own internal accuracy reviews and do not believe that the 
proposed timeframe provides hospitals the ability to fully review their 
scoring reports. Commenters argued that hospitals should have every 
opportunity to correct mistakes once they are identified, even if 
hospitals identify those mistakes after the review and corrections 
process.
    Response: We remind commenters that they have ample opportunity to 
review and correct patient level HCAHPS and process of care measure 
data submission prior to quarterly data submission deadline as part of 
our review and correction process. We also believe that the proposed 
limitation on the appeals process encourages hospitals to review their 
score reports as thoroughly as possible in order to ensure that we make 
accurate, timely value-based incentive payments through this program.
    After consideration of the public comments we received, we are 
finalizing the appeals process for the Hospital VBP Program as 
proposed. We are also codifying this process and the limitations on 
review in our regulations at 42 CFR 412.167.
8. Measures for the FY 2015 Hospital VBP Program
a. Relationship Between the National Strategy and the Hospital VBP 
Program
    Section 399HH of the Public Health Service Act, as added and 
amended by sections 3011 and 10302 of the Affordable Care Act, requires 
the Secretary to establish a national strategy to improve the delivery 
of health care services, patient health outcomes, and population 
health. The Secretary published the ``National Strategy for Quality 
Improvement in Health Care'' on March 21, 2011. The strategy is 
available at: http://www.healthcare.gov/law/resources/reports/nationalqualitystrategy032011.pdf.
    We believe we can incorporate the goals of the National Quality 
Strategy into our policies under the Hospital VBP Program. We view the 
strategy as an important driver in revamping how Medicare services are 
paid for, moving increasingly towards rewarding hospitals that deliver 
better outcomes in health and health care at lower cost to the 
beneficiaries and communities they serve. Over time, the strategy is 
also helping us align the goals for quality measurement and improvement 
in hospitals with those of other providers and suppliers in the health 
system, promoting shared accountability across care settings for 
beneficiary care and quality improvement.
    We believe that, given the availability of endorsed measures and 
the need to balance the number and scope of the measures against the 
burden on participating hospitals, as well as ensuring that the 
Hospital VBP Program's measure set reflects our quality improvement 
priorities, the Hospital VBP Program measures should as fully as 
possible reflect the six measurement domains that arise from the 
National Quality Strategy's six priorities: Clinical Care; Person- and 
Caregiver-Centered Experience and Outcomes; Safety; Efficiency and Cost 
Reduction; Care Coordination; and Community/Population Health. We 
believe that measure sets should generally rely on a mix of standards, 
outcome, process of care measures, and patient-reported measures 
including measures of care transitions, patient experience, and changes 
in patient functional status, with an emphasis on measurement as close 
to the patient-centered outcome of interest as possible. We took all of 
these factors into consideration when developing our measure proposals 
for the FY 2015 Hospital VBP Program.
    In addition, we believe that measure sets should evolve to include 
a focused set of measures that reflect the most important areas of 
service and quality improvement for hospitals as well as a core set of 
measure concepts that align quality improvement objectives across all 
provider types and settings.
b. FY 2015 Measures
    In the Hospital Inpatient VBP Program final rule (76 FR 26496 
through 26497), we adopted a policy under which we would examine 
whether any clinical process of care measures that were otherwise 
eligible for inclusion in a Hospital VBP Program measure set were 
topped-out, and thus, should be excluded because measuring hospital 
performance on a topped-out measure would have no meaningful effect on 
a hospital's TPS. 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 analyzed the clinical process of care measures that we believe 
are eligible for the FY 2015 Hospital VBP Program based on their prior 
inclusion in the Hospital IQR Program and posting on Hospital Compare 
for ``topped out'' status, and concluded that one of the candidate 
measures for the FY 2015 Program--SCIP-Inf-10: Surgery Patients with 
Perioperative Temperature Management--is now ``topped-out.'' Therefore, 
we did not propose to include this measure in the FY 2015 Hospital VBP 
Program.
    We welcomed public comments on whether any other existing Hospital 
VBP measures may be ``topped out'' and should therefore be considered 
for removal from the proposed measure set. We also noted that we do not 
believe it is appropriate at this time to test or re-test proposed 
outcome measures for ``topped-out'' status because such measures allow 
CMS to reward hospitals for high-quality outcomes, which is a central 
aim of quality improvement efforts in the health care system. We 
further believe that these measures are critical to providing patients 
with better care and believe it is important to hold hospitals 
accountable for the clinical outcomes captured by these measures. We 
invited public comments on this policy, including whether we should 
examine the proposed outcome measure set for ``topped-out'' status at 
this time.
    Comment: A number of commenters supported our continued exclusion 
of ``topped-out'' measures from the Hospital VBP Program.
    Response: We thank commenters for their support.
    After consideration of the public comments we received, we are 
finalizing our proposal to remove SCIP-Inf-10: Surgery Patients with 
Perioperative Temperature Management in the FY 2015 Hospital VBP 
Program because it is topped-out.
    In the FY 2013 IPPS/LTCH PPS proposed rule (77 FR 28079), for the 
FY 2015 Hospital VBP Program, we proposed to retain 12 of the 13 
clinical process of care measures that we have adopted for the FY 2014 
Hospital VBP Program. We proposed to remove SCIP-VTE-1 from the FY 2015 
measure set because this measure is very similar to another measure we 
have adopted for the Program (SCIP-VTE-2) but, in our view, is not as 
closely linked to better surgical outcomes because it assesses

[[Page 53583]]

the ordering of VTE prophylaxis, as opposed to the patient's actual 
receipt of such prophylaxis within 24 hours of surgery. We also note 
that, during a recent maintenance review of SCIP-VTE-1, the NQF 
concluded that it would no longer endorse this measure, and we proposed 
in this proposed rule to remove the measure from the Hospital IQR 
Program beginning with the FY 2015 payment determination. Therefore, we 
also proposed to remove SCIP-VTE-1 from the Hospital VBP Program 
measure set beginning with the FY 2015 Hospital VBP Program. We note 
that in the future, we anticipate proposing to adopt surgical outcome 
measures, including one or more measures that assess complications 
arising from VTE prophylaxis medications, first into the Hospital IQR 
Program and then into the Hospital VBP Program.
    We proposed to adopt one additional clinical process of care 
measure--AMI-10: Statin Prescribed at Discharge. This measure has been 
specified under the Hospital IQR Program for the FY 2013 payment 
determination (75 FR 50200). AMI-10 measure data were posted on the 
Hospital Compare Web site on January 26, 2012, so as discussed further 
below, we proposed a 9-month performance period for this measure for FY 
2015. We intend to align the performance period for AMI-10 with the 
other clinical process measures' performance period in future years. 
The measure is NQF-endorsed (0639) and we did not find it to 
be ``topped-out'' when we examined the list of candidate measures as 
described above. We also note that current American College of 
Cardiology (ACC)/American Heart Association (AHA) guidelines place a 
strong emphasis on the initiation or maintenance of statin drugs for 
patients hospitalized with AMI, particularly those with LDL-cholesterol 
levels at or above 100 mg/dL. Therefore, we believe that this measure 
is appropriate for use in the Hospital VBP Program.
    However, after examining the most recently-available data, we have 
concluded that the AMI-10 measure meets our definition of ``topped-
out.'' Therefore, we are not finalizing this measure for the FY 2015 
Hospital VBP Program.
    For the Patient Experience of Care domain, we proposed to retain 
the eight dimensions of the HCAHPS survey that we adopted for the FY 
2013 and FY 2014 Hospital VBP Program. We believe that the 8 HCAHPS 
dimensions finalized for the FY 2013 and FY 2014 Hospital VBP Programs 
are well-understood by hospitals and the public and capture important 
aspects of the patient's experience in the acute care environment.
    For the Outcome domain, we proposed to retain the three 30-day 
mortality measures that we finalized for the FY 2014 Hospital VBP 
Program. As described above, we continue to believe that these measures 
are important to quality improvement efforts because outcome measures 
allow us to reward hospitals for high-quality outcomes, which is a 
central aim of quality improvement efforts in the health care system. 
We further believe that these measures are critical to providing 
patients with better care and believe it is important to hold hospitals 
accountable for the clinical outcomes captured by these measures. We 
also proposed to adopt two additional outcome measures--PSI-90, the 
AHRQ PSI composite measure, and the CLABSI: Central Line-Associated 
Blood Stream Infection measure--for the Outcome domain.
    We initially adopted the CLABSI measure for the FY 2013 Hospital 
IQR Program in the FY 2011 IPPS/LTCH PPS final rule (75 FR 50200 
through 50202) and refer readers to that final rule for further 
discussion of the measure. CLABSI is a HAI measure that assesses the 
rate of laboratory-confirmed cases of bloodstream infection or clinical 
sepsis among ICU patients. This measure was first NQF-endorsed in 2004, 
and adopted by the HQA in 2007. The measure can be stratified by the 
type of ICU and is aggregated to the hospital level by the NHSN. We 
first posted hospital performance on this measure on Hospital Compare 
on January 26, 2012.
    We believe that adoption of the CLABSI measure for the Hospital VBP 
Program is consistent with the intention captured in the Hospital VBP 
Program's statutory requirement that we consider measures of HAIs for 
the FY 2013 Hospital VBP Program's measure set. This measure was also 
included in the HHS Action Plan to Prevent HAIs, which is referenced in 
section 1886(o)(2)(B)(i)(I)(ee) of the Act.
    We initially adopted the AHRQ PSI composite measure (PSI-90) for 
the FY 2010 Hospital IQR Program in the FY 2009 IPPS/LTCH PPS final 
rule (73 FR 48602 through 48603) and refer readers to that final rule 
for further discussion of that measure. PSI-90 is a composite measure 
of patient safety indicators developed and maintained by AHRQ and 
measure data were posted on Hospital Compare on October 14, 2011. We 
believe that its use in the Hospital VBP Program is appropriate in 
order to encourage hospitals to take all possible steps to avoid 
threats to patient safety that may occur in the acute care environment.
    For the Efficiency domain, we proposed to adopt one new measure: 
The Medicare Spending per Beneficiary measure. The proposed measure is 
inclusive of all Part A and Part B payments from 3 days prior to a 
subsection (d) hospital admission through 30 days post discharge with 
certain exclusions. It is risk adjusted for age and severity of 
illness, and the included payments are standardized to remove 
differences attributable to geographic payment adjustments and other 
payment factors. We submitted the measure to the NQF for endorsement on 
July 2, 2012.
    We refer readers to the FY 2012 IPPS/LTCH PPS final rule (76 FR 
51618 through 51627) for a detailed description of the measure. 
Additional information on the measure, including a detailed 
specification document can be found at: http://qualitynet.org/dcs/ContentServer?c=Page&pagename=QnetPublic%2FPage%2FQnetTier3&cid=1228772053996. This measure has been specified under the Hospital IQR Program, 
and performance data was posted on the Hospital Compare Web site on 
April 21, 2012. As discussed further below, we proposed that the 
performance period for this measure for the FY 2015 Hospital VBP 
Program would begin on May 1, 2013, which will be more than one year 
after the performance data was publicly posted. Further, section 
1886(o)(2)(B)(ii) of the Act requires us to ensure that measures 
selected for the Hospital VBP Program include measures of efficiency, 
including measures of Medicare spending per beneficiary, for FY 2014 or 
a subsequent fiscal year. We believe that this proposed measure 
fulfills that requirement.
    The proposed FY 2015 Hospital VBP Program measures appear below:

[[Page 53584]]

       Proposed Quality Measures for FY 2015 Hospital VBP Program
------------------------------------------------------------------------
            Measure ID                           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.
AMI-10............................  Statin Prescribed at Discharge.
HF-1..............................  Discharge Instructions.
PN-3b.............................  Blood Cultures Performed in the
                                     Emergency Department Prior to
                                     Initial Antibiotic Received in
                                     Hospital.
PN-6..............................  Initial Antibiotic Selection for CAP
                                     in Immunocompetent Patient.
SCIP-Inf-1........................  Prophylactic Antibiotic Received
                                     Within One Hour Prior to Surgical
                                     Incision.
SCIP-Inf-2........................  Prophylactic Antibiotic Selection
                                     for Surgical Patients.
SCIP-Inf-3........................  Prophylactic Antibiotics
                                     Discontinued Within 24 Hours After
                                     Surgery End Time.
SCIP-Inf-4........................  Cardiac Surgery Patients with
                                     Controlled 6AM Postoperative Serum
                                     Glucose.
SCIP-Inf-9........................  Urinary Catheter Removed on
                                     Postoperative Day 1 or
                                     Postoperative Day 2.
SCIP-Card-2.......................  Surgery Patients on Beta-Blocker
                                     Therapy Prior to Arrival Who
                                     Received a Beta-Blocker During the
                                     Perioperative Period.
SCIP-VTE-2........................  Surgery Patients Who Received
                                     Appropriate Venous Thromboembolism
                                     Prophylaxes Within 24 Hours Prior
                                     to Surgery to 24 Hours After
                                     Surgery.
------------------------------------------------------------------------
                       Patient Experience Measures
------------------------------------------------------------------------
HCAHPS*...........................  Hospital Consumer Assessment of
                                     Healthcare Providers and Systems
                                     Survey.
------------------------------------------------------------------------
                            Outcome Measures
------------------------------------------------------------------------
AHRQ PSI composite................  Complication/patient safety for
                                     selected indicators (composite).
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.
------------------------------------------------------------------------
* Proposed 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.

    We invited public comment on the proposed measure set for the FY 
2015 Hospital VBP Program.
    Comment: Some commenters asked that CMS seek the MAP's evaluation 
of stroke measures for possible inclusion in future Hospital VBP 
Program years, arguing that such measures are strongly aligned with the 
Hospital VBP Program's goals of rewarding better care value and patient 
outcomes. Other commenters suggested that CMS consider adopting pain 
assessment measures for the Hospital VBP Program.
    Response: We thank commenters for the suggestions. We will consider 
adopting additional measures for the Hospital VBP Program as they 
become available under the statutory requirements, as they align with 
the National Quality Strategy, and as they fit within our other quality 
improvement priorities.
    Comment: Many commenters applauded the clinical process of care 
measure proposals for the FY 2015 Hospital VBP Program. Other 
commenters suggested that CMS should move away from chart-abstracted 
measures for future program years in favor of more robust measures of 
quality that impose less reporting burden on hospitals.
    Response: We thank the commenters that supported the clinical 
process of care measure proposals. With regard to the suggestion that 
we move away from using chart-abstracted measures in the future, we are 
aware of the burden that chart abstraction imposes on hospitals and 
intend to move the Hospital VBP measure set towards measures of 
outcomes and efficiency, rather than clinical processes, which we 
believe represent the next steps in quality measurement and will 
provide better incentives to hospitals to manage care quality and 
contain costs.
    Comment: Commenters generally supported the proposal to remove 
SCIP-VTE-1 from the Hospital VBP Program, citing agreement with CMS' 
rationale that the SCIP-VTE-2 measure is more closely linked to 
outcomes than SCIP-VTE-1.
    Response: We thank commenters for their support.
    Comment: Some commenters objected to further use of the PN-3b 
measure (blood cultures performed in the Emergency Department prior to 
initial antibiotic received in the hospital) in the Hospital VBP 
Program, arguing that the measure is not directly linked to improved 
patient outcomes for pneumonia patients. Commenters also noted that NQF 
is considering withdrawing its endorsement of this measure.
    Response: To the extent that the NQF issues updated guidance with 
respect to the PN-3b measure, we will take that guidance into 
consideration as we determine whether the measure remains appropriate 
for the Hospital VBP Program. In the meantime, we continue to believe 
that the PN-3b measure should remain in the Hospital VBP Program 
measure set because it captures important clinical quality information. 
Given the threat of antibiotic resistance, we believe that blood 
cultures prior to antibiotic administration remains an important point 
for quality improvement in the hospital setting.
    Comment: Some commenters argued that the SCIP-Card-2 measure has 
undergone major changes for discharges

[[Page 53585]]

beginning January 1, 2012. Commenters argued that the changes to the 
measure's specifications are significant and that the measure should 
not be used for value-based purchasing. Commenters also called on CMS 
to adopt a transparent process to indicate when a VBP measure has 
changed and to ensure that changes do not arbitrarily affect hospitals' 
scores.
    Response: We disagree with commenters' assertion that the changes 
made to the SCIP-Card-2 measure's specifications are significant enough 
to warrant the measure's exclusion from the Program. The specifications 
change extended the perioperative window in order to measure hospitals' 
continued administration of beta blockers for surgery patients on those 
drugs prior to arrival. While we understand that this change occurred 
during the FY 2013 Program's performance period, we do not believe that 
change to be so significant as to fundamentally alter the measure. We 
further note that NQF did not consider the change substantive during 
its maintenance review. We view this change as a necessary improvement 
to the measure's specifications to ensure that the measure aligns with 
best clinical practices and the highest quality standards.
    We intend to closely monitor changes to the Hospital VBP Program, 
including the effects of updates to measures, and should we find that 
such changes warrant revisions to our scoring methodology, we will 
address the issue in future rulemaking.
    Comment: Some commenters opposed our proposal to adopt HF-1 for the 
FY 2015 Program, noting that MAP recommended its removal. Other 
commenters argued that we should not adopt SCIP-Inf-2, as the Hospital 
IQR Program is adopting a surgical site infection outcome measure.
    Response: We view HF-1 as an important measure of care coordination 
and therefore do not believe it appropriate to remove the measure from 
the Hospital VBP measure set at this time. We note that MAP recommended 
removing the HF-1 measure because the measure has not been recommended 
for continued NQF endorsement. If the NQF issues further guidance with 
respect to HF-1, we will take that guidance into consideration as we 
evaluate whether it is appropriate to retain HF-1 in the measure set.
    While we are aware that the Hospital IQR Program is adopting a 
Surgical Site Infection (SSI) measure collected through the National 
Health Safety Network (NHSN), we may not consider that measure for the 
Hospital VBP Program until such time as it meets the requirements 
specified in section 1886(o)(2) of the Act. We therefore believe it is 
appropriate to continue to include SCIP-Inf-2 in the Hospital VBP 
Program measure set at this time.
    Comment: Some commenters requested that we clarify that the 
Regulatory Impact Analysis included in the proposed rule correctly 
omitted the SCIP-Inf-10 measure, which we stated is ``topped-out.''
    Response: We thank commenters for raising this matter. While the 
proposed rule referred to the SCIP-Inf-10 measure in its description of 
the Regulatory Impact Analysis, the measure was properly omitted in the 
calculations that appear in the Regulatory Impact Analysis.
    Comment: Some commenters expressed concern about further use of the 
HCAHPS survey in the Hospital VBP Program, arguing that the survey is 
biased against urban and safety-net hospitals. Commenters suggested 
that the ``degree of quietness'' item is unfair to urban hospitals, as 
is the survey's policy of not adjusting results for very low-income 
patients. Other commenters argued that HCAHPS scores vary 
systematically based on factors unrelated to quality of care and urged 
CMS to account for those variables in HCAHPS scoring.
    Response: We have examined the association between safety net 
status and the Patient Experience of Care (HCAHPS) domain score in the 
Hospital VBP Program. We analyzed Patient Experience of Care scores 
during the Hospital VBP Program Dry Run period (Baseline Period: April-
December 2008; Performance Period: April to December 2010), both 
overall and among urban hospitals.
    Although we do not have an official definition or designation of 
``safety net'' hospital, safety net status typically entails one or 
more of three criteria: high Medicaid share; high proportion of 
uncompensated patients; and high county-associated poverty rate. During 
the Hospital VBP Program Dry Run, 28 hospitals (7 of them urban) met 
all three criteria, 157 hospitals (83 of them urban) met two of the 
three criteria, 625 hospitals (391 urban) met one of the three 
criteria, and 2,219 hospitals (1,718 urban) met none of the three 
criteria.
    In general, during the Hospital VBP Program Dry Run, after all 
HCAHPS adjustments are applied (patient mix and survey mode), safety 
net hospitals perform similarly to other hospitals. For example, 24 
percent of the hospitals that meet any of the three safety net criteria 
(198/810) scored in the top quartile of Hospital VBP Patient Experience 
of Care domain (versus 25 percent (550/2219) of hospitals that met none 
of the safety net criteria). For urban hospitals, the figures are 110/
481 safety net hospitals (23 percent) vs. 454/1718 other hospitals (26 
percent). If we consider only those hospitals that meet two of the 
three safety net criteria, then 36/185 safety net hospitals (20 
percent) and 12/90 urban safety net hospitals (13 percent) are in the 
top quartile (with 5 of these 12 in the top decile).
    The HCAHPS patient mix adjustment model controls for patient 
characteristics not under the control of the hospital that directly 
impact response tendencies. It also controls for socioeconomic status 
of the patient population through education, which is a well-accepted 
method for controlling for socioeconomic status, in particular, in the 
elderly population. Other characteristics, such as hospital 
characteristics or geographic location, are not included in the 
adjustment models because controlling for hospital characteristics 
would mask potential quality differences across different types of 
hospitals.
    Comment: Some commenters strongly supported the inclusion of the 
Medicare Spending per Beneficiary measure in the FY 2015 Hospital VBP 
Program. These commenters noted that cost information is valuable when 
combined with other quality measures, in assisting patients, 
purchasers, and policymakers in identifying value in healthcare. Some 
commenters suggested that the Medicare Spending per Beneficiary 
measure's inclusion in the Hospital VBP Program not be further delayed, 
citing their belief that it was important to Congress, because it is 
the only measure specifically required for inclusion in the Hospital 
VBP Program.
    Response: We thank the commenters for their support and we agree 
that the Medicare Spending per Beneficiary measure is an important 
first step toward identifying value in healthcare. Further, we believe 
that the Medicare Spending per Beneficiary measure provides an 
incentive for hospitals to build stronger relationships with and better 
understand the providers and suppliers that furnish care for their 
patients before and after an acute care hospitalization.
    Comment: Some commenters supported the inclusion of the Medicare 
Spending per Beneficiary measure in the Hospital VBP Program as a first 
efficiency measure and encouraged CMS to work toward building a more 
robust efficiency measure set and to focus on efficiency measures that 
are connected to clinical process and outcomes.
    Response: We appreciate these comments and acknowledge the

[[Page 53586]]

potential for building a more robust Efficiency domain in the Hospital 
VBP Program. We will consider these comments as we evaluate whether to 
propose to adopt additional efficiency measures in the Hospital VBP 
Program.
    Comment: Some commenters commended CMS for its efforts to develop a 
spending measure but suggested that the Medicare Spending per 
Beneficiary measure requires further development before it should be 
included in the Hospital VBP Program.
    Response: We appreciate that the Medicare Spending per Beneficiary 
measure is new to hospitals, but we disagree that the measure is not 
fully developed. This measure was developed and tested by CMS with the 
help of expert contractors. We originally described the measure in 
depth in the FY 2012 IPPS/LTCH PPS proposed rule (76 FR 25896 through 
258997). We considered all public comments received on the measure and 
revised it accordingly. We publicly posted detailed specifications on 
February 1, 2012. We also invited public comment on the measure during 
a National Provider Call held in February 2012. Subsequently, we have 
conducted extensive additional testing on the measure, in preparation 
for the July 2, 2012 submission to the NQF for endorsement.
    Comment: Some commenters expressed concern with the Medicare 
Spending per Beneficiary measure in general. A few of those commenters 
stated that the Medicare Spending per Beneficiary measure was a measure 
of cost, not efficiency. One commenter expressed general concern with 
rewarding or penalizing providers based on expenditures per patient. A 
few commenters stated that the measure should be delayed until other 
value-based purchasing programs establish parallel incentives. A few 
commenters suggested that the measure should assess not only cost, but 
also quality and expressed concern that a cost-only measure might have 
the unintended consequences of incentivizing cost reduction at the 
expense of quality or access to care. One commenter stated that smaller 
hospitals could be unfairly disadvantaged due to referrals occurring 
during the 30 days post discharge, and one commenter stated that the 
measure could unfairly disadvantage urban hospitals serving large 
populations of dual-eligible beneficiaries. One commenter requested 
that CMS post ICD-10 measure specifications in the final rule.
    Response: For the purposes of inclusion of the Medicare Spending 
per Beneficiary measure in the Efficiency domain, we define 
``efficiency'' in the sense of ``cost efficiency.'' This definition is 
consistent with existing approaches to measuring cost in the healthcare 
setting (Pacific Business Group on Health. Hospital Cost Efficiency 
Measurement: Methodological Approaches. January 2006, available at 
http://www.pbgh.org/storage/documents/reports/PBGHHospEfficiencyMeas_01-2006_22p.pdf). Efficiency refers to the relative cost of clinical 
resources used to achieve a measured level of quality; as such, the 
Medicare Spending per Beneficiary measure gauges efficiency by 
calculating hospitals' relative costs to Medicare after adjusting for 
case mix differences and other factors.
    We also agree that it is beneficial to view a cost measure in light 
of other quality measures. As we stated in the FY 2012 IPPS/LTCH PPS 
final rule, for purposes of the Hospital VBP Program, we will weight 
and combine the Efficiency domain with the other domain scores, in 
order to calculate each hospital's TPS. This procedure for calculating 
a hospital's TPS ensures that Medicare spending per beneficiary makes 
up only a portion of the TPS and that the remainder is based on 
hospitals' performance on the other measures (76 FR 51622). We further 
emphasize that section 1886(o)(2)(B)(ii) of the Act expressly requires 
the inclusion of ``measures of Medicare spending per beneficiary'' in 
the Hospital VBP Program. We do not believe that the Medicare Spending 
per Beneficiary measure itself should assess both cost and quality. We 
believe that a distinct measure of cost, independent of quality, 
enables us to identify hospitals involved in the provision of high 
quality care at a lower cost to Medicare.
    With regard to some commenters' suggestions that the implementation 
of the Medicare Spending per Beneficiary measure should be delayed 
until parallel incentives are established under other CMS programs, we 
disagree. While we acknowledge the value in provision of consistent 
incentives, we believe that the prompt implementation of this measure 
is an important step to incentivizing care coordination, improving more 
effective post acute care delivery and follow up, and reducing 
unnecessary services and preventable readmissions for Medicare 
beneficiaries. We will work with other incentive programs within CMS in 
an attempt to align future incentives to the extent possible.
    We acknowledge that a hospital with fewer discharges during the 
performance period could see its measure performance more notably 
impacted by a high-cost episode. We note that although the measure is 
reliable using a minimum of 10 cases, we proposed a minimum of 25 cases 
and sought comment on a minimum of 50. Further, we exclude high-cost 
outlier episodes from this measure, so that these types of high cost 
cases will not unduly affect a hospital's Medicare Spending per 
Beneficiary measure performance. We also do not believe that the 
measure unfairly disadvantages urban hospitals serving dual-eligible 
beneficiaries. We have included an adjustment for severity of illness 
during the 90 days preceding the Medicare Spending per Beneficiary 
episode, in order to capture chronic conditions that may be experienced 
by any Medicare beneficiaries. Further, as we stated in the FY 2012 
IPPS/LTCH PPS final rule, we do not believe that a socioeconomic risk 
adjustment factor is appropriate. This policy is consistent with the 
NQF's stated position on not adjusting for potential demographic (sex 
or race) or socioeconomic factors. Because an adjustment for dual-
eligibility could be considered a proxy for socioeconomic status, we 
are not adjusting for this factor.
    With regard to the request that we include ICD-10 measure 
specifications in this final rule, we are unable to accommodate this 
request. We do not currently have ICD-10 specifications for the 
Medicare Spending per Beneficiary measure, but to the extent that 
future implementation of ICD-10 affects the measure specifications 
already publicly posted, we will provide updated specifications to the 
public as soon as possible.
    Comment: Several commenters submitted comments related to the post-
discharge window in the Medicare Spending per Beneficiary measure. Some 
commenters expressed concern that the care provided to Medicare 
beneficiaries during the 30 days post hospital discharge is outside of 
hospitals' control, with one noting that follow-up care may be provided 
in a geographically distant location, relative to a transplant center. 
One commenter stated that a 30-day post-discharge period may be 
insufficient to capture long term savings achieved through the 
provision of technologies with higher upfront cost. A few commenters 
stated that a 30-day post discharge window was too long.
    One commenter stated that the length of the post discharge window 
could, in some cases, be longer than 30 days because the total cost of 
the care that started within the 30 day period, but extended longer 
than 30 days, would be captured in the measure. This

[[Page 53587]]

commenter suggested that this fact precludes hospitals from being able 
to compare their performance with other hospitals. One commenter 
suggested that planned admissions to other facilities should be 
excluded, and one commenter suggested that the measure should be 
limited to services related to the reason for original index admission. 
One commenter expressed concern with the inclusion of readmissions in 
this measure, suggesting that hospitals could be penalized twice for 
them.
    Response: We do not believe that the care furnished to 
beneficiaries after they are discharged from an acute care hospital is 
wholly outside of the hospital's control. As we stated in the FY 2012 
IPPS/LTCH PPS final rule, we believe that hospitals that provide 
quality inpatient care, conduct appropriate discharge planning, and 
work with providers and suppliers on appropriate follow-up care will 
realize efficiencies and perform well on the measure, because the 
Medicare beneficiaries they serve will have a reduced need for 
excessive post-discharge services (76 FR 51621). We believe that 
hospitals can work effectively to improve care coordination, even if 
the post-discharge care is furnished in a geographically distant 
location. We finalized a 30-day post discharge period for the Medicare 
Spending per Beneficiary measure under the Hospital IQR Program in the 
FY 2012 IPPS/LTCH PPS final rule. This post discharge window is 
consistent with other agency initiatives, including the post-discharge 
period that applies to the readmission measures under the Hospital IQR 
Program and the Hospital Readmissions Reduction Program (76 FR 51619). 
As we indicated in that final rule, we will consider extending the 
length of the post-discharge period in future rulemaking, as suggested 
by one commenter, as both we and hospitals gain experience with the 
measure.
    We recognize that the measure might capture Medicare payments for 
services initiated during the 30 days following discharge and 
continuing beyond them, but we do not believe that this is a 
disadvantage to any particular hospital. These payments represent 
actual costs to Medicare incurred during the Medicare Spending per 
Beneficiary episode surrounding a hospitalization, and we do not 
believe it would be appropriate to sever payments made under 
prospective payment systems into smaller units that are not what 
Medicare actually paid. We also disagree that inclusion of payments for 
services extending beyond the 30 day post-discharge window precludes 
meaningful comparison between hospitals, as all hospitals are subject 
to the same methodology in calculating their Medicare Spending per 
Beneficiary amounts and comparing them to the national median.
    We disagree that planned admissions to other facilities should be 
excluded from the Medicare Spending per Beneficiary measure, because we 
seek to incentivize planning for appropriate and efficient post-
discharge care through the use of this measure. With regard to the 
suggestion that services unrelated to the index admission should be 
excluded from the Medicare Spending per Beneficiary measure, we 
acknowledge that unforeseen events which are unrelated to the hospital 
stay could occur. As we stated in the FY 2012 IPPS/LTCH PPS final rule, 
this facet of the measure is consistent with the all cause readmission 
measure CMS is finalizing for the Hospital IQR Program and that 
determinations of the degree of relatedness of each subsequent hospital 
stay to an initial hospitalization could be subjective (76 FR 51621). 
We continue to believe that attributing all services provided during 
the episode is the best way to encourage quality inpatient care, care 
coordination, and care transitions. As we noted in that final rule, all 
hospitals will be subject to the same method of calculation of their 
Medicare spending per beneficiary amounts, as compared to the median 
Medicare spending per beneficiary amount across all hospitals, so we do 
not believe that inclusion of services which could be determined to be 
unrelated to the index admission will notably disadvantage any 
individual hospital (76 FR 51621).
    With regard to the comment that hospitals could be doubly penalized 
by the inclusion of readmissions in this measure, we reiterate, as 
stated in the FY 2012 IPPS/LTCH PPS final rule, that we believe the 
Medicare payments made for readmissions must be attributable to the 
index hospital stay, in order: To fully capture Medicare spending 
relative to a hospital stay; to encourage the provision of 
comprehensive inpatient care, discharge planning, and follow-up; and to 
strengthen incentives to reduce readmissions (76 FR 51621). The 
Medicare spending per beneficiary measure is not a measure of 
readmission rates, but rather is a measure of total Medicare spending 
per beneficiary relative to a hospital stay.
    Comment: Several commenters expressed views related to the risk 
adjustment methodology for the Medicare Spending per Beneficiary 
measure. One commenter expressed support for the methodology. Some 
commenters suggested that the risk adjustment methodology was not 
sufficient and should include adjustments for factors including 
comorbidities, severity of illness, age, sex, race, socioeconomic 
factors, concurrent treatments, transplant status, education level, 
ambulation status, functional status, and range of motion. One 
commenter suggested that the measure should be adjusted for differences 
in patients treated in an academic medical center versus those treated 
in community hospitals. One commenter suggested that the risk 
adjustment methodology should use a hierarchical, rather than a linear 
regression.
    Response: We agree that the Medicare Spending per Beneficiary 
measure should be adjusted for comorbidities, severity of illness, and 
age. Accordingly, we are utilizing the hierarchical condition 
categories (HCCs) applied to conditions billed during the 90 days 
preceding the Medicare Spending per Beneficiary episode, the 
beneficiaries' age, and their institutional status, to risk adjust the 
expected spending during the episode. We believe that concurrent 
treatments and transplant status will be captured in the expected 
spending for Medicare beneficiaries with the same HCCs.
    As we indicated in the FY 2012 IPPS/LTCH PPS final rule, we 
disagree with the comments that risk-adjustment for the Medicare 
Spending per Beneficiary measure should include further adjustment for 
socioeconomic factors, beneficiary sex, or beneficiary race. Consistent 
with NQF's position on not adjusting for potential demographic (sex or 
race) or socioeconomic factors, we believe that the best adjustment for 
a payment measure is based on the beneficiaries' underlying health 
status, not demographic or socioeconomic factors. (76 FR 51624). In 
order to minimize the burden on hospitals, we have finalized the 
Medicare Spending per Beneficiary measure as a claims-based measure (76 
FR 51622). As such, we would be unable to apply an adjustment for 
ambulation status, functional status, or range of motion. With regard 
to the use of a hierarchical regression, we note that the HCC 
categories are calculated in a hierarchical fashion. The risk 
adjustment methodology also allows for differing relationships between 
comorbidities and different MS-DRG admission diagnoses, with the 
understanding that a given comorbidity may affect a given MS-DRG more 
or less than another MS-DRG. As also stated in the FY 2012 IPPS/LTCH 
PPS final rule (76 FR 51624), we intend to analyze the risk-adjustment 
methodology, as we

[[Page 53588]]

gain experience with this measure, to evaluate whether it could be 
further refined.
    Comment: Some commenters were opposed to the inclusion of the 
Medicare Spending per Beneficiary measure in the Hospital VBP Program 
for FY 2015 because they stated that hospitals had been given 
insufficient time to become familiar with the measure. These commenters 
noted that the measure was posted on Hospital Compare in April 2012, 
stating that this allowed them less than one calendar quarter to become 
familiar with the measure. One commenter added that hospitals have only 
an early understanding about how hospitals might make an impact on the 
cost without affecting quality. A few commenters stated that the 
Medicare Spending per Beneficiary measure rates were difficult to 
interpret.
    Response: The Medicare Spending per Beneficiary measure data was 
added to the Hospital Compare Web site on April 19, 2012, after the 
measure was finalized for inclusion in the Hospital IQR Program through 
notice and comment rulemaking. We note that this posting followed a 30-
day data preview in February 2012, during which we hosted a National 
Provider Call as well as accepted public comments via email. The 
proposed performance period for this measure would begin more than a 
full year after the April 2012 data posting. We provided information on 
how to interpret the Medicare Spending per Beneficiary measure data on 
Hospital Compare, and we remain cognizant of the measure's complexity. 
We will make every attempt to respond to inquiries and further clarify 
to the extent necessary how the measure is calculated as we move 
forward in utilizing this measure. When viewed in conjunction with 
other quality measures, the Medicare Spending per Beneficiary measure 
enables the public to recognize hospitals involved in providing high-
quality care at a lower cost to Medicare.
    Comment: Some commenters were opposed to the inclusion of the 
Medicare Spending per Beneficiary measure in the Hospital VBP Program, 
because they believed that CMS had not provided hospitals with 
sufficient data to understand or improve their performance on the 
measure. Some of these commenters stated that CMS had provided only 
information regarding whether the hospitals did better than, worse 
than, or the same as the national average, and some stated that 
hospitals would appreciate the raw data so that they could validate the 
calculations.
    Response: We disagree with the commenters who stated that we did 
not provide hospitals with specific information to enable them to 
understand or improve their Medicare Spending per Beneficiary measure 
performance. During the February 2012 data preview period, hospitals 
were provided with an index admission file that detailed every 
inpatient admission at the hospital during the performance period and 
whether or not it was counted as an index admission for the Medicare 
Spending per Beneficiary measure; a beneficiary risk score file, which 
identified the beneficiaries whose hospitalizations were counted as 
index admissions, their index admission DRG, and data regarding health 
status based on the beneficiary's claims history in the 90 days prior 
to the start of an episode; and an episode file, which contains 
information on the care provided during the stay as well as what type 
of care was provided in the episode. The episode file also provided the 
hospitals with the top five providers of both inpatient and outpatient 
services, as defined by actual Medicare dollars paid, so that the 
hospitals could work to better coordinate care. We note that although 
we have made the risk adjustment methodology available, we are unable 
to provide the raw data used for risk adjustment, as that would entail 
providing every single claim line submitted during the 90 days 
preceding the episode and throughout the episode, for every beneficiary 
hospitalized nationwide during the performance period. This amount of 
data would be unusable to most of the public and could have privacy 
implications.
    Comment: Several commenters expressed their views regarding the 
data provided to the public with regard to the Medicare Spending per 
Beneficiary measure. One commenter stated that CMS had provided ample 
opportunity for public comment. Some commenters expressed concern that 
CMS had provided data only to hospitals through confidential reports, 
so hospitals were unable to compare their performance to other 
hospitals, and others requested a public use file that would allow 
outside organizations to verify calculations, analyze potential 
unintended consequences, or assist hospitals in identifying 
opportunities for hospitals to reduce spending.
    Response: We appreciate the public interest in data regarding the 
Medicare Spending per Beneficiary measure. We note that some 
information could only be provided directly to hospitals, through 
confidential reports, because it contains Medicare beneficiaries' 
personally identifiable information. That level of data was only 
provided to the hospitals that treated the beneficiaries during the 
period of performance. In response to the request for data, we have 
posted a file on Hospital Compare that provides data on the makeup of 
the average Medicare Spending per Beneficiary episodes at the 
individual hospital, state, and national levels. The file is entitled 
``MSPB--Spending--Breakdowns--by--Claim--Type--051510-021411.csv,'' and 
it can be accessed at: http://hospitalcompare.hhs.gov/Data/spending-per-hospital-patient.aspx. We have also published an additional file 
entitled, ``MSPB--Spending--Breakdowns--by--Claim--Type--051510-
021411--File--Description.docx'' which provides a detailed explanation 
of the data fields contained in the ``MSPB--Spending--Breakdowns--by--
Claim--Type--051510-021411.csv'' file. This file can be accessed in the 
``downloads'' section of the Hospital VBP Web site at: https://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/hospital-value-based-purchasing/index.html?redirect=/Hospital-Value-Based-Purchasing/. We believe that the provision of 
these files satisfies the public's need for data while protecting 
beneficiary privacy.
    Comment: Several comments expressed views regarding the reliability 
of the Medicare spending per beneficiary measure. Commenters stated 
that reliability testing was not published and should be before the 
measure is finalized.
    Response: We appreciate the value of reliability analyses for the 
Medicare Spending per Beneficiary measure, as it is a new measure type 
for the Hospital VBP Program. We proposed to include the Medicare 
Spending per Beneficiary measure in the Hospital VBP Program for FY 
2015, based on our belief that it would be reliable. This belief was 
based not only on the nature of the measure, in that it captures almost 
all discharges during the performance period and is calculated using 
payment amounts obtained from Medicare claims data, but also on a body 
of published research and historical NQF findings related to claims-
based resource use measures. Because the Medicare Spending per 
Beneficiary measure is not condition-specific, but captures nearly all 
discharges from eligible hospitals during a performance period, most 
hospitals were expected to have a large sample size of Medicare 
Spending per Beneficiary episodes. Larger sample sizes increase the 
reliability of the measure.
    There is also published research that indicates that spending for 
an episode of

[[Page 53589]]

care varies ``greatly'' among hospitals (N Engl J Med. 2008; 359: 3-5) 
and measures for which there is a larger inter-hospital variability are 
more likely to be reliable. Other studies, such as the one conducted by 
Jha and colleagues, also found statistically significant differences in 
the cost of care among hospitals using a predictive cost model (Health 
Aff. 2009; 28(3): 897-906), and another study found significant 
variation in Medicare spending per discharge for five common conditions 
(Healthcare Financial Management Association. Data Trends. Mar 2011. 
Available at http://www.ahd.com/news/HFM_DataTrends_2011_March.pdf). 
Furthermore, MedPAC found that measures of spending per beneficiary 
were an appropriate means of assessing variation in cost and that 
``much of the variation [remaining] after removing the effects of input 
price adjusters is attributable to the quantity of services 
beneficiaries use.'' The study showed that even with aggregation at the 
county level, only 87.3 percent of beneficiaries nationally are between 
85 percent and 115 percent of average cost per beneficiary, even after 
adjusting for health status, participation in Medicare Parts A and B, 
and payment to hospitals that reflect hospital costs for providing 
uncompensated care to the poor and teaching hospital costs for graduate 
medical education. After all such adjustments, the standard deviation 
at the beneficiary level was greater than 10 percent of the average 
cost per beneficiary (MedPAC. Report to Congress: Variation and 
Innovation in Medicare, Jun 2003). While these studies do not 
explicitly test the reliability of a beneficiary-level episode-based 
cost measure, they clearly establish significant variation in spending 
per beneficiary and show that provider choices drive that part of that 
variation.
    In addition to this research, the NQF has found other resource use 
measures that are based on Medicare claims data, such as all-cause 
readmission measure (NQF 1789), to be highly reliable. For the 
all-cause readmission measure, ``reliability and validity [at the data 
element level and at the measured score level] was generally received 
as adequate by the steering committee'' (NQF: 2012 Proc. Feb 2012, 
available at http://www.qualityforum.org/WorkArea/linkit.aspx?LinkIdentifier=id&ItemID=70455). Further, in a memorandum 
to the NQF Board of Directors, the NQF's Senior Vice President for 
Performance Measures report noted that the majority of NQF committee 
members stated that the Hospital-wide All Cause Readmission Measure was 
highly reliable (Burston, 2012: Appeal of Hospital-wide All Cause 
Readmission Measure, 95pp. Available at: http://www.qualityforum.org/WorkArea/linkit.aspx?LinkIdentifier=id&ItemID=71398). To further 
confirm our expectation that the Medicare Spending per Beneficiary 
measure is sufficiently reliable for inclusion in the Hospital VBP 
Program, we elected to obtain an analysis similar to that performed for 
certain other Hospital VBP measures. That analysis concluded that the 
Medicare Spending per Beneficiary measure has an overall reliability of 
0.951 with a minimum number of 10 cases. The overall reliability of the 
Medicare Spending per Beneficiary Measure increases by 0.0002 when the 
minimum number of episodes increases from 10 to 25. The reliability 
analysis may be accessed publicly in the ``Downloads'' section of our 
Hospital VBP Web page, located at: https://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/hospital-value-based-purchasing/index.html?redirect=/Hospital-Value-Based-Purchasing/.
    Comment: One commenter noted that the MAP identified measures of 
cost as a high-priority gap area for the Hospital VBP Program and 
strongly supported the measure's direction, in its February 2012 Final 
Report to the Department of Health & Human Services. Some commenters 
suggested that CMS should not finalize the measure until it is endorsed 
by the NQF, and some said that the measure must go through the NQF 
endorsement process. Many of these commenters also noted that that the 
MAP did not support inclusion of the Medicare Spending per Beneficiary 
measure at the time of its report.
    Response: We appreciate the value of the NQF's endorsement of 
performance measures. We also agree with the commenter's assessment 
that the MAP ``strongly'' supported the measure's direction pending 
additional specification and testing. We have since made the measure 
specifications public and allowed comment through a National Provider 
Call held in February 2012. In the FY 2013 IPPS/LTCH PPS proposed rule, 
we expressed our intent to submit the Medicare Spending per Beneficiary 
measure to the NQF for endorsement consideration, and we did so on July 
2, 2012. We disagree with the commenters who contended that the measure 
must go through the NQF endorsement process before it may be included 
in the Hospital VBP Program and note that we were only required by 
statute to give due consideration to any measures of Medicare spending 
per beneficiary currently endorsed by the NQF or any other consensus 
organizations under section 1886(b)(3)(B)(viii)(IX) of the Act. We have 
met that requirement and have also submitted the measure to the NQF for 
consideration for endorsement.
    Comment: Some commenters argued that the proposed AHRQ PSI 
composite measure is not sufficiently reliable to distinguish 
differences in patient safety among health care institutions. Other 
commenters suggested that this type of safety measure is not 
appropriate for use in a payment program like the Hospital VBP Program. 
Some commenters argued that the measure calculation is too complex for 
hospitals and their vendors to attempt to replicate, and is therefore 
difficult as a focus of quality improvement.
    Response: We believe that the proposed AHRQ PSI composite measure 
is sufficiently reliable for purposes of the Hospital VBP Program when 
using the minimum number of cases as proposed. We believe that one 
principal contributor to measure reliability is measure denominator 
size. While reliability will vary for individual hospitals based on the 
denominator size that applies to each hospital, we are finalizing a 
minimum number of cases for this measure that we believe is 
sufficiently reliable and appropriately balances our priorities of 
including hospitals in the Program and excluding hospitals from a 
measure when their performance on that measure may not be meaningfully 
captured.
    We also believe that adopting the AHRQ PSI composite measure, with 
the minimum number of cases specified by the measure steward, provides 
strong incentives for hospitals to ensure that patients are not harmed 
by the medical care they receive, which is a critical consideration for 
quality improvement. We further believe that adopting the minimum 
number of cases as proposed enables those incentives to be extended to 
as many hospitals as possible, thus ensuring that as many patients as 
possible will benefit should hospitals take steps to improve their 
performance on the measure.
    Further, we are particularly concerned about the effects that not 
finalizing the AHRQ PSI composite might have on hospitals' quality 
performance. We believe that the PSI measure, as a composite measure of 
patient safety, appropriately encourages robust hospital attention to 
patient safety events. As we have stated in prior rulemaking, we 
believe that the Hospital VBP Program exists to drive quality 
improvement in the acute inpatient setting, and we believe strongly 
that

[[Page 53590]]

measures of patient safety such as the AHRQ PSI measure and the CLABSI 
measure are important metrics on which hospitals should focus their 
quality improvement efforts.
    Finally, while we are sympathetic to commenters' concerns about the 
composite measure's complexity, we note that the measure is composed of 
underlying safety indicators on which hospitals may focus their 
attention. We encourage hospitals that are unsure how to improve their 
performance on the AHRQ PSI measure or on any other measure finalized 
for the Hospital VBP Program to contact their QIO for assistance.
    Comment: Two commenters assumed that because CMS proposed the 
removal of several individual AHRQ PSI measures from the Hospital IQR 
Program, we would also remove these indicators from the calculation of 
the AHRQ PSI-90 Composite measure for both Hospital IQR and the 
Hospital VBP Programs. Furthermore, these commenters believed that the 
statutory display requirement for the AHRQ PSI-90 Composite has not 
been met because CMS did not display data for all eight of the 
individual AHRQ indicators that are used in the composite.
    Response: We wish to clarify that our removal of several individual 
AHRQ indicators from the Hospital IQR Program does not in any way 
change the composition of the AHRQ PSI-90 composite measure for either 
the Hospital IQR or Hospital VBP Programs. No changes have been 
proposed for the AHRQ PSI-90 composite for the Hospital IQR or Hospital 
VBP Programs. We adopted and displayed the NQF-endorsed AHRQ PSI-90 
Composite measure for the Hospital IQR Program (NQF531) which 
is comprised of the following individual indicators: PSI-03, PSI-06, 
PSI-07, PSI-08, PSI-12, PSI-13, PSI-14, and PSI-15. We will continue to 
use/display this NQF-endorsed version of the PSI composite for the 
Hospital VBP Program.
    Regarding the 1 year display requirement for the PSI-composite for 
the Hospital VBP Program, we have proposed to use the AHRQ PSI-90 
Composite calculation in its totality for Hospital VBP Program scoring. 
We displayed this composite score in its totality on Hospital Compare 
beginning October 2011. Therefore, the PSI-90 Composite meets the 
display requirement for use in the Hospital VBP Program regardless of 
how many individual AHRQ indicators were displayed.
    Comment: Some commenters opposed our proposal to adopt the CLABSI 
measure for the FY 2015 Hospital VBP Program, arguing that the measure 
should be validated before its use in the Hospital VBP Program. Other 
commenters argued that the relatively limited CLABSI data posted on 
Hospital Compare in early 2012 did not meet the requirement for public 
display prior to the measure's use in the Hospital VBP Program. Some 
commenters suggested that it is not appropriate to adopt the CLABSI 
measure for both HAC payment policy and under the Hospital VBP Program. 
Some commenters argued that CMS should not include HAC measures in the 
Hospital VBP Program.
    Response: We do not believe that we should wait until after the 
measure is validated before adopting it for the Hospital VBP Program. 
The CLABSI measure captures important information about infections that 
present substantial harm to patients. We believe that measuring and 
rewarding hospitals on their work at curbing CLABSI incidents is vital 
to rewarding the provision of high-quality health care, which is the 
central point of the Hospital VBP Program.
    We believe that baseline and performance period CLABSI data are 
sufficiently reliable for purposes of the Hospital VBP Program. At 
least 20 State health departments validated CLABSI data reported to the 
NHSN during the baseline period, which gives us some assurance that the 
data is accurate. We also believe that our CLABSI minimum case 
threshold of at least one expected CLABSI event in the performance 
period (discussed more fully below) contributes to this measure's 
reliability, since we exclude hospitals with the lowest measure 
reliability from receiving a measure score. Our Hospital IQR Program 
CLABSI validation process starting with January 2012 CLABSI events was 
finalized through rulemaking (76 FR 51646 through 51648) to ensure data 
accuracy during the performance period. We believe that commenters may 
have erroneously concluded that CMS is adopting identical quality 
measures in two separate programs--in this case, the Hospital VBP 
Program, and HAC payment policy under section 1886(d)(4)(D) of the Act. 
We do not believe this to be the case. HAC measures are based on 
Medicare claims and capture only the Medicare population, while the 
CLABSI measure that we have proposed to adopt for the FY 2015 Hospital 
VBP Program is a surveillance measure reported to the NHSN and captures 
non-Medicare patients as well. We view the measures for each program as 
complementary and believe that adoption of these measures in each 
program should indicate to hospitals the high priority that we place on 
curbing infections and the harm they represent to patients.
    We disagree with commenters' assertion that the measure data posted 
on Hospital Compare did not meet the statutory requirement for public 
display under the Hospital VBP Program. Section 1886(o)(2)(C)(i) of the 
Act prohibits the Secretary from selecting a measure for the Hospital 
VBP Program with respect to a performance period unless that measure 
has been specified under the Hospital IQR Program and included on 
Hospital Compare for at least one year prior to the beginning of the 
performance period. We posted CLABSI data on Hospital Compare in 
January 2012 in satisfaction of that requirement.
    We believe that current Hospital Compare data provides a broad 
national snapshot of CLABSI performance. Although the initial January 
2012 posting of Hospital Compare data included only 1 quarter of CLABSI 
information, we expect the number of hospitals for which data is posted 
on Hospital Compare to increase to the majority. In the most recent May 
2012 posting, we posted over 1,500 hospitals' CLABSI data on the 
Hospital Compare Web site. This posting included January through June 
2012 CLABSI data. An additional 500 hospitals submitted reports that 
they had insufficient intensive care unit (ICU) beds, and were not 
required in the Hospital IQR Program to submit CLABSI data. These 
hospitals did not treat a sufficient number of patients eligible to be 
included in the CLABSI measure. This measure exclusion, coupled with 
the large number of hospitals that are reporting CLABSI data, indicates 
broad understanding of the measure and sufficient data for public 
reporting.
    In addition, as described further below, because we believe that 
including more data in the CLABSI measure calculations will alleviate 
commenters' concerns about the relatively small number of hospitals 
that reported on the measure initially, we will finalize a 12-month 
baseline period for the CLABSI measure for FY 2015 (this is discussed 
more fully below). By including all available data from CY 2011 in the 
resulting performance standards calculations, we believe we can ensure 
that the finalized performance standards accurately reflect national 
performance benchmarks.
    Comment: Some commenters expressed support for CMS' proposals to 
adopt the AHRQ patient safety composite measure and the CLABSI measure.

[[Page 53591]]

    Response: We thank commenters for their support.
    Comment: Some commenters asked CMS to wait before adopting the 
CLABSI measure that includes both ICU and non-ICU patients.
    Response: We believe that this measure supports making care safer, 
one of the National Quality Strategy's goals. We intend to solicit 
comments from the MAP and solicit comment on the expanded measure in 
future rulemaking.
    Comment: Some commenters supported CMS' proposal to include 
mortality measures in the FY2015 Hospital VBP Program, though 
commenters also suggested that CMS consider additional risk-adjustment 
to include socioeconomic status and clinical factors.
    Response: We thank commenters for their support. We believe the 
existing risk-adjustment methodology is sufficient. These measures were 
endorsed by the National Quality Forum, and the NQF extensively 
reviewed the risk adjustment methodology as part of their overall 
review. The 30-day mortality measures are currently risk-adjusted to 
include clinical factors, and we believe that risk adjustment model to 
be well-understood by hospitals and sufficiently robust for quality 
measurement. The Hierarchical Condition Category (HCC) grouping of 
clinical conditions and hospital case-mix are used for risk adjustment. 
The HCC model makes use of all physician and hospital encounter 
diagnoses and was designed to predict a beneficiary's expenditures 
based on the total clinical profile represented by all of his/her 
assigned HCCs. Additionally, there are several exclusions to the 
mortality measures, such as enrollment in a hospice program. We refer 
commenters to the extensive documentation of the mortality measure 
methodology at http://www.qualitynet.org.
    Comment: Some commenters expressed strong opposition to further use 
of the 30-day mortality measures in the Hospital VBP Program, arguing 
that the measures are unreliable and should be the subject of a 
validity study. Some commenters also argued that the risk adjustment 
process applied to these measures is insufficient. Commenters also 
requested that we pursue a validation study of the mortality measures 
as soon as possible.
    Response: We believe that the three 30-day mortality measures are 
sufficiently reliable for inclusion in the Hospital VBP Program. One 
principal contributor to measure reliability is measure denominator 
size, and the reliability of a measure is going to vary for individual 
hospitals, based on the denominator size that applies to each hospital. 
Our proposed FY 2015 minimum case threshold increase from 10 to 25 
cases for the mortality measures improves reliability by excluding an 
additional estimated 376 to 682 hospitals in FY 2015 with the lowest 
number of cases in the measure denominators and, thus, lowest level of 
reliable measure scores. This analysis was performed subsequent to the 
reliability analysis posted on the CMS Web page https://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/hospital-value-based-purchasing/Downloads/HVBP_Measure_Reliability-.pdf in 
February 2012. Our proposed FY 2016 expansion of the performance period 
to 21 months also improves reliability by increasing the number of 
cases in the mortality measure denominator. We believe that the 
previously finalized FY 2014 Hospital VBP mortality measures are 
sufficiently reliable, since the 12 month performance period is 
expected to increase the denominator counts for most hospitals, 
relative to the 9 month FY 2015 mortality measure performance period.
    We believe that our increase in the minimum number of cases for the 
mortality measures for FY 2015 improves overall reliability, since we 
excluded hospitals with the lowest reliability from receiving a score 
on the mortality measures. We proposed the 25 case minimum for each of 
the three 30-day mortality measures because we recognize that each of 
these measures are risk adjusted to estimate differences in hospital 
patient case mix. Our process of care measures included in the Hospital 
VBP program do not utilize risk adjustment estimation techniques, and 
we believe that our proposal to increase the minimum case threshold to 
25 cases incorporates the increased reliability necessary for the three 
mortality measures using risk adjustment estimation techniques. We 
believe that our 25 case minimum threshold is also supported by the 
central limit theorem, a commonly used statistical theorem used in 
sampling theory and statistical estimation. According to Rice's 
Mathematical Statistics and Data Analysis (2nd edition, 1995), this 
theorem states that under certain conditions, the mean of a 
sufficiently large number of independent random variables, each with a 
finite mean and variance, will be approximately normally distributed. 
For these mortality measures, a 25 case minimum threshold should be 
sufficient to create an approximate normal distribution of hospital 
TPSs. We believe that the distribution of mortality measures is 
sufficiently reliable for inclusion in the program, based on this 
information and the relatively small contribution of the mortality 
measures to the total performance score. We also proposed to set the 
the Outcome domain weight at 30 percent for the FY 2015 program so that 
the total performance score continues to be normally distributed and 
reliable with the inclusion of the mortality measures. We also view the 
TPS's reliability is an important factor when considering performance 
periods, minimum numbers of cases and measures, and other policies for 
the Hospital VBP Program, as the TPS is the basis for value-based 
incentive payments.
    We also weighed our policy goal to link payment to patient outcomes 
for the vast majority of hospitals in our proposal to include the 3 
mortality measures with a 25 case minimum. For the FY 2015 proposed 9 
month performance period and 25 case threshold, we estimate that about 
1,566 hospitals would be included for the AMI 30-day mortality measure, 
2,514 hospital would be included for the HF 30-day mortality measure, 
and 2,690 hospitals would be included for the PN 30-day mortality 
measure. Increasing the minimum case threshold would dramatically 
decrease the number of hospitals receiving a score for these measures, 
and would dramatically reduce the impact on patient health outcomes 
that the 3 mortality measures promote. We further believe that the 3 
mortality measures are valid through their very strong link to patient 
health outcomes. The National Quality Forum endorsed these measures and 
one fundamental criterion in their assessment was a demonstrated link 
to patient health outcomes. We believe that the inclusion of mortality 
measures improves the Total Performance Score's validity by adding 
measures with relatively high correlation with patient outcomes. We 
further believe that these measures, which capture outcomes data, 
enable us to provide incentives to hospitals focusing on a broader 
picture of health care quality, rather than simply rewarding hospitals 
for completing clinical processes.
    Comment: Some commenters suggested that we consider additional HAC 
measures for the Hospital VBP Program, including CAUTI and vascular 
catheter-associated infection. Commenters urged us to retain the HAC 
measures that we suspended in the CY 2012 OPPS/ASC final rule with 
comment period for the FY 2014 Hospital VBP Program and suggested

[[Page 53592]]

that we consider additional HAI measures for the FY 2015 VBP Program.
    Response: We thank commenters for these suggestions. As stated 
above, we will consider additional measures for the Hospital VBP 
Program as they become available under the requirements set forth in 
section 1886(o)(2) of the Act and if they are consistent with the 
National Quality Strategy and the agency's other quality improvement 
priorities.
    After consideration of the public comments we received, we are 
finalizing the FY 2015 Hospital VBP Program measure set as proposed, 
with the exception, as described further above, of AMI-10, which we 
have concluded is ``topped-out.''
c. General Process for Hospital VBP Program Measure Adoption for Future 
Program Years
    In the FY 2013 IPPS/LTCH PPS proposed rule (77 FR 28080), in order 
to facilitate measure adoption for the Hospital VBP Program for future 
years, as well as further align the Hospital VBP Program with the 
Hospital IQR Program, we proposed to re-adopt measures from the prior 
program year for each successive program year, unless proposed and 
finalized otherwise (for example, because one or more of the clinical 
process of care measures is topped-out). We intend to continue 
monitoring Hospital VBP measures for topped-out status and will propose 
to remove topped-out measures from the program as appropriate in future 
rulemaking. We will therefore generally re-adopt the prior program 
year's measure set unless we propose to add or remove measures through 
rulemaking and in response to public comments. However, under this 
policy, once measures are finalized, we would not separately re-propose 
them for each program year. We invited public comments on this 
proposal.
    Comment: Some commenters supported the proposal to re-adopt 
Hospital VBP measures automatically for each program year, noting that 
the policy will give stability and predictability to the program while 
still affording CMS flexibility to make needed changes.
    Response: We agree and thank commenters for their support.
    Comment: Some commenters opposed the proposal to re-adopt measures 
for future program years unless CMS proposes to remove them. Commenters 
suggested that new measures may make older measures redundant or 
unnecessary, and argued that stakeholders should be able to comment on 
the entire measure set annually.
    Response: We intend to re-evaluate the entire Hospital VBP measure 
set each year, and to propose to remove any measures that we conclude 
would be redundant or unnecessary due to the addition of other, newer 
measures. We also intend to solicit comments on an annual basis on the 
entire measure set, including both newly proposed and previously 
finalized measures, and we will consider and respond to all of these 
comments. We view the proposal to automatically re-adopt measures as a 
way to ensure consistency across Hospital VBP Program years. This 
proposal also seeks to assist hospitals in their planning and quality 
improvement efforts through more advanced notice about Hospital VBP 
measures to be included in future program years.
    After consideration of the public comments we received, we are 
finalizing our policy enabling automatic re-adoption of quality 
measures from prior program years as proposed.
9. Measures and Domains for the FY 2016 Hospital VBP Program
a. FY 2016 Measures
    In the FY 2013 IPPS/LTCH PPS proposed rule (77 FR 28080), we 
proposed to retain the three 30-day mortality measures that were 
finalized for the FY 2014 Hospital VBP Program, and which we are 
finalizing for the FY 2015 Hospital VBP Program, for the FY 2016 
Hospital VBP Program. We also proposed to retain PSI-90, which is the 
AHRQ PSI composite measure that we are finalizing for the FY 2015 
Hospital VBP Program, for the FY 2016 Hospital VBP Program. By 
proposing to adopt these measures now, we believe we will be able to 
adopt a longer performance period and collect more data for performance 
scoring than would be possible if we waited to make this proposal until 
the FY 2014 IPPS/LTCH PPS proposed rule. We also proposed to adopt 
these measures at this time because we recognize 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. Accordingly, we 
proposed that the performance period for these measures would begin 
October 1, 2012, for purposes of the FY 2016 Hospital VBP Program. 
Because we are finalizing our proposal above to automatically re-adopt 
measures from year to year, the other proposed FY 2015 measures will 
also become part of the FY 2016 measure set (with the exception of the 
CLABSI measure) unless we propose otherwise in future rulemaking. We 
also anticipate adopting additional measures for the FY 2016 Hospital 
VBP Program in future rulemaking.
    The proposed FY 2016 Hospital VBP Program 30-day mortality measures 
and AHRQ PSI composite measure are shown below:

       Proposed Outcome Measures for FY 2016 Hospital VBP Program
------------------------------------------------------------------------
            Measure ID                           Description
------------------------------------------------------------------------
AHRQ PSI composite................  Complication/patient safety for
                                     selected indicators (composite).
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.
------------------------------------------------------------------------

    We did not propose to adopt the CLABSI measure for the FY 2016 
Hospital VBP Program at this time, but stated that we may propose it in 
future rulemaking.
    We invited public comment on these proposals.
    Comment: Some commenters urged us to clarify whether CMS will 
propose to adopt the CLABSI measure for the FY 2016 Hospital VBP 
Program.
    Response: We anticipate proposing to adopt CLABSI for the FY 2016 
Hospital VBP Program.
    Comment: Some commenters urged CMS to exclude patients identified 
as needing only hospice or palliative care from Hospital VBP Program 
calculations, arguing that inconsistent access to these services may 
result in unfair penalties to hospitals in areas without those 
services.

[[Page 53593]]

    Response: As patients needing hospice or palliative care will still 
require resources from hospitals, we do not believe it would be 
appropriate to exclude them from Hospital VBP Program calculations, nor 
do we believe it would be consistent with measure specifications. We 
intend to monitor the effects of the Hospital VBP Program on care 
quality in the acute inpatient setting and will examine this issue in 
the future.
    After consideration of the public comments we received, we are 
finalizing our proposal to include the 30-day mortality measures, AHRQ 
PSI composite measure, and other measures finalized for the FY 2015 
Hospital VBP measure set (with the exception of the CLABSI measure) in 
the FY 2016 measure set. As stated above, we might propose in future 
rulemaking to adopt additional measures beginning with the FY 2016 
Hospital VBP Program.
b. Quality Measure Domains for the FY 2016 Hospital VBP Program
    Currently, measure domains are defined by the measure type rather 
than by measure function. At the time of the Hospital VBP Program's 
development, we believed this type of measure classification, which was 
included in the 2007 Report to Congress, was appropriate for the 
program based on its clarity and simplicity compared to alternative 
scoring models. We refer readers to the Hospital Inpatient VBP Program 
final rule (76 FR 26513 through 26514) for further discussion of our 
decision to finalize the Three-Domain Performance Scoring Model for the 
Hospital VBP Program with appropriate modifications for additional 
domains as necessary. The FY 2014 Hospital VBP Program's domains are 
clinical process of care, outcomes, and patient experience of care. The 
FY 2015 Hospital VBP Program's proposed domains are clinical process of 
care, outcomes, patient experience of care, and efficiency.
    We strive to align quality measurement and value-based purchasing 
efforts with the National Quality Strategy and across programs. Value-
based purchasing programs in particular allow us to link the National 
Quality Strategy with Medicare reimbursements to providers and 
suppliers on a national scale. Given this objective, as well as our 
objective to focus quality measurement on the patient-centered outcome 
of interest to the extent possible, in the FY 2013 IPPS/LTCH PPS 
proposed rule (77 FR 28081), we proposed to reclassify the Hospital VBP 
measures into domains based on the six priorities of the National 
Quality Strategy, beginning with the FY 2016 Hospital VBP Program. We 
made this proposal in this proposed rule to ensure that we have ample 
time to consider all public comments and finalize any policies in 
advance of the FY 2016 program year.
    We proposed that the following six domains serve as a framework for 
measurement and TPS calculations for the Hospital VBP Program beginning 
with the FY 2016 program year: Clinical Care; Person- and Caregiver-
Centered Experience and Outcomes; Safety; Efficiency and Cost 
Reduction; Care Coordination; and Community/Population Health.
    To illustrate how CMS would classify measures into the proposed new 
domains, we offered the following example using the proposed FY 2015 
Hospital VBP measure set:

------------------------------------------------------------------------
                                   Proposed FY 2016    Proposed FY 2015
    Proposed FY 2015 measures           domain              domain
------------------------------------------------------------------------
HF-1 Discharge Instructions.....  Care Coordination.  Clinical Process
                                                       of Care.
AMI-10 Statin Prescribed at       Clinical Care.....  Clinical Process
 Discharge.                                            of Care.
AMI-7a Fibrinolytic Agent         Clinical Care.....  Clinical Process
 Received Within 30 Minutes of                         of Care
 Hospital Arrival.
AMI-8a Primary PCI Received       Clinical Care.....  Clinical Process
 Within 90 Minutes of Hospital                         of Care.
 Arrival.
Mortality-30-AMI: Acute           Clinical Care.....  Outcomes.
 Myocardial Infarction (AMI) 30-
 day Mortality Rate.
Mortality-30-HF: Heart Failure    Clinical Care.....  Outcomes.
 (HF) 30-day Mortality Rate.
Mortality-30-PN: Pneumonia (PN)   Clinical Care.....  Outcomes.
 30-Day Mortality Rate.
PN-3b Blood Cultures Performed    Clinical Care.....  Clinical Process
 in the Emergency Department                           of Care.
 Prior to Initial Antibiotic
 Received in Hospital.
PN-6 Initial Antibiotic           Clinical Care.....  Clinical Process
 Selection for Community-                              of Care.
 Acquired Pneumonia (CAP) in
 Immunocompetent Patients.
SCIP Card-2 Surgery Patients on   Clinical Care.....  Clinical Process
 Beta-Blocker Therapy Prior to                         of Care.
 Arrival Who Received a Beta-
 Blocker During the
 Perioperative Period.
SCIP-Inf-01 Prophylactic          Clinical Care.....  Clinical Process
 antibiotic received within 1                          of Care.
 hour prior to surgical incision.
SCIP-Inf-02 Prophylactic          Clinical Care.....  Clinical Process
 antibiotic selection for                              of Care.
 surgical patients.
SCIP-Inf-03 Prophylactic          Clinical Care.....  Clinical Process
 antibiotics discontinued with                         of Care.
 24 hours after surgery end time.
SCIP-Inf-04 Cardiac Surgery       Clinical Care.....  Clinical Process
 Patients with Controlled 6AM                          of Care.
 Postoperative Serum Glucose.
SCIP-VTE-2 Surgery Patients Who   Clinical Care.....  Clinical Process
 Received Appropriate Venous                           of Care.
 Thromboembolism Prophylaxis
 Within 24 Hours Prior to
 Surgery to 24 Hours After
 Surgery.
Medicare spending per             Efficiency and      Efficiency.
 beneficiary.                      Cost Reduction.
HCAHPS--Hospital Consumer         Person- and         Patient Experience
 Assessment of Healthcare          Caregiver-          of Care.
 Providers and Systems Survey.     Centered
                                   Experience and
                                   Outcomes.
Central Line-Associated Blood     Safety............  Outcome.
 Stream Infection (CLABSI).
PSI 90 Complication/Patient       Safety............  Outcome.
 Safety for Selected Indicators
 (Composite).
------------------------------------------------------------------------

    We acknowledge that some of the measures noted above could 
appropriately be placed in more than one domain because the quality 
improvement characteristics they seek to measure, especially for 
outcome measures, are multifaceted. We believe that the measure 
classification by domain should reflect the primary measurement 
objective and the type of quality improvement goal the measure seeks to 
capture. For example, although

[[Page 53594]]

a reduction in CLABSIs may reflect improved clinical care, we believe 
that it better reflects an improvement in patient safety because such 
infections often cause harm to patients.
    We proposed that the TPS would continue to be determined by 
aggregating each hospital's scores across all domains. A hospital's 
score on each domain would also continue to be calculated based on the 
hospital's score on each measure within the domain, which is based on 
the higher of its achievement or improvement during the applicable 
performance period.
    We welcomed public comment on our proposal to regroup the Hospital 
VBP Program's quality measures into six domains that better reflect the 
National Quality Strategy, beginning with the FY 2016 Hospital VBP 
Program.
    We also solicited comments on how to properly weight the domains in 
FY 2016. We believe that domain weighting should primarily balance two 
factors. First, it should reflect our concept of quality as it relates 
to the National Quality Strategy and the most critical needs for 
quality improvement in caring for beneficiaries. Second, it should 
reflect the relative depth and maturity of measures in each domain. For 
example, although improvement in the proposed Care Coordination domain 
is a priority, we would want to take into consideration whether the 
care coordination measures available for inclusion in that domain in a 
particular year capture multiple aspects of care coordination. If we 
did not believe that the measures within a domain captured enough 
aspects of care, we would consider proposing a relatively lower weight 
for the domain. We anticipate that the domain weights will evolve over 
time as the measure set changes.
    We also recognize that the current domain weighting system allows 
us to place higher value on measures closer to the patient-centered 
outcome of interest by grouping outcome measures into a single domain. 
In the proposed domain reclassification, the 30-day mortality measures 
would be grouped with process measures. Although we anticipate that the 
measure set will evolve over time to be more focused on outcomes, the 
current measure set continues to emphasize clinical processes. We 
sought public comment on whether CMS should continue to group all 
outcome measures in a single domain. In addition, we sought public 
comment on the implications of and alternatives to the proposed 
approach of including both clinical process of care measures and 
outcome measures in the proposed Clinical Care domain under the 
proposed domain reclassification.
    Comment: Some commenters expressed support for our proposal to 
realign the Hospital VBP measure scoring domains around the priorities 
articulated in the National Quality Strategy.
    Response: We thank commenters for their support.
    Comment: Some commenters expressed concerns about the proposed 
domain reclassification for FY 2016, suggesting that the proposed 
structure could dilute hospitals' focus on outcome measures. Commenters 
preferred that outcome measures continue to be grouped together and 
given substantial domain weight to reflect the relatively greater 
importance of outcomes to patients and taxpayers. Other commenters were 
concerned about adopting domains based on the National Quality Strategy 
with relatively few measures.
    Response: We understand the commenters' concern and agree that the 
Hospital VBP Program should, over time, focus its measure set on 
measures of outcomes and efficiency rather than clinical processes. We 
intend to continue shifting the focus of the Hospital VBP Program's 
measure set from clinical processes to measures of outcomes and 
efficiency, and will consider the commenters' concerns about diluting 
hospitals' focus on outcome measures in the future.
    We are also concerned about adopting domains with relatively few 
measures, but we note that such a policy serves to focus hospitals' 
attention on the measures captured in such domains. As noted above, we 
finalized the FY 2015 Program's Efficiency domain with one measure, 
which we believe shows the relative importance of efficiency in the 
health care sector.
    Comment: Some commenters urged CMS to proceed cautiously in 
reclassifying Hospital VBP measure scoring domains for the FY 2016 
Hospital VBP Program. Some commenters suggested that the National 
Quality Strategy's priorities are more appropriate for Accountable Care 
Organizations or as guiding principles for quality rather than as 
quality domains. Commenters suggested that CMS allow Hospital VBP 
Program scoring previews before completing any domain reclassification 
in order to allow hospitals to evaluate the impact on their scores. 
Some commenters also suggested that CMS wait until hospitals have 
actual experience with the Hospital VBP Program before fundamentally 
reshaping its structure.
    Response: We thank commenters for their input. We will consider the 
feasibility of providing hospitals with scoring previews in the future. 
As we are not finalizing this domain reclassification at this time, we 
believe we are meeting commenters' request that we wait until hospitals 
have actual experience with the Program before reshaping it. We will 
consider re-proposing this domain reclassification when we have more 
information to evaluate hospitals' performance under the Program.
    After consideration of the public comments we received, we are not 
finalizing our proposal to reclassify the Hospital VBP measures into 
domains based on the six priorities of the National Quality Strategy in 
FY 2016. We will maintain the existing four-domain structure in FY 
2016. We will consider these comments should we address this issue 
again in future rulemaking.
10. Performance Periods and Baseline Periods for the FY 2015 Hospital 
VBP Program
    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.
a. Clinical Process of Care Domain Performance Period and Baseline 
Period for FY 2015
    In the CY 2012 OPPS/ASC final rule with comment period (76 FR 
74534), for the FY 2014 Hospital VBP Program, we finalized a 9-month 
(3-quarter) performance period from April 1, 2012 through December 31, 
2012 for the clinical process of care domain measures.
    As we stated in that final rule with comment period, adopting a 3-
quarter performance period for this domain for the FY 2014 Hospital VBP 
Program would enable us to consider adopting a 12-month performance 
period for this domain for FY 2015. Therefore, in the FY 2013 IPPS/LTCH 
PPS proposed rule (77 FR 28082), we proposed to adopt CY 2013 (January 
1, 2013 through December 31, 2013) as the performance period for all 
but one of the clinical process of care domain measures for the FY 2015 
Hospital VBP Program. This proposed performance period for FY 2015 
would begin immediately after the end of the FY 2014 performance period 
and will enable us to begin to make value-based incentive payments to 
hospitals beginning October 1, 2014. A 12-month performance period 
would also give us more data on which to score hospital performance, 
which is an important goal both for CMS and for stakeholders. We also 
note that a 12-month performance

[[Page 53595]]

period is consistent with the periods used for the Hospital IQR 
Program.
    However, as noted above, AMI-10 measure data were posted on 
Hospital Compare on January 26, 2012. Therefore, we stated that we did 
not believe we could begin a performance period for this measure on 
January 1, 2013, which would align with the proposed performance period 
for all other clinical process of care measures. We considered the most 
appropriate way to include this measure in the FY 2015 Hospital VBP 
Program and concluded that we should propose a 9-month performance 
period from April 1, 2013 through December 31, 2013. As we have stated 
for prior program years, we believe that a 9-month performance period 
provides sufficiently reliable quality measure data for clinical 
process of care measures. We also stated that we intend to align the 
AMI-10 measure's performance period with all other clinical process 
measures for future program years.
    As we explained in the Hospital Inpatient VBP Program final rule 
(76 FR 26511), we believe that baseline data should be used from a 
comparable prior period for purposes of calculating the performance 
standards. However, we also strive to balance that belief with our 
desire to use the most recently-available data in order to calculate 
performance standards, as we believe that more recent data more closely 
reflects current performance on measures. Therefore, we proposed to 
adopt CY 2011 (January 1, 2011 through December 31, 2011) as the 
baseline period for all but one of the Clinical Process of Care domain 
measures for the FY 2015 Hospital VBP Program. As noted above, we 
proposed to adopt a 9-month performance period for the AMI-10 measure. 
In accordance with our preference for adopting a comparable prior 
period for purposes of calculating the performance standards, we 
proposed to adopt a 9-month baseline period of April 1, 2011 through 
December 31, 2011 for the AMI-10 measure.
    We welcomed public comment on these proposals.
    Comment: Commenters generally supported CMS' clinical process of 
care performance period proposals for the FY 2015 Hospital VBP Program, 
including proposing to use a full calendar year for most clinical 
process measures and a slightly shorter performance period for AMI-10 
consistent with its posting date on Hospital Compare.
    Response: We thank commenters for their support. However, as 
described further above, because we have concluded that AMI-10 is 
``topped-out,'' we are not finalizing that measure for the Hospital VBP 
Program.
    After consideration of the public comments we received, we are 
finalizing the FY 2015 performance period and baseline period for the 
Clinical Process of Care domain as proposed, with the exception of the 
proposed periods for the AMI-10 measure.
b. Patient Experience of Care Domain Performance Period and Baseline 
Period for FY 2015
    In the CY 2012 OPPS/ASC final rule with comment period (76 FR 
74534), for the FY 2014 Hospital VBP Program, we finalized a 9-month 
(3-quarter) performance period from April 1, 2012 through December 31, 
2012 for the Patient Experience of Care domain measure.
    As we stated in that final rule with comment period, adopting a 3-
quarter performance period for this domain for the FY 2014 Hospital VBP 
Program would enable us to consider adopting a 12-month performance 
period for this domain for FY 2015. 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 proposed rule (77 FR 28083) we proposed to 
adopt CY 2013 (January 1, 2013 through December 31, 2013) as the 
performance period for the Patient Experience of Care domain measure 
for the FY 2015 Hospital VBP Program. This proposed performance period 
for FY 2015 would begin immediately after the end of the FY 2014 
performance period and would enable us to begin making value-based 
incentive payments to hospitals beginning on October 1, 2014. We also 
note that a 12-month performance period is consistent with the periods 
used for the Hospital IQR Program.
    As we explained in the Hospital Inpatient VBP Program final rule 
(76 FR 26511), we believe that baseline data should be used from a 
comparable prior period for purposes of calculating the performance 
standards. Therefore, we proposed to adopt CY 2011 (January 1, 2011 
through December 31, 2011) as the baseline period for the Patient 
Experience of Care domain measure for the FY 2015 Hospital VBP Program.
    We welcomed public comment on these proposals.
    Comment: Commenters generally supported the proposal to adopt 12-
month baseline and performance periods for the Patient Experience of 
Care Domain for the FY 2015 Hospital VBP Program.
    Response: We thank commenters for their support.
    After consideration of the public comments we received, we are 
finalizing the FY 2015 Patient Experience of Care performance period 
and baseline period as proposed.
c. Efficiency Domain Measure Performance Period and Baseline Period for 
FY 2015
    We posted performance data for the Medicare Spending Per 
Beneficiary measure on Hospital Compare on April 21, 2012. We therefore 
concluded that the earliest we could begin a performance period for FY 
2015 is one year from the date on which the data was posted. In the FY 
2013 IPPS/LTCH PPS proposed rule (77 FR 28083), we proposed an end date 
of December 31, 2013 for this measure's performance period. This end 
date is consistent with the end dates proposed for the Clinical Process 
of Care domain and for the HCAHPS measure in the Patient Experience of 
Care domain.
    In the interest of maintaining consistency across domains, to the 
extent 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, we proposed to adopt an 8-month performance period (May 1, 2013 
through December 31, 2013) for the Medicare spending per beneficiary 
measure for the FY 2015 Hospital VBP Program. We believe this proposed 
performance period enables us to collect as much measure data as 
possible and the time necessary to process claims and incorporate 
measure data into Hospital VBP Program scores. We further proposed to 
adopt a corresponding prior period (May 1, 2011 through December 31, 
2011) as the baseline period for purposes of calculating the 
performance standards. This proposed baseline period would be 
consistent with the baseline period proposed for other Hospital VBP 
Program measures in that it precedes the performance period by two 
years.
    We welcomed public comment on the proposed FY 2015 performance and 
baseline period for the Medicare spending per beneficiary measure.
    Comment: Some commenters argued that the proposed performance 
period for the Medicare Spending per Beneficiary measure is not long 
enough to produce reliable data on which to base performance scores.
    Response: We disagree. We believe that the proposed performance 
period will enable us to make robust comparisons of hospitals' spending 
levels, which we note are important

[[Page 53596]]

considerations for quality improvement. As described in the FY 2013 
IPPS/LTCH PPS proposed rule, we conducted an independent analysis of 
the minimum number of cases necessary for hospitals to receive a 
reliable score on the Medicare Spending per Beneficiary measure (77 FR 
28089-90), and we believe that the 25 case minimum finalized below 
appropriately ensures that hospitals are being compared using reliable 
measure data. In addition, in order to confirm our expectation that the 
Medicare Spending per Beneficiary measure would be reliable, an 
expectation that was based on the large number of discharges included 
in the measure and the body of literature supporting the ability of 
cost measures to assess variability between hospitals, we have 
conducted comprehensive reliability testing of the measure. As 
discussed in section VIII.C.8.b of this preamble, that analysis found 
the measure to be reliable with a minimum of 10 cases. We discuss and 
finalize our minimum case number for the Medicare Spending per 
Beneficiary measure in section VIII.C.14.c. of this preamble.
    After consideration of the public comments we received, we are 
finalizing the FY 2015 performance period for the Medicare Spending per 
Beneficiary measure as proposed.
d. Outcome Domain Performance Periods for FY 2015
(1) Mortality Measures
    In the Hospital Inpatient VBP Program final rule (76 FR 26495), we 
finalized a 12-month performance period (July 1, 2011-June 30, 2012) 
for the Outcome domain for the FY 2014 Hospital VBP Program. We also 
finalized a comparable prior period as the baseline period (July 1, 
2009 through June 30, 2010) for purposes of calculating improvement 
points as well as the performance standards.
    Due to the lengthy time needed for us to compile certain claims-
based measure data at the individual hospital level and calculate the 
measure rates and scores (discussed more fully in section VIII.C.6.b. 
of this preamble in the context of our review and corrections proposal 
for claims-based measures), we must conclude the performance period for 
the mortality and AHRQ PSI measures for FY 2015 by June 30, 2013.
    We are concerned about the difficulty that varied performance 
periods impose on participating hospitals. While we believe the public 
recognizes the need for different performance periods due to varied 
measure types and collection methods, we strive to propose performance 
periods that are as consistent as possible from one program year to the 
next. We believe this consistency is important for all hospitals that 
are working to improve the quality of care they provide to Medicare 
beneficiaries and to the entirety of the patient population. However, 
we are also aware that the Hospital VBP statute requires that we 
establish and announce performance standards for Hospital VBP measures 
at least 60 days in advance of the performance period. Because we 
proposed to adopt these measures for FY 2015 in the FY 2013 IPPS/LTCH 
PPS proposed rule, which will not be effective until 60 days after it 
is finalized, we did not believe we could propose a performance period 
for these measures beginning earlier than October 1, 2012.
    We note that this proposed performance period is less than 12 
months, which may raise seasonality concerns with regard to these 
measures. We note further that we examined the independent analysis of 
these measures' reliability provided by Mathematica Policy Research, 
entitled, ``Reporting Period and Reliability of AHRQ, CMS 30-day and 
HAC Quality Measures--Revised,'' which is available on our Web site 
(http://cms.hhs.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/hospital-value-based-purchasing/Downloads/HVBP_Measure_Reliability-.pdf), and which concluded that the measures may not 
achieve total reliability for all hospitals for reporting periods as 
short as 6 months. However, we believe that holding all hospitals 
accountable using the same period will fairly alleviate those concerns, 
particularly because these measures are risk-adjusted using a 
methodology that does not penalize hospitals for poor performance on 
the measure without a relatively larger sample size. As described 
further below, while we are concerned about these measures' reliability 
when adopting a performance period of less than 12 months, we believe 
that increasing the required minimum number of cases will assure 
sufficient reliability for these measures for value-based purchasing. 
Based on our stated objective to include outcome measures in the 
Hospital VBP Program, we believe that the proposed 9-month performance 
period for these measures will produce sufficiently reliable results 
for hospitals.
    Therefore, in the FY 2013 IPPS/LTCH PPS proposed rule (77 FR 
28083), we proposed to adopt a 9-month performance period for the three 
30-day mortality measures for FY 2015 from October 1, 2012 through June 
30, 2013. We further proposed a comparable baseline period from October 
1, 2010 through June 30, 2011.
    We welcomed public comment on our proposal to adopt a performance 
period for the proposed FY 2015 mortality measures that runs from 
October 1, 2012 through June 30, 2013, and a baseline period that runs 
from October 1, 2010, through June 30, 2011.
    Comment: Many commenters expressed concern about the proposed 
performance period for mortality measures, arguing that the proposed 
period is too short to provide reliable measure scores on which to base 
TPSs. Commenters noted that a statistical report released by CMS 
concluded that the mortality measures do not appear to be reliable even 
with up to 24 months of performance information.
    Response: As stated above, we believe that holding all hospitals 
accountable using the same time period alleviates any significant 
concerns about seasonal variation in measure performance. We believe 
that our proposal is responsive to concerns about outcome measure 
reliability. Our proposals are designed to increase overall reliability 
of these measures, and exclude hospitals with the most unreliable 
measure rates from receiving a score in the outcome domain. We also 
considered the improved validity resulting from outcome measures that 
include a higher correlation with patient outcomes, relative to process 
of care measures. As stated previously, we assessed measure 
reliability, TPS reliability and validity, and alignment with our 
policy goal to reduce cost and improve patient health outcomes when we 
developed our proposals.
    Comment: Some commenters expressed concern about the proposed 
performance periods, suggesting that CMS should wait until it can adopt 
12-month performance and baseline periods before adopting measures into 
the Hospital VBP Program. Commenters argued that 12-month performance 
periods represent the minimum length that CMS should consider 
finalizing.
    Response: While we are also concerned about requiring hospitals to 
improve on quality metrics during varied performance periods, as stated 
above, we believe the proposed performance periods enable us to adopt 
robust quality measures covering important clinical topics as quickly 
as possible, thereby encouraging hospitals to improve their performance 
on the measures. We believe that the Hospital VBP Program's shifting 
focus from measures of clinical processes to outcome and efficiency 
measures rightly ensures that hospitals consider how to improve every 
aspect of the care

[[Page 53597]]

provided to Medicare beneficiaries, an aim that we achieve by adopting 
new measures into the Hospital VBP Program as soon as possible.
    After consideration of the public comments we received, we are 
finalizing the FY 2015 performance period and baseline period for the 
30-day mortality measures as proposed.
(2) AHRQ PSI Composite Measure
    We posted hospital performance data on the AHRQ PSI composite 
measure on Hospital Compare on October 14, 2011. Based on that posting 
date, we believe the earliest we could begin a performance period for 
FY 2015 is October 14, 2012. As discussed above, we must conclude the 
performance period for certain claims-based measures by June 30, 2013 
in order to allow sufficient time to calculate the measure rates and 
scores. We note that we did not specify which measures' performance 
period we must end by June 30, 2013 in the proposed rule; we intended 
to refer specifically to the mortality measures and the AHRQ PSI 
composite measure.
    Therefore, in the FY 2013 IPPS/LTCH PPS proposed rule (77 FR 
28084), we proposed to adopt a nearly 9-month performance period 
(October 15, 2012 through June 30, 2013) for the AHRQ PSI composite 
measure for FY 2015. We believe that this performance period will 
provide us with sufficiently reliable data on which to base hospitals' 
scores. We further proposed to adopt a comparable prior period from 
October 15, 2010 through June 30, 2011 as the baseline period for 
purposes of calculating the performance standards.
    While we would prefer to adopt a performance period longer than 
nearly 9-months in order to provide the most reliable measure data 
possible, we believe that the proposed period enables us to ensure that 
this measure, which assesses hospital performance on the critical topic 
of patient safety, is included in hospitals' FY 2015 TPSs and, 
therefore, will become a focus of quality improvement efforts. We note 
further that we examined the independent analysis of this measure's 
reliability provided by Mathematica Policy Research, entitled, 
``Reporting Period and Reliability of AHRQ, CMS 30-day and HAC Quality 
Measures--Revised,'' which is available on our Web site (http://cms.hhs.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/hospital-value-based-purchasing/Downloads/HVBP_Measure_Reliability-.pdf), and which concluded that the AHRQ PSI composite 
measure achieves moderate reliability for the majority of hospitals for 
reporting periods of 6 months or longer. Based on our objective to 
include patient safety measures in the Hospital VBP Program, we believe 
that the proposed nearly 9-month performance period for this measure 
will produce reliable results for hospitals.
    We welcomed public comment on these proposals.
    Comment: Many commenters opposed the proposed performance period 
for the AHRQ PSI composite measure, arguing that CMS' standard for 
reliability testing for the measure is not sufficient for a payment 
program. Some commenters urged CMS to review measure reliability at 0.9 
or higher to ensure that value-based incentive payments have high 
reliability rates.
    Response: As described above, we believe that the AHRQ PSI 
composite measure is sufficiently reliable for purposes of the Hospital 
VBP program. The median reliability level of this measure is estimated 
to be 0.7 for a 9 month performance period. In our measure selection 
and performance period assessment, we also assessed the validity of the 
measure through its correlation with patient health outcomes, and the 
reliability of the TPS as indicative of hospital performance. We do not 
believe that focusing on the individual measure's reliability, to the 
exclusion of its contribution to the reliability of the TPS, is the 
sole criterion for assessing the appropriateness of adopting measures 
to the Hospital VBP Program. We note that the AHRQ PSI composite 
measure is a measure of patient safety, a critical topic for quality 
measurement and improvement, and we believe strongly that adopting this 
measure for the Hospital VBP Program will ensure that hospitals focus 
on the topic of patient safety when working towards quality 
improvement.
    We do not believe that commenters' suggestion of adopting 0.9 as 
the standard for measure reliability to the exclusion of other criteria 
is advisable. We further note that we assess quality measures for 
adoption in the Hospital VBP Program in many ways, including 
reliability, the number of hospitals receiving a score on the measure, 
the measure topic, and alignment with quality priorities.
    After consideration of the public comments we received, we are 
finalizing the FY 2015 performance period and baseline period for the 
AHRQ PSI composite measure as proposed.
(3) CLABSI Measure
    We posted CLABSI measure data on Hospital Compare on January 26, 
2012. Pursuant to our commitment to post measure data on Hospital 
Compare at least one year prior to the beginning of a performance 
period for the Hospital VBP Program, the earliest we can begin a 
performance period for this measure is January 26, 2013. Because, as 
described above, we believe this measure captures important patient 
safety data, in this case related to infections that present the 
possibility of significant harm to hospitalized patients, we believe it 
is appropriate to adopt the measure as soon as possible for as lengthy 
a performance period as possible. Adopting an approximately 11-month 
performance period for this measure will not, in our view, appreciably 
harm the measure's statistical reliability for purposes of value-based 
purchasing scoring, particularly because (as described below) we also 
proposed to adopt the measure steward's criteria for minimum number of 
cases to receive a measure score.
    Therefore, in the FY 2013 IPPS/LTCH PPS proposed rule (77 FR 
28084), we proposed to adopt an approximately 11-month performance 
period for the CLABSI measure from January 26, 2013 through December 
31, 2013 with a comparable baseline period of January 26, 2011 through 
December 31, 2011 for purposes of calculating the performance 
standards.
    We welcomed public comment on these proposals.
    Comment: Many commenters were concerned about the proposed 
performance period for the CLABSI measure. Commenters were specifically 
concerned about the quality of CLABSI data that is being reported 
publicly, as they argued that less than 25 percent of hospitals met the 
minimum case threshold for reporting on Hospital Compare during the 
first quarter of public reporting. Commenters asserted that the 
relatively small sample is not representative of hospitals around the 
country.
    Response: We understand commenters' concerns about the robustness 
of the CLABSI measure data. However, we believe that the best way to 
address these concerns is to include as much data from as many 
participating hospitals as possible. While the January 2011 Hospital 
Compare display included data for a relatively small number of 
hospitals, approximately 2,300 hospitals reporting CLABSI data were 
suppressed on the January 2011 Hospital Compare due to insufficient 
volume of reported data. In

[[Page 53598]]

total, over 2,600 hospitals submitted CLABSI data during the first 
quarter 2011 to the NHSN to comply with our Hospital IQR Program 
reporting requirement. An additional 600 hospitals reported to CMS that 
they did not treat a sufficient volume of ICU patients, and were not 
required to report CLABSI data to CMS. We also note that the May 2012 
display of Hospital Compare included over 1,500 hospitals' CLABSI data, 
an increase of over 1,000 hospitals from the January posting. We 
anticipate the number of hospitals posted on Hospital Compare will 
increase to over 2,000 hospitals when we collect 12 months of CLABSI 
data. We do not believe it is appropriate to drop January 2011 reported 
data because we believe that the increased reliability using a 12 month 
performance period and we believe that any sampling bias that may have 
been introduced by the relatively small number of reporting hospitals 
in the first quarter is eliminated by adopting a 12-month baseline 
period and including as many hospitals as possible. We believe that 
adopting a 12-month baseline period enables us to calculate performance 
standards that fully and fairly reflect national performance on the 
CLABSI measure without including the effects of seasonal variation.
    We also wish to provide hospitals with baseline performance period 
data as soon as feasible to promote hospital quality improvement 
efforts. We anticipate that hospitals will also see their 12 month 
baseline performance period CLABSI data on Hospital Compare by January 
2013. These same data are posted on Hospital Compare as part of our 
Hospital IQR program. We expect to provide Hospital Compare preview 
reports containing this information to hospitals during fall 2012 
calendar year.
    In addition, CDC advised us that CLABSI measure data may not be 
easily disaggregated to incident day, but rather, may only be reduced 
to incident month. For that reason, we are finalizing that instead of 
beginning the performance period for the CLABSI measure for FY 2015 
with January 26, 2013 events, the performance period will begin with 
February 1, 2013 events.
    After consideration of the public comments we received, we are 
finalizing an FY 2015 performance period for the CLABSI measure of 
February 1, 2013 through December 31, 2013 infection event data, with a 
baseline period of January 1, 2011 through December 31, 2011 infection 
event data.
    The final performance and baseline periods for all of the FY 2015 
measures appear below:

------------------------------------------------------------------------
           Domain                Baseline period     Performance period
------------------------------------------------------------------------
Clinical Process of Care....  January 1, 2011-      January 1, 2013-
                               December 31, 2011.    December 31, 2013.
Patient Experience of Care..  January 1, 2011-      January 1, 2013-
                               December 31, 2011.    December 31, 2013.
Outcome
     Mortality......   October 1,    October 1,
                               2010-June 30, 2011.   2012-June 30, 2013.
     AHRQ PSI.......   October 15,   October 15,
                               2010-June 30, 2011.   2012-June 30, 2013.
     CLABSI.........   January 1,    February 1,
                               2011-December 31,     2013-December 31,
                               2011.                 2013.
Efficiency
     Medicare          May 1, 2011-  May 1, 2013-
     Spending Per              December 31, 2011.    December 31, 2013.
     Beneficiary-1.
------------------------------------------------------------------------

e. Performance Periods for FY 2016 Measures
    In order to provide relatively more reliable data for the three 
proposed 30-day mortality measures and the AHRQ PSI composite measure, 
we considered how we could adopt a 24-month performance period for the 
FY 2016 Hospital VBP Program. We do not believe it is feasible to do so 
at this time given the statutory requirement that we establish and 
announce performance standards at least 60 days in advance of the 
applicable performance period. However, we intend to propose to adopt a 
24-month performance period for these measures as soon as is 
practicable and will consider a 24-month performance period in future 
rulemaking.
    Given the time constraints associated with the annual IPPS/LTCH PPS 
rulemaking schedule, we believe that the longest performance period we 
can propose for FY 2016 at this time is 21 months. We believe that this 
performance period will provide relatively more reliable measure data 
and will enable us to consider adopting a 24-month performance period 
in the future.
    Therefore in the FY 2013 IPPS/LTCH PPS proposed rule (77 FR 28084), 
we proposed to adopt a 21-month performance period for the three 
proposed 30-day mortality measures and the AHRQ PSI composite measure 
for the FY 2016 Hospital VBP Program, from October 1, 2012 through July 
30, 2014. We further proposed a baseline period of October 1, 2010 
through July 30, 2011, for purposes of calculating performance 
standards and measuring improvement. We note that this baseline period 
is identical to the proposed baseline period for these measures for FY 
2015. We also note that this baseline period is shorter than the 
proposed performance period. We believe it is appropriate to use the 
most recently-available data to calculate performance standards and are 
concerned about the possibility of using data from several years prior 
to the performance period for performance standards. However, we sought 
public comment on whether we should adopt a 24-month baseline period.
    We welcomed public comment on this proposal. We also sought 
comments on the possibility of adopting a ``rolling'' 2-year 
performance period for certain claims-based measures during which we 
would score hospitals using 24 months of data. As an example, under 
such a policy for mortality measures, hospitals could be scored for the 
FY 2018 Hospital VBP Program using data from the performance periods 
for FY 2017 (while not yet proposed, one possibility for that year 
could be July 1, 2013 through June 30, 2015). For subsequent fiscal 
years, we would drop the oldest 12 months of data from that period and 
add the next 12 months. The performance period for the FY 2019 Hospital 
VBP Program under that policy could be July 1, 2014 through June 30, 
2016.
    Comment: Many commenters applauded CMS' proposal to move towards a 
24-month performance period for outcome measures in the future. 
However, some commenters argued that CMS should not finalize shorter 
performance periods for these measures in the interim, citing 
reliability concerns.
    Response: We thank commenters for their support. We believe that 
our proposal is responsive to concerns about outcome measure 
reliability, since we proposed a 21 month FY 2016 performance period 
and a 25 case minimum threshold for including

[[Page 53599]]

mortality measures for the FY 2015 Hospital VBP Program. Both proposals 
are designed to increase the overall reliability of these measures. We 
also considered the improved validity resulting from more outcome 
measures that include a higher correlation with patient outcomes, 
relative to process of care measures. As stated previously, we assessed 
measure reliability, TPS reliability and validity, and alignment with 
our policy goal to reduce cost and improve patient health outcomes when 
we developed our proposals. We disagree that we should exclude these 
measures from the TPS until we can adopt lengthier performance periods. 
We believe that scoring hospitals on these measures, even with 
relatively shorter performance periods, ensures that the topics covered 
by these measures remain important components of hospitals' quality 
improvement efforts.
    Comment: Some commenters opposed the proposal to adopt longer 
performance periods for certain measures in FY 2016. Commenters argued 
that the varied performance periods are confusing for hospitals, and 
that using longer timeframes results in hospitals being held 
accountable for old data.
    Response: We understand commenters' concerns about the varied 
performance periods finalized for the Hospital VBP Program and about 
using relatively older data. However, we make every effort to 
communicate with hospitals about the time periods during which their 
performance will be assessed. We will continue to work to notify 
hospitals about the measures, performance periods, performance 
standards, and other components of the Hospital VBP Program.
    We view the use of relatively older data as a necessary component 
of the Hospital VBP Program given the current state of quality 
measurement. Many measures in the Hospital VBP Program are claims-
based, which often require more time to compile and calculate, and 
require relatively longer performance periods than other types of 
measures to maximize reliability. While this may result in hospitals' 
being held accountable for data from prior fiscal years, we do not 
believe this policy to be avoidable at this time.
    After consideration of the public comments we received, we are 
finalizing the FY 2016 performance period and baseline period for the 
30-day mortality measures as proposed. However, based on the AHRQ PSI 
measure's posting on Hospital Compare on October 14, 2011, we do not 
believe we can finalize a performance period for that measure beginning 
on October 1, 2012. Based on the date of the posting, we believe that 
the longest performance period we could adopt would run from October 
15, 2012 to June 30, 2014, with a corresponding baseline period from 2 
years prior.
    The table below displays the final performance periods and baseline 
periods for the FY 2016 mortality and AHRQ PSI composite measures.

------------------------------------------------------------------------
           Measure               Baseline period     Performance period
------------------------------------------------------------------------
Mortality...................  October 1, 2010-June  October 1, 2012-June
                               30, 2011.             30, 2014.
AHRQ PSI....................  October 15, 2010-     October 15, 2012-
                               June 30, 2011.        June 30, 2014.
------------------------------------------------------------------------

11. Performance Standards for the Hospital VBP Program for FY 2015 and 
FY 2016
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 
proposed rule (77 FR 28085), we proposed to codify this for performance 
standards in our regulations at Sec.  412.165.
b. Performance Standards for the FY 2015 Hospital VBP Program Measures
    In the FY 2013 IPPS/LTCH PPS proposed rule (77 FR 28085), we 
proposed to establish performance standards that apply to the FY 2015 
Hospital VBP Program using the same methodologies that we previously 
adopted for the FY 2013 and FY 2014 Hospital VBP Programs. 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 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 continue to believe that the finalized methodology for 
calculating performance standards is appropriate for the Hospital VBP 
Program given that the Program remains relatively new to hospitals and 
the public. The proposed performance standards for the clinical 
process, outcome, and Medicare spending per beneficiary measures appear 
in the first table below, while the proposed performance standards for 
the patient experience of care (HCAHPS survey) measure appears in the 
second table below. We note that the performance standards displayed 
below represent estimates based on the most recently-available data; we 
are updating the standards in this final rule. We also note that the 
performance standards for the CLABSI measure and the AHRQ PSI composite 
measure are calculated with lower values representing better 
performance, in contrast to other measures, on which higher values 
indicate better performance. We note further that we inadvertently 
omitted the benchmark for the AMI-10 measure and the achievement 
threshold and benchmark for the HF-1 measure in the proposed rule. We 
corrected those omissions in the FY 2013 IPPS/LTCH PPS proposed rule 
correction notice (77 FR 34327 through 34328) and the corrected table 
appears below.

[[Page 53600]]

     Proposed Performance Standards for the FY 2015 Hospital VBP Program Clinical Process of Care and Outcome Domains, and the Medicare Spending per
                                                                   Beneficiary Measure
                                                                       [Corrected]
--------------------------------------------------------------------------------------------------------------------------------------------------------
          Measure ID                       Description                       Achievement threshold                             Benchmark
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                            Clinical Process of Care Measures
--------------------------------------------------------------------------------------------------------------------------------------------------------
AMI-7a........................  Fibrinolytic Therapy Received     0.72727...................................  1.00000.
                                 Within 30 Minutes of Hospital
                                 Arrival.
AMI-8a........................  Primary PCI Received Within 90    0.92857...................................  1.00000.
                                 Minutes of Hospital Arrival.
AMI-10........................  Statin Prescribed at Discharge..  0.90474...................................  1.00000.
HF-1..........................  Discharge Instructions..........  0.92090...................................  1.00000.
PN-3b.........................  Blood Cultures Performed in the   0.97129...................................  1.00000.
                                 Emergency Department Prior to
                                 Initial Antibiotic Received in
                                 Hospital.
PN-6..........................  Initial Antibiotic Selection for  0.93671...................................  0.99832.
                                 CAP in Immunocompetent Patient.
SCIP-Card-2...................  Surgery Patients on Beta-Blocker  0.95122...................................  1.00000.
                                 Therapy Prior to Arrival Who
                                 Received a Beta-Blocker During
                                 the Perioperative Period.
SCIP-Inf-1....................  Prophylactic Antibiotic Received  0.97872...................................  1.00000.
                                 Within One Hour Prior to
                                 Surgical Incision.
SCIP-Inf-2....................  Prophylactic Antibiotic           0.97882...................................  1.00000.
                                 Selection for Surgical Patients.
SCIP-Inf-3....................  Prophylactic Antibiotics          0.96154...................................  0.99905.
                                 Discontinued Within 24 Hours
                                 After Surgery End Time.
SCIP-Inf-4....................  Cardiac Surgery Patients with     0.94799...................................  0.99824.
                                 Controlled 6AM Postoperative
                                 Serum Glucose.
SCIP-Inf-9....................  Urinary Catheter Removed on       0.93333...................................  1.00000.
                                 Postoperative Day 1 or
                                 Postoperative Day 2.
SCIP-VTE-2....................  Surgery Patients Who Received     0.94118...................................  0.99938.
                                 Appropriate Venous
                                 Thromboembolism Prophylaxes
                                 Within 24 Hours Prior to
                                 Surgery to 24 Hours After
                                 Surgery.
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                    Outcome Measures
--------------------------------------------------------------------------------------------------------------------------------------------------------
MORT-30-AMI...................  Acute Myocardial Infarction       0.8477....................................  0.8673.
                                 (AMI) 30-Day Mortality Rate.
MORT-30-HF....................  Heart Failure (HF) 30-Day         0.8861....................................  0.9042.
                                 Mortality Rate.
MORT-30-PN....................  Pneumonia (PN) 30-Day Mortality   0.8818....................................  0.9021.
                                 Rate.
PSI-90........................  Patient safety for selected       0.4006....................................  0.2754.
                                 indicators (composite).
CLABSI........................  Central Line-Associated Blood     0.442.....................................  0.000.
                                 Stream Infection.
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                   Efficiency Measures
--------------------------------------------------------------------------------------------------------------------------------------------------------
MSPB-1........................  Medicare Spending per             Median Medicare spending per beneficiary    Mean of the lowest decile of Medicare
                                 Beneficiary.                      ratio.                                      spending per beneficiary ratios across
                                                                  across all hospitals during the              all hospitals during the performance
                                                                   performance period..                        period.
--------------------------------------------------------------------------------------------------------------------------------------------------------

      Proposed Performance Standards for the FY 2015 Hospital VBP Program Patient Experience of Care Domain
----------------------------------------------------------------------------------------------------------------
                                                                                    Achievement
                     HCAHPS Survey dimension                           Floor         threshold       Benchmark
                                                                     (percent)       (percent)       (percent)
----------------------------------------------------------------------------------------------------------------
Communication with Nurses.......................................           49.23           76.28           85.56
Communication with Doctors......................................           57.31           79.61           88.72
Responsiveness of Hospital Staff................................           34.83           62.75           78.59
Pain Management.................................................           43.05           69.24           78.24
Communication about Medicines...................................           28.11           60.46           71.72
Hospital Cleanliness & Quietness................................           40.35           63.79           78.46
Discharge Information...........................................           55.10           83.29           89.60
Overall Rating of Hospital......................................           29.26           67.73           83.13
----------------------------------------------------------------------------------------------------------------

[[Page 53601]]

    We welcomed public comment on these proposed performance standards.
    Comment: Some commenters noted that the performance standards table 
in the FY 2013 IPPS/LTCH PPS proposed rule omitted the achievement 
thresholds and benchmarks for HF-1 and AMI-10.
    Response: We thank commenters for their attention to this matter. 
As noted above, we published the proposed performance standards values 
for those two measures in the FY 2013 IPPS/LTCH PPS proposed rule 
correction notice (77 FR 34327 through 34328).
    Comment: Some commenters expressed support for the proposed 
performance standards for FY 2015.
    Response: We thank commenters for their support.
    Comment: Some commenters noted a slight decline in the Clinical 
Process of Care performance standards for the FY 2015 Program compared 
to the finalized standards for FY 2014. Commenters suggested that CMS 
should analyze these differences and ascertain whether this decline was 
the result of a true decline in quality performance or other factors. 
Other commenters urged CMS to monitor the Hospital VBP Program closely, 
particularly as the first year of full implementation looms, to ensure 
that the program's goals are met and that no unintended consequences 
result.
    Response: We thank commenters for their input. We intend to monitor 
hospitals' performance under the Hospital VBP Program closely, with 
particular attention to changes in hospitals' quality performance over 
time.
    Comment: Some commenters argued that CMS should display the 
numerical values of the performance standards for the Medicare Spending 
per Beneficiary measure rather than the descriptions (``Median Medicare 
spending per beneficiary ratio across all hospitals during the 
performance period'' and ``Mean of the lowest decile of Medicare 
spending per beneficiary ratios across all hospitals during the 
performance period''). These commenters did not support the methodology 
for calculating Medicare Spending per Beneficiary performance standards 
because those numerical values were not provided.
    Response: We disagree. We finalized the methodology we would use to 
assess hospital performance on the Medicare Spending per Beneficiary 
measure in the FY 2012 IPPS/LTCH PPS final rule (76 FR 51655) and 
believe that we have met the requirement to notify hospitals of the 
performance standards. We will provide the numerical equivalents when 
they are available, after the conclusion of the performance period. 
Further, the Medicare Spending per Beneficiary measure is constructed 
as a measure of costs attributable to patient care during the specified 
episode of care. We do not believe it is helpful for hospitals to be 
compared against performance standards constructed from baseline period 
data, on this payment-based measure, given potential changes in 
Medicare payment policy, changes in market forces, and changes in 
utilization practices. The national median Medicare Spending per 
Beneficiary ratio will be 1.0, because it is the ratio of the 
hospital's score to the national median.
    For hospitals' information, we are providing historical benchmark 
and achievement threshold information during the period May 15, 2010-
February 14, 2011. For hospitals' information, we are providing 
historical benchmark and achievement threshold information during the 
period May 15, 2010-February 14, 2011, in addition to the measure rates 
for this period, which were displayed on Hospital Compare on April 19, 
2012. During this historical performance period, this median ratio was 
associated with a Medicare Spending per Beneficiary amount of 
$17,988.04. Hospitals were given this national median Medicare Spending 
per Beneficiary amount on a Hospital Open Door Forum. We would also 
like to provide hospitals with the amount that corresponds to what 
would have been the benchmark for the measure, were this an actual 
Hospital VBP performance period. The benchmark Medicare Spending per 
Beneficiary ratio, or mean of the lowest decile, was 0.806. This ratio 
corresponds to a Medicare Spending per Beneficiary amount of $14,495.
    After consideration of the public comments we received, we are 
finalizing the FY 2015 performance standards. As described further 
above, we are not finalizing performance standards for AMI-10 because 
we are not including it in the FY 2015 measure set.
    The final performance standards for the clinical process, outcome, 
and Medicare spending per beneficiary measures appear in the first 
table below, while the final performance standards for the patient 
experience of care (HCAHPS survey) measure appears in the second table 
below.

               Final Performance Standards for the FY 2015 Hospital VBP Program Clinical Process of Care, Outcome, and Efficiency Domains
--------------------------------------------------------------------------------------------------------------------------------------------------------
          Measure ID                       Description                       Achievement threshold                             Benchmark
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                            Clinical Process of Care Measures
--------------------------------------------------------------------------------------------------------------------------------------------------------
AMI-7a........................  Fibrinolytic Therapy Received     0.80000...................................  1.00000.
                                 Within 30 Minutes of Hospital
                                 Arrival.
AMI-8a........................  Primary PCI Received Within 90    0.95349...................................  1.00000.
                                 Minutes of Hospital Arrival.
PN-3b.........................  Blood Cultures Performed in the   0.94118...................................  1.00000.
                                 Emergency Department Prior to
                                 Initial Antibiotic Received in
                                 Hospital.
PN-6..........................  Initial Antibiotic Selection for  0.97783...................................  1.00000.
                                 CAP in Immunocompetent Patient.
SCIP-Card-2...................  Surgery Patients on Beta-Blocker  0.95918...................................  1.00000.
                                 Therapy Prior to Arrival Who
                                 Received a Beta-Blocker During
                                 the Perioperative Period.
SCIP-Inf-1....................  Prophylactic Antibiotic Received  0.97175...................................  1.00000.
                                 Within One Hour Prior to
                                 Surgical Incision.
SCIP-Inf-2....................  Prophylactic Antibiotic           0.98639...................................  1.00000.
                                 Selection for Surgical Patients.
SCIP-Inf-3....................  Prophylactic Antibiotics          0.98637...................................  1.00000.
                                 Discontinued Within 24 Hours
                                 After Surgery End Time.
SCIP-Inf-4....................  Cardiac Surgery Patients with     0.97494...................................  1.00000.
                                 Controlled 6AM Postoperative
                                 Serum Glucose.

[[Page 53602]]

 
SCIP-Inf-9....................  Urinary Catheter Removed on       0.95798...................................  0.99767.
                                 Postoperative Day 1 or
                                 Postoperative Day 2.
SCIP-VTE-2....................  Surgery Patients Who Received     0.94891...................................  0.99991.
                                 Appropriate Venous
                                 Thromboembolism Prophylaxes
                                 Within 24 Hours Prior to
                                 Surgery to 24 Hours After
                                 Surgery.
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                    Outcome Measures
--------------------------------------------------------------------------------------------------------------------------------------------------------
MORT-30-AMI...................  Acute Myocardial Infarction       0.847472..................................  0.862371.
                                 (AMI) 30-Day Mortality Rate.
MORT-30-HF....................  Heart Failure (HF) 30-Day         0.881510..................................  0.900315.
                                 Mortality Rate.
MORT-30-PN....................  Pneumonia (PN) 30-Day Mortality   0.882651..................................  0.904181.
                                 Rate.
PSI-90........................  Patient safety for selected       0.622879..................................  0.451792.
                                 indicators (composite).
CLABSI........................  Central Line-Associated Blood     0.437.....................................  0.000.
                                 Stream Infection.
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                   Efficiency Measures
--------------------------------------------------------------------------------------------------------------------------------------------------------
MSPB-1........................  Medicare Spending per             Median Medicare spending per beneficiary    Mean of the lowest decile of Medicare
                                 Beneficiary.                      ratio.                                      spending per beneficiary ratios across
                                                                  across all hospitals during the              all hospitals during the performance
                                                                   performance period..                        period.
--------------------------------------------------------------------------------------------------------------------------------------------------------

       Final Performance Standards for the FY 2015 Hospital VBP Program Patient Experience of Care Domain
----------------------------------------------------------------------------------------------------------------
                                                                                    Achievement
                     HCAHPS Survey dimension                           Floor         threshold       Benchmark
                                                                     (percent)       (percent)       (percent)
----------------------------------------------------------------------------------------------------------------
Communication with Nurses.......................................           47.77           76.56           85.70
Communication with Doctors......................................           55.62           79.88           88.79
Responsiveness of Hospital Staff................................           35.10           63.17           79.06
Pain Management.................................................           43.58           69.46           78.17
Communication about Medicines...................................           35.48           60.89           71.85
Hospital Cleanliness & Quietness................................           41.94           64.07           78.90
Discharge Information...........................................           57.67           83.54           89.72
Overall Rating of Hospital......................................           32.82           67.96           83.44
----------------------------------------------------------------------------------------------------------------

    We are also aware that once the ICD-10-CM/PCS coding transition is 
completed, we will be faced with comparing hospitals' performance from 
baseline periods coded using ICD-9-CM with performance periods coded 
using ICD-10-CM/PCS. We note that constructing performance standards 
from such baseline periods could produce unforeseen consequences for 
quality measurement and performance scoring. Therefore, we sought 
comments on how to fairly compare hospitals' performance on quality 
measures when captured in different coding sets.
    Comment: Some commenters expressed concern about how to measure 
hospitals' performance when measures or coding sets change. Commenters 
argued that it would be unfair to compare hospitals' performance using 
ICD-9-CM in the baseline period and ICD-10-CM/PCS in the performance 
period. Commenters urged us to re-run the data using the same coding 
set for both periods in order to ensure fair comparisons.
    Response: We thank commenters for their input. We will consider 
these comments in future rulemaking and closely monitor future measure 
specification updates incorporating ICD-10 codes into our future 
measure proposals. We will also closely monitor how measure rates 
change following ICD-10 adoption in our future performance standards 
and measure proposals.
c. Performance Standards for FY 2016 Hospital VBP Program Measures
    As described further above, in the FY 2013 IPPS/LTCH PPS proposed 
rule (77 FR 28086), we proposed to adopt the three 30-day mortality 
measures and the AHRQ PSI composite measure for the FY 2016 Hospital 
VBP Program. We also proposed to adopt performance standards for these 
measures based on the proposed baseline periods outlined above. 
Proposed performance standards for these measures appear in the table 
below. We noted that the performance standards displayed below 
represent estimates based on the most recently-available data, and 
stated that we would update the standards in this final rule. We also 
note that the performance standards for the AHRQ PSI composite measure 
are calculated with lower values representing better performance, in 
contrast to the mortality measures, on which higher values indicate 
better performance.

[[Page 53603]]

    Proposed Performance Standards for FY 2016 Hospital VBP Programs Outcome Domain: Mortality/PSI Composite
                                                    Measures
----------------------------------------------------------------------------------------------------------------
                                                                                    Achievement
              Measure ID                               Description                   threshold       Benchmark
----------------------------------------------------------------------------------------------------------------
                                                Outcome Measures
----------------------------------------------------------------------------------------------------------------
MORT-30-AMI...........................  Acute Myocardial Infarction (AMI) 30-day          0.8477          0.8673
                                         mortality rate.
MORT-30-HF............................  Heart Failure (HF) 30-day mortality rate          0.8861          0.9042
MORT-30-PN............................  Pneumonia (PN) 30-day mortality rate....          0.8818          0.9021
PSI-90................................  Patient safety for selected indicators            0.4006          0.2754
                                         (composite).
----------------------------------------------------------------------------------------------------------------

    Comment: Many commenters expressed general opposition to the 
proposed performance standards for the FY 2016 Program based on their 
opposition to further adoption of the proposed measures for that 
program year.
    Response: We responded to comments opposing the adoption of these 
measures above and are finalizing our adoption of those measures. We do 
not interpret the comments as objecting specifically to the proposed FY 
2016 performance standards if we finalized the measures themselves.
    After consideration of the public comments we received, we are 
finalizing the FY 2016 performance standards as proposed. Set out below 
are the final performance standards for the three 30-day mortality 
measures and the AHRQ PSI composite measure.

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

d. Adopting Performance Periods and Standards for Future Program Years
    For prior program years, with the exception of the Hospital 
Inpatient VBP Program proposed and final rules, we have proposed and 
finalized policies for the Hospital VBP Program in the IPPS/LTCH PPS 
and OPPS/ASC regulations. However, we do not believe these two 
rulemaking vehicles are ideally suited for additional Hospital VBP 
proposals. While we are aware that it is convenient for the public when 
additional proposals are made in a relatively limited number of 
rulemaking vehicles, we are concerned about the limitations that these 
regulations' schedules place on our ability to propose and finalize 
quality measures, performance periods, and performance standards in a 
timely manner.
    In order to facilitate quality measure adoption for the Hospital 
VBP Program and ensure that hospitals are kept fully aware of the 
performance standards to which we intend to hold them accountable and 
the performance periods during which their performance will be 
measured, in the FY 2013 IPPS/LTCH PPS proposed rule (77 FR 28087), we 
proposed to update performance periods and performance standards for 
future program years via notice on our Web site or another publicly-
available Web site. We would establish future performance standards for 
the clinical process of care, outcome, and patient experience of care 
measures using the same methodology that we first finalized in the 
Hospital Inpatient VBP Program final rule (76 FR 26510 through 26513). 
We would establish future performance standards for the Medicare 
spending per beneficiary measure using the same methodology that we 
finalized in the FY 2012 IPPS/LTCH PPS final rule (76 FR 51654 through 
51656). In the case of other types of measures whose scoring would not 
be appropriately described by the methodologies outlined above, we 
intend to propose and finalize additional scoring methodologies.
    We believe that this proposal will enable us to adopt measures 
representing the best in medical practice into the Hospital VBP Program 
more quickly and will allow us to establish and announce performance 
standards and performance periods when necessary outside the annual 
IPPS/LTCH PPS and OPPS/ASC rulemaking schedules. We believe this 
flexibility is especially necessary as the Hospital VBP Program 
continues to evolve and incorporate new types of quality measures.
    We welcomed public comment on this proposal.
    Comment: Many commenters expressed support for the proposal to 
adopt performance standards and performance periods for future program 
years via notice on the CMS Web site or other publicly-available forum.
    Response: We thank commenters for their support.
    Comment: Some commenters expressed opposition to the proposal to 
adopt performance periods and performance standards outside of the 
rulemaking process. Commenters argued that the annual IPPS rulemaking 
process is the most transparent, understood venue for hospitals to 
track changes to Medicare's programs.
    Response: We believe that adopting performance periods and 
performance standards outside the rulemaking process provides us with 
more flexibility than the annual rulemaking processes allow. We intend 
to consider fully any comments we receive on the Hospital VBP Program 
each year, and we do not believe that finalizing this policy precludes 
stakeholders from providing valuable input for our consideration.

[[Page 53604]]

    Comment: Some commenters were concerned about CMS' proposal to 
adopt performance periods and performance standards outside the 
rulemaking process as they believed that stakeholders would no longer 
be able to comment on the proposals.
    Response: As stated above, we intend to consider fully any public 
comments we receive on the Hospital VBP Program when developing our 
policies for future program years. Since we would be updating 
performance standards and performance periods under this policy, not 
changing the underlying finalized methodology in either case, we 
believe this policy provides us additional flexibility without 
compromising the public's ability to provide input.
    We also believe that our proposal would improve quality because it 
would enable us to use more recent baseline information for the 
performance standard calculations. Currently, we are only able to use 
the most recent data available at the time we issue the IPPS/LTCH PPS 
proposed and final rules. This proposal would allow us to use more 
current data extracts because we would not be limited by the rulemaking 
calendar when posting performance standards.
    Comment: To the extent that CMS uses rulemaking to adopt 
requirements for the Hospital VBP Program in the future, some 
commenters urged us to use a stand-alone regulation, as was done with 
the Program's initial rulemaking. Commenters suggested that the 
proposal and finalization of new policies in the IPPS and OPPS rules 
has been confusing for hospitals and other stakeholders.
    Response: We believe that hospitals and the public are well aware 
of the annual IPPS and OPPS rulemaking schedules, though we understand 
that including Hospital VBP proposals in both IPPS and OPPS rules may 
have been confusing. We believe it is appropriate to update the 
Hospital VBP Program, which generally applies to IPPS hospitals, in the 
annual IPPS rule as necessary because hospitals are generally aware of 
that regulation and monitor it closely. However, we reserve the right 
to adopt Hospital VBP policies in other rulemaking vehicles as 
necessary.
    After consideration of the public comments we received, we are 
finalizing our proposal to adopt performance standards and performance 
periods via notice on our Web site or another publicly-available Web 
site.
12. FY 2015 Hospital VBP Program Scoring Methodology
a. General Hospital VBP Program Scoring Methodology
    In the Hospital Inpatient VBP Program final rule, we adopted a 
methodology for scoring clinical process of care, patient experience of 
care, and outcome measures. As noted in that rule, this methodology 
outlines an approach that we believe is well understood by patient 
advocates, hospitals, and other stakeholders because it was developed 
during a lengthy process that involved extensive stakeholder input, and 
was based on a scoring methodology we presented in a report to 
Congress. We also noted in that final rule that we had conducted 
extensive additional research on a number of other important 
methodology issues to ensure a high level of confidence in the scoring 
methodology (76 FR 26514). In addition, we believe that, for reasons of 
simplicity, transparency, and consistency, it is important to score 
hospitals using the same general methodology each year, with 
appropriate modifications to accommodate new domains and measures. We 
finalized a scoring methodology for the Medicare spending per 
beneficiary measure in the FY 2012 IPPS/LTCH PPS final rule (76 FR 
51654 through 51656).
    In the FY 2013 IPPS/LTCH PPS proposed rule (77 FR 28087), for the 
FY 2015 Hospital VBP Program, we proposed to use these same scoring 
methodologies to score hospital performance. We believe these scoring 
methodologies continue to appropriately capture hospital quality as 
reflected by the finalized quality measure sets. We also note that re-
adopting the finalized scoring methodology from prior program years 
represents the simplest and most consistent policy for providers and 
the public.
    Comment: Some commenters suggested that CMS should consider 
suspending any further changes to the Hospital VBP Program for at least 
two years in order to allow hospitals to implement quality improvement 
policies. Other commenters argued that the Hospital VBP Program is 
challenging to hospitals due to the burden of chart abstraction. 
Commenters argued that preparing for new measures requires substantial 
work by hospital staff, and further suggested that the complicated 
calculations involved in Hospital VBP Program payments could be 
simplified by adding measure scores together and calculating confidence 
intervals.
    Response: We do not believe it would be appropriate to suspend 
further changes to the Hospital VBP Program at this time. While we are 
aware that chart abstraction is a burden to hospitals, we note that, 
because the Hospital VBP Program is built on the quality measures 
already adopted for the Hospital IQR Program, the Hospital VBP Program 
in this regard does not impose an additional reporting burden on 
hospitals.
    We note further that the finalized Hospital VBP Program scoring 
methodology is based on research dating back to the 2007 Report to 
Congress, as further described in the Hospital Inpatient VBP Program 
final rule (76 FR 26493). We do not believe that simply adding measure 
scores together and calculating confidence intervals fully and fairly 
represents hospitals' performance on quality measures, nor does it 
enable objective comparisons between hospitals' scores.
    Comment: Some commenters argued that the Hospital VBP Program TPS 
should be risk-adjusted to account for the challenges faced by urban 
safety-net hospitals, including the increased follow-up and post-
discharge care required by beneficiaries living in poverty and with 
limited access to care. Commenters noted that patients who choose urban 
safety-net hospitals are sicker than typical hospitals patients and 
more complicated to treat.
    Response: We intend to monitor closely the effects of the Hospital 
VBP Program on hospitals, including any systemic disparities that may 
result. We note that many of the finalized measures for the Hospital 
VBP Program are risk-adjusted, but we do not believe it is appropriate 
to separately risk-adjust hospitals' TPSs at this time. We believe the 
TPS, as calculated according to the finalized scoring methodology, is 
sufficiently reliable for purposes of awarding value-based incentive 
payments under the Hospital VBP Program.
    Comment: Some commenters urged CMS to analyze Hospital VBP Program 
scores to determine whether events such as tropical storms Irene and 
Lee had any effect on hospitals' scores. Commenters noted that the 
storms interrupted many services provided by hospitals, including data 
collection, and argued that hospitals should not be penalized for 
effects resulting from those extreme weather events.
    Response: As stated above, we intend to closely monitor the impact 
of the Hospital VBP Program on hospitals. We do not believe that the 
Hospital VBP Program requires an additional mechanism for disaster 
waivers than is

[[Page 53605]]

provided in the Hospital IQR Program. We encourage hospitals in areas 
affected by tropical storms Irene and Lee, or other types of natural 
disasters, to seek disaster extensions or waivers under the Hospital 
IQR Program. Hospitals waived from Hospital IQR Program data reporting 
during applicable Hospital VBP performance periods and not meeting 
Hospital VBP minimum case, measure, and domain thresholds would be 
excluded from the applicable Hospital VBP Program year and would not be 
subject to the base operating DRG payment amount reduction for that 
fiscal year.
    Comment: Some commenters argued that the Hospital VBP Program 
should also apply to Medicare Advantage (MA) beneficiaries in order to 
reward quality provided by hospitals more fully. Other commenters 
specifically argued that the AHRQ PSI composite measure should capture 
both fee-for-service and Medicare Advantage beneficiaries.
    Response: The Hospital VBP Program would apply to MA beneficiaries 
in cases in which the hospital did not have an agreement governing 
payment with the MA organization, as the hospital would be entitled, 
under section 1866(a)(1)(O) of the Act to the same payment from the MA 
organization as it would receive from us if the beneficiary were not 
enrolled in a MA plan. In the case of a hospital that does have an 
agreement governing payment with the MA organization, that agreement 
would govern the payment amount, and it would be up to the parties to 
that agreement whether to take the Hospital VBP Program into account in 
establishing payment amounts.
    With respect to whether the AHRQ PSI composite measure should 
capture MA beneficiaries, based on the methodology currently used to 
collect this measure (it is claims-based), data involving MA 
beneficiaries would not be captured because claims for those 
beneficiaries' services are handled by their MA plans.
    After consideration of the public comments we received, we are 
finalizing the scoring methodology for the FY 2015 Hospital VBP Program 
as proposed.
b. Domain Weighting for the FY 2015 Hospital VBP Program for Hospitals 
That Receive a Score on All Four Domains
    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.
    As discussed above, we proposed to add the Efficiency domain to the 
Hospital VBP Program beginning with the FY 2015 Hospital VBP Program. 
Therefore, we proposed the following domain weights for the FY 2015 
Hospital VBP Program for hospitals that receive a score on all four 
proposed domains:

    Proposed 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 believe this domain weighting appropriately reflects our 
priorities for quality improvement in the inpatient hospital setting 
and aligns with the National Quality Strategy's priorities. 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 experience. We note that the proposed domain 
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 
proposed domain weighting, for the first time, incorporates a measure 
of efficiency and continues to provide substantial weight to clinical 
processes. We welcomed public comment on this proposed weighting 
methodology.
    Comment: Some commenters supported the proposed domain weighting 
for FY 2015, arguing that it represents an appropriate balance between 
quality and efficiency domains.
    Response: We thank commenters for their support.
    Comment: Some commenters opposed the proposed domain weighting for 
FY 2015, arguing that the proposed outcome measures and the Medicare 
Spending per Beneficiary measure should not be included in the Hospital 
VBP Program and should therefore not be given any domain weight. Other 
commenters specifically opposed the proposed weighting for the 
Efficiency domain, arguing that 20 percent is too high for a domain 
containing one measure and suggesting that placing such weight on a 
spending measure may result in unintended consequences for patient 
care.
    Response: We appreciate the comment, but disagree for several 
reasons. Since first implementing the Hospital VBP Program, we have 
signaled our intent to move the Program from measures of clinical 
processes to measures of outcomes and efficiency. We signaled this 
intention because we believe that outcome and efficiency measures 
provide the most direct incentives for hospitals to improve their 
quality performance in ways that are directly applicable to patients. 
Further, efficiency measures provide additional incentives for 
hospitals to control costs, which is an important goal for the Medicare 
program and for the health system at large. We do not believe that 
lowering the domain weighting proposed for outcome or efficiency 
measures will sufficiently encourage hospitals to strive for 
improvements in the quality of care provided to Medicare beneficiaries 
and to all of their patients. As we explain in more detail in responses 
to comments above, we believe that it is appropriate to include the 30-
day mortality measures and the Medicare spending per beneficiary 
measure in the Hospital VBP Program.
    Comment: Some commenters called on CMS to revisit our finalized 
domain weighting for FY 2014.
    Response: We do not believe it is appropriate to revisit the 
details of the finalized FY 2014 Hospital VBP Program at this time. We 
have strived to provide hospitals as many details about each program 
year as far in advance of the applicable performance periods as 
possible. We do not believe it would be equitable to hospitals that 
strove to improve their quality performance on FY 2014 measures during 
the FY 2014 performance periods to change the finalized FY 2014 domain 
weights.
    Comment: Some commenters noted the drop in weighting for clinical 
process of care measures over program years. Other commenters argued 
that clinical processes should receive more weight than outcomes until 
broader risk adjustment is perfected.
    Response: As stated above, we signaled our intention to move the 
Hospital VBP Program from its initial focus on measures of clinical 
processes, which are not risk adjusted, towards measures of outcomes 
and efficiency. Shifting the program's focus would necessarily mean 
reducing the domain weighting for the Clinical Process of

[[Page 53606]]

Care domain over time. We believe that this reduction is appropriate 
given the need for quality improvement efforts to more closely include 
measures of outcomes and efficiency.
    We do not believe that further risk adjustment to the finalized 
outcome measures is appropriate at this time. As described further 
above, the mortality measures currently use the Hierarchical Condition 
Category (HCC) grouping of clinical conditions and hospital case-mix 
for risk adjustment. The HCC model makes use of all physician and 
hospital encounter diagnoses and was designed to predict a 
beneficiary's expenditures based on the total clinical profile 
represented by all of his/her assigned HCCs. Additionally, there are 
several exclusions to the mortality measures, such as enrollment in a 
hospice program. We refer commenters to the extensive documentation of 
the mortality measure methodology at http://www.qualitynet.org. 
However, as we have described above, we intend to monitor the effects 
of the Hospital VBP Program on hospitals and will propose other 
programmatic changes as necessary.
    Comment: Some commenters expressed concerns with the weighting of 
the Patient Experience of Care domain, arguing that patients' severity 
of illness negatively affects their HCAHPS scores. A few commenters 
mentioned a Cleveland Clinic analysis that shows a greater than 
expected impact of severity of illness on HCAHPS scores.
    Response: We adjust the HCAHPS data for patient characteristics 
that are not under the control of the hospital and that may affect 
patient reports of hospital experiences. The goal of adjusting for 
patient-mix is to estimate how different hospitals would be rated if 
they all provided care to comparable groups of patients. In developing 
the HCAHPS patient-mix adjustment (PMA) model, we sought important and 
statistically significant predictors of patients' HCAHPS ratings that 
also vary meaningfully across hospitals (O'Malley et al., 2005). The 
PMA model includes self-reported health status, education, service line 
(medical, surgical, or maternity care), age, response percentile order 
(also known as ``relative lag time,'' which is based on the time 
between discharge and survey completion), service by linear age 
interactions, and primary language other than English.
    With respect to a Cleveland Clinic analysis mentioned by a few 
commenters that shows a greater than expected impact of severity of 
illness on HCAHPS scores, our understanding is that this analysis does 
not examine associations between those patient characteristics and 
HCAHPS scores after standard CAHPS PMA is applied, which would be 
expected to remove most or all of that association. We also note that 
this study is not based on national data.
    We are aware of no data suggesting that patient characteristics 
result in bias in the HCAHPS patient-mix adjusted data used in the 
Hospital VBP Program. We therefore do not believe that the proposed 
weighting for the Patient Experience of Care domain is too high or 
penalizes hospitals with relatively sicker patients.
    Comment: Some commenters supported the proposed Efficiency domain 
weight of 20 percent, and two commenters suggested that CMS consider 
increasing it to 30 percent over time. One commenter supported a 30 
percent weight for the Efficiency domain at the outset. Some commenters 
suggested that 20 percent was too high, because the measure is the sole 
measure in an Efficiency domain or because the commenters do not 
support inclusion of the Medicare Spending per Beneficiary measure in 
the Hospital VBP Program for FY 2015. These commenters suggested that 
the Efficiency domain be excluded or given a weight of no more than 5 
percent.
    Response: We appreciate the comments in support of an initial 
weight of 20 percent for the Efficiency domain. We will consider 
increasing the domain weight for future years, as hospitals gain 
experience with the domain and build stronger relationships with the 
providers and suppliers who care for their patients before and after 
hospitalization to maintain high quality while controlling costs. We 
disagree with the commenters who stated that a 20 percent Efficiency 
domain weight is too high. We believe that attributing significant 
weight to this domain is critical to ensuring that hospitals make 
efforts to provide effective care on an inpatient basis and build 
stronger relationships with the providers and suppliers who care for 
their patients before and after the hospitalization.
    Comment: Some commenters argued that the changing domain weights 
over time make it difficult to evaluate a hospital's performance over 
time.
    Response: While we are aware that direct comparisons between 
program years become more difficult with the changes we have proposed 
in domain weights over time, we believe that such changes are necessary 
to continue shifting the program from its initial focus on clinical 
processes and the patient experience to accommodate outcome and 
efficiency measures as well.
    After consideration of the public comments we received, are 
finalizing the FY 2015 domain weighting as proposed. The final domain 
weights are set out below.

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

c. Domain Weighting 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 four quality 
domains, we considered whether it was appropriate to continue this 
policy.
    In the FY 2013 IPPS/LTCH PPS proposed rule (77 FR 28088), as 
described further below, we proposed a higher minimum number of cases 
for the three 30-day mortality measures for FY 2015 than was finalized 
for the FY 2014 Hospital VBP Program in order to improve these 
measures' reliability given the relatively shorter proposed performance 
period described above. However, we are 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 to as many hospitals as possible and encourage quality 
improvement as broadly as possible throughout the health care system 
while maintaining our focus on measure and scoring reliability.
    Therefore, we proposed that, for the FY 2015 Hospital VBP Program 
and subsequent fiscal 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 proposed 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

[[Page 53607]]

of a possible 100 points and that the relative weights for the scored 
domains remain equivalent to the weighting outlined above. We believe 
that this proposal 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 welcomed public comment on this proposal.
    Comment: Some commenters supported the proposal to provide a TPS to 
hospitals with sufficient data in at least two domains rather than 
requiring that hospitals receive a score in all four domains to receive 
a TPS. Commenters acknowledged CMS' effort to ensure that as many 
hospitals as possible participate in the Hospital VBP Program and 
suggested that CMS monitor the effects of this proposed change on 
included and excluded hospitals.
    Response: We thank commenters for their support. We intend to 
closely monitor this policy's effects on hospitals' scores.
    Comment: Some commenters expressed concerns about the proposal to 
provide hospitals with TPSs for FY 2015 if they receive domain scores 
on at least 2 of the 4 domains. Commenters were concerned that low-
volume hospitals could be penalized under this policy and noted that 
comparing hospitals' TPSs would become more difficult.
    Response: We disagree with the commenters' characterization of our 
proposal. By enabling hospitals to receive a TPS with domain scores on 
just two domains out of four, we believe we are allowing low-volume 
hospitals to participate more broadly in the Hospital VBP Program than 
they might have otherwise. We note that the Hospital VBP Program's 
incentive payments depend entirely on the relative distribution of 
TPSs. Therefore, we believe that comparisons between hospitals' scores 
are incomplete without the full context provided by national TPS 
information and corresponding value-based incentive payment 
information. We acknowledge that comparisons among hospitals with 
different numbers of domain scores may become more difficult, but we 
view this compromise as necessary in order to ensure broad 
participation in the program by hospitals.
    After consideration of the public comments we received, we are 
finalizing our policy to provide a TPS to hospitals receiving domain 
scores on at least 2 of the 4 finalized domains for the FY 2015 
Hospital VBP Program.
13. 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. Exemption Request Process for Maryland Hospitals
    Acute care hospitals located in the State of Maryland are not 
currently paid under the IPPS in accordance with a special waiver 
provided by section 1814(b)(3) of the Act. In the Hospital Inpatient 
VBP Program final rule (76 FR 26527 through 26530), we finalized our 
policy that the Hospital VBP Program would apply to acute care 
hospitals located in the State of Maryland unless the Secretary 
exercises discretion pursuant to section 1886(o)(1)(C)(iv) of the Act. 
We also finalized a procedure for the State to submit a report pursuant 
to section 1886(o)(1)(C)(iv) of the Act in a timeframe that would allow 
it to be received no later than October 1, 2011, which is the beginning 
of the fiscal year prior to FY 2013.
    We received an FY 2013 exemption request from the Maryland Health 
Services Cost Review Commission on September 30, 2011 and the Secretary 
approved the exemption request in December 2011. This request included 
a discussion on how the State program achieved or surpasses the 
measured results in terms of patient health outcomes and cost savings 
established under the Hospital VBP Program. When evaluating the 
Maryland Health Services Cost Review Commission's request, we 
considered the relevant health outcomes for the State's hospitals as 
described in the Maryland Health Services Cost Review Commission's 
request and noted that they achieve or surpass the current national 
results for Hospital VBP FY 2013 clinical process of care and HCAHPS 
dimensions. We also assessed closely-related clinical outcomes as 
measured by quality data reported through the Hospital IQR Program. For 
the FY 2013 Hospital VBP Program, however, we did not assess the 
criterion ``cost savings'' as required by the statute, as the FY 2013 
Hospital VBP Program does not use any efficiency measures and is a 
budget-neutral program pursuant to section 1886(o)(7)(A) of the Act. 
Maryland hospitals are therefore exempt from the FY 2013 Hospital VBP 
Program.
    In the FY 2013 IPPS/LTCH PPS proposed rule (77 FR 28088), beginning 
with the FY 2014 Hospital VBP Program, we proposed to adopt a new 
procedure for submission of the report in order for a hospital within 
the State to be exempt from the Hospital VBP Program. Under this 
proposed 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 
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 will evaluate each exemption request to see if the State has 
demonstrated that it has implemented a similar program for 
participating

[[Page 53608]]

hospitals that achieves or surpasses the measured results in terms of 
patient health outcomes and cost savings relative to the Hospital VBP 
Program.
    We welcomed public comment on our proposals.
    Comment: Some commenters asked that we clarify that the exemption 
request process for hospitals paid under section 1814(b)(3) of the Act 
will apply to all such hospitals within a State, rather than to 
requesting hospitals.
    Response: Future exemptions, if requested by the Maryland Health 
Services Cost Review Commission and granted by the Secretary, would 
apply to all hospitals paid under section 1814(b)(3) of the Act.
    We proposed to codify the applicability of the Hospital VBP Program 
to hospitals paid under section 1814(b)(3) of the Act in 42 CFR 
412.162(d). We did not receive any comments on the specific regulatory 
text that we proposed. We are finalizing this provision with minor 
revisions in a new 42 CFR 412.161(b). We are also codifying at 42 CFR 
412.161(a) that the Hospital VBP Program applies to hospitals, as that 
term is defined in our regulations at Sec.  412.160.
    After consideration of the public comments we received, we are 
finalizing our exemption request process as proposed.
14. Minimum Numbers of Cases and Measures for the FY 2015 Hospital VBP 
Program
a. Background
    Section 1886(o)(1)(C)(ii)(III) of the Act requires the Secretary to 
exclude for the fiscal year hospitals that do not report a minimum 
number (as determined by the Secretary) of measures that apply to the 
hospital for the performance period for the fiscal year. Section 
1886(o)(1)(C)(ii)(IV) of the Act requires the Secretary to exclude for 
the fiscal year hospitals that do not report a minimum number (as 
determined by the Secretary) of cases for the measures that apply to 
the hospital for the performance period for the fiscal year.
    In the Hospital Inpatient VBP Program final rule (76 FR 26527 
through 26531), we finalized minimum numbers of 10 cases and 4 measures 
in the Clinical Process of Care domain and 100 completed HCAHPS surveys 
for the Patient Experience of Care domain. In the CY 2012 OPPS/ASC 
final rule with comment period (76 FR 74532 through 74534), we 
finalized a minimum number of 10 cases for the three 30-day mortality 
measures. We also finalized a minimum number of 2 measures with respect 
to the Outcome domain. In both rules, we finalized a policy that 
hospitals must have sufficient cases and measures in all domains in 
order to receive a TPS.
b. Minimum Numbers of Cases and Measures for the FY 2015 Outcome Domain
    In the FY 2013 IPPS/LTCH PPS proposed rule (77 FR 28089), as 
described further above, we proposed a 9-month performance period for 
the three 30-day mortality measures for the FY 2015 Hospital VBP 
Program. We have reassessed the previously finalized 10 case minimum 
threshold for the three 30-day mortality measures (76 FR 74533 through 
74534), as well as reexamined the independent analyses by Brandeis 
University and Mathematica Policy Research, when considering these 
three measures' proposed addition. We recognize that the proposed 9-
month performance period for these measures, in combination with a 
minimum number of 25 cases per measure, would increase the number of 
hospitals with insufficient cases on the measure to several hundred 
hospitals, based on past information.
    In order to ensure that the mortality measure scores remain 
sufficiently reliable, we proposed to adopt a 25-case minimum for the 
three 30-day mortality measures for FY 2015. We believe that this 
proposal will ensure relatively more reliable measure data than could 
be obtained with the 10-case minimum that was previously finalized for 
FY 2014 given the relatively shorter proposed performance period in FY 
2015. As described above, while this may result in fewer hospitals 
receiving scores on the mortality measures, we have proposed to 
reallocate domain weighting for hospitals with fewer domain scores than 
the total number of finalized domains. By doing so, we believe we are 
appropriately allowing as many hospitals as possible to participate in 
the Hospital VBP Program while also ensuring reliable quality measure 
and quality domain data.
    We note that this proposed minimum number of cases is higher than 
has been finalized for other types of measures such as clinical process 
of care measures. However, we note that clinical process of care 
measures are not risk-adjusted and are not outcome-based. Because those 
measures do not require statistical adjustment to estimate hospital-
specific differences in case mix, we believe that the relatively 
smaller case minimum is acceptable for clinical process of care 
measures.
    For the AHRQ PSI composite measure, we proposed to adopt AHRQ's 
methodology, which uses three cases for any of the underlying 
indicators as a case minimum. For the CLABSI measure, we proposed to 
adopt 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 believe that 
the measure stewards' methodologies for constructing reliable measure 
data are most appropriate for use in the Hospital VBP Program. Further 
information on these measures may be found on the QualityNet Web site.
    In the CY 2012 OPPS/ASC final rule with comment period 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. For that reason, we 
proposed to adopt it for the FY 2015 Hospital VBP Program.
    We welcomed public comment on these proposals.
    Comment: Many commenters expressed support for the proposal to 
raise the minimum number of cases for mortality measures to 25, though 
some expressed concern that this proposed minimum may not be reliable 
enough for performance scoring.
    Response: We thank commenters for their support. We believe that 
the higher minimum number of cases provides sufficiently reliable 
mortality measure data for performance scoring. We believe that our 
proposal is responsive to concerns about outcome measure reliability, 
since we proposed a 21 month FY 2016 performance period and a 25 case 
minimum threshold for including mortality measures in the FY 2015 
Hospital VBP Program. Both proposals are designed to increase the 
overall reliability of these measures, and exclude hospitals with the 
most unreliable measure rates from receiving measure scores. As stated 
previously, we assessed measure reliability, TPS reliability and 
validity, and alignment with our policy goal to reduce cost and improve 
patient health outcomes in our proposals.
    Comment: Some commenters opposed the proposed minimum numbers of 
cases and measures for the AHRQ PSI composite and CLABSI measures, 
arguing that the measures are unreliable at the proposed numbers of 
cases.

[[Page 53609]]

    Response: We disagree. As stated above, we believe that the AHRQ 
PSI measure is sufficiently reliable for the purposes of the Hospital 
VBP Program. Our proposal is responsive to concerns about outcome 
measure reliability, since we proposed a nearly 21 month FY 2016 
performance period to include the AHRQ PSI composite measure in the FY 
2016 TPS. That proposal is designed to increase overall reliability of 
the measure and to exclude hospitals with the most unreliable measure 
rates from FY 2016 TPSs. We also considered the improved validity 
resulting from more outcome measures that include a higher correlation 
with patient outcomes, relative to process of care measures. As stated 
previously, we assessed measure reliability, TPS reliability and 
validity, and alignment with our policy goal to reduce cost and improve 
patient health outcomes in our proposals. As we stated further above, 
we strive to improve both validity of the TPS through improved 
correlation with patient health outcomes, and its reliability to 
accurately incentivize health outcomes, patient experience of care, and 
reduced cost. We also considered both validity and reliability is of 
the TPS, in addition to alignment with policy goals to improve patient 
outcomes, as well as of the individual measure reliability contributing 
to the TPS. We also believe that adopting the minimum numbers of cases 
specified by the measure stewards in the case of the AHRQ PSI and 
CLABSI measures is both fully transparent and fair, as hospitals may 
apply their current experience with these measures to their use in the 
Hospital VBP Program.
    After consideration of the public comments we received, we are 
finalizing the minimum numbers of cases for outcome measures as 
proposed.
c. Medicare Spending per Beneficiary Measure Case Minimum
    As required by section 1886(o)(1)(C)(iii) of the Act, we obtained 
an independent analysis to help us determine the appropriate minimum 
number of cases for the Medicare spending per beneficiary measure. For 
this measure, we proposed to interpret the term ``case'' in section 
1886(o)(1)(C)(ii)(IV) of the Act as a Medicare spending per beneficiary 
episode. A Medicare spending per beneficiary episode is inclusive of 
all Part A and Part B payments from 3 days prior to a subsection (d) 
hospital admission through 30 days post discharge with certain 
adjustments and exclusions. The independent analysis examines the 
tradeoff between increasing the minimum number of episodes, which 
shrinks the confidence interval; and reducing the minimum number of 
episodes, which widens the confidence interval but enables more 
hospitals to receive a Medicare spending per beneficiary measure score. 
Because the distribution of Medicare spending per beneficiary episodes 
is skewed towards higher cost episodes, creating confidence intervals 
using statistical techniques that assume spending is normally and 
symmetrically distributed will not accurately describe the likelihood a 
hospital's true efficiency level falls within the confidence interval 
bounds.
    To account for these statistical issues, the independent analysis 
uses a simulation-based (``non-parametric bootstrap'') methodology to 
measure how the confidence interval of the Medicare spending per 
beneficiary measure changes when the minimum episode threshold 
increases. Medicare spending per beneficiary is measured for an 
``average'' hospital, where the ``average'' hospital case is considered 
one with a Medicare spending per beneficiary episode distribution that 
mimics that of the entire population of Medicare spending per 
beneficiary episodes. This methodology simulates the process of 
randomly drawing Medicare spending per beneficiary episodes from the 
population, and thus approximates the actual shape of the Medicare 
spending per beneficiary measure distribution from which confidence 
intervals are determined. By repeatedly calculating (in this case, 
10,000 times for each minimum episode threshold) a Medicare spending 
per beneficiary measure for this simulated hospital under differing 
assumptions on the number of episodes observed, one can create a 
confidence interval for the Medicare spending per beneficiary measure 
of this ``average'' hospital. The upper and lower bounds of the 95 
percent confidence interval indicates that 95 percent of the time, the 
hospital's Medicare spending per beneficiary measure will fall within 
this range when the minimum number of cases (the minimum episode 
threshold) is set at different levels. As the minimum episode threshold 
increases, the width of the confidence interval becomes narrower, but 
the number of hospitals receiving a Medicare spending per beneficiary 
measure score decreases.
    In developing our proposal, we considered two options for setting 
the minimum number of cases for the Medicare spending per beneficiary 
measure: (1) setting the minimum number of cases at 25; and, (2) 
setting the minimum number of cases at 50.
    We focused on these minimums because we believe that either of them 
provides a sufficiently narrow range at the 95 percent confidence 
interval. The independent analysis concludes that if the minimum number 
of cases is set at 25, then 95 percent of the time a hospital with an 
average underlying efficiency level (that is, 1.0) would receive a 
Medicare spending per beneficiary measure score between 0.81 and 1.23. 
Further, a minimum number of 25 cases would enable 97.8 percent of 
hospitals to receive a Medicare spending per beneficiary measure score, 
based on historical data. The analysis also showed that the alternative 
minimum of 50 cases would result in a 95 percent confidence interval 
range of 0.86 to 1.16 and would enable 95.9 percent of hospitals to 
receive a Medicare spending per beneficiary measure score, based on 
historical data.
    In the FY 2013 IPPS/LTCH PPS proposed rule (77 FR 28090), after 
considering the options outlined above, we proposed to use 25 as the 
minimum number of cases required in order to receive a score for the 
Medicare spending per beneficiary measure. We believe that using a 
minimum number of 25 cases achieves an appropriate balance of our 
interest in allowing the maximum possible number of hospitals the 
opportunity to receive a score on the Medicare spending per beneficiary 
measure and maintaining a sufficiently narrow range for the 95 percent 
confidence interval. Additionally, although we proposed to use a 
minimum of 25 cases for the Medicare spending per beneficiary measure, 
we also sought comment on whether using a minimum of 50 cases better 
reaches our goal of maintaining a meaningful measure of Medicare 
spending across hospitals.
    Comment: A few commenters stated that they were unable to 
meaningfully comment on the proposed minimum number of cases, because 
there was not a reliability study posted. Some commenters pointed to 
the reliability of the mortality measures, suggesting that 100 cases 
may not be a high enough minimum for a claims-based measure.
    Response: In addition to the minimum number of cases analysis 
described above, we have obtained a more robust reliability analysis, 
in order to confirm our expectation that the Medicare Spending per 
Beneficiary measure would be reliable. As noted above, the analysis 
found the Medicare Spending per Beneficiary measure to have a 
reliability of 0.951, with a minimum of 10 cases, and an increase in 
reliability of 0.0002 when the minimum number of episodes increases

[[Page 53610]]

from 10 to 25. Because we believe this analysis supports our 
expectation that a minimum number of 10 cases for the measure would be 
sufficient, we are confident that the minimum number of 25 cases 
proposed will produce sufficient measure reliability. The analysis may 
be accessed at https://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/hospital-value-based-purchasing/index.html?redirect=/Hospital-Value-Based-Purchasing/, in the 
``Downloads'' section.
    Comment: Many commenters urged CMS to begin the legislatively 
required demonstrations on value-based purchasing for hospitals not 
meeting the minimum numbers of cases and measures and for Critical 
Access Hospitals as soon as possible.
    Response: We plan to begin those demonstrations when possible 
within our resource constraints.
    After consideration of the public comments we received, we are 
finalizing our minimum number of cases for the Medicare Spending per 
Beneficiary measure as proposed.
15. Immediate Jeopardy Citations
    Under section 1886(o)(1)(C)(ii)(II) of the Act, a hospital is 
excluded from the Hospital VBP Program if it has been cited by the 
Secretary during the performance period for deficiencies that pose 
immediate jeopardy to the health or safety of patients. In the Hospital 
Inpatient VBP Program final rule (76 FR 26528 through 26530), we 
finalized our interpretation of this provision to mean that any 
hospital that we cite through the Medicare State Survey and 
Certification process for deficiencies during the performance period 
that pose immediate jeopardy to patients will be excluded from the 
Hospital VBP Program for the fiscal year. We also finalized our 
proposal to use the definition of the term ``immediate jeopardy'' that 
appears in 42 CFR 489.3.
    In the FY 2013 IPPS/LTCH PPS proposed rule (77 FR 28090), in 
proposed Sec.  412.160, we proposed to define ``immediate jeopardy'' in 
the same way as that term is defined in 42 CFR Part 489, which governs 
provider agreements and supplier approval. We believe that the language 
in section 1886(o)(1)(C)(ii)(II) of the Act referring to a hospital 
having been ``cited'' for deficiencies posing an immediate jeopardy is 
a reference to the process by which CMS, through agreements with State 
survey agencies, surveys or inspects hospitals for compliance with the 
hospital CoPs at 42 CFR Part 482 or Emergency Medical Treatment and 
Labor Act (EMTALA) regulations at Sec.  489.24, and issues deficiency 
citations for non-compliance with Federal health, safety and quality 
standards. The survey process is governed by provisions found in 42 CFR 
Part 488, Survey, Certification and Enforcement Procedures. Further, 
provisions at 42 CFR Part 489, Provider Agreements and Supplier 
Approval, define the term ``immediate jeopardy'' at Sec.  489.3; 
authorize us at Sec.  489.53(a)(3) to terminate the Medicare provider 
agreement for the hospital's failure to meet the CoP; authorize us at 
Sec.  489.53(b) to terminate the Medicare provider agreement of a 
hospital that fails to meet the EMTALA regulatory requirements; and 
provide at Sec.  489.53(d)(2)(i) for a shortened advance notice to the 
public of the termination when a hospital with an emergency department 
is in violation of EMTALA requirements and the violation poses 
immediate jeopardy. Therefore, we believe that the term ``immediate 
jeopardy'' should be defined in our Hospital VBP Program regulations in 
the same manner as it is defined for the purpose of survey, 
certification, enforcement, and termination procedures.
    In proposed Sec.  412.160, we proposed to define the phrase ``cited 
for deficiencies that pose immediate jeopardy.'' We proposed a 
definition in order to avoid potential ambiguities about the terms 
``cited'' and ``deficiencies.'' There are several ways in which a 
hospital might be found to have an immediate jeopardy situation. 
Appendix Q of the State Operations Manual (SOM), Pub. No. 100-07, 
provides guidance to the State survey agencies on our policies 
concerning the identification and citation of immediate jeopardy and 
subsequent enforcement actions. A common way in which an immediate 
jeopardy situation is identified is when a surveyor or team of 
surveyors is in the process of conducting a survey of compliance with 
the Medicare CoP at the hospital and accurately identifies those 
situations which immediately jeopardize the health and safety of 
patients. Surveyors may be expected, according to State protocols, to 
consult immediately with their supervisors before declaring an 
immediate jeopardy, and in cases involving hospitals deemed to meet the 
CoP based on their accreditation, the State must first consult with the 
CMS Regional Office (RO). In the case of EMTALA surveys, only the CMS 
Regional Office may determine, after reviewing the State Survey 
Agency's report, whether there was an EMTALA violation and, if so, 
whether it constituted an immediate jeopardy.
    Once an immediate jeopardy situation is declared, the hospital's 
management is informed and expected to take steps to remove the 
immediate jeopardy, preferably before the survey team concludes the on-
site portion of its survey. If the hospital does not remove the 
immediate jeopardy while the survey team is on-site, it has 23 days to 
submit an acceptable plan of correction and have an onsite follow-up 
survey to confirm removal. If the hospital fails to remove the 
immediate jeopardy in a timely manner, we may terminate the hospital's 
Medicare provider agreement. There are also situations where a survey 
team does not declare an immediate jeopardy while on-site, but a 
subsequent supervisory or CMS RO review of the survey team's findings 
identifies an immediate jeopardy situation that should have been 
declared. In such cases, the hospital is promptly advised of the 
immediate jeopardy and given 23 days to submit an acceptable plan of 
correction and have an onsite follow-up survey to confirm removal of 
the immediate jeopardy. It can also happen that a supervisory or CMS RO 
review will conclude that the survey documentation does not support a 
finding of an immediate jeopardy, and in such cases no official 
immediate jeopardy citation will be issued.
    We note that removal of an immediate jeopardy is not necessarily 
the same as correction of the hospital's noncompliance deficiencies. 
Removal may be accomplished by an interim measure while the hospital 
works to create a systematic and permanent correction of its deficient 
practices.
    The Form CMS-2567, Statement of Deficiencies and Plan of 
Correction, is issued after each survey of a hospital, even if only to 
indicate that no deficiencies were found during the survey (SOM Section 
2728 and SOM Exhibit 7A, Principles of Documentation, Principle 
1). The CMS-2567 form constitutes the official notice to a 
healthcare facility of the survey findings. Statements made by 
surveyors to the facility while they are on-site are always preliminary 
in nature. After surveyors have exited the facility, they prepare the 
Form CMS-2567 based on their observations and survey documentation. 
Their draft Form CMS-2567 is then subjected to a supervisory review 
and, in the case of hospitals that are deemed to meet the CoP via 
accreditation and are being cited for serious noncompliance (that is, 
condition-level or immediate jeopardy citation), to a CMS RO review. 
The Form CMS-2567 is not considered final until it is transmitted to 
the healthcare facility, either by the State survey agency or, in 
certain cases, the CMS RO.

[[Page 53611]]

    In the case of a survey where an immediate jeopardy situation was 
found, the Form CMS-2567 must state that the facility was found to have 
immediate jeopardy. This is the case regardless of whether the 
immediate jeopardy was removed while the survey team was still on-site 
at the facility, although on-site removal will be noted if it occurred. 
Furthermore, it is standard survey practice to cite on the Form CMS-
2567 all noncompliance deficiencies identified during a survey even 
when the healthcare facility corrects those deficiencies after they 
have been identified by a surveyor, but before the survey team exits 
the facility (SOM Exhibit 7A, Principles of Documentation, Principle 
4).
    We considered whether it would be reasonable to treat only those 
hospitals that failed to remove immediate jeopardy while a survey team 
was still on-site as having been ``cited for an immediate jeopardy'' 
solely for the purposes of the Hospital VBP Program. However, we 
concluded that this would not be equitable, since there are cases where 
an immediate jeopardy is identified after the survey team has left the 
hospital through a supervisory or CMS RO review, as described above. We 
also concluded this approach would not be consistent with the statutory 
requirement given that the Form CMS-2567 is the official notice to a 
healthcare facility of deficiencies found during a survey and in light 
of the fact that CMS includes references to the identification of an 
immediate jeopardy on the CMS-2567, regardless of when or if it was 
removed by the facility. We have, therefore, concluded that 
``citation'' of an immediate jeopardy within the context of the 
Hospital VBP Program means the identification of an immediate jeopardy 
noted on the CMS-2567 that is issued to the hospital after a survey.
    We also note that section 1886(o)(1)(C)(ii)(II) of the Act refers 
to the citation of plural ``deficiencies'' that pose immediate jeopardy 
and that this requires interpretation of its application to the 
Hospital VBP Program. We use an Automated Survey Processing Environment 
(ASPEN) system to catalog deficient practices identified during a 
survey and to generate the CMS-2567 that is issued to the hospital 
after the survey. To facilitate processing in the ASPEN system, we have 
subdivided the regulations applicable to each type of certified 
healthcare facility into specific ``tags,'' each one of which has 
corresponding interpretive guidelines in the applicable appendix of the 
SOM. Hospital tags are found in Appendix A. The ASPEN system also 
differentiates between ``condition'' and ``standard'' level tags for 
non-long term care enforcement, since it is essential to know whether 
or not identified noncompliance is found at the condition-level, that 
is, whether it is considered substantial noncompliance. Each hospital 
condition of participation has its own condition tag. There are also a 
varying number of ``standard'' tags within each condition. The number 
of standard-level tags identified in the SOM Appendix does not 
correspond to the number of individual ``standards'' required in the 
regulations; usually there are more tags than actual standards, because 
standards may involve multiple items or requirements under specific CoP 
that lend themselves to separate evaluation.
    While we understand that each tag identified in a CMS-2567 may be 
viewed as a separate deficiency, we also recognize that the division of 
the regulations for each ``condition'' and ``standard'' into individual 
tags was to facilitate the survey and certification process for 
surveyors. Moreover, in general a set of documented deficient practices 
that constitute immediate jeopardy would be cited at least in two tags, 
since there must be a citation at the condition-level to indicate 
substantial noncompliance, along with citation of any pertinent 
standard-level tags, which are subsets of the condition tags. We do not 
believe it was the intent of the statute to count each of these tags 
related to the same set of circumstances or practices as separate 
deficiencies under the Hospital VBP Program.
    We have concluded, therefore, that a more reasonable interpretation 
of the Hospital VBP statute is to view each hospital survey for which 
the CMS-2567 form cited immediate jeopardy as a deficiency, for 
Hospital VBP purposes only. Thus, a hospital would have to have been 
cited on a CMS-2567 for immediate jeopardy on at least two surveys 
during the performance period in order to be considered as having 
multiple deficiencies that pose immediate jeopardy. Accordingly, we 
proposed to define in our regulations the term ``cited for deficiencies 
that pose immediate jeopardy'' under the Hospital VBP Program to mean 
that, during the applicable performance period, the hospital had more 
than one survey for which it was cited for an immediate jeopardy on the 
Form CMS-2567, Statement of Deficiencies and Plan of Correction.
    As required by the statute, hospitals cited during the performance 
period for multiple deficiencies that pose immediate jeopardy to the 
health or safety of patients would be excluded from the Hospital VBP 
Program for the applicable fiscal year. Because we sometimes adopt 
different performance periods for different measures for purposes of 
the same program year, we proposed to exclude hospitals cited for such 
deficiencies during any of the finalized performance periods for the 
applicable program year for purposes of that interpretation.
    We welcomed public comment on this interpretation of the immediate 
jeopardy exclusion and on our proposals.
    Comment: A majority of commenters expressed their support for the 
proposal to define the phrase ``cited for deficiencies that pose 
immediate jeopardy'' as meaning that, during the applicable performance 
period a hospital was cited for immediate jeopardy on at least two 
surveys using the Form CMS-2567, Statement of Deficiencies and Plan of 
Correction. One commenter indicated this approach was reasonable and 
strikes an appropriate balance between the importance of ensuring high 
quality care and the punitive nature of disqualifying a hospital from 
value-based purchasing incentives.
    Response: We thank those commenters who support our proposal and 
agree that it allows for an appropriate balance in the Hospital VBP 
Program between assuring high quality care and not unreasonably 
excluding a hospital from participation in the Hospital VBP Program.
    Comment: A number of individual commenters associated with one 
hospital, as well as several other commenters, objected to the proposed 
definition for the term ``cited for deficiencies that pose immediate 
jeopardy.'' The commenters suggested that there is variation in 
immediate jeopardy citation practices which raises legitimate concerns 
about the validity of the citations. One commenter suggested that CMS 
eliminate use of immediate jeopardy citations in the Hospital VBP 
Program. Several others suggested the term be defined to include only 
those hospitals whose Medicare provider agreement is actually 
terminated as a result of the inability to remove an immediate jeopardy 
within 23 days. Two commenters suggested that immediate jeopardy 
citations based on violations of the Life Safety Code be excluded from 
consideration under the Hospital VBP Program. These commenters believed 
that variations in Life Safety Code citations are wide and that these 
types of deficiencies often are not related to patient safety. Another 
commenter suggested that any immediate jeopardy that is corrected

[[Page 53612]]

while the surveyors are on-site not be included in the definition, 
since a deficiency that can be corrected in that timeframe does not 
warrant the severity of the punishment related to the Hospital VBP 
Program. This commenter also suggested revising the definition of 
``immediate jeopardy'' given the linkage to the Hospital VBP Program. 
The commenter believes that immediate jeopardy citations are limited in 
scope to single patient occurrences, unlike the Hospital VBP Program 
performance measures that consider a hospital's overall performance. 
This commenter indicated that such citations in the case of hospitals 
previously made them subject to loss of deemed status, loss of Medicare 
certification and civil monetary penalties, and with this proposal the 
penalty of exclusion from the Hospital VBP Program would be added. The 
commenter believes the definition should reflect the serious nature of 
the penalties.
    Response: With respect to the suggestion that we eliminate the use 
of the immediate jeopardy exclusion in the Hospital VBP Program, we do 
not have the discretion to do so. Section 1886(o)(1)(C)(ii)(II) of the 
Act specifies that a hospital is excluded from the Hospital VBP Program 
if it has been cited by the Secretary during the performance period for 
deficiencies that pose immediate jeopardy to the health or safety of 
patients. We believe that the statute is clearly referring to our 
longstanding definition of ``immediate jeopardy'' and to citations in 
connection with Federal surveys, or inspections, of hospitals, most of 
which are conducted on CMS' behalf by State Survey Agencies as part of 
the Medicare survey and certification process. We do not believe the 
statute refers only to hospitals whose provider agreements were 
terminated as a result of their failure to correct their cited 
immediate jeopardy deficiencies, since the term ``cited'' is not 
equivalent to ``terminated.'' Moreover, any hospital not participating 
in the Medicare program as a result of a termination action would not 
be eligible for the Hospital VBP Program, so it is unlikely that the 
statute was intended for such cases. Likewise, we see no basis for 
revising the definition of ``immediate jeopardy, '' which is defined at 
42 CFR 489.3 as ``a situation in which a provider's noncompliance with 
one or more requirements of participation has caused, or is likely to 
cause, serious injury, harm, impairment, or death to a resident,'' or 
not considering certain types of immediate jeopardy citations 
applicable. The definition and the criteria for all immediate jeopardy 
citations are the same for all types of certified providers and 
suppliers, not just subsection (d) hospitals. As specified in Appendix 
Q, Guidelines for Determining Immediate Jeopardy, (Rev. 1, 05-21-04), 
of the SOM, there are three components that must be present to support 
an immediate jeopardy citation: actual or potential serious harm, 
injury, impairment or death of patients; immediacy of the harm, that 
is, its likelihood to occur in the very near future; and culpability, 
that is, the hospital knew or should have known about the situation and 
taken appropriate action prior to the survey. It is not correct to say 
that immediate jeopardy citations are limited in scope to single 
patient occurrences, since often such citations reflect serious 
systemic problems within a hospital that could put many patients at 
risk of serious harm. Likewise, the issue of being able to ``remove'' 
an immediate jeopardy while the survey team is on site should not be 
confused with the seriousness of the underlying problem or the extent 
of systemic corrections needed. An immediate jeopardy may be removed 
while the survey team is on-site when the hospital takes interim 
measures that remove the immediacy of the threat of future harm,. 
However, the substantial noncompliance with the Medicare health and 
safety standards in such cases remains and must be corrected through 
systemic changes. Our survey protocol calls for the immediate jeopardy 
to be noted on the Form CMS-2567 regardless of whether it was removed 
while the survey team was on-site or not. We do not believe it would be 
appropriate to modify either the regulatory definition of immediate 
jeopardy or our longstanding protocols for citing immediate jeopardy 
for one type of provider, namely subsection (d) hospitals, now that 
such citations are linked to another Medicare program.
    Comment: Multiple commenters stated that there is wide variation 
among States and CMS Regional Offices and that they can reach differing 
opinions on similar facts as to whether there is an immediate jeopardy 
finding. One commenter asserted that CMS Regional Offices are unlikely 
to overturn an immediate jeopardy citation that is issued by a State 
surveyor. Several commenters urged that, given the additional payment 
impact under VBP of immediate jeopardy citations, CMS should ensure 
that there is uniform guidance for State surveyors and that the 
definition of immediate jeopardy is well understood and consistently 
applied by CMS and State Survey Agencies.
    Response: In addition to the regulatory definition of immediate 
jeopardy, we have longstanding, detailed, uniform guidance in Appendix 
Q of the SOM for determining an immediate jeopardy situation. We also 
note that the standard protocol for non-EMTALA surveys requires the 
surveyor or survey team which suspects an immediate jeopardy while they 
are on-site conducting a survey to call their State Survey Agency 
management, per State protocol. In the case of deemed hospitals, the 
CMS Regional Office must also be consulted before an immediate jeopardy 
may be declared. In the case of an EMTALA survey, only the CMS Regional 
Office may determine whether there was an EMTALA violation and, if so, 
whether it constitutes immediate jeopardy. This necessity for multiple 
individuals to agree that an immediate jeopardy citation is warranted 
helps to mitigate the risk of subjectivity in the determination. In 
addition, with the advent of the statutory linkage between the Hospital 
VBP Program and immediate jeopardy citations, we recognized the 
importance of increasing our efforts to ensure consistency across CMS 
regions and States in issuing immediate jeopardy citations. We have 
conducted special training for surveyors and regional office staff on 
identifying immediate jeopardy situations related to the hospital CoP, 
and will be doing the same with respect to immediate jeopardy 
situations related to the EMTALA requirements for hospitals. In 
addition, now that we have begun collecting data on immediate jeopardy 
citations, we will use the data to support further education and 
training as needed. For the first Hospital VBP performance period and 
part of the second performance period we utilized a manual process to 
collect hospital immediate jeopardy citation information from each CMS 
Regional Office. In addition, the Automated Survey Processing 
Environment (ASPEN), an electronic system that supports our survey and 
certification activity, has been revised to include information about 
immediate jeopardy citations in surveys entered into ASPEN after July, 
2012, enabling automated collection of this data.
    We note as a point of information that over eighty percent of 
subsection (d) hospitals are ``deemed'' to be in compliance with the 
Medicare hospital CoP on the basis of their accreditation under a CMS-
approved hospital accreditation program. Although we have the authority 
to do so, as a matter of policy we do not take enforcement

[[Page 53613]]

actions based on the results of an accrediting organization's survey of 
a deemed facility. Accordingly, there are no Medicare immediate 
jeopardy citations based on an accrediting organization's survey 
findings. However, this does not mean that deemed hospitals would never 
be cited for immediate jeopardy, nor does it mean that they are not 
subject to Medicare hospital surveys conducted either by State Survey 
Agencies or Federal surveyors. With respect to the Hospital VBP, 
therefore, there is no advantage to being deemed versus non-accredited. 
In accordance with section 1864(c) of the Act, the Secretary may 
authorize State Survey Agencies to conduct validation surveys of deemed 
facilities. There are two types of validation surveys: (1) 
Representative sample validation surveys, where CMS selects a sample of 
deemed providers and suppliers to be surveyed under a standard survey 
(i.e., a survey of compliance with all applicable CoP or Conditions for 
Coverage) by the State Survey Agencies as part of our annual assessment 
of the performance of CMS-approved accreditation programs; and (2) 
substantial allegation validation surveys, more generally known as 
complaint surveys. The latter are conducted in response to an 
allegation which, if found to be true, would indicate that a provider 
or supplier is not in substantial compliance with one or more of the 
applicable Conditions. In the case of hospitals, the majority of the 
Medicare surveys conducted are validation surveys involving deemed 
hospitals. In FY 2010, for example, there were over 4,200 Medicare 
complaint surveys and over 400 standard surveys of subsection (d) 
hospitals, and fewer than 500 of these complaint surveys and roughly 
100 of the standard surveys were of non-accredited hospitals. Finally, 
we also note that accrediting organizations are required to notify CMS 
promptly if they identify a situation during a survey of a deemed 
facility which constitutes an immediate jeopardy. Upon receiving such 
notification, CMS reviews the information the accrediting organization 
provides and, if it agrees that the situation as described would 
constitute an immediate jeopardy, either instructs the State Survey 
Agency to promptly conduct a substantial allegation validation survey 
or conducts such a survey with a team of Federal surveyors.
    Comment: One commenter interpreted the discussion in the proposed 
rule of the use of the Form CMS-2567, Statement of Deficiencies and 
Plan of Correction, as implying that State Agency surveyors could issue 
immediate jeopardy findings using some other form. The commenter urged 
CMS to clarify that only immediate jeopardy findings issued by CMS or 
its Regional Offices on the Form CMS-2567 can serve as the basis for an 
immediate jeopardy determination that will have payment impact under 
the Hospital VBP Program.
    Response: Nothing in the proposed rule indicated that an official 
notice of immediate jeopardy could be conveyed to a hospital via any 
form other than the Form CMS-2567. We believe that the commenter may be 
confused by the fact that, in some instances, the Form CMS-2567 
containing the findings of the Federal survey may be issued or 
transmitted to a hospital by the State Survey Agency rather than the 
CMS Regional Office. This could happen in the following cases: When the 
survey was of CoP compliance in a hospital that does not have Medicare 
``deemed'' status on the basis of its accreditation by a CMS-approved 
Medicare accreditation program; when the survey was of a hospital whose 
deemed status was previously removed by the CMS Regional Office, as a 
result of substantial noncompliance found on a previous survey; or in 
the case of a hospital with deemed status where the CMS Regional Office 
has authorized the State Survey Agency to transmit the specific Form 
CMS-2567 to the hospital.
    We are also taking this opportunity to clarify that we will 
consider only those Form CMS-2567s which are issued to a hospital based 
on a Federal survey, both for our general enforcement purposes and for 
determining immediate jeopardy citations for the Hospital VBP Program. 
We recognize that it is not uncommon for States to also use the Form 
CMS-2567 as a template for them to issue reports of surveys conducted 
under their State licensure authority. Even though the report may 
appear on a Form CMS-2567, and even when the report may refer to an 
immediate jeopardy, if it is not a report resulting from a Federal 
survey to assess compliance with Federal standards, it will not be 
considered applicable for our general enforcement purposes or for the 
Hospital VBP Program.
    Comment: One commenter asked that CMS clarify what the operative 
date will be for determining the appropriate performance period to 
which an immediate jeopardy citation will be applied. The commenter 
noted that the issuance of the Form CMS 2567 to the hospital may occur 
a lengthy time after surveyors exited the hospital. Another commenter 
noted that sometimes the same event can result in multiple immediate 
jeopardy citations which is a cause for concern. Another commenter 
recommended that CMS apply the definition in the proposed regulation to 
the FY 2013 Hospital VBP Program.
    Response: It is possible for several Federal surveys to be 
conducted simultaneously in a hospital. This could happen, for example, 
if a particular complaint warranted an investigation under both the 
hospital CoP, 42 CFR Part 482, and the EMTALA requirements found in 42 
CFR 489. We recognize that it is more an artifact of our survey process 
and the ASPEN electronic system which supports Federal surveys that 
separate Form CMS 2567s are generated when such simultaneous surveys 
occur. We have therefore adopted as part of our protocol that two Form 
CMS-2567s with immediate jeopardy citations and with the same survey 
end date are to be counted as one instance of an immediate jeopardy 
citation. However, use of the survey end date will enable us to 
identify those cases where multiple surveys were conducted 
simultaneously.
    The survey end date generated in ASPEN will be the date used for 
assignment to a performance period. We acknowledge that this date will 
often be earlier than the date on which the Form CMS-2567 is issued to 
the hospital. In the case of EMTALA surveys, it will always be earlier, 
since only the CMS Regional Office may determine whether there has been 
an EMTALA violation, usually after obtaining a Quality Improvement 
Organization (QIO) physician review of the clinical aspects of the case 
when required by the statute. The survey end date is a date that can be 
tracked in ASPEN in an automated fashion, increasing the accuracy of 
identification of all immediate jeopardy citations for the applicable 
performance period.
    This final rule concerning the Hospital VBP Program will be 
effective for FY 2013. Therefore, although the performance period for 
the FY 2013 Hospital VBP Program occurred prior to October 1, 2013, the 
definition of immediate jeopardy citations will be in effect and 
applied to the FY 2013 Hospital VBP performance period.
    Comment: Several commenters indicated that, given their concerns 
about the variation they perceive in immediate jeopardy citation 
practices among States and Regional Offices, they believe that they 
should be able to appeal any immediate jeopardy citation issued to 
them. One commenter noted that all appeals should be exhausted before a 
hospital would be excluded from the Hospital VBP Program.

[[Page 53614]]

    Response: ``Immediate jeopardy'' is one of several levels of 
noncompliance that may be cited in a hospital, with the other two being 
substantial noncompliance (that is, so-called ``condition-level'' 
noncompliance) and standard-level deficiencies. In accordance with 42 
CFR 498.3(b)(14), the level of noncompliance found by CMS is an initial 
determination (and therefore appealable) only in the case of a skilled 
nursing facility or nursing facility, and then only in certain 
circumstances. The level of citations issued to a hospital is, 
therefore, not appealable under the current regulation. Among other 
things, a hospital may appeal deficiency findings that lead to the 
termination of a provider agreement under 42 CFR 489.53, which is an 
initial determination defined at 42 CFR 498.3(b)(8). Appeals procedures 
for providers, including hospitals, and certified suppliers are found 
in 42 CFR Part 498. We will consider future rulemaking on this issue.
    Comment: Several commenters objected to our proposal that, because 
we sometimes adopt different performance periods for different measures 
for purposes of the same Hospital VBP Program year we would exclude 
hospitals cited for immediate jeopardy during any of the finalized 
performance periods for the applicable program year. Several commenters 
noted that the mortality measurements performance period is 3 years 
long and indicated that it is unreasonable to exclude a hospital from 
the Hospital VBP Program for 3 years due to two immediate jeopardy 
citations in one portion of this performance period.
    Response: We believe commenters erred in describing a 3-year 
performance period for the 30-day mortality measures. We finalized 
above a 21-month performance period for these measures for the FY 2016 
VBP Program, but have not proposed to adopt a performance period of 3 
years. We interpret the commenters to express concern about the 
possibility of immediate jeopardy citations during a relatively wide 
date range resulting in hospitals' being excluded from a Hospital VBP 
Program year.
    Section 1886(o)(1)(C)(i) of the Act defines the term ``hospital'' 
for purposes of the Hospital VBP Program as ``a subsection (d) hospital 
(as defined in subsection (d)(1)(B),'' subject to certain exclusions 
outlined in section 1886(o)(1)(C)(ii) of the Act. One of those 
exclusions, found in subparagraph (II), excludes from the definition of 
the term hospital any hospitals ``for which, during the performance 
period for such fiscal year, the Secretary has cited deficiencies that 
pose immediate jeopardy to the health or safety of patients.''
    We do not believe that we have the statutory authority to include 
hospitals in the Hospital VBP Program when they have been cited for 
such deficiencies during any of the finalized performance periods 
described further above. Subject to our interpretation of the term, 
``cited for deficiencies that pose immediate jeopardy'' described 
further above, we believe that we must exclude hospitals so cited 
during any finalized performance period for a fiscal year regardless of 
the length of the applicable performance period. While we recognize 
that, for certain types of measures, the length of time during which 
immediate jeopardy citations may result in exclusion from the Hospital 
VBP Program may be longer than for others, we believe that the Hospital 
VBP statute requires us to exclude those cited hospitals.
    After consideration of the public comments we received, we are 
finalizing our proposed immediate jeopardy definitions and exclusion 
processes without modification, including our codification of the 
definitions of ``cited for deficiencies that pose immediate jeopardy'' 
and ``immediate jeopardy'' for purposes of the Hospital VBP Program in 
42 CFR 412.160.

D. 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 rate year 2014 and each subsequent rate year, in 
the case of a long-term care hospital (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). 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. LTCH Program Measures for the FY 2014 Payment Determination and 
Subsequent Fiscal Years Payment Determinations
a. Process for Retention of LTCHQR Program Measures Adopted in Previous 
Payment Determinations
    In the FY 2013 IPPS/LTCH PPS proposed rule (77 FR 28092), for the 
LTCHQR Program, we proposed that once a quality measure is adopted, it 
is retained for use in subsequent fiscal year payment determinations, 
unless otherwise stated. For the purpose of streamlining the rulemaking 
process, we proposed that when we initially adopt a measure for the 
LTCHQR Program for a payment determination, this measure will be 
automatically adopted for all subsequent payment determinations or 
until we propose to remove, suspend, or replace the measure. Quality 
measures may be considered for removal by CMS if: (1) Measure 
performance among LTCHs is so high and unvarying that meaningful 
distinctions in improvements in performance can be no longer be made; 
(2) performance or improvement on a measure does not result in better 
patient outcomes; (3) a measure does not align with current clinical 
guidelines or practice; (4) a more broadly applicable measure (across 
settings, populations, or conditions) for the particular topic is 
available; (5) a measure that is more proximal in time to desired 
patient outcomes for the particular topic is available; (6) a measure 
that is more strongly associated with desired patient outcomes for the 
particular topic is available; or (7) collection or public

[[Page 53615]]

reporting of a measure leads to negative unintended consequences other 
than patient harm. For any such removal, the public will be given a 
chance to comment through the annual rulemaking process. However, if 
there is reason to believe continued collection of a measure raises 
potential safety concerns, we will take immediate action to remove the 
measure from LTCHQR Program and will not wait for the annual rulemaking 
cycle. Such measures will be promptly removed and we will promptly 
notify LTCHs and the public of such a decision through the usual LTCHQR 
Program communication channels, including listening sessions, memos, 
email notification, and Web postings and their removal will be formally 
announced in the next annual rulemaking cycle.
    We invited public comment on our proposal that once a quality 
measure is adopted, it is retained for use in the subsequent fiscal 
year payment determinations unless otherwise stated.
    Comment: Several commenters supported CMS' approach to retaining 
measures. Other commenters expressed appreciation for CMS' proposal to 
streamline the process for quality measure retention and to use the 
same process proposed in the Hospital IQR Program.
    Response: We thank the commenters for their support of our proposed 
approach for retaining adopted measures for use in subsequent fiscal 
year payment determinations.
    Comment: Many commenters objected to CMS' approach to retain 
quality measures and suggested that CMS re-propose measures each year 
and invite public comment before measures are finalized for use. 
Another commenter noted that measures when implemented may produce 
unintended consequences and that stakeholders should have the 
opportunity in the rulemaking process to raise these issues.
    Response: Our proposal to retain previously finalized LTCHQR 
Program measures for subsequent fiscal year determinations aligns with 
our proposal to retain measures in other Medicare quality reporting 
programs such as the Hospital IQR Program. We believe this policy will 
help streamline the rulemaking process and that, in most cases, the 
comment process during the year we initially propose to adopt a measure 
is sufficient to identify any potential problem with the measure. 
However, if we have any indication that the continued use of a measure 
is causing potential safety concerns, which includes causing unintended 
consequences, we will take immediate action to remove that measure from 
the program. To the extent that stakeholders identify other types of 
unintended consequences (that is, unintended consequences that would 
not raise patient safety concerns), we also welcome and would consider 
comments on these issues at any time. We also plan to work with 
technical experts and solicit public input through venues such as 
technical expert panel meetings, listening sessions, special open door 
forums, and our helpdesk for the LTCHQR Program to ensure that each of 
the adopted measures remains appropriate for continued inclusion in the 
LTCHQR Program.
    After consideration of the public comments we received, we are 
finalizing our proposal to retain adopted quality measures for 
subsequent fiscal year payment determinations unless we propose to 
remove, suspend, or replace the measure.
b. Process for Adopting Changes to LTCHQR Program Measures
    As mentioned previously, quality measures selected for the LTCHQR 
Program must be endorsed by the NQF unless they meet the statutory 
criteria for exception. 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 (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).
    The NQF solicits information from measure stewards for annual 
reviews and in order to review measures for continued endorsement in a 
specific 3-year cycle. In this measure maintenance process, the measure 
steward is responsible for updating and maintaining the currency and 
relevance of the measure and for confirming existing specifications to 
NQF on an annual basis. As part of the ad hoc review process, the ad 
hoc review requester and the measure steward are responsible for 
submitting evidence for review by a NQF Technical Expert panel which, 
in turn, provides input to the Consensus Standards Approval Committee 
which then makes a decision on endorsement status and/or specification 
changes for the measure, practice, or event.
    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, 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 proposed 
rule (77 FR 28092), we proposed that if the NQF updates an endorsed 
measure that we have adopted for the LTCHQR Program in a manner that we 
consider to not substantially change the nature of the measure, we 
would use a subregulatory process to incorporate those updates to the 
measure specifications that apply to the Program. Specifically, we 
would revise the LTCHQR Program Manual so that it clearly identifies 
the updates and provide links to where additional information on the 
updates can be found. We proposed posting updates on our LTCH Quality 
Reporting Web site at: http://www.cms.gov/LTCH-Quality-Reporting/, with 
the provision of sufficient lead time for LTCHs to implement the 
changes where changes to the data collection systems would be 
necessary.
    We proposed continuing to use the rulemaking process to adopt 
changes to measures when the changes substantially change the nature of 
the measure. We believe that our proposal adequately balances our need 
to incorporate NQF updates to NQF-endorsed LTCHQR 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 measure we originally adopted. We 
invited public comment on this proposal.
    Comment: Commenters noted that standards of quality may change from 
year to year and believed that it was not clear how CMS will determine 
what a ``substantial'' change is, requiring public

[[Page 53616]]

input, versus an ``unsubstantial'' change, not requiring public input. 
One commenter noted that ``even minor changes to the definitions and 
exceptions [of a measure] can result in a substantive change to a 
quality measure.'' Several commenters suggested that CMS set out the 
process for adopting NQF measure updates that arise from the NQF review 
process and the process for determining what is a ``substantive'' 
versus ``non-substantive'' measure change. Some commenters stated that 
CMS should solicit public comments to adopt these changes.
    Response: 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 non-substantive updates 
made by the NQF into the measure specifications we have adopted for the 
LTCHQR Program so that these measures remain up-to-date. We also 
recognize that some changes the NQF might make to its endorsed measures 
are substantive in nature and might not be appropriate for adoption 
using a subregulatory process.
    Therefore, after consideration of the public comments received, we 
are finalizing a policy under which we will use a subregulatory process 
to make non-substantive updates to NQF-endorsed measures used for the 
LTCHQR Program. With respect to what constitutes a substantive versus a 
non-substantive change, we expect to make this determination on a 
measure-by-measure 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 used in the Hospital IQR and Hospital 
VBP Programs). We also believe that non-substantive changes might 
include updates to NQF-endorsed measures based upon changes to 
guidelines upon which the measures are based.
    We will continue to use rulemaking to adopt substantive updates 
made by the NQF to the endorsed measures we have adopted for the LTCHQR 
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 the LTCH setting. We also note that the NQF process 
incorporates an opportunity for public comment and engagement in the 
measure maintenance and measure review process.
    These policies regarding what is considered substantive versus non-
substantive changes would apply to all LTCHQR Program measures.
3. CLABSI, CAUTI, and Pressure Ulcer Measures
    In the FY 2012 IPPS/LTCH PPS final rule (76 FR 51743 through 
51756), we adopted three quality measures for the FY 2014 payment 
determination as listed in the following table:

  Previously Finalized LTCHQR Quality Measures for the FY 2014 Payment
                              Determination
------------------------------------------------------------------------
 
------------------------------------------------------------------------
NQF 0138............  Urinary Catheter[dash]Associated Urinary
                                Tract Infection [CAUTI] rate per 1, 000
                                urinary catheter days, for Intensive
                                Care Unit [ICU] Patients.
NQF 0139............  Central Line Catheter-Associated Blood
                                Stream Infection [CLABSI] Rate for ICU
                                and High-Risk Nursery [HRN] Patients.
Application of NQF 0678.                        That are New or Worsened (Short-Stay).
------------------------------------------------------------------------

    The three measures finalized for FY 2014 payment determination were 
NQF-endorsed at the time of the FY 2012 IPPS/LTCH PPS final rule, 
although not for the LTCH setting. We also stated that we expected the 
NQF would review some of these measures for applicability to the LTCH 
setting and we anticipated this review might result in modifications to 
one or more of the measures.
    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 
previously adopted and expanded the scope of endorsement to include 
additional care settings, including LTCHs. The original NQF-endorsed 
numbers were retained for these two expanded measures, but the measures 
were re-titled to reflect the expansion of the scope of endorsement. 
NQF 0138 (Urinary Catheter-Associated Urinary Tract Infection 
[CAUTI] Rate Per 1,000 Urinary Catheter Days, for Intensive Care Unit 
[ICU] Patients) is now titled National Health Safety Network (NHSN) 
Catheter-Associated Urinary Tract Infection (CAUTI) Outcome Measure. 
NQF 0139 (Central Line Catheter-Associated Blood Stream 
Infection [CLABSI] Rate for ICU and High-Risk Nursery (HRN) Patients is 
now titled National Health Safety Network (NHSN) Central Line-
Associated Blood Stream Infection (CLABSI) Outcome Measure (http://www.qualityforum.org/News_And_Resources/Press_Releases/2012/NQF_Endorses_Patient_Safety_Measures.aspx). These expanded measures 
allow for the calculation of a Standardized Infection Ratio 
(SIR).133,134,135,136 For the remainder of this rule, we 
refer to these measures as the CAUTI measure and CLABSI measure, 
respectively. We proposed adopting the changes to the NQF-endorsed 
CAUTI and CLABSI measures that we previously finalized for the FY 2014 
payment determination, consistent with our stated intention to update 
these measures with changes resulting from NQF's review of the 
measures. Further, we proposed adopting the NQF-endorsed CAUTI measure 
and CLABSI measure for the FY 2015 payment determination and all 
subsequent fiscal year payment determinations. We also proposed 
incorporating any future changes to the CAUTI measure and CLABSI 
measure to

[[Page 53617]]

the extent these changes are consistent with our proposal to update 
measures.
---------------------------------------------------------------------------

    \133\ Centers for Disease Control and Prevention. (2012, 
January). Central Line-Associated Bloodstream Infection (CLABSI) 
Event. Retrieved from http://www.cdc.gov/nhsn/PDFs/pscManual/4PSC_CLABScurrent.pdf.
    \134\ National Quality Forum (2012). National Healthcare Safety 
Network (NHSN) Central line-associated Bloodstream Infection 
(CLABSI) Outcome Measure. Retrieved from http://www.qualityforum.org/QPS/0139.
    \135\ Centers for Disease Control and Prevention. (2012, 
January). Catheter Associated Urinary Tract Infection Event. 
Retrieved from: http://www.cdc.gov/nhsn/PDFs/pscManual/7pscCAUTIcurrent.pdf.
    \136\ National Quality Forum (2012). National Healthcare Safety 
Network (NHSN) Catheter Associated Urinary Tract Infection (CAUTI) 
Outcome Measure. Retrieved from http://www.qualityforum.org/QPS/0138.
---------------------------------------------------------------------------

    We proposed retaining an application to the LTCH setting of the 
measure Percent of Residents with Pressure Ulcers that are New or 
Worsened (Short-Stay) (NQF 0678), as finalized in the FY 2012 
IPPS/LTCH PPS final rule for the FY 2014 payment determination, for FY 
2015 and all subsequent fiscal year payment determinations. We also 
noted that the Percent of Residents with Pressure Ulcers that are New 
or Worsened (Short-Stay) (NQF 0678) measure was undergoing NQF 
review for expansion in the scope of endorsement to include additional 
care settings, including LTCHs and, to the extent that the measure is 
updated in a manner that does not substantially change the nature of 
the measure, we would incorporate the updates consistent with our 
previous proposal to update measures.
    This measure underwent review for expansion by the NQF Consensus 
Standards Approval Committee (CSAC) on July 11, 2012 (http://www.qualityforum.org/About_NQF/CSAC/Meetings/2012_CSAC_Meetings.aspx). The CSAC recommended that the NQF expand its 
endorsement of the measure to the LTCH setting. For the remainder of 
this final rule, we refer to this measure as the Pressure Ulcer 
measure. For more information on the history of this measure in the 
LTCHQR Program, we refer readers to the FY 2012 IPPS/LTCH PPS final 
rule (76 FR 51753 through 51756).
    We invited public comment on our proposal to adopt the revised 
CAUTI measure (NQF 0138) and CLABSI measure (NQF 
0139) beginning with the FY 2014 payment determination. We 
also invited public comment to retain an application to the LTCH 
setting of the Pressure Ulcer measure (NQF 0678) (which was 
finalized last year in the FY 2012 IPPS/LTCH PPS final rule for the FY 
2014 payment determination) for the FY 2015 payment determination and 
subsequent fiscal year payment determinations.
    Comment: Many commenters strongly supported CMS' use of the HAI 
measures CAUTI and CLABSI in the LTCHQR Program for the FY2014 payment 
determination and subsequent fiscal years' payment determinations. One 
commenter noted that although it is important to move forward with 
including these HAI measures, they specifically expressed concerns 
related to the validation of the data pertaining to these measures.
    Response: We appreciate the commenters' support of these measures 
for use in the LTCHQR Program. We interpret the comment expressing 
concern related to data validation to be recommending that we validate 
HAI data. We intend to work with the CDC to develop an efficient, and 
accurate, data validation approach, and will address this issue in 
future rulemaking. Furthermore, we recognize that the validation 
methods currently being used by States that have conducted some level 
of validation are not standardized or consistent. We will take these 
additional concerns under consideration as we consider CAUTI and CLABSI 
data validation.
    Comment: One commenter believed that the CAUTI rate is open to 
observer bias due to a lack of education regarding colonization versus 
infection. As a result, the commenter believed that almost all 
facilities will show progressively improving outcomes in this measure 
over time as they improve the education of staff on the colonization/
infection issue. The commenter believed that this demonstrated 
improvement will be misleading because, instead of representing an 
actual decrease in the CAUTI rate, it will reflect a decrease in false 
positive infection reporting due to colonization. The commenter 
believed that effects of such a distortion would likely be significant, 
potentially rendering the first year or two or reporting worthless.
    Response: Education is always an important, ongoing component of 
surveillance. We agree that a better distinction by clinicians between 
true UTI and asymptomatic bacteriuria may result from CAUTI 
surveillance. While this result could affect reported CAUTI rates, it 
would also lead to improved patient outcomes such as reduction of 
unnecessary antimicrobial usage, reduction in antimicrobial-resistant 
organisms and decreased adverse reactions to unnecessary medications. 
Therefore, we do not believe that delaying CAUTI surveillance so that 
LTCHs might better educate clinicians before implementing the CAUTI 
measure is the best method to improve patient outcomes.
    Comment: One commenter expressed concern about the LTCHQR Program's 
proposal to use the CAUTI measure. The commenter noted that although 
the proposed CAUTI measure intended to harmonize measures across the 
SNF, IRF, and LTCH settings, it did not take into account the 
significant differences between these healthcare settings. 
Specifically, the commenter argued that this proposed measure failed to 
account for higher frequency of urinary catheter use in LTCHs and that 
this factor had the potential of severely distorting quality measure 
reporting data. The commenter believed that, for example, because the 
measure denominator is derived in part from ``the number of urinary 
catheter days for each location,'' disproportionately high LTCH 
denominators may significantly skew interpretations of the data.
    Response: Under the LTCHQR Program, CAUTI data will be analyzed 
solely for LTCHs. LTCHQR Program CAUTI data will not be compared to any 
data collected from hospitals, IRFs or SNFs. We believe that the use of 
a CAUTI measure in the Hospital IQR Program and the IRFQR Program 
harmonizes this measure across care settings and will not skew 
interpretations of the measure under the LTCHQR Program.
    We note that, at this time, we do not require SNF CAUTI 
surveillance.
    Comment: One commenter recommended not finalizing the CAUTI measure 
or at least excluding Asymptomatic, Bacteremic, Urinary Tract Infection 
(ABUTI) from the measure. The commenter added that data relating to 
ABUTI patients is not relevant to LTCH quality and performance 
improvement because there is no reason for an LTCH to submit blood 
cultures for an asymptomatic patient.
    Response: We appreciate the commenter's recommendation to exclude 
Asymptomatic Bacteremic Urinary Tract Infection (ABUTI) from the CAUTI 
measure or not finalize the use of the CAUTI measure. However, we 
disagree that ABUTI is irrelevant to the LTCH patient population. 
Bacteremic urinary tract infections do occur among LTCH patients, and 
these infections may occur in patients without fever or localizing 
urinary tract symptoms. What is required to meet ABUTI criteria is 
presence of the same microorganism(s) in blood and urine cultures 
obtained from the same patient. These microbiologic findings are 
indicative of severe infection, and excluding these infections from the 
LTCH measure would mean omitting what may be important information 
about LTCH quality. The inclusion of ABUTI in the measure is also part 
of the NQF-endorsed specifications for the measure.
    Comment: Several commenters noted support for the clinical 
relevance of the CAUTI measure for the LTCH patient population.
    Response: We appreciate the commenters' recognition of the clinical 
importance of the CAUTI measure for the LTCH patient population. We 
agree with the importance of catheter associated urinary tract 
infections and role of infection control measures to

[[Page 53618]]

prevent these infections. According to the CDC, CAUTI is the most 
common healthcare-associated infection (HAI) and is reported 30 percent 
more frequently than all other infections reported through NHSN. As an 
HAI, the CDC estimates that there are 449,334 CAUTIs and 13,000 deaths 
per year with an estimated associated cost of $340,000,000.\137\ 
Furthermore, as indicated in the HHS National Action Plan to Prevent 
HAIs (http://www.hhs.gov/ash/initiatives/hai/actionplan/index.html), 
catheter-associated urinary tract infection is also a leading type of 
preventable HAI.\138\
---------------------------------------------------------------------------

    \137\ Scott, RD. The Direct Medical Costs of Healthcare-
Associated Infections in U.S. Hospitals and the Benefits of 
Prevention. March 2009. Available at: http://www.cdc.gov/ncidod/dhqp/pdf/Scott_CostPaper.pdf.
    \138\ Klevens RM, Edwards JR, Richards CL, Horan TC, Gaynes RP, 
Pollock DA, Cardo DM. Estimating healthcare-associated infection and 
deaths in U.S. hospitals, 2002. Public Health Reports 2007: 122:160-
166. Available at http://www.cdc.gov/ncidod/dhqp/pdf/hicpac/infections_deaths.pdf.
---------------------------------------------------------------------------

    Comment: Some commenters expressed concern with the Pressure Ulcer 
measure's NQF endorsement status. At the time of proposal, commenters 
noted that the measure was NQF-endorsed for the nursing home patient 
population, and was undergoing NQF review for re-specification and 
expansion to additional settings. Commenters suggested there be more 
transparency in the NQF endorsement process, and that CMS provide links 
to NQF documents and measure specifications. One commenter expressed a 
preference to not submit pressure ulcer quality measure data until the 
NQF has completed its review. Some commenters noted that CMS failed to 
provide information pertaining to this measure's specifications, and 
that LTCHs would also like the opportunity to review the re-specified 
measure for appropriateness before determining whether it should be 
finalized for FY2015 LTCHQR Program.
    Response: We thank the commenters for their input. On July 11, 
2012, the NQF CSAC recommended that the NQF expand its endorsement of 
the Pressure Ulcer measure to other settings, including the LTCH 
setting without changes to the specifications. We expect that the 
measure will be ratified for endorsement by the NQF Board of Directors, 
as the final step in the NQF endorsement process.
    Therefore, we expect the measure, if endorsed for the LTCH setting, 
will be the same as the measure that we previously finalized. We note, 
however, that because the NQF has not yet expanded its endorsement of 
the Pressure Ulcer measure to the LTCH setting, we cannot adopt the 
NQF-endorsed version of that measure. For that reason, we are retaining 
the measure that we previously finalized in FY 2012 IPPS/LTCH PPS final 
rule for the 2014 LTCHQR Program, which is an application of this 
measure to the LTCH setting.
    We do not agree with the commenters' assertion that we failed to 
provide information pertaining to the measure's specifications. In the 
FY 2012 IPPS/LTCH PPS final rule (76 FR 51754 through 51755), we 
provided the link to the CMS Web site (http://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/NursingHomeQualityInits/index.html?redirect=/NursingHomeQualityInits/45_NHQIMDS30TrainingMaterials.asp) where the Pressure Ulcer measure's 
specifications, as applicable to the nursing home setting (setting for 
which the measure was endorsed and in use at the time of the FY 2012 
IPPS/LTCH PPS final rule), were publically available. We further noted 
that for additional information related to this measure, including 
definitions related to worsening, unstageable and the staging of the 
pressure ulcers, as well as topics such as the inability to stage 
pressure ulcers with eschar or slough (unstageable), the public could 
view the Minimum Data Set 3.0 (MDS 3.0) Resident Assessment Instrument 
Manual, page 24 of Section M, Skin Conditions, which describes the 
NPUAP approach.
    Further, on January 31, 2012, we posted on CMS LTCHQR Program Web 
site an initial LTCHQR Program guidance document, which was followed by 
an updated guidance document on March 8, 2012. These guidance documents 
included measure specifications for the Pressure Ulcer measure and 
clearly identified data elements from the LTCH CARE Data Set proposed 
for use in the LTCH-setting. The March 8, 2012 guidance document was 
incorporated into the draft LTCHQR Program Manual and can be found on 
the CMS Web site: http://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/LTCH-Quality-Reporting/index.html, 
Appendix E, Titled: Centers for Medicare & Medicaid Services Long-Term 
Care Hospital Quality Reporting Program Guidance.
    Comment: Two commenters expressed concern that LTCHs would be held 
responsible for pressure ulcers that develop during the time that an 
LTCH patient receives care in an acute care hospital before being 
transferred back to the LTCH within three days (also known as an 
``interrupted [LTCH] stay''). One commenter recommended that the 
discharge form be modified to exclude pressure ulcers that were 
acquired during an interrupted stay from the calculation.
    Response: LTCH patients that are transferred from an LTCH for three 
days or less are considered to have had an ``interrupted stay,'' are 
not discharged from the LTCH, and are still considered to be LTCH 
patients. With respect to these patients, we believe that LTCHs should 
be taking quality of care issues into account when they arrange for 
transfers. However, we also acknowledge that there might be times when, 
despite efforts made by the LTCH, a patient develops a worsening 
pressure ulcer during the time spent in the other care setting. We are 
continuing to evaluate this issue and intend to address it in future 
rulemaking. We note that the LTCHQR Program is a pay-for-reporting 
program, which means that LTCHs will satisfy their reporting 
requirements based on whether or not they report the existence of a 
worsening pressure ulcer, not based on whether the pressure ulcer 
actually worsens.
    Comment: One commenter expressed concern regarding the presence of 
a pressure ulcer that cannot be staged and stated that such an ulcer 
should not be classified as ``unstageable simply because it was not 
examined.'' This commenter further noted that patients being admitted 
to an LTCH would be expected to have their wounds assessed within the 
48 hour window and that it is highly unlikely that a dressing applied 
before admission would be left in place for more than 48 hours on any 
wound after admission to a hospital. This commenter stated that ``it 
would border on negligent if a dressing was not removed from a known 
wound on an admission to an LTCH within the 3 days assessment.''
    The commenter further noted that a device applied over a known 
pressure ulcer, such as a NPWT pump or cast would never be utilized for 
a superficial, partial-thickness stage II pressure ulcer. An orthopedic 
device applied near/over a known pressure ulcer may not be removable to 
allow observation of a pressure ulcer on admission to an LTCH. However, 
the patient hospital discharge information would have identified the 
presence of an ulcer and typically its stage. If a dressing, wound 
device or cast was not removed, it would highly likely be due to the 
complexity of the wound, indicating the ulcer is at least full-
thickness.'' Commenters also stated that it was unclear whether 
pressure ulcers that cannot be examined due to the placement of a 
medical device, a cast, or

[[Page 53619]]

a non-removable dressing can be coded as ``unstageable'' on the LTCH 
CARE Data Set(s).
    Response: We appreciate this feedback related to the assessment and 
coding of unstageable pressure ulcers in the LTCH setting. The LTCH 
CARE Data Set includes data elements to allow LTCHs to record, at 
admission and discharge, the presence of pressure ulcers that are 
unstageable due to a medical device, a cast or non-removable dressing, 
or the presence of non-viable tissue such as slough or eschar. The 
instructions for the coding of pressure ulcers that are unstageable can 
be found in the draft LTCHQR Program Manual located at the CMS Web 
site: http://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/LTCH-Quality-Reporting/index.html. For 
additional information related to this measure, including definitions 
related to worsening, unstageable and the staging of the pressure 
ulcers, as well as topics such as the inability to stage pressure 
ulcers with eschar or slough, we refer readers to the draft LTCHQR 
Program Manual located at the CMS Web site: http://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/LTCH-Quality-Reporting/index.html.
    Further, as noted in the FY 2012 IPPS/LTCH PPS final rule, 
unstageable wounds include deep tissue injuries and pressure ulcers 
covered by non-removable dressings, or non-viable tissue such as slough 
or eschar. These are not currently included in this NQF-endorsed 
measure since unstageable wounds cannot be measured, and therefore the 
presence of worsening cannot be determined. For example, a pressure 
ulcer that presents with slough or eschar cannot be staged, and is not 
considered worsened. Only after, and if, debridement occurs, and the 
dead tissue is removed, can such a wound be properly staged. If after 
wound debridement, the wound is staged and subsequently evaluated to 
have increased in the stage, the wound is considered worsened. However, 
such a wound may not be considered worsened if the stage remains 
unchanged after debridement and staging.
    After consideration of the public comments we received, we are 
retaining an application to the LTCH setting of the Pressure Ulcer 
measure for the FY 2015 payment determination and subsequent fiscal 
year payment determinations. Further, we are finalizing the adoption of 
the updated NQF endorsed CAUTI (http://www.qualityforum.org/QPS/0138) 
and CLABSI
(http://www.qualityforum.org/QPS/0139) measures for the FY 2014 payment 
determination and subsequent fiscal year payment determinations.
    Set out below are the quality measures for the FY 2014, FY 2015, 
and subsequent fiscal year payment determinations.

  Quality Measures for the FY 2014, FY 2015 and Subsequent Fiscal Year
                         Payment Determinations
------------------------------------------------------------------------
 
------------------------------------------------------------------------
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 proposed using the same data collection and submission methods 
finalized for these measures (CAUTI, CLABSI and Pressure Ulcer) in the 
FY 2012 IPPS/LTCH PPS final rule (76 FR 51752 through 51756). We 
proposed that data collection for these measures, if they are adopted 
in the FY 2013 IPPS/LTCH PPS final rule, would remain the same for the 
FY 2014 payment determination and all subsequent fiscal year payment 
determinations.
    For the proposed CAUTI measure and CLABSI measure, descriptions of 
the measures are available on the NQF Web site at: http://www.qualityforum.org/QPS/0138 and http://www.qualityforum.org/QPS/0139, 
respectively. Further, the measure specifications, data collection and 
reporting requirements for CAUTI and CLABSI are available at http://www.cdc.gov/nhsn/PDFs/pscManual/7pscCAUTIcurrent.pdf and http://www.cdc.gov/nhsn/PDFs/pscManual/4PSC_CLABScurrent.pdf, respectively. 
Links to the CDC sites listed above are also provided in the LTCHQR 
Program Manual, which is available for download on the CMS Web site: 
http://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/LTCH-Quality-Reporting/index.html.
    For the Pressure Ulcer measure, the data collection instrument is 
the Long-Term Care Hospital (LTCH) Continuity Assessment Record & 
Evaluation (CARE) Data Set available for download at http://www.cms.gov/Regulations-and-Guidance/Legislation/PaperworkReductionActof1995/PRA-Listing-Items/CMS1252160.html. Because 
there are no mandatory standardized data sets being used in LTCHs, we 
created a new data set, the LTCH CARE Data Set, for use in LTCHs for 
data reporting for the Pressure Ulcer measure beginning October 1, 
2012. This data set incorporates data items contained in other, 
standardized and clinically established pressure ulcer data sets, 
including but not limited to the Minimum Data Set 3.0 (MDS 3.0) and 
CARE tool (Continuity Assessment Records & Evaluation). Beginning on 
October 1, 2012, we proposed that LTCHs will begin to use a data 
collection document entitled the ``LTCH CARE Data Set'' as the vehicle 
by which to collect and electronically submit the data for the Pressure 
Ulcer measure for the LTCHQR Program. This data set consists of the 
following components: (1) Pressure ulcer documentation; (2) selected 
covariates related to pressure ulcers; (3) patient demographic 
information; and (4) a provider attestation section.
    Specific details related to the LTCH CARE Data Set(s) are available 
on our Web site for the LTCHQR Program at http://www.cms.gov/LTCH-Quality-Reporting/. The Technical Submission Specifications Final 
Version 1.00.3 for the electronic submission of the data set(s) is also 
available on the LTCH Quality Reporting Technical Information Web page 
http://www.cms.gov/LTCH-Quality-Reporting/05_LTCHTechnicalInformation.asp#TopOfPage.
    Comment: Some commenters encouraged CMS to refrain from 
implementing the use of the LTCH CARE Data Set for the FY 2014 and FY 
2015 data collection, citing LTCHs' concern that LTCHs have not been 
properly prepared, and might not be ready to submit the LTCH CARE Data 
Set, and that CMS will not be ready to receive this data.
    Response: We appreciate the commenters' concerns related to the 
readiness of the LTCH CARE Data Set. However, we believe that the data 
set will be ready for use on October 1, 2012. Furthermore, we believe 
that we are able to receive this data beginning on October 1, 2012.

[[Page 53620]]

    We note that, since September 2011, we have undertaken ongoing 
activities, with input from stakeholders such as LTCHs, technical 
experts, and measure developers to support LTCHQR Program 
implementation. Further, since we issued the FY 2012 IPPS/LTCH PPS 
final rule, we have undertaken several key implementation activities 
including: The development of the LTCH CARE Data Set; posting of public 
notice for its use (September 21, 2011); issuing a guidance document 
(January 31, 2012); issuing an updated guidance document (March 8, 
2012); and the issuing of a draft LTCHQR Program Manual (April 27, 
2012) which includes coding instructions, terms and definitions, and 
measure specifications for the Pressure Ulcer measure.
    Further, we posted draft technical submission specifications for 
the LTCH CARE Data Set (October 28, 2011) and final technical 
submission specifications (posted on May 31, 2012). The guidance 
document, the draft LTCHQR Program manual, and data submission 
specifications as well as updates and announcements related to the 
LTCHQR Program are located and maintained on the CMS Web site: http://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/LTCH-Quality-Reporting/index.html. Further, through our 
measure development contractor RTI International, a technical expert 
panel was convened that was comprised of clinical experts in the care 
of LTCH patients that sought input on the implementation of pressure 
ulcer items through the LTCH CARE Data Set (March 8, 2012), as well as 
technical expert panels in January 2011 and July 2011. We also 
conducted a National Train-the-Trainer LTCH-focused training conference 
(May 1-2, 2012), held provider-focused special open door forums 
(December 16, 2010, September 21, 2011, and April 13, 2012) and 
software developer/vendor-focused open calls (November 16, 2011 and 
June 28, 2012) to support the implementation of the LTCHQR Program.
    We also received OMB approval for the use of the LTCH CARE Data Set 
for collection of data for the Pressure Ulcer measure on April 24, 2012 
in accordance with the Paperwork Reduction Act. The OMB Control Number 
is 0938-1163. We believe that these actions have prepared LTCHs to 
implement the LTCHQR Program; including using the LTCH CARE Data Set 
for data submission.
    Comment: We received specific support from MedPAC stating that they 
were encouraged by our efforts to implement the LTCH CARE Data Set, 
applauding CMS' efforts to collect data in a uniform manner. MedPAC 
further stated that the CARE (Continuity Assessment Record and 
Evaluation) Tool, from which data elements used in the LTCH CARE Data 
Set are derived, performed reliably in LTCHs, Skilled Nursing 
Facilities, and Inpatient Rehabilitation Facilities, as did earlier 
testing efforts using other setting-specific instruments.
    Several commenters expressed various concerns about the requirement 
to submit quality data using the LTCH CARE Data Set for the LTCHQR 
Program. While many commenters supported the development of a LTCH-
specific tool, they disagreed that the LTCHQR Program was the 
appropriate mechanism for its development. A commenter noted that LTCHs 
are at the extreme end of the acute care spectrum and should not be 
included when discussing sub-acute care settings. This commenter 
believed that it would be more accurate to group LTCHs with general 
acute care hospitals than to group them in the same space with skilled 
nursing facilities or nursing homes. Other commenters expressed 
concerns that an assessment tool specifically for LTCHs would enable a 
better understanding of the medical complexity of patients treated in 
LTCHs. One commenter noted that the LTCH CARE Data Set is not NQF-
endorsed for use as an LTCH quality measure.
    Several commenters noted that requiring LTCHs to submit an 
assessment tool goes beyond what was required or intended in section 
3004 of the Affordable Care Act. Several commenters were concerned that 
the LTCH CARE Data Set requirements were established in a subregulatory 
manner. Another commenter noted that the CARE Tool has only been used 
in a demonstration program and has not been tested or validated and 
several noted that it should incorporate input from stakeholders.
    Response: We thank MedPAC for its support and recognition of the 
importance of uniform and standardized data collection methods. We 
interpret the commenter to mean that although LTCHs are a post-acute 
setting, they are more similar to acute care hospitals, and that LTCHs 
should not be included in discussions or comparisons to skilled nursing 
facilities or nursing homes, but rather be considered more within the 
acute care spectrum of care than within the post-acute realm. We 
further interpret this commenter to be suggesting that quality measures 
used in LTCHs should not be of the same measure construct as those used 
in the post-acute setting, and should not use the same data elements or 
data collection submission method, such as a method similar to the MDS 
3.0. We note that for the purpose of LTCHQR Program, we acknowledge 
that LTCHs are a unique setting and while LTCHs share similarities to 
acute and post-acute settings, we do not intend to undertake 
comparisons of data for the Pressure Ulcer measure across post-acute or 
acute settings.
    We acknowledge the commenters' concern regarding some of the data 
elements that are included on the LTCH CARE Data Set. In response to 
these concerns, we are clarifying that with respect to the pressure 
ulcer measure, LTCHs will only be required to complete a subset of the 
data elements from the LTCH CARE Data Set. These elements are: (1) A 
limited set of administrative items that are necessary in order to 
identify each LTCH and properly attribute patients to it for purposes 
of calculating the measure rate, (2) the data elements necessary to 
populate the pressure ulcer measure, consistent with application of the 
NQF-endorsed specifications for that measure to the LTCH setting, and 
(3) the data elements necessary to enable CMS to validate that the 
pressure ulcer measure data elements were accurately reported. All 
other data elements on the LTCH CARE Data Set can be completed on a 
voluntary basis by LTCHs and will have no impact on the measure 
calculations for the Pressure Ulcer measure or on our determination of 
whether the LTCH has met the reporting requirements under the LTCHQR 
Program. We will post on our Web site a detailed matrix that identifies 
which data elements will be required, and which will be voluntary, and 
this matrix will also be incorporated into the final LTCHQR Program 
Manual which will be posted on CMS LTCHQR Program Web site and 
available for download from http://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/LTCH-Quality-Reporting/index.html.
    Comment: Several commenters expressed concern that the LTCH CARE 
Data Set was being implemented in its entirety for the LTCHQR Program 
and that items not required for calculation of the Pressure Ulcer 
measure were being collected unnecessarily. One commenter also noted 
that the data on the Pressure Ulcer measure could be collected without 
the LTCH CARE Data Set. One commenter noted that the only data elements 
needed to collect data on the Pressure Ulcer measure are hospital and 
patient identifying information, number of pressure ulcers (stage 2 or 
higher) at admission and discharge. One

[[Page 53621]]

commenter suggested that CMS refrain from collecting data elements 
required for covariate risk-adjustment until such risk adjustment is to 
be used to calculate LTCH performance.
    Response: We thank the commenters for their input. As we note 
above, we are limiting the data elements that an LTCH must complete for 
purposes of reporting the Pressure Ulcer measure to those described 
above. We note that the covariate data elements, which enable the 
measure rate to reflect a risk adjustment, are part of the NQF-endorsed 
specifications for the measure and are also part of the specifications 
we have adopted for the application of this measure to the LTCH 
setting.
    Comment: One commenter stated that CMS needs to put into place a 
number of additional policies before it can implement the LTCHQR 
Program. These policies include clear administrative requirements; 
contact information for a quality administrator; a clear and reliable 
data submission process; a preview period for quality reports prior to 
their being made public, an appeals and reconsideration process; a 
quality support infrastructure, a data validation methodology, and 
standards for the minimum number of cases needed to be reported per 
measure.
    Response: We provide information specific to the data submission 
requirements, for example, administrative related requirements, in the 
LTCH CARE Data Submission Specifications Overview Document provided in 
the downloadable Final LTCH CARE Data Submission Specifications 
(v1.00.3), on the CMS Web Site http://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/LTCH-Quality-Reporting/LTCHTechnicalInformation.html, and will be providing additional 
administrative requirements in mid August, 2012. In addition, we are 
working to provide final guidance related to program requirements in 
the LTCHQR Program Manual provided on the CMS Web site: http://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/LTCH-Quality-Reporting/index.html. Specific details related 
to NHSN HAI reporting and administrative-related requirements for the 
CAUTI measure and CLABSI measure can be found on the CDC Web site: 
http://www.cdc.gov/nhsn.
    Comment: Several commenters urged CMS to propose use of the Quality 
Improvement and Evaluation System (QIES) Assessment Submission and 
Processing (ASAP) System as the submission mechanism through the 
regulatory process so that the public can be afforded a proper notice 
and comment period. One commenter was concerned with whether the QIES 
ASAP System has been pilot tested or validated and whether the burden 
of reporting into them has been explored.
    Response: The QIES ASAP System is a secure, intranet-based data 
submission and data storage system that we have adopted for a variety 
of purposes at CMS, including the storage of data used for Home Health 
Compare and Nursing Home Compare. The QIES ASAP System permits 
information to be shared securely, quickly, and conveniently with 
providers. It has been successfully used by CMS for 15 years. As part 
of our implementation plan for the LTCHQR Program, we considered 
various options for data submission and storage.
    We specifically selected the QIES ASAP System because it is already 
a successfully proven system that provides facilities with the ability 
to submit standardized patient-level data into the QIES National 
Repository. Examples of current use include Inpatient Rehabilitation 
Facilities (IRF) submission of the IRF Patient Assessment Instrument 
(IRF PAI) data; Home Health Agencies submission of the Outcome and 
Assessment Information Set (OASIS) data; and nursing facilities and 
swing beds submission of the Minimum Data Set (MDS) data. Therefore, we 
selected the QIES ASAP System to support the data submission of LTCHQR 
quality measures into the QIES national data base.
    Selection of the QIES ASAP System for data submission and storage 
was publically announced on October 2011, in our LTCH CARE Data Set 
Data Submission Specifications Overview Document, found on the CMS Web 
site: http://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/LTCH-Quality-Reporting/LTCHTechnicalInformation.html. Since October 2011, we have undertaken 
numerous efforts to educate stakeholders on the QIES ASAP System. These 
efforts include hosting LTCH software developer/vendor calls on 
November 2011 and June 28th, 2012. During these calls we provided 
details on the QIES ASAP System our data submission method. Similarly, 
we presented data submission information at the May 1, 2012 LTCH 
National Train-the-Trainer Conference as well as on our public vendor 
and software developer calls, and on the LTCH Special Open Door Forums. 
Since October 2011, through our training and use of email listservs to 
the LTCHs and their vendor community, we have invited participation on 
the vendor calls, using these calls to alert both LTCHs and their 
vendors of the data submission specifications and to request comments 
and questions related to the LTCH submission methods and 
specifications. Lastly, we posted a link to the CMS technical issues 
mail box on the CMS Web site which is: LTCHTechIssues@cms.hhs.gov.
    Comment: Many commenters supported the use of the NHSN for 
reporting and believe it is capable of handling LTCHQR Program data 
collection. However, some commenters expressed concern at the ability 
of NHSN to handle LTCHQR Program data collection. These commenters 
encouraged CMS to work with CDC to determine NHSN's readiness to handle 
additional programs.
    Response: The CDC has assured us that the NSHN system is adequate 
and will be able to handle the LTCHQR Program HAI data reporting. We 
also note that of the 450 LTCHs in the nation, over 300 are already 
enrolled and reporting into NHSN.
    For detailed discussions of the history of the LTCHQR Program, 
including the statutory authority and further details on the three 
measures previously finalized for FY 2014 payment determination, we 
refer readers to the FY 2012 IPPS/LTCH PPS final rule (76 FR 51743 
through 51756). We have reproduced a portion of the data collection and 
submission timeline finalized for FY 2014 payment determination in the 
FY 2012 IPPS/LTCH PPS final rule (76 FR 51743 through 51756) in the 
following table.

 Timeline for Submission of Data for the LTCHQR Program for the FY 2014
                          Payment Determination
------------------------------------------------------------------------
                                              Final submission deadline
 Data collection timeframe: Calendar year   for data related to the LTCH
                 (CY) 2012                  Quality Reporting Program FY
                                             2014 payment determination
------------------------------------------------------------------------
Q4 (October 1-December 31, 2012)..........  May 15, 2013
------------------------------------------------------------------------

    We refer readers to section VIII.D.5. of the preamble to this final 
rule for the timeline for data submission under the LTCHQR Program for 
the FY 2015 payment determination.
    Comment: Many commenters expressed concern that key components of 
the LTCHQR Program were not yet in place, yet data collection is to 
begin on October 1. Several commenters urged CMS to delay submission of 
the LTCH CARE Data Set. Commenters noted that CMS did not include 
details on the

[[Page 53622]]

LTCH CARE Data Set in previous rules. These commenters also noted that 
the data set was not released until April 27, 2012 and the May 1 
Provider Training was the first formal opportunity the details of the 
LTCHQR Program were communicated to the public. One commenter noted 
that, given the continuing revisions to the LTCH CARE Data Set, the 
LTCH community will have insufficient time to prepare and train. 
Another commenter suggested that LTCHs be granted a 90-day deferral for 
reporting admissions and discharges between October 1 and December 31, 
2012 (with submissions via NHSN continuing as finalized).
    Response: We thank the commenters for their input and 
recommendations. As we explain in our response to previous comments, we 
believe that we have made substantial and ongoing efforts to educate 
LTCHs on the data submission process and the data elements in advance 
of the October 1, 2012 data submission start date. Although we have 
made some changes to the LTCH CARE Data Set since we first made 
information about it publicly available, we advised stakeholders of the 
changes and do not consider them to be significant in nature. In 
addition to the training provided on May 1-2, 2012, we have also 
engaged in informative and educational communication with LTCHs and 
stakeholders on reporting mechanisms and submission timeframes through 
open door forums, and vendor/software developer calls, since September, 
2011.
    We disagree that we provided insufficient notice to the public 
regarding the LTCH CARE Data Set. Such information was provided during 
open door forums, vendor calls, and publically posted on the CMS Web 
site for LTCHs dating back to October 2011. Further, the Data Set was 
posted for public comments under the Paperwork Reduction Act in the 
September 2, 2011 Federal Register (76 FR 54776) http://www.cms.gov/Regulations-and-Guidance/Legislation/PaperworkReductionActof1995/PRA-Listing-Items/CMS1252160.html, file number CMS-10409). From comments 
received at the live National Train-the-Trainer conference, we are 
working to integrate additional language, coding clarification, and 
corrections that attendees provided. We intend to issue these changes 
in early August 2012.
    Comment: Many commenters requested that CMS release the free, 
downloadable LTCH Assessment Submission Entry & Reporting (LASER) 
software no later than August 1, 2012 so that LTCHs can have at least 
two months to implement and practice using the software and CMS' 
consultant can have time to correct any problems with the system.
    Response: LASER software is a free, Java-based application that 
provides an option for facilities to collect and maintain their LTCH 
CARE Data Set for subsequent submission to the QIES ASAP System. We 
will release a demonstration-version of LASER in middle of August to 
provide LTCHs the opportunity to familiarize themselves with the LASER 
software and the features of the tool. This demonstration version of 
the software tool will give LTCHs sufficient time to practice using the 
software before data submission begins on October 1, 2012. We will also 
offer training on the LASER software in August and will release the 
production version of LASER on the QIES Technical Support Office Web 
site by end of August.
    We interpret the reference to ``CMS' consultant'' as meaning the 
CMS contractor who will be responsible for supporting LASER. The LASER 
software is currently undergoing multi-level and quality assurance 
testing to identify issues, which we anticipate will reduce the risk of 
data submission problems.
    We do not believe that we should move up the LASER release dates as 
some commenters suggested. The LASER software is currently undergoing 
critical and rigorous testing by quality assurance (QA) staff. It is 
vital that the QA testing of the actual production version of the 
software tool continue up until the end of August to ensure there are 
no defects in the final version. In addition, we released the 
Validation Utility Tool (VUT) to allow LTCHs and their vendors to test 
their software to ensure it meets our minimum requirements for 
successful completion and submission of a LTCH CARE Data Set record. 
For information related to LASER and the LTCH CARE Data Set Data 
Submission Specifications, please use the CMS Web site: http://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/LTCH-Quality-Reporting/LTCHTechnicalInformation.html.
    Comment: Several commenters noted that CMS never finalized the FY 
2014 data collection timeline for the Pressure Ulcer measure. The 
commenters believed that CMS only finalized the data collection period 
for the CAUTI and CLABSI measures.
    Response: We believe that we finalized the FY 2014 data collection 
period for the Pressure Ulcer measure in the FY 2012 IPPS/LTCH PPS 
final rule (76 FR 51756). We specified that ``we were adopting as final 
the proposed timeline for data submission for the New or Worsened 
Pressure Ulcers measure and in accordance with the timetable and 
schedule set forth in section VII.C.4.b. of the preamble, with data 
collection to begin October 1, 2012, for the FY 2014 payment 
determination.'' In section VII.C.4.b we specified that the HAI measure 
submission timeframe would be October 1, 2012 through December 31, 2012 
events for the FY 2014 payment determination, and that LTCHs would have 
to submit their data no later than May 15, 2013.
    We also included the FY 2014 data submission timetable for the 
Pressure Ulcer measure in the FY 2013 IPPS/LTCH PPS proposed rule (77 
FR 28094), and we believe that the public has been given ample 
opportunity to comment on it. Therefore, for FY 2014 payment 
determination, the data submission timeframe for the three quality 
measures (CAUTI, CLABSI and the Pressure Ulcer measure) will begin 
October 1, 2012 and reporting will include quality data from October 1, 
2012 through December 31, 2012. LTCHs will have until May 15, 2013 to 
submit the data.
    Comment: One commenter expressed concern about the timeframes for 
completing and submitting the LTCH CARE Data Set. The commenter also 
noted that there are several instances of conflicting directions for 
its completion as outlined in the draft LTCHQR Program Manual and 
provided specific examples regarding conflicting directions. The 
commenter noted that the industry was concerned about a potential 
conflict between the 3-day rule for the CARE tool and other reporting 
timeframes. The commenter further noted that the submission time will 
not impact patient safety and that the data entered into LTCH CARE Data 
Set and NHSN will not be completely accurate since neither is risk 
adjusted.
    Response: We thank the commenter for providing feedback on the 
draft LTCHQR Program Manual and for making recommendations to improve 
the clarity of our guidance for completing the LTCH CARE Data Set 
pertaining to assessment of patient's ``usual status,'' assessment time 
frame for admission assessment, and relevant approaches to completing 
each item. In addition, we have invited the public to submit questions 
and comments related to the LTCHQR Program and the draft LTCHQR Program 
Manual to the email address for the LTCHQR Program at 
LTCHQualityQuestions@cms.hhs.gov.
    As a result of this commenter's feedback we agree that we have 
given conflicting information, specifically regarding conflicting 
guidance given in Chapter 2 of the draft LTCHQR Program

[[Page 53623]]

Manual. In light of this and additional comments from the public sent 
to our LTCH help desk, we have revised relevant language in Chapter 2 
of the draft LTCHQR Program Manual to provide further clarification to 
LTCH providers on the completion of the LTCH CARE Data Set. 
Specifically, we have clarified language pertaining to assessment of 
patient's ``usual status'', assessment time frame for admission 
assessment, and relevant approaches to completing each item on the LTCH 
CARE Data Set.
    Further, we have clarified language pertaining to other aspects of 
the draft LTCHQR Program Manual, specifically about the type of staff 
required to complete the LTCH CARE Data Set and timing of data 
submission requirements for the LTCH CARE Data Set for the FY 2014 
payment update determination. CMS will be posting this revised manual 
for download at the CMS Web site: http://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/LTCH-Quality-Reporting/LTCHTechnicalInformation.html. We continue to welcome comments from the 
public and appreciate the need for clarity and communication with 
providers to ensure successful implementation of LTCHQR Program. Hence, 
we are continuing to provide additional clarification and guidance 
through our Web site, open door forums, and training material postings. 
Information related to these free resources is provided on the CMS 
LTCHQR Program Web site.
    We disagree that the current time frame and guidance will result in 
inaccurate and inconsistent data being entered into the database. We 
further disagree that whether or not data is submitted within these 
timeframes, it will have no impact on patient safety. In the draft 
LTCHQR Program Manual, we encourage all providers to follow CDC 
recommendations related to the submission of HAI related data. Although 
an absolute end date of May 15th for the submission of HAI data is 
given, the purpose of that ultimate deadline is to allow LTCH 
facilities time to submit any corrections or missing data. Further, 
data collection approach and timeframes were set in line with the NQF-
endorsed CAUTI measure, CLABSI measure and Pressure Ulcer measure. In 
our FY 2012 IPPS/LTCH PPS final rule, we stated that reporting for 
CAUTI measure and CLABSI measure should be in accordance with the CDC 
guidelines and reporting should occur as close to the time of the event 
as possible.
    We also disagree with the commenter's suggestion that these 
measures are not risk adjusted. The HAI measures are risk adjusted and 
use the SIR rather than a rate. This is the preferred form of risk 
adjustment, will include stratification at the unit-level for the CAUTI 
measure and CLABSI measure and reflect the NQF-endorsed CAUTI measure 
and CLABSI measure specifications. The NQF-endorsed Pressure Ulcer 
measure includes risk adjustment for factors such as body mass index, 
presence of diabetes mellitus, presence of peripheral vascular disease/
peripheral arterial disease, bowel incontinence, and mobility.
    After consideration of the public comments we received, we are 
finalizing the use of the data collection and submission methods 
finalized for the CAUTI, CLABSI and Pressure Ulcer measures for the 
LTCHQR Program.
4. LTCHQR Program Quality Measures for the FY 2016 Payment 
Determinations and Subsequent Fiscal Years Payment Determinations
a. Considerations in Updating and Expanding Quality Measures Under the 
LTCHQR Program for FY 2016 and Subsequent Payment Update Determinations
    We believe that development of a LTCHQR Program that is successful 
in promoting the delivery of high quality healthcare services in LTCHs 
is paramount. 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 Strategy for Quality Improvement in 
Healthcare (http://www.healthcare.gov/center/reports/quality03212011a.html). To the extent practicable, we have sought to 
adopt measures that have been endorsed by a national consensus 
organization, recommended by multi-stakeholder organizations, and 
developed with the input of providers, purchasers/payers, and other 
stakeholders.
    In addition, we consider input from the multi-stakeholder group, 
the Measures Application Partnership (MAP) (http://www.qualityforum.org/Setting_Priorities/Partnership/Measure_Applications_Partnership.aspx), in selecting measures for the LTCHQR 
Program. Section 1890A(a)(1) of the Act, as added by section 3014(a) of 
the Affordable Care Act, requires the entity with a contract under 
section 1890(a) of the Act, currently the NQF, to convene 
multistakeholder groups to provide input to the Secretary on the 
selection of quality and efficiency measures. Under section 1890A(a)(2) 
of the Act, as added by section 3014(b) of the Affordable Care Act, the 
Secretary must make available to the public a list of quality and 
efficiency measures described in section 1890(b)(7)(B) that the 
Secretary is considering under title XVIII of the Act. Section 
1890A(a)(3) of the Act further requires the entity with a contract 
under section 1890(a) of the Act to transmit the input of the 
multistakeholder groups to the Secretary not later than February 1 of 
each year, beginning in 2012. Section 1890A(a)(4) of the Act requires 
the Secretary to take into consideration the input of the 
multistakeholder groups in selecting quality and efficiency measures. 
The MAP is the public-private partnership comprised of multi-
stakeholder groups convened by the NQF for the primary purpose of 
providing input on measures as required by section 1890A(a)(3) of the 
Act. The MAP's input on quality and efficiency measures was transmitted 
to the Secretary and is available at (http://www.qualityforum.org/WorkArea/linkit.aspx?LinkIdentifier=id&ItemID=69885). As required by 
section 1890A(a)(4) of the Act, we considered the MAP's recommendations 
in selecting quality and efficiency measures for the LTCHQR Program.
    Comment: Several commenters noted that CMS should, in its selection 
of measures, more closely align with the recommendations of MAP. Some 
commenters noted that the MAP did not recommend any of the measures 
proposed for the FY 2016 LTCHQR Program, but rather, ``supported the 
direction'' of these measures.
    Response: While submission of measures to the MAP and consideration 
of their recommendations are part of our measure selection process, we 
also consider the input of stakeholders, subject matter and industry 
experts through the technical expert panels periodically convened by 
our measure development contractor, as well as national healthcare 
priorities suggested by groups such as MedPAC, and as set forth in the 
National Quality Strategy.
    Comment: Several commenters encouraged CMS to seek input on 
measures from stakeholders such as LTCH associations as well as 
technical expert panels.
    Response: Throughout the measure selection process, we have sought 
input from a variety of stakeholders, including technical experts, 
stakeholders, and LTCHs. A CMS Listening Session was

[[Page 53624]]

held on November 15, 2010, Special Open Door Forums were held on 
December 16, 2010, September 21, 2011 and April 13, 2012; and our 
measure developer contractor convened LTCHQR technical expert panels on 
January 31, July 6, September 27, December 13 2011, and March 8, 2012. 
We will continue to solicit input from stakeholders throughout the 
development and expansion of the LTCHQR Program.
    Comment: One commenter suggested that CMS consider the MAP 
recommendations to pursue measures of Experience of Care, Care 
Planning, Patient/Family/Caregiver Goals, and Avoiding Unnecessary 
Hospital and ED Admissions.
    Response: We will continue to work with the MAP as well as LTCH 
stakeholders to identify measure concepts and measures that address HHS 
priorities, align with quality initiatives in other settings, are 
evidence-based, have a low probability of unintended adverse 
consequences, and may drive quality improvement.
    Comment: Several commenters encouraged CMS to adopt only measures 
that are NQF-endorsed for the LTCH setting. One commenter noted that 
the NQF needs to add an LTCH provider to its panel. Several commenters 
expressed uncertainty as to whether the expansion of existing measures 
to the LTCH setting would be a good approach to creating LTCH measures, 
and one commenter encouraged CMS to adopt only measures that have been 
specified and tested in the LTCH setting.
    Response: We have generally adopted NQF-endorsed measures whenever 
possible. However, where such measures do not exist, we may adopt 
measures that are not NQF-endorsed under the Secretary's exception 
authority set out in section 1886(m)(5)(D)(ii) of the Act. We have, 
where possible, actively worked with the NQF to expand endorsement of 
measures to LTCH setting, and the NQF has expanded its endorsement of 
the CAUTI and CLABSI measures to LTCHs. We believe that the NQF 
endorsement process is public and transparent and would encourage LTCHs 
and stakeholders to participate in that process. Furthermore, we are 
also working to develop measures on readmissions and functional status 
that are specific to the LTCH setting and will be seeking NQF 
endorsement for these measures.
b. New LTCHQR Program Quality Measures Beginning With the FY 2016 
Payment Determination
    In the FY 2013 IPPS/LTCH PPS proposed rule (77 FR 28094), for the 
FY 2016 payment determination and subsequent fiscal year payment 
determinations, we proposed to adopt five additional quality measures 
for the LTCHQR Program in addition to the three previously discussed 
measures (CAUTI measure, CLABSI measure and Pressure Ulcer measure), 
see table below. Our proposal to add these five measures is part of our 
effort to promote overarching health care aims and goals in an 
effective and meaningful manner. We also seek to minimize the burden of 
data collection for LTCHs.
    We indicated that we would respond to public comments on this 
proposal in this final rule.

  Proposed New Quality Measures for the FY 2016 LTCHQR Program Payment
           Determination and Subsequent Payment Determinations
------------------------------------------------------------------------
          NQF Measure ID                        Measure title
------------------------------------------------------------------------
Application of NQF 0680..  Percent of Nursing Home Residents
                                     Who Were Assessed and Appropriately
                                     Given the Seasonal Influenza
                                     Vaccine (Short-Stay).
NQF 0682.................  Percent of Residents Who Were
                                     Assessed and Appropriately Given
                                     the Pneumococcal Vaccine (Short-
                                     Stay).
NQF 0431.................  Influenza Vaccination Coverage among
                                     Healthcare Personnel.
Application of NQF 0302..  Ventilator Bundle.
Not NQF endorsed..................  Restraint Rate per 1,000 Patient
                                     Days.
------------------------------------------------------------------------

     (1) New Quality Measure 1 for the FY 2016 Payment 
Determination and Subsequent Fiscal Years Payment Determinations: 
Percent of Residents or Patients Who Were Assessed and Appropriately 
Given the Seasonal Influenza Vaccine (Short-Stay) (NQF 0680)
    According to the CDC, as of 2011, there is on average over 200,000 
hospitalizations due to influenza every year.\139\ The Agency for 
Healthcare Research and Quality (AHRQ) reports that in 2004, there were 
more than 37,000 hospitalizations in which influenza was noted during 
the stay. For over 21,000 of these hospitalizations, influenza was 
listed as the primary diagnosis. The aggregate hospital costs for these 
roughly 21,000 hospitalizations were estimated at $146 million.\140\
---------------------------------------------------------------------------

    \139\ Centers for Medicare & Medicaid Services (2011, May). 
Adult immunization: Overview. Retrieved from https://www.cms.gov/adultImmunizations/.
    \140\ Milenkovic M, Russo CA, Elixhauser A. (2006). Hospital 
stays for influenza, 2004 (Healthcare Cost and Utilization Project 
statistical brief no.16). Rockville, MD: Agency for Healthcare 
Research and Quality. Retrieved from http://www.hcup-us.ahrq.gov/reports/statbriefs/sb16.pdf.
---------------------------------------------------------------------------

    Although influenza is prevalent among all population groups, the 
rates of death and serious complications related to influenza are 
highest among those ages 65 and older and those with medical 
complications that put them at higher risk. The CDC reports that an 
average of 36,000 Americans die annually from influenza and its 
complications, and most of these deaths are among people 65 years of 
age and over.\141\ In 2004, 70,000 deaths were caused by influenza and 
pneumonia, and more than 85 percent of these were among the 
elderly.\142\ Given that many individuals receiving health care 
services in LTCHs are elderly and/or have several medical conditions, 
many LTCH patients are within the target population for the influenza 
vaccination.\143,144\ Healthy People 2010 (Objective 14-29) and Healthy 
People 2020 (Objective IID-12.8) each set a goal of 90 percent of 
adults vaccinated against influenza in long-term care

[[Page 53625]]

facilities.\145,146\ However, among adults age 65 years and older, only 
72.1 percent were vaccinated during the 2006-2007 influenza season and 
only 69.6 percent of adults age 65 years and older were vaccinated 
during the 2009-2010 influenza season.\147,148\ According to 
information currently available on the Nursing Home Compare Web site 
(http://www.medicare.gov/NHCompare), the national average for the 
percentage of short-stay residents given the influenza vaccine is 
roughly 82 percent.\149\ No comparable information is currently 
available on patients in the LTCH setting.
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    \141\ Centers for Medicare & Medicaid Services (2011, May). 
Adult Immunization: overview. Retrieved from https://www.cms.gov/Immunizations/.
    \142\ Gorina Y, Kelly T, Lubitz J, et al. (2008, 
February).Trends in influenza and pneumonia among older persons in 
the United States. Aging Trends no. 8. Retrieved from http://www.cdc.gov/nchs/data/ahcd/agingtrends/08influenza.pdf.
    \143\ Centers for Disease Control and Prevention. (2008, 
September). Influenza e-brief: 2008-2009 flu facts for policymakers. 
Retrieved from http://www.cdc.gov/washington/pdf/flu_newsletter.pdf.
    \144\ Zorowitz, RD. Stroke Rehabilitation Quality Indicators: 
Raising the Bar in the Inpatient Rehabilitation Facility. Topics in 
Stroke Rehabilitation 2010; 17 (4):294-304.
    \145\ U.S. Department of Health and Human Services, Office of 
Disease Prevention and Health Promotion. (n.d.). Healthy People 2010 
archive. Retrieved from http://www.healthypeople.gov/2010/ /2010/.
    \146\ U.S. Department of Health and Human Services, Office of 
Disease Prevention and Health Promotion. (2011, June). Healthy 
People 2020: Immunization and infectious diseases. Retrieved from 
http://www.healthypeople.gov/2020/topicsobjectives2020/overview.aspx?topicid=23.
    \147\ Centers for Disease Control and Prevention. (2008). State 
specific influenza vaccination coverage among adults--United States, 
2006-2007 influenza season. MMWR, 57(38), 1033-1039. Retrieved from 
http://www.cdc.gov/mmwr/preview/mmwrhtml/mm5738a1.htm.
    \148\ Centers for Disease Control and Prevention (2011, May). 
Seasonal influenza (flu): final estimates for 2009-10 seasonal 
influenza and influenza A (H1N1) 2009 monovalent vaccination 
coverage--United States, August 2009 through May, 2010. Retrieved 
from http://www.cdc.gov/flu/professionals/vaccination/coverage0910estimates.htm.
    \149\ Centers for Medicare & Medicaid Services (2011). Nursing 
Home Compare. Available from http://www.medicare.gov/NHCompare/.
---------------------------------------------------------------------------

    In light of the evidence outlined previously, particularly that 
many individuals receiving care in the LTCH setting are within the 
target population for influenza vaccination, in the FY 2013 IPPS/LTCH 
PPS proposed rule (77 FR 28095), we proposed NQF 0680, Percent 
of Nursing Home Residents Who Were Assessed and Appropriately Given the 
Seasonal Influenza Vaccine (Short-Stay), for application in the LTCHQR 
Program for the FY 2016 payment determination and subsequent fiscal 
year payment determinations. We noted that at the time of our proposed 
rule this measure was endorsed for short-stay nursing home residents, 
but believed this measure was highly relevant for the LTCH setting 
because, as stated above, many patients receiving care in the LTCH 
setting are elderly and within the target population for influenza 
vaccination. The MAP supports the direction of this measure and 
believes it is an important aspect of care in LTCHs.\150\
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    \150\ National Quality Forum (2012) Input on Measures for 
Consideration by HHS for 2012 Rulemaking. Available; http://www.qualityforum.org/WorkArea/linkit.aspx?LinkIdentifier=id&ItemID=69885. pp. 105.
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    Section 1886(m)(5)(D)(ii) of the Act, the exception authority 
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.'' We reviewed NQF's consensus endorsed 
measures and were unable to identify any NQF-endorsed measures for 
influenza vaccination in the LTCH setting. We are unaware of any other 
measures for influenza vaccination in the LTCH setting that have been 
approved by a voluntary consensus standards body and endorsed by NQF. 
Therefore, in the FY 2013 IPPS/LTCH PPS proposed rule (77 FR 28096), we 
proposed adopting the NQF-endorsed measure the Percent of Nursing Home 
Residents Who Were Assessed and Appropriately Given the Seasonal 
Influenza Vaccine (Short-Stay) (NQF 0680) for application in 
the LTCH setting for the LTCHQR Program under the Secretary's authority 
to select non-NQF measures. This proposal was 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'' \151\ Data on 
this measure as it applies to nursing home residents are currently 
collected and reported as part of the Nursing Home Quality Initiative.
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    \151\ National Quality Forum (2008, December) National Voluntary 
Consensus Standards for influenza and pneumococcal vaccinations 
Available from http://www.qualityforum.org/Publications/2008/12/National_Voluntary_Consensus_Standards_for_Influenza_and_Pneumococcal_Immunizations.aspx.
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    We proposed that data for this measure be collected using the same 
data collection and submission framework that we finalized for the FY 
2014 payment determination.\152\ We intend to revise the LTCH CARE data 
set to include new items which assess patient's influenza vaccination 
status should this proposed measure be adopted. These items will be 
based on the items from the MDS 3.0 items.\153\ Further, the draft 
LTCHQR Program Manual will be updated with specifications and data 
elements once this measure is finalized. At the current time, we refer 
readers to the MDS 3.0 QM User's Manual available on our Web site at: 
https://www.cms.gov/NursingHomeQualityInits/Downloads/MDS30QM-Manual.pdf \154\ for technical specifications and data elements for 
this measure as it is currently implemented in the nursing home setting 
until we provide guidance for LTCHs in the LTCHQR Program Manual.
---------------------------------------------------------------------------

    \152\ The LTCH CARE Data Set, the data collection instrument 
that will be used to submit data on this proposed measure, is 
currently approved under Paperwork Reduction Act (PRA) by the Office 
of Management and Budget. It is discussed in a PRA notice that 
appeared in the September 2, 2011 Federal Register (76 FR 54776). 
The OMB Control Number is 0938-1163. The file number for the LTCH 
PRA package is CMS-10409.
    \153\ Centers for Medicare & Medicaid Services). MDS 3.0 Item 
Subsets V1.10.4 for the April 1, 2012 pRelease. Retrieved from 
https://www.cms.gov/NursingHomeQualityInits/30_NHQIMDS30TechnicalInformation.asp.
    \154\ Centers for Medicare and Medicaid Services (2012, March). 
MDS 3.0 Quality Measures User's Manual. V5.0. pp. 15. Retrieved 
from: https://www.cms.gov/NursingHomeQualityInits/Downloads/MDS30QM-Manual.pdf.
---------------------------------------------------------------------------

    By building on the existing reporting and submission infrastructure 
for LTCHs, such as the LTCH CARE Data Set, which will be used for data 
collection beginning October 1, 2012, we intend to reduce the 
administrative burden related to data collection and submission for 
this measure under the LTCHQR Program. We proposed that the data 
collection would cover the period from October 1 through March 31 of 
each year, which corresponds with how NQF specifies this measure as 
well as other endorsed influenza vaccination measures. We refer readers 
to section VIII.D.6. of this preamble to this final rule for more 
information on data collection and submission.
    We invited public comment on this proposed measure for the FY 2016 
payment determination and subsequent FYs payment determinations.
    Comment: Several commenters expressed support for the expansion of 
the Percent of Residents or Patients Who Were Assessed and 
Appropriately Given the Seasonal Influenza Vaccine (short-stay) to the 
LTCHQR Program. Commenters noted that LTCH patients are often part of 
the elderly and/or vulnerable population, in which influenza disease is 
especially prevalent, and that the measure, which was originally 
developed for the nursing home setting, would be relevant to the LTCH 
population and would ensure appropriate vaccination practice amongst 
these vulnerable patients. Commenters encouraged CMS to move forward 
with recommendations to the

[[Page 53626]]

MAP and development of specifications and testing for use of the 
measure in LTCHs.
    Response: We appreciate the commenters' support for our proposal to 
include the Percent of Residents or Patients Who Were Assessed and 
Appropriately Given the Seasonal Influenza Vaccine (short-Stay) in the 
LTCHQR Program. We agree that influenza is a serious concern amongst 
the elderly and vulnerable LTCH patients and that appropriate 
vaccination is important in this population. The MAP supported the 
direction of this measure for use in the LTCH setting.\155\
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    \155\ National Quality Forum (2012) Input on Measures for 
Consideration by HHS for 2012 Rulemaking. Available; http://www.qualityforum.org/WorkArea/linkit.aspx?LinkIdentifier=id&ItemID=69885. pp. 105; Accessed 
February 03, 2012.
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    In addition, we applied to the NQF for expansion of this measure to 
the LTCH setting and the expansion was approved by the NQF Consensus 
Standards Approval Committee (CSAC) on April 9, 2012 and ratified by 
the NQF Board of Directors on May 2, 2012. Therefore, this measure is 
now NQF-endorsed for use in the LTCH setting. At the time of NQF 
endorsement, the title was changed to reflect that the measure now 
applies to other settings, including the LTCH setting. The title of the 
measure is now Percent of Residents or Patients Who Were Assessed and 
Appropriately Given the Seasonal Influenza Vaccine (short-Stay). An 
updated description of the measure is available on the NQF Web site at: 
http://www.qualityforum.org/QPS/0680.
    Comment: Several commenters expressed concern that the introduction 
of the Percent of Residents or Patients Who Were Assessed and 
Appropriately Given the Seasonal Influenza Vaccine (short-stay) to the 
LTCHQR Program is redundant, given its inclusion in the Hospital IQR 
Program. Commenters remarked that approximately 83 percent of LTCH 
discharges had a preceding stay at an inpatient facility and are likely 
to have been vaccinated in the inpatient facility. Commenters believed 
that inclusion of this measure in both quality reporting programs would 
result in wasted resources and inefficiencies. Commenters also 
expressed concern that the inclusion of the measure in both quality 
reporting programs could result in multiple vaccinations of the same 
patient, leading to patient safety concerns.
    Response: We appreciate the comments and acknowledge the 
commenters' concern for redundancy and over-vaccination. The 
specifications of the Percent of Residents or Patients Who Were 
Assessed and Appropriately Given the Seasonal Influenza Vaccine (short-
stay) are written to ensure that patients are not double counted, 
resources are not wasted and patients are only given one vaccine per 
influenza season. Because the numerator statement of the measure 
includes patients who received the influenza vaccine during the most 
recent hospital stay (either inside or outside the facility/hospital), 
LTCHs can report that a patient received the vaccine at another 
facility prior to arriving at the LTCH and is not pressured to re-
vaccinate the patient for purposes of being able to properly report the 
measure. The measure is designed to act as a safe guard for patients 
who did not receive a vaccine in another setting. We acknowledge that 
facilities will need to adhere to the principles of proper care 
coordination, and documentation to avoid over-immunization, as well as 
under-immunization. However, the specifications of the measure are 
designed to encourage facilities to only vaccinate when the patient has 
not already received the vaccination in another setting.
    Comment: A few commenters believed that this measure was not 
appropriate for patients in the LTCH setting, due to the severity of 
illness of the patients in the LTCH setting. Commenters recommended 
further testing to determine the risk of complications from the vaccine 
and the appropriateness of the measure in this setting.
    Response: We appreciate the comment and agree that patients in 
LTCHs are especially vulnerable. However, because these populations are 
older and more vulnerable they have higher rates of death and 
complications due to influenza and are in greater need of protection. 
CDC reports that pneumonia and influenza were the fifth leading cause 
of death amongst individuals >=65 years and that between 1997 and 2007 
deaths among people aged >=65 years accounted for 87.9 percent of 
deaths related to pneumonia and influenza.
    Due to their increased vulnerability, these patients, as the 
commenters suggest, are also at increased risk for complications from 
the vaccination. For this reason, the specifications for this measure 
were developed in accordance with current guidelines issued by the CDC 
Advisory Committee on Immunization Practices (ACIP) available at http://www.cdc.gov/mmwr/preview/mmwrhtml/mm6033a3.htm. By taking into account 
the ACIP guidelines, the measure is designed to balance the risk of 
complications with the susceptibility to and mortality from influenza 
in this high risk population.
    In addition, our measure development contractor convened a LTCH 
technical expert panel and introduced the Percentage of Nursing Home 
Residents Who Were Assessed and Appropriately Given the Seasonal 
Influenza Vaccine (short-stay) (NQF 0680) measure for 
discussion. Our measure development contractor advised us that the 
panel identified appropriate preventative vaccination as an important 
concept and good practice in LTCHs. Finally, as noted above, this 
measure was recently NQF-endorsed for the LTCH setting.
    Comment: Several commenters requested clarifications of and changes 
to the specifications of the Percent of Residents or Patients Who Were 
Assessed and Appropriately Given the Seasonal Influenza Vaccine (short-
stay) quality measure. Commenters specifically asked for clarification 
of the definition of ``appropriately given'' as mentioned in the title 
of the measure. Commenters also expressed concern that the measure does 
not allow providers to utilize clinical judgment and withhold the 
vaccine from patients with contraindications. Some commenters believed 
that LTCHs should not be penalized if a patient refuses the vaccine. 
Finally, several commenters requested that CMS change the name of the 
measure to reflect that it is to be used in the LTCH setting (in 
addition to the SNF setting).
    Response: We appreciate the comments and the suggestions for 
further clarification. As we noted above, the title of this measure 
changed when the NQF expanded its endorsement to other settings, 
including the LTCH setting.
    This measure is designed to encourage providers to assess 
vaccination status and when medically appropriate, vaccinate the 
patient. The term ``appropriately given'' as used in the measure 
specifications indicates that the vaccination should be given in 
accordance with the ACIP guidelines and LTCHs are directed to the 
guidelines in the specifications.
    The measure specifications are written to account for cases when 
the patient refuses the vaccine or when the medical provider documents 
that the vaccine was not given due to a contraindication. The numerator 
of the measure includes: those who received the influenza vaccine 
during the most recent influenza vaccine season, either in the 
facility/hospital or outside the facility/hospital; those who were 
offered but declined the influenza vaccine; or those who were 
ineligible due to

[[Page 53627]]

contraindication(s) (for example, previous severe allergic reaction to 
influenza vaccine, history of Guillain-Barr[eacute] Syndrome within 6 
weeks after a previous influenza vaccination, or bone marrow transplant 
within the past 6 months).
    Comment: Several commenters were concerned about obtaining 
documentation for patients who received the vaccine outside of the 
LTCH. One commenter remarked that an LTCH should not be penalized if it 
cannot obtain records from outside facilities reflecting whether and/or 
when a patient received the influenza vaccine, as long as it has made a 
reasonable effort to do so. Another commenter requested that CMS adopt 
a regulation which requires other types of facilities (such as acute 
care hospitals and SNFs) to document in the patient's chart whether an 
influenza vaccine has been administered and the date of the vaccine and 
that this documentation be contained in the transfer form.
    Response: We refer commenters to the description of the NQF-
endorsed measure of at the NQF Web site http://www.qualityforum.org/QPS/0680. Further, we refer commenters to the technical specifications 
for this measure as currently implemented for the nursing home setting 
and are available in the MDS 3.0 QM User's Manual on our Web site at: 
https://www.cms.gov/NursingHomeQualityInits/Downloads/MDS30QM-Manual.pdf.\156\
---------------------------------------------------------------------------

    \156\ Centers for Medicare and Medicaid Services (2012, March). 
MDS 3.0 Quality Measures User's Manual. V5.0. pp. 15. Retrieved 
from: https://www.cms.gov/NursingHomeQualityInits/Downloads/MDS30QM-Manual.pdf.
---------------------------------------------------------------------------

    Further, to the extent that the commenters are asking us to issue 
guidance on proper vaccine documentation for purposes of ensuring that 
the receiving facility has an accurate immunization history, we agree 
that care-coordination is essential to avoid over- as well as under-
immunization. The influenza vaccination measure, however, was not 
designed to offer guidance to providers on how to vaccinate. The 
measure is specified to assess if the patient was vaccinated, where the 
patient was vaccinated (if they were vaccinated), or why the 
vaccination was not given (if the patient was not vaccinated). Patients 
who were not vaccinated due to a contraindication and patients who 
refused the vaccination are both counted as numerator hits and are 
accounted for separately in the numerator of the measure.
    To that end, and in response to the comment that ``an LTCH should 
not be penalized if it cannot obtain records from outside facilities,'' 
LTCHs will not be held accountable for their inability to obtain a 
patient's current vaccination status. In a situation where the 
vaccination status is unknown, we would expect that the LTCH provider 
would make a clinical judgment whether or not to vaccinate a patient 
taking into account the patient's medical history and current health 
status, as well as the policy of their LTCH surrounding vaccination. 
The LTCH must only report the decision that is made, that is, whether 
the vaccination was or was not given. The measure does not require an 
LTCH to provide a vaccination that was not appropriate due to a 
contraindication or a patient refusal, or to provide a vaccination to a 
patient who was already given a vaccination outside of the LTCH. We 
encourage all LTCHs to vaccinate according to their facilities policies 
and the best clinical judgment of the medical providers treating each 
individual patient and to document the reason for the vaccination 
decision.
    Comment: One commenter suggested that this measure could be better 
addressed through a change in Medicare CoP. Further, the commenter 
noted that CMS can require minimum thresholds for organizational 
compliance with the measure and the measure is better for CoPs rather 
than as quality measure.
    Response: We thank this commenter and will take into consideration 
this input during our work on the Medicare CoP. However, at this time, 
we note that in light of the evidence outlined previously and in the FY 
2013 IPPS/LTCH PPS proposed rule, particularly that many individuals 
receiving care in the LTCH setting are elderly and within the target 
population for influenza vaccination, we continue to believe the 
measure is highly relevant for the LTCH setting and appropriate to 
include in the LTCHQR Program. Further, the MAP supports the direction 
of this measure and believes it is an important aspect of care in 
LTCHs.\157\
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    \157\ National Quality Forum (2012) Input on Measures for 
Consideration by HHS for 2012 Rulemaking. Available; http://www.qualityforum.org/WorkArea/linkit.aspx?LinkIdentifier=id&ItemID=69885. pp. 105.
---------------------------------------------------------------------------

    After consideration of the public comments we received, and in 
light of the recent NQF endorsement approval for the expansion of this 
measure to the LTCH setting, we are finalizing the Residents or 
Patients Who Were Assessed and Appropriately Given the Seasonal 
Influenza Vaccine (NQF 680), which is endorsed and specified 
for the LTCH setting, for the FY 2016 payment determination and 
subsequent payment determinations.
    (2) LTCH Quality Measure 2 for the FY 2016 Payment 
Determination and Subsequent Fiscal Years Payment Determinations: 
Percent of Residents Assessed and Appropriately Given the Pneumococcal 
Vaccine (Short-Stay) (NQF 0682)
    According to the CDC, pneumococcal disease kills more people in the 
United States each year than all other vaccine-preventable diseases 
combined.\158\ In 2006, all possible pneumonia diagnoses (including 
viral, bacterial, and unspecified organisms) killed 55,477 people in 
the United States and were responsible for 1,232,999 hospital 
discharges.\159\
---------------------------------------------------------------------------

    \158\ Centers for Disease Control and Prevention. (2009, March). 
Pneumococcal polysaccharide vaccine: What you need to know. 
Retrieved from http://www.cdc.gov/vaccines/pubs/vis/downloads/vis-ppv.pdf.
    \159\ Centers for Disease Control and Prevention, National 
Center for Health Statistics. (various years 1988-2006). National 
Hospital Discharge Survey. Available from http://www.cdc.gov/nchs/nhds/nhds_publications.htm#nhds.
---------------------------------------------------------------------------

    Older people and those with chronic health conditions are at higher 
risk for pneumococcal disease. In 2011 there were more than 40,000 
cases of invasive pneumococcal disease in the United States, and 
approximately one-third of these occurred among persons ages 65 years 
and older.\160\ A 2011 MedPAC report found that pneumonia is among the 
top 20 most common Medicare Severity Long-Term Care Diagnosis-Related 
Groups (MS-LTC-DRG).\161\ In 2005, Medicare paid an average of $6,342 
per hospital discharge for pneumonia-related short-stay 
hospitalizations.\162\ Death related to pneumonia also affects the 
elderly at a higher rate. In 2004, 70,000 deaths were caused by 
influenza and pneumonia, and more than 85 percent of these were amongst 
the elderly.\163\
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    \160\ Centers for Disease Control and Prevention. (2011). 
Pneumococcal diseases. In The Pink Book: epidemiology and prevention 
of vaccine preventable diseases (pp. 233-248). Retrieved from: 
http://www.cdc.gov/vaccines/pubs/pinkbook/downloads/pneumo.pdf.
    \161\ Medicare Payment Advisory Committee (MedPac). (2011, 
March) Long-term care hospital services. In Report to the Congress: 
Medicare payment Policy (pp 231-456). Washington, DC. Available from 
http://www.medpac.gov/documents/Mar11_EntireReport.pdf.
    \162\ Health Care Financing Review. Statistical supplement no. 
293. (2007). Baltimore, MD: Centers for Medicare and Medicaid 
Services.
    \163\ Gorina Y, Kelly T, Lubitz J, et al. (2008, February). 
Trends in influenza and pneumonia among older persons in the United 
States. Aging Trends no. 8. Retrieved from http://www.cdc.gov/nchs/data/ahcd/agingtrends/08influenza.pdf.
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    Individuals in the LTCH setting are at especially high risk of 
contracting pneumonia as a complication of another

[[Page 53628]]

medical condition, such as stroke, previous or recent surgery, or 
ventilation--all of which are conditions for which patients may spend 
some of their recovery time in the LTCH.164,165,166
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    \164\ Fagon JY, Chastre J, Hance AJ, Montravers P, Novara A, 
Gibert C. Nosocomial pneumonia in ventilated patients: a cohort 
study evaluating attributable mortality and hospital stay. Am J Med 
1993;94:281-8.
    \165\ Gorina Y, Kelly T, Lubitz J, et al. (2008, February). 
Trends in influenza and pneumonia among older persons in the United 
States. Aging Trends no. 8. Retrieved from http://www.cdc.gov/nchs/data/ahcd/agingtrends/08influenza.pdf.
    \166\ Centers for Disease Control and Prevention. (2011, June). 
Post-procedure pneumonia (PPP) event. Retrieved from http://www.cdc.gov/nhsn/PDFs/pscManual/10pscPPPcurrent.pdf.
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    Healthy People 2010 (Objective 14-29f) and Healthy People 2020 
(Objective IID-13.3) each set a goal of 90 percent of adults vaccinated 
against pneumococcal disease in long-term care 
facilities.167,168 However, estimated pneumococcal 
vaccination coverage remains below 50 percent in recommended high-risk 
groups.\169\ No comparable information is currently available on 
patients in the LTCH setting.
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    \167\ U.S. Department of Health and Human Services, Office of 
Disease Prevention and Health Promotion. (n.d.). Healthy People 2010 
archive. Retrieved from http://www.healthypeople.gov/2010/ /2010/.
    \168\ U.S. Department of Health and Human Services, Office of 
Disease Prevention and Health Promotion. (2011, June). Healthy 
People 2020: Immunization and infectious diseases. Retrieved from 
http://www.healthypeople.gov/2020/topicsobjectives2020/overview.aspx?topicid=23.
    \169\ Centers for Disease Control and Prevention, National 
Center for Health Statistics. (various years 1988-2006). National 
Hospital Discharge Survey.
---------------------------------------------------------------------------

    In light of the previously described data which we believe reflects 
the significant impact pneumonia has on Medicare beneficiaries in the 
LTCH setting, in the FY 2013 IPPS/LTCH PPS proposed rule (77 FR 28096), 
we proposed a quality measure on the pneumococcal vaccine. 
Specifically, we proposed the measure Percent of Residents Assessed and 
Appropriately Given the Pneumococcal Vaccine (Short-Stay) (NQF 
0682) for application in the LTCHQR Program for the FY 2016 
payment determination and subsequent fiscal year payment 
determinations. We recognized that at the time of our proposed rule, 
the NQF had endorsed this measure for short stay nursing home residents 
but we believed this measure was highly relevant to LTCHs as described 
previously. This measure reports the percentage of short-stay nursing 
home residents who were assessed and appropriately given the 
pneumococcal vaccine (PPV) during a 12-month reporting period. We 
proposed this measure because, as stated previously, patients in LTCHs 
are at high risk of contracting pneumonia as a complication of another 
medical condition. The MAP supports the direction of this measure and 
believes it is an important aspect of care in LTCHs.\170\
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    \170\ National Quality Forum (2012) Input on Measures for 
Consideration by HHS for 2012 Rulemaking. Available; http://www.qualityforum.org/WorkArea/linkit.aspx?LinkIdentifier=id&ItemID=69885. pp. 105.
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    As indicated previously, section 1886(m)(5)(D)(ii) of the Act 
provides the Secretary with authority to adopt non-NQF-endorsed 
measures. We reviewed the NQF's consensus-endorsed measures and were 
unable to identify any NQF-endorsed measures for pneumococcal 
vaccination in the LTCH setting. We are unaware of any other measures 
for pneumococcal vaccination in the LTCH setting that have been 
approved by voluntary consensus standards bodies and endorsed by NQF. 
We proposed adopting an application of the Percent of Residents 
Assessed and Appropriately Given the Pneumococcal Vaccine (Short-Stay) 
(NQF 0682) for application in the LTCHQR Program. This 
application 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.'' \171\ Data for this measure as 
it applies to nursing home residents are currently collected and 
reported as part of the Nursing Home Quality Initiative.
---------------------------------------------------------------------------

    \171\ National Quality Forum (2008, December) National Voluntary 
Consensus Standards for influenza and pneumococcal vaccinations 
retrieved from http://www.qualityforum.org/Publications/2008/12/National_Voluntary_Consensus_Standards_for_Influenza_and_Pneumococcal_Immunizations.aspx.
---------------------------------------------------------------------------

    A description of this measure's technical specifications and the 
data elements that are currently used for the Nursing Home Quality 
Initiative are available in the MDS 3.0 QM User's Manual available on 
our Web site at: http://www.cms.gov/NursingHomeQualityInits/Downloads/MDS30QM-Manual.pdf.\172\
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    \172\ Centers for Medicare and Medicaid Services (2012, March). 
MDS 3.0 Quality Measures User's Manual. V5.0. pp. 15. Retrieved 
from: https://www.cms.gov/NursingHomeQualityInits/Downloads/MDS30QM-Manual.pdf.
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    We proposed that submission of data for this measure will be 
incorporated into the existing data collection and submission framework 
for LTCHs adopted for the FY 2014 payment determinations.\173\ We 
intended to revise the LTCH CARE data set to include new items which 
assess patient's pneumococcal vaccination status should this proposed 
measure be adopted. These items will be based on the items from the 
Minimum Data Set (MDS) 3.0 items.\174\
---------------------------------------------------------------------------

    \173\ The LTCH CARE Data Set, the data collection instrument 
that will be used to submit data on this measure, is approved under 
Paperwork Reduction Act (PRA) review by the Office of Management and 
Budget. It is discussed in a PRA notice that appeared in the 
September 2, 2011 Federal Register (76 FR 54776). The OMB Control 
Number is 0938-1163. The file number for the LTCH PRA package is 
CMS-10409.
    \174\ 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.
---------------------------------------------------------------------------

    By building on the existing LTCH reporting and submission 
infrastructure, such as the LTCH CARE data set, which will be used by 
LTCHs for data collection beginning October 1, 2012, we intend to 
reduce the administrative burden related to data collection and 
submission for this measure under the LTCHQR Program. We invited public 
comment on this proposed measure for the FY 2016 payment determination 
and subsequent fiscal years.
    Comment: Several commenters expressed support for the expansion of 
the Percent of Residents or Patients Who Were Assessed and 
Appropriately Given the Pneumococcal Vaccine (short-Stay) to the LTCHQR 
Program. Commenters remarked that patients in LTCHs often come from 
elderly and/or vulnerable populations, in which pneumococcal disease is 
especially prevalent. As such, the measure, which was originally 
developed for the nursing home setting, would be relevant to the LTCH 
population and would ensure appropriate vaccination practice among 
these vulnerable patients. Commenters encouraged CMS to move forward 
with recommendations to the MAP and development of specifications and 
testing for use of the measure in LTCHs.
    Response: We appreciate the commenters' support for our proposal to 
include the Percent of Residents or Patients Who Were Assessed and 
Appropriately Given the Pneumococcal Vaccine (short-stay) in the LTCHQR 
Program. We agree that pneumococcal disease is a serious concern 
amongst the elderly and vulnerable patients in LTCHs and that 
appropriate vaccination is important in this population. As of May 2, 
2012, the NQF expanded its endorsement of this measure to the LTCH 
setting and changed the title to Percent of Residents or Patients Who

[[Page 53629]]

Have Been Assessed and Appropriately Given the Pneumococcal Vaccine.
    Comment: Several commenters expressed concern that the introduction 
of the Percent of Residents or Patients Who Were Assessed and 
Appropriately Given the Pneumococcal Vaccine (short-stay) to the LTCHQR 
Program was redundant, given its inclusion in the Hospital IQR Program. 
Commenters stated that approximately 83 percent of LTCH discharges had 
a preceding stay at an inpatient facility and are likely to have been 
vaccinated in the inpatient facility. Commenters believed that 
inclusion of this measure in both quality reporting programs would 
result in wasted resources and inefficiencies. Some commenters were 
concerned that the inclusion of this measure in both quality reporting 
programs could result in patients getting repeat vaccinations resulting 
in patient safety concerns. One commenter requested more information 
regarding the number of residents receiving more than one vaccination 
per season due to lack of documentation and if this will be further 
investigated in the future. One commenter suggested that CMS track 
patients' pneumococcal vaccination information across settings, so that 
multiple doses (which can be contraindicated, add an unnecessary cost 
to patients' care, and present potential health risks) can be avoided. 
The commenter noted that this is especially important for patients who 
require two doses of the vaccine.
    Response: We appreciate the comments and acknowledge the 
commenters' concerns regarding redundancy and repeat vaccination. The 
specifications of the quality measure are designed to ensure that 
patients are not double counted, resources are not wasted and patients 
are only given vaccine according to CDC ACIP guidelines for adult and 
pediatric pneumococcal vaccination. Since the proposal of this measure 
for the LTCHQR Program, the CDC has advised CMS that the ACIP 
guidelines for adult and pediatric pneumococcal vaccination are 
currently being re-evaluated, and that the measure specifications might 
change as a result. For that reason, we are not finalizing this measure 
for the LTCHQR Program at this time. Once we receive further guidance 
from the CDC, we will consider whether to re-propose this measure and 
will take the commenters' concerns into account at that time.
    Comment: A few commenters believed that this measure was not 
appropriate for patients in the LTCH setting. Commenters remarked that 
this measure is only NQF endorsed for the SNF setting and it is not 
appropriate to expand a measure to a new setting without appropriate 
testing and NQF endorsement.
    Response: We appreciate the comment and agree that patients in 
LTCHs are not identical to SNF residents. This measure was recently 
NQF-endorsed for the LTCH setting. Because LTCH patients are often 
elderly and more vulnerable they have higher rates of death and 
complications due to pneumococcal disease. CDC reports that pneumonia 
and influenza were the fifth leading cause of death amongst individuals 
65 years of age and older.\175\ Patients in the LTCH setting are 
especially at high risk of contracting pneumonia as a complication of 
another medical condition, such as stroke, previous or recent surgery, 
or ventilation--all of which are conditions for which patients may 
spend some of their recovery time in the LTCH.\176,177,178\ CDC reports 
that pneumonia is the third-most-frequent HAI among post-surgical 
patients, with a prevalence of 15 percent.\179\ The specifications for 
this measure instruct providers to deliver the pneumococcal vaccine in 
accordance with CDC ACIP guidelines for adult and pediatric 
pneumococcal vaccination. We have recently learned from the CDC, 
however, that these guidelines are currently being re-evaluated and 
that the results of this evaluation could affect this measure. For this 
reason, we are not finalizing this measure for the LTCHQR Program at 
this time.
---------------------------------------------------------------------------

    \175\ Centers for Medicare and Medicaid Services (2011, May) 
Adult Immunizations: Overview. Available from https://www.cms.gov/adultimmuunizations/.
    \176\ Fagon JY, Chastre J, Hance AJ, et al. (1993). Nosocomial 
pneumonia in ventilated patients: A cohort study evaluating 
attributable mortality and hospital stay. Am J Med., 94(3), 281-288.
    \177\ Gorina Y, Kelly T, Lubitz J, et al. (2008, February). 
Trends in influenza and pneumonia among older persons in the United 
States. Aging Trends no. 8. Retrieved from http://www.cdc.gov/nchs/data/ahcd/agingtrends/08influenza.pdf.
    \178\ Centers for Disease Control and Prevention. (2011, June). 
Post-procedure pneumonia (PPP) event. Retrieved from http://www.cdc.gov/nhsn/PDFs/pscManual/10pscPPPcurrent.pdf.
    \179\ Centers for Disease Control and Prevention. (2009, March). 
Pneumococcal polysaccharide vaccine: What you need to know. 
Retrieved from http://www.cdc.gov/vaccines/pubs/vis/downloads/vis-ppv.pdf.
---------------------------------------------------------------------------

    Comment: Several commenters requested clarifications of and changes 
to the specifications of the Percent of Residents or Patients Who Were 
Assessed and Appropriately Given the Seasonal Pneumococcal (short-stay) 
quality measure. Commenters specifically asked for clarification of the 
definition of ``appropriately given'' and wanted information regarding 
whether the measure focused on assessment and education or on delivery 
of the vaccine. Commenters expressed that providers should be able to 
use medical judgment in delivering the vaccine and that facilities 
should not be penalized for withholding the vaccine from patients with 
contraindications. Some commenters believed that facilities should not 
be penalized if a patient refuses the vaccine. Finally, several 
commenters requested that we change the name of the measure to reflect 
the applicability to the LTCH setting.
    Response: As we noted above, the CDC has advised that the ACIP 
guidelines for adult and pediatric pneumococcal vaccination are 
currently being re-evaluated, and that the measure specifications might 
change as a result. For that reason, we are not finalizing this measure 
for the LTCHQR Program at this time. Once we receive further guidance 
from the CDC, we will consider whether to re-propose this measure and 
will take the commenters' concerns into account at that time.
    Comment: One commenter suggested that CMS take responsibility for 
tracking vaccinations and sharing this information across facilities. 
Several commenters were concerned about patients who received the 
vaccine outside of the facility, especially for those who require two 
doses of the vaccine. Other commenters expressed concerns related to 
exclusions and requested that patients for whom the vaccination was 
contraindicated or refused to be excluded. A few commenters remarked 
that LTCHs should not be penalized if they cannot obtain records from 
outside facilities or if patient or family cannot remember this 
information, as long as it has made a reasonable effort to obtain 
information. One commenter suggested that this measure could be better 
addressed through a change in Medicare CoP. Further, the commenter 
noted that CMS can require minimum thresholds for organizational 
compliance with the measure and the measure is better for CoPs rather 
than as quality measure.
    Response: As we noted above, the CDC has advised that the ACIP 
guidelines for adult and pediatric pneumococcal vaccination are 
currently being re-evaluated, and that the measure specifications might 
change as a result. For that reason, we are not finalizing this measure 
for the LTCHQR Program at this time. Once we receive further guidance 
from the CDC, we will consider whether to repropose this measure and 
will take the commenters' concerns into account at that time.
    Therefore, after consideration of the public comments we received, 
we are not adopting the proposed measure

[[Page 53630]]

Percent of Residents or Patients Assessed and Appropriately Given the 
Pneumococcal Vaccination for the LTCHQR Program at this time.
(3) LTCH Quality Measure 3 for the FY 2016 Payment 
Determination and Subsequent Fiscal Years Payment Determinations: 
Influenza Vaccination Coverage among Healthcare Personnel (NQF 
0431)
    For the FY 2016 payment determination and subsequent fiscal years, 
in the FY 2013 IPPS/LTCH PPS proposed rule (77 FR 28097 through 28098), 
we proposed to adopt the CDC-developed Influenza Vaccination Coverage 
among Healthcare Personnel (NQF 0431) that is currently 
collected by the CDC via the NHSN: Influenza Vaccination Coverage among 
Healthcare Personnel (NQF 0431). This measure reports on the 
percentage of health care personnel who receive the influenza 
vaccination.
    As previously noted, influenza virus infections are a major source 
of preventable mortality in the Medicare population. Between 1976 and 
2007, influenza virus infections resulted in an average of 23,607 
influenza-related deaths with a yearly range of 3,349 to 48,615 deaths, 
with approximately 90 percent of these deaths occurring among persons 
aged 65 or older.\180\ Health care personnel are at risk for both 
acquiring influenza from patients and transmitting it to patients, and 
health care personnel often come to work when ill.\181\ One early 
report of health care personnel influenza infections during the 2009 
H1N1 influenza pandemic estimated 50 percent of infected health care 
personnel had contracted the influenza virus from patients or coworkers 
in the healthcare setting.\182\
---------------------------------------------------------------------------

    \180\ Thompson MG, Shay DK, Zhou H, et al. Estimates of deaths 
associated with seasonal influenza--United States, 1976-2007. MMWR 
Morb Mortal Wkly Rep. 59(33):1057-1062.
    \181\ Wilde JA, McMillan JA, Serwint J, et al. Effectiveness of 
influenza vaccine in healthcare professionals: A randomized trial. 
JAMA. 1999; 281: 908-913.
    \182\ Harriman K, Rosenberg J, Robinson S, et al. Novel 
influenza A (H1N1) virus infections among health-care personnel--
United States, April-May 2009. MMWR Morb Mortal Wkly Rep. 2009; 
58(23): 641-645.
---------------------------------------------------------------------------

    The CDC ACIP guidelines recommend that all health care personnel 
get an influenza vaccine every year to protect themselves and 
patients.\183\ Even though levels of influenza vaccination among health 
care personnel have slowly increased over the past 10 years, less than 
50 percent of health care personnel each year received the influenza 
vaccination until the 2009-2010 season, when an estimated 62 percent of 
health care personnel got a seasonal influenza vaccination. In the 
2010-2011 season, 63.5 percent of health care personnel reported 
influenza vaccination. Healthy People 2020 (Objective IID-12.9) set a 
goal of 90 percent for health care personnel influenza 
vaccination.\184\ It is important to measure influenza vaccination of 
health care personnel every season to track progress toward this 
objective and to make sure that health care personnel and their 
patients are protected from influenza.\185\
---------------------------------------------------------------------------

    \183\ Fiore AE, Uyeki TM, Broder K, et al. Prevention and 
control of influenza with vaccines: Recommendations of the Advisory 
Committee on Immunization Practices (ACIP), 2010. MMWR Recomm Rep. 
2010. 59(08): 1-62.
    \184\ U.S. Department of Health and Human Services, Office of 
Disease Prevention and Health Promotion. (2011, June). Healthy 
People 2020: Immunization and infectious diseases. Retrieved from 
http://www.healthypeople.gov/2020/topicsobjectives2020/overview.aspx?topicid=23.
    \185\ Lindley MC, Zhang J, Euler G. Health care personnel flu 
vaccination (2011, November). Retrieved from http://www.cdc.gov/flu/pdf/professionals/vaccination/1112-healthcare.pdf.
---------------------------------------------------------------------------

    Increased influenza vaccination coverage among health care 
personnel is expected to result in reduced morbidity and mortality 
related to influenza virus infection among patients, aligning with the 
National Quality Strategy's aims of better care and healthy people/
communities. Further, the MAP supported the direction of this measure 
and believes it is an important aspect of care in LTCHs.\186\
---------------------------------------------------------------------------

    \186\ National Quality Forum (2012) Input on Measures for 
Consideration by HHS for 2012 Rulemaking. Available; http://www.qualityforum.org/WorkArea/linkit.aspx?LinkIdentifier=id&ItemID=69885. pp. 105.
---------------------------------------------------------------------------

    In light of the previously described data which we believe reflects 
the significant impact influenza has on Medicare beneficiaries in the 
LTCH setting, in the FY 2013 IPPS/LTCH PPS proposed rule (77 FR 28097), 
we proposed adopting an influenza measure. Specifically, we proposed to 
adopt the CDC-developed Influenza Vaccination Coverage among Healthcare 
Personnel (NQF 0431) measure for the FY 2016 payment 
determination and subsequent fiscal year payment determinations.
    We also noted that this measure was undergoing NQF review as part 
of measure maintenance. As a result of this NQF review, the measure is 
NQF-endorsed and specified for use for all acute care hospital settings 
(which includes LTCHs). We proposed this measure because, as stated 
previously, it aligns with national initiatives. This measure has been 
finalized for reporting in the Hospital IQR Program and the ASCQR 
Program.
    This measure reports on the percentage of health care personnel who 
receive the influenza vaccination. Health care personnel refers to all 
paid and unpaid persons working in health care settings, contractual 
staff not employed by the healthcare facility, and persons not directly 
involved in patient care but potentially exposed to infectious agents 
that can be transmitted to and from health care personnel. This measure 
is applicable to LTCHs (we refer readers to the CDC/NHSN Manual, 
Healthcare Personnel Safety Component Protocol Module, Influenza 
Vaccination and Exposure Management Modules, which is available at the 
CDC Web site at: http://www.cdc.gov/nhsn/PDFs/HSPmanual/HPS_Manual.pdf 
for measure specifications and additional details).
    We proposed that data collection for this measure would be through 
the CDC/NHSN (http://www.cdc.gov/nhsn/). It is a secure Internet based 
surveillance system maintained by the CDC, and can be utilized by all 
types of health care facilities in the United States, including LTCHs. 
NHSN collects data via a Web-based tool hosted by the CDC and available 
at: http://www.cdc.nhsn. For FY 2016 and subsequent fiscal year payment 
determinations, we proposed that the data collection would cover the 
period from October 1 through March 31 of each year, which corresponds 
with how NQF specifies this measure as well as other endorsed influenza 
vaccination measures.
    CDC/NHSN is also the proposed data collection and submission 
framework for reporting on CAUTI and CLABSI measures for the FY 2015 
payment determination.\187\ Details related to the procedures for using 
the 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/hps_fluVacc.html. 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. For additional information on data collection and submission, 
we refer

[[Page 53631]]

readers to section VIII.D.6. of this preamble to this final rule.
---------------------------------------------------------------------------

    \187\ Medicare Program; Hospital Inpatient Prospective Payment 
Systems for Acute Care Hospitals and the Long-Term Care Hospital 
Prospective Payment System and FY 2012 Rates; Hospitals' FTE 
Resident Caps for Graduate Medical Education Payment, Final Rule. 
Federal Register (August 18, 2011; 76 FR 51745-51846). Web. http://www.gpo.gov/fdsys/pkg/FR-2011-08-18/pdf/2011-19719.pdf.
---------------------------------------------------------------------------

    We invited public comment on this proposed measure for the FY 2016 
payment determination and subsequent fiscal years.
    Comment: Many commenters fully supported the inclusion of the 
proposed measure in the LTCHQR Program, stating that the measure has 
been tested in multiple settings, and supported its extension to the 
LTCH setting. A commenter encouraged the development of an 
infrastructure to allow facilities to submit summarized data on HCP 
influenza rates to avoid submission of information unrelated to the 
measure. Another commenter encouraged CMS to develop the specifications 
and conduct testing for use in LTCHs.
    Response: We appreciate the commenters' strong support for the use 
of this measure. CDC added aggregate reporting of healthcare personnel 
influenza vaccination coverage to NHSN. The measure is NQF-endorsed for 
use in acute care hospital settings including LTCHs.
    Comment: One commenter expressed concern that this measure is not 
an indicator of the quality of care provided by LTCHs, and noted that 
LTCH patients do not expire due to health care-acquired influenza.
    Response: We believe that healthcare personnel vaccination is 
relevant to the issue of patient safety. Healthcare personnel are at 
risk for both acquiring influenza from patients and exposing patients 
to influenza, and health care personnel often come to work when 
ill.\188\ Further, influenza virus infection is common among healthcare 
personnel. One study suggested that nearly one-quarter of healthcare 
personnel were infected during influenza season, but few of these 
personnel recalled having influenza.\189\ In the 2010-11 season, 63.5 
percent of healthcare personnel reported influenza vaccination. Healthy 
People 2020 (Objective IID-12.9) set a goal of 90 percent for health 
care personnel influenza vaccination.\190\ It is important to measure 
influenza vaccination of health care personnel every season to track 
progress toward this objective and to make sure that healthcare 
personnel and their patients are protected from influenza.\191\
---------------------------------------------------------------------------

    \188\ Wilde JA, McMillan JA, Serwint J, et al. Effectiveness of 
influenza vaccine in healthcare professionals: A randomized trial. 
JAMA 1999; 281: 908-913.
    \189\ Elder AG, O'Donnell B, McCruden EA, et al. Incidence and 
recall of influenza in a cohort of Glasgow health-care workers 
during the 1993-4 epidemic: Results of serum testing and 
questionnaire. BMJ. 1996; 313:1241-1242.
    \190\ U.S. Department of Health and Human Services, Office of 
Disease Prevention and Health Promotion. (2011, June). Healthy 
People 2020: Immunization and infectious diseases. Retrieved from 
http://www.healthypeoplegov/2020/topicsobjectives2020/overview.aspx?topicid=23.
    \191\ Lindley MC, Zhang J, Euler G. Health care personnel flu 
vaccination. http://www.cdc.gov/flu/pdf/professionals/vaccination/1112-healthcare.pdf.
---------------------------------------------------------------------------

    Comment: One commenter expressed concern that a LTCH should not be 
penalized if a healthcare worker is offered, but declines, to receive 
the influenza vaccine and suggested that refusals be counted in the 
numerator.
    Response: We thank the commenter for this comment. We acknowledge 
that there may be vaccination refusals. In addition to including 
healthcare personnel who received a vaccine (at the facility or 
documented elsewhere), personnel who did not receive the vaccine due to 
contraindications, and personnel with unknown vaccination status, the 
numerator statement of the measure includes healthcare personnel who 
``declined influenza immunization.'' A description of the measure is 
available on the NQF Web site at: http://www.qualityforum.org/QPS/0431. 
Measure specifications are available for download under Candidate 
Consensus Standards Review: Immunizations: 0431--Influenza Vaccination 
Coverage Among Healthcare Personnel on the NQF Web site at: http://
www.qualityforum.org/Projects/n-r/Population_Health_Prevention/
Population_Health__Prevention_Endorsement_Maintenance__-Phase_
1.aspx#t=2&s=&p=&e=1 and as part of the Final Report of NQF's 
Population Health--Prevention Endorsement Maintenance Phase 1 on the 
NQF Web site at: http://www.qualityforum.org/Projects/n-r/Population_
Health_Prevention/Population_Health__Prevention_Endorsement_
Maintenance__-Phase_1.aspx#t=1&s=&p=.
    Comment: One commenter suggested that, rather than through the 
LTCHQR Program, this measure could be better addressed through a change 
in Medicare CoPs. Further, the commenter noted that CMS can require 
minimum thresholds for organizational compliance with the measure and 
the measure is better for CoPs rather than as quality measure.
    Response: We thank this commenter and will take into consideration 
this input during our work on the Medicare CoP. However, at this time, 
we note that in light of the evidence outlined previously and in the FY 
2013 IPPS/LTCH PPS proposed rule, particularly that many individuals 
receiving care in the LTCH setting are elderly and within the target 
population for influenza vaccination, we continue to believe the 
measure is highly relevant for the LTCH setting and appropriate to 
include in the LTCHQR Program. Our use of this measure also aligns with 
the MAP's support of the direction of this measure and belief that it 
is an important aspect of care in LTCHs.
    Further, as outlined previously and in the FY 2013 IPPS/LTCH PPS 
proposed rule, this measure has been finalized for reporting in the 
Hospital IQR Program and the Ambulatory Surgical Centers Quality 
Reporting Program. Hence, we assert that this measure is an important 
aspect of patient safety in all care settings including LTCHs as 
outlined previously and in the FY 2013 IPPS/LTCH PPS proposed rule.
    After consideration of the public comments we received, we are 
finalizing the Influenza Vaccination Coverage among Healthcare 
Personnel measure as proposed (NQF 0431) for the FY 2016 
payment determination and subsequent fiscal years.
    (4) LTCH Quality Measure 4 for the FY 2016 Payment 
Determination and Subsequent Fiscal Years Payment Determinations: 
Ventilator Bundle (Application of NQF 0302)
    In 2009, the most frequently occurring diagnosis in the LTCHs was 
MS-LTC-DRG 207 (Respiratory Diagnosis with Ventilator Support for 96 or 
more Hours).\192\ Ventilator-Associated Pneumonia (VAP) is a costly, 
often deadly infection. A systematic review of VAP found: (1) Between 
10 percent and 20 percent of patients receiving greater than 48 hours 
of ventilation will develop VAP; (2) ill patients who develop VAP are 
twice as likely to die as compared with similar patients without VAP; 
(3) patients with VAP have significantly longer lengths of stay; and 
(4) patients who have VAP incur over $10,000 in additional hospital 
costs.\193\
---------------------------------------------------------------------------

    \192\ Medicare Payment Advisory Commission (MedPAC). (2011, 
March). Long-term care hospital services. In Report to the Congress: 
Medicare payment policy (pp. 231-256). Washington, DC: Retrieved 
from http://medpacv.gov/documents/Mar11_EntireReport.pdf.
    \193\ Safdar, N., Dezfulian, C., Collard, H., Saint, S. 
``Clinical and Economic Consequences of Ventilator Associated 
Pneumonia''. Critical Care Medicine. 2005: 33(10): 2184-93.
---------------------------------------------------------------------------

    In light of the previously described data on VAP which we believe 
reflects the significant impact VAP has on Medicare beneficiaries, our 
measure development contractor introduced the VAP measure for 
discussion at a technical expert panel it convened on January 31, 2011. 
The TEP identified VAP as important for the LTCH setting due to the 
high percentage of patients

[[Page 53632]]

on ventilators. However, the panel noted concerns about measuring the 
rate of VAP due to lack of a consistent definition, concerns of inter-
rater reliability, subjective interpretation of VAP, and variability in 
diagnosing VAP.
    Our measure development contractor reviewed this concept again and 
introduced the Ventilator Bundle (NQF 0302) measure developed 
by Institute of Healthcare Improvement (IHI) for discussion to address 
some the concerns noted previously at a July 7, 2011 TEP meeting. This 
comprehensive ventilator care-bundle process measure is designed to 
facilitate protocols such as weaning, and mitigate ventilator-related 
infections, such as VAP. The NQF-endorsed ventilator bundle measure 
consists of four components: (1) Head of the bed elevation >=30[deg]; 
(2) daily sedation interruption and assessment of readiness to wean; 
(3) peptic ulcer disease (PUD) prophylaxis; and (4) deep vein 
thrombosis (DVT) prophylaxis. The measure steward, IHI, also recommends 
a fifth element be added to the ventilator bundle-process measure: 
daily oral care with Chlorhexidine (http://www.ihi.org/offerings/MembershipsNetworks/MentorHospitalRegistry/Pages/VentilatorBundle.aspx). A meta-analysis of oral decontamination found a 
statistically significant reduction in VAP with use of antiseptic oral 
decontamination, which supports such an addition.\194\
---------------------------------------------------------------------------

    \194\ Chan, E., Ruest, A., Meade, M., Cook, D. ``Oral 
decontamination for prevention of pneumonia in mechanically 
ventilated adults: systematic review and meta-analysis''. BMJ. 2007; 
334: 889.
---------------------------------------------------------------------------

    We recognize that the Ventilator Bundle (NQF 0302) measure 
is currently endorsed for ICU patients in the acute care hospital 
setting; however, we believe this measure is highly relevant for the 
LTCH setting because ventilator patients are a large segment of the 
LTCH patient population and a process measure to reduce VAP is 
important and relevant for the LTCH setting. In addition, the MAP 
supports the direction of this measure, and stated that it is an 
important aspect of care in LTCHs.\195\ Further, we proposed this 
measure because it supports the National Quality Strategy by supporting 
better and safer care that prevents infection among patients at risk 
for VAP. For the above-described reasons, in the FY 2013 IPPS/LTCH PPS 
proposed rule (77 FR 28099), we proposed to adopt the Ventilator Bundle 
measure (NQF 0302) for application in the LTCH setting.
---------------------------------------------------------------------------

    \195\ National Quality Forum (2012)Input on Measures for 
Consideration by HHS for 2012 Rulemaking. Available; http://www.qualityforum.org/WorkArea/linkit.aspx?LinkIdentifier=id&ItemID=69885.. pp. 105.
---------------------------------------------------------------------------

    As indicated previously, section 1886(m)(5)(D)(ii) of the Act 
provides the Secretary with authority to adopt non-NQF-endorsed 
measures. We reviewed the NQF's consensus-endorsed measures and were 
unable to identify any NQF-endorsed measures for the ventilator bundle 
in the LTCH setting. We are unaware of any other measures for the 
ventilator bundle in the LTCH setting that have been approved by 
voluntary consensus standards bodies and endorsed by NQF. Therefore, 
under the authority of section 1886(m)(5)(D)(ii) of the Act, we 
proposed adopting the Ventilator Bundle (NQF 0302) measure for 
application in the FY 2016 LTCHQR Program payment determination and 
subsequent fiscal year payment determinations.
    We further noted that this measure is undergoing endorsement 
maintenance review at the NQF under the Patient Safety Measures-
Complications Project. (http://www.qualityforum.org/Projects/n-r/Patient_Safety_Measures_Complications/Patient_Safety_Measures_Complications.aspx#t=2&s=&p=).
    We proposed that data collection and submission of this measure 
will be through the LTCH CARE Data Set. We intend to revise the LTCH 
CARE Data Set to include new items to evaluate LTCHs' compliance with 
each element of the ventilator bundle measure. These items will be 
based on the data elements of the ventilator bundle in use within 
hospitals implementing the ventilator bundle process measure (NQF 
0302). A description of this measure, as it applies to the 
acute care setting, is available on the NQF Web site at: http://www.qualityforum.org/QPS/0302.
    By building on the existing LTCH reporting and submission 
infrastructure, such as the LTCH CARE Data Set, which will be used by 
LTCHs for data collection beginning October 1, 2012, we intend to 
reduce the administrative burden related to data collection and 
submission for this measure under the LTCHQR Program.
    We invited public comment on this proposed measure for the FY 2016 
payment determination and subsequent fiscal years.
    Comment: Many commenters supported use of the Ventilator Bundle, 
and appreciated CMS' recognition of ventilator-associated pneumonia as 
a costly and deadly infection that is highly prevalent in LTCHs.
    Response: We agree with the commenters that ventilator-associated 
pneumonia is both a deadly and costly infection that is highly relevant 
to the LTCH setting. We appreciate the commenters' support of this 
measure.
    Comment: Many commenters expressed concern over the lack of NQF 
endorsement of the measure in the LTCH setting and it not being fully 
supported by MAP. One commenter recommended the measure be further 
researched in the LTCH setting. Commenters also expressed concern 
regarding the measure being under maintenance review under NQFs 
infections disease project, which has not begun yet.
    Response: While we realize that the MAP did not fully support this 
measure, it supported the direction of the measure and stated that it 
is an important aspect of care in LTCHs. We also agree with the value 
of the NQF endorsement process. We proposed an application of the 
Ventilator Bundle measure (NQF 0302) with the understanding 
that the measure was being submitted to NQF for maintenance review and 
update. Our expectation was that the measure would be re-endorsed to 
include a fifth element (oral cleansing with Chlorhexidine solution), 
added medical exceptions for each of the five components of the bundle, 
and expansion to settings beyond the ICU. While the public comments 
included many concerns related to this proposal, it was our expectation 
that many of these concerns would be allayed by the update and 
expansion of the measure.
    Subsequent to the proposed rule, we learned that the measure 
steward, the Institute for Healthcare Improvement (IHI), made a 
decision to withdraw the Ventilator Bundle measure from consideration 
for NQF re-endorsement.
    After consideration of the public comments we received, and in 
light of the IHI's withdrawal of this measure from the NQF re-
endorsement process, we have decided to not finalize the Ventilator 
Bundle measure for the LTCHQR Program at this time. We plan to propose 
an updated version of this measure during future rulemaking.
    Comment: Some commenters were concerned about the measure requiring 
peptic ulcer disease prophylaxis, specifically that this requirement 
may put patients at risk of clostridium difficile infections.
    Response: We appreciate and are aware of the concerns posed these 
commenters; however there is also evidence that such prophylaxis is 
beneficial to ventilated patients. A prospective cohort study found 
patients on mechanical ventilation more than 48 hours had 15.6 times 
the odds of developing clinically important gastrointestinal bleeding. 
A multiple

[[Page 53633]]

regression analysis demonstrated such ventilation to be an independent 
risk factor. The same study further demonstrated that clinically 
important gastrointestinal bleeding is associated with an increase in 
mortality \196\. The Institute for Health Improvement, the steward of 
this measure, also notes that peptic ulcer disease is a risk factor 
that increases the mortality and morbidity of ventilator patients and 
should be maintained in the bundle. They have further specified that if 
a patient has a medical contraindication to any element of the bundle, 
as evidenced in the medical record, the patient is considered compliant 
for that element.\197\ However, for the reasons we noted above, we are 
not adopting this measure in this final rule.
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    \196\ Cook, D., Griffith, L., Walter, S., Guyatt, G., Meade, M., 
Heyland, D., Kirby, A., Tryba, A. ``The attributable mortality and 
length of intensive care unit stay of clinically important 
gastrointestinal bleeding in critically ill patients''. Critical 
Care. 5. 6 (2001): 368-375.
    \197\ http://www.ihi.org/knowledge/Pages/Changes/ImplementtheVentilatorBundle.aspx.
---------------------------------------------------------------------------

    Comment: One commenter noted that daily sedation vacations and 
assessment or readiness to wean would not be applicable to LTCH 
patients because they are usually not orally intubated and often may 
not be sedated. Another commenter noted that there is no standard 
definition of ``wean.'' Additional commenters noted this measure is 
intended for short-term ventilator patients.
    Response: While we appreciate this comment, we disagree that this 
measure is solely intended for the short-term ventilator patient that 
is orally intubated. We believe that this measure is intended for 
patients dependent on ventilators, regardless of airway tube placement 
and length of ventilator use. Our interpretation of the intention of 
this measure is to support processes that mitigate complications 
commonly associated with ventilator use, and that it is not solely for 
``ventilator weaning.'' However, for the reasons we noted above, we are 
not adopting this measure in this final rule.
    Comment: One commenter requested that each element of the 
ventilator bundle be modified to allow for the treating physician to 
determine if it is warranted and in the patient's best interest. 
Specifically, the commenter requested that an element of the bundle 
should only be applicable if it is not medically contraindicated. 
Another commenter noted that failure to accommodate for such 
contraindications means the measure is not patient-centered.
    Response: We thank the commenters for the measure revision 
recommendations. For the reasons we noted above, we are not adopting 
this measure in this final rule. We will take the commenter's concerns 
into account if we consider proposing to adopt an updated version of 
this measure in future rulemaking.
    Comment: Some commenters noted that the CDC has ``decertified the 
traditional VAP measure used within NHSN and is currently monitoring 
the development and use of ventilator-associated events'' and requested 
that we delay implementation of this measure until CDC releases an 
updated definition of pertaining to ventilator-associated pneumonia.
    Response: We are aware of the work the CDC is doing relative to the 
VAP measure and ventilator associated events, and we are encouraged by 
its efforts. For the reasons we noted above, we are not adopting this 
measure in this final rule. We will take the commenters' concern into 
account if we consider proposing to adopt an updated version of this 
measure in future rulemaking.
    Comment: Several commenters believed CMS has not ``clearly 
communicated the methods by which the data will be measured and 
interpreted'' for the ventilator bundle measure. Further, another 
commenter noted that data collection for this measure ``would be 
significant.''
    Response: We appreciate the concerns expressed by the commenters 
and will take them into account if we consider proposing to adopt this 
measure in future rulemaking.
    Comment: One commenter noted that CMS failed to identify whether 
the measure is an outcome measure or a process measure. Another 
commenter encouraged use of an outcome-based measure.
    Response: We noted in the proposed rule that the ventilator bundle 
is comprehensive process measure designed to mitigate ventilator-
related infections, such as VAP. As we also noted, an outcome-based 
measure based on ventilator-associated pneumonia was not supported by 
technical experts due to the difficulty in defining and diagnosing the 
condition.
    Comment: One commenter noted that while CMS convened a technical 
expert panel to opine on a ventilator associated pneumonia measure, no 
additional technical expert panels was held to discuss the ventilator 
bundle.
    Response: Both a ventilator associated pneumonia measure and 
ventilator bundle were discussed at a technical expert panel held on 
July 11, 2011. The panel was supportive of the ventilator bundle 
measure compared to the ventilator-associated pneumonia measure.
    After consideration of the public comments we received, as noted 
above, we are not adopting this measure in this final rule.
    (5) LTCH Quality Measure 5 for the FY 2016 Payment 
Determination and Subsequent Fiscal Year Payment Determinations: 
Restraint Rate per 1,000 Patient Days
    Restraints are used to control behavior for people who exhibit 
disruptive, aggressive, or dangerous behavior in health care settings. 
\198,199,200,201\ The negative outcomes of restraints may include 
strangulation, loss of muscle tone, decreased bone density (with 
greater susceptibility for fractures), pressure sores, increased 
infections, decreased mobility, depression, agitation, loss of dignity, 
social isolation, incontinence, constipation, functional decline, 
abnormal changes in body chemistry and muscular function, and in some 
cases, patient death.\202,203,204,205,206,207,208,209,210,211\

[[Page 53634]]

The use of physical restraints also often constitutes a 
disproportionate infringement on an individuals' autonomy.\212,213\
---------------------------------------------------------------------------

    \198\ Sullivan-Marx E, Strumpf N, Evans L, et al. Initiation of 
physical restraint in nursing home residents following restraint 
reduction efforts. Res Nurs Health. 1999;22:369-79.
    \199\ Capezuti E, Evans L, Strumpf N, et al. Physical restraint 
use and falls in nursing home residents. J Am Geriatr Soc. 
1996;44:627-33.
    \200\ Castle N, Mor V. Physical restraints in nursing homes: a 
review of the literature since the Nursing Home Reform Act of 1987. 
Med Care Res Rev. 1998;55(2):139-70.
    \201\ Minnick AF, MIon LC, Johnson ME, Catrambone C, Lepzig R. 
Prevalence and variation of physical restraint in the acute care 
setting in the US. J Nurs Scholarsh. 2007; 39(1): 30-37.
    \202\ Castle N, Mor V. Physical restraints in nursing homes: a 
review of the literature since the Nursing Home Reform Act of 1987. 
Med Care Res Rev. 1998;55(2):139-70.
    \203\ Williams C, Finch C. Physical restraints: not fit for 
woman, man, or beast. J Am Geriatr Soc. 1997;45:773-5.
    \204\ Sullivan-Marx E. Achieving restraint-free care of acutely 
confused older adults. J Gerontol Nurs.2001;27(4):56-61.
    \205\ Evans L, Strumpf N, Allen-Taylor S, et al. A clinical 
trial to reduce restraints in nursing homes. J Am Geriatr Soc. 
1997;45(6):675-81.
    \206\ Capezuti E, Maislin G, Strumpf N, et al. Side rail use and 
bed-related fall outcomes among nursing home residents. J Am Geriatr 
Soc. 2002;50(1):90-6.
    \207\ Parker K, Miles S. Deaths caused by bed rails. J Am 
Geriatr Soc. 1997;45:797-802.
    \208\ Feinsod FM, Moore M, Levenson S. Eliminating full-length 
bed rails from long term care facilities. Nurs Home Med. 1997;5:257-
63.
    \209\ Minnick AF, MIon LC, Johnson ME, Catrambone C, Lepzig R. 
Prevalence and variation of physical restraint in the acute care 
setting in the US. J Nurs Scholarsh. 2007; 39(1): 30-37.
    \210\ Mohoney JE. Immobility and falls. Clin Geriatr Med. 1998. 
14 (4): 699-726.
    \211\ Inouye SK, Wagner DR, Acompara D, et al A predictive index 
for functional decline in hospitalized elderly medical patients. J 
Gen Intern Med. 1993; 8(12):645-652.
    \212\ Gastmans C, Milison K. Use of physical restraint in 
nursing homes: clinical-ethical considerations. J Med Ethics. 
2006;32:148-52.
    \213\ McBrian B. Exercising restraint: clinical, legal and 
ethical considerations for the patient with Alzheimers's disease. 
Accide emeg nurs. 2997 Apr 15 (2):94-100.
---------------------------------------------------------------------------

    Research suggests that other clinical interventions are more 
effective than restraints in preventing injuries from falls. 
Interventions involving physiologic care, psychosocial care and 
environmental manipulation, have been shown to be more effective than 
restraints, generally without increasing staff time or overall cost of 
treatment.\214,215,216,217,218,219\
---------------------------------------------------------------------------

    \214\ Capezuti E, Evans L, Strumpf N, et al. Physical restraint 
use and falls in nursing home residents. J Am Geriatr Soc. 
1996;44:627-33.
    \215\ Castle N, Mor V. Physical restraints in nursing homes: a 
review of the literature since the Nursing Home Reform Act of 1987. 
Med Care Res Rev. 1998;55(2):139-70.
    \216\ Minnick AF, MIon LC, Johnson ME, Catrambone C, Lepzig R. 
Prevalence and variation of physical restraint in the acute care 
setting in the US. J Nurs Scholarsh. 2007; 39(1): 30-37.
    \217\ Williams C, Finch C. Physical restraints: Not fit for 
woman, man, or beast. J Am Geriatr Soc. 1997;45:773-5.
    \218\ Sullivan-Marx E. Achieving restraint-free care of acutely 
confused older adults. J Gerontol Nurs.2001;27(4):56-61.
    \219\ Evans L, Strumpf N, Allen-Taylor S, et al. A clinical 
trial to reduce restraints in nursing homes. J Am Geriatr Soc. 
1997;45(6):675-81.
---------------------------------------------------------------------------

    The principle of freedom from physical or pharmacological restraint 
is generally understood and accepted by professional and academic 
organizations. Groups such as the National Citizens' Coalition for 
Nursing Home Reform (NCCNHR), the Alzheimer's Association, and the 
American Physical Therapy Association, as well as numerous nursing 
homes and academic medical research institutions are involved in 
limiting the use of restraints. The Untie the Elderly campaign has been 
working since 1989 to raise public awareness of restraint abuse,\220\ 
and the Advancing Excellence in America's Nursing Homes has recently 
embedded reduction of the use of restraints in nursing homes as part of 
an overall goal to increase resident mobility to help nursing home 
staff address mobility issues including the use of restraints, walking, 
range of motion, transfer, and prevention of falls.\221\
---------------------------------------------------------------------------

    \220\ Untie the Elderly Web site; accessed January 21, 2010, at 
http://ute.kendaloutreach.org/Default.aspx
    \221\ Advancing Excellence in America's Nursing Homes Web site; 
accessed March 24, 2012, at http://www.nhqualitycampaign.org/files/NewGoals_030612.pdf and Physical Restraints Tracking Tool v1.1 
(December, 2011) accessible through http://www.nhqualitycampaign.org/files/campaign_updates.htm#cms.
---------------------------------------------------------------------------

    CMS and other Federal agencies have issued several regulations 
regarding restraint use in healthcare settings. In the 2006 Medicare 
and Medicaid Programs; Hospital Conditions of Participation: Patients' 
Rights final rule (71 FR 71378 through 71428), we stated that the use 
of restraints or seclusion ``may only be imposed to ensure the 
immediate physical safety of the patient, a staff member, or others'' 
(71 FR 71382).\222\ Additionally, in 2010, the Food and Drug 
Administration's Hospital Bed Safety workgroup released clinical 
guidance for limiting the use of bed rails, reflecting concern about 
the safety of restraints.\223\ To better align with our guidelines, The 
Joint Commission updated its standards to establish guidelines limiting 
the use of restraints and seclusion, and clarifying the documentation 
and usage protocols for hospitals in 2009.\224\
---------------------------------------------------------------------------

    \222\ CMS Medicare and Medicaid Programs; Hospital Conditions of 
Participation: Patients' Rights final rule. 2006. Available from 
https://www.cms.gov/CFCsAndCoPs/downloads/finalpatientrightsrule.pdf.
    \223\ FDA Hospital Bed Safety Workgroup; accessed January 25, 
2010. Available from: http://www.fda.gov/MedicalDevices/ProductsandMedicalProcedures/MedicalToolsandSupplies/HospitalBeds/default.htm.
    \224\ The Joint Commission. Restraint/Seclusion for hospitals 
that use the joint commission for deemed status purposes. 2009. 
Available from http://www.jointcommission.org/standards_information/jcfaqdetails.aspx?StandardsFaqId=260&ProgramId=1.
---------------------------------------------------------------------------

    Recognizing the importance of a restraint rate measure, our measure 
development contractor convened a technical expert panel to review 
restraint measures for potential use in the LTCHQR Program. The TEP 
reviewed several NQF-endorsed measures for restraint use, including 
Restraint Prevalence (vest and limb only) (NQF 0203) endorsed 
for short-term acute care hospitals, HBIPS-2 Hours of Physical 
Restraint Use (NQF 0640) endorsed for inpatient psychiatric 
facilities, HBIPS-3 Hours of Seclusion Use (NQF 0641) endorsed 
for inpatient psychiatric facilities, and Percent of Residents who were 
Physically Restrained (Long-Stay) (NQF  0687) endorsed for 
residents who have been in the nursing home for over 100 days. We note 
the measures are NQF-endorsed, although not for the LTCH setting. We 
submitted NQF 0687 mentioned above to the MAP for 
consideration. While the MAP supported the direction of this measure, 
it also advised the measure needed to tested in and specified for the 
LTCH setting. Subsequently, we also determined that all four of the 
above-referenced NQF measures were limited in their potential to 
produce a meaningful measurement in the LTCH setting since these 
measures have look back and monitoring periods that are problematic for 
the LTCH setting.
    Upon further investigation, we identified the ``Restraint Rate per 
1,000 Patient Days'' measure which was developed by the National 
Association of Long Term Hospitals (NALTH) and is a non-core measure 
for The Joint Commission ORYX Initiative. This measure is not NQF-
endorsed but it is currently specified for and is in use by some LTCHs 
that submit data for this measure to the NALTH Health Information 
System. Thus, this measure is a feasible and practical measure for LTCH 
setting. Therefore we believe it addresses the concerns raised by MAP 
with respect to NQF 0687 which is the need for specification 
and use in the LTCH setting.
    After review of the previously referenced NQF-endorsed restraint 
measures, in the FY 2013 IPPS/LTCH PPS proposed rule (77 FR 28100), we 
proposed the Restraint Rate per 1,000 Patient Days measure for the FY 
2016 LTCHQR Program payment determination and subsequent fiscal year 
payment determinations under the authority in section 1886(m)(5)(D)(ii) 
of the Act. We proposed to use the exception authority because there 
are no NQF endorsed measures on restraints for the LTCH setting. 
Further, as explained previously, we have given due consideration to 
the existing NQF measures on restraints (although not endorsed for the 
LTCH setting) and we believe they are not appropriate for the LTCHQR 
Program. We proposed this measure because we believe it is a relevant, 
scientifically sound, valid, and an important measure which is also 
feasible for data collection in the LTCH setting compared to the 
existing NQF-endorsed restraint measures previously discussed. For this 
measure, the measure specifications will be made available on the 
LTCHQR Program Web site at http://www.cms.gov/LTCH-Quality-Reporting/.
    We proposed that the data collection and submission of this measure 
will be through the LTCH CARE Data Set. This is the same data 
collection and submission framework which we would use to support LTCHs 
for reporting on the Percent of Residents with Pressure Ulcers That Are 
New or Worsened (Short-Stay) (NQF 0678) measure.\225\
---------------------------------------------------------------------------

    \225\ The LTCH CARE Data Set, the data collection instrument 
that will be used to submit data on this measure, is currently 
approved under Paperwork Reduction Act (PRA) review by the Office of 
Management and Budget. It is discussed in a PRA notice that appeared 
in the September 2, 2011 Federal Register (76 FR 54776). The OMB 
Control Number is 0938-1163. The file number for the LTCH PRA 
package is CMS-10409.

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

[[Page 53635]]

    By building on existing data 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 invited public comment on this proposed measure for the FY 2016 
payment determination and subsequent fiscal year payment 
determinations.
    Comment: Several commenters expressed support for inclusion of 
Restraint Rate per 1,000 Patient Days measure in the LTCHQR Program.
    Response: We appreciate the commenters' support of this measure.
    Comment: Several commenters stated that this measure is not 
appropriate for the LTCH setting because restraint use is often 
necessary and medically appropriate in this setting. Commenters added 
that this measure has not been tested in the LTCH setting and that 
support for this measure relies heavily on data obtained regarding 
restraint use in other settings. Commenters remarked that restraints 
are needed to prevent harm to the patient caused by removing necessary 
tubes and lines and that patients in LTCHs more frequently receive more 
invasive and lifesaving treatments when compared to SNFs and other 
healthcare settings on which the data supporting this measure is based.
    Response: We appreciate the commenters' concerns that restraint use 
is often medically appropriate in the LTCH setting and that a measure 
of restraint use would thus not be appropriate in the LTCH setting. We 
agree that there are occasions in which restraint use is appropriate, 
and do not intend that a quality measure evaluating restraint use 
eliminate all uses of restraint. However, there are many potential 
negative outcomes of restraints (strangulation, loss of muscle tone, 
decreased bone density, pressure sores, increased infections, decreased 
mobility, depression, agitation, loss of dignity, social isolation, 
incontinence, constipation, functional decline, abnormal changes in 
body chemistry and muscular function, patient death, and the loss of 
autonomy 
226,227,228,229, 230,231,232,233,234,235,236,237,238) and 
research suggests that other clinical interventions such as 
psychosocial care and environmental manipulation 
239,240,241,242,243 are more effective than restraints in 
preventing injuries from falls, including physiologic care. Therefore, 
we cannot ignore the patient safety risks introduced by the use of 
restraints and the need to reduce their use. Our goal is to implement a 
measure which encourages providers to think more carefully when using 
restraints and only use restraints when absolutely necessary.
---------------------------------------------------------------------------

    \226\ Castle N, Mor V. Physical restraints in nursing homes: a 
review of the literature since the Nursing Home Reform Act of 1987. 
Med Care Res Rev. 1998;55(2):139-70.
    \227\ Williams C, Finch C. Physical restraints: not fit for 
woman, man, or beast. J Am Geriatr Soc. 1997;45:773-5.
    \228\ Sullivan-Marx E. Achieving restraint-free care of acutely 
confused older adults. J Gerontol Nurs.2001;27(4):56-61.
    \229\ Evans L, Strumpf N, Allen-Taylor S, et al. A clinical 
trial to reduce restraints in nursing homes. J Am Geriatr Soc. 
1997;45(6):675-81.
    \230\ Capezuti E, Maislin G, Strumpf N, et al. Side rail use and 
bed-related fall outcomes among nursing home residents. J Am Geriatr 
Soc. 2002;50(1):90-6.
    \231\ Parker K, Miles S. Deaths caused by bed rails. J Am 
Geriatr Soc. 1997;45:797-802.
    \232\ Feinsod FM, Moore M, Levenson S. Eliminating full-length 
bed rails from long term care facilities. Nurs Home Med. 1997;5:257-
63.
    \233\ Minnick AF, MIon LC, Johnson ME, Catrambone C, Lepzig R. 
Prevalence and variation of physical restraint in the acute care 
setting in the US. J Nurs Scholarsh. 2007; 39(1): 30-37.
    \234\ Parker K, Miles SH. Deaths caused by bedrails. J Am 
Geriatr Soc 1997; 45 (7): 797-802.
    \235\ Mohoney JE. Immobility and falls. Clin Geriatr Med. 1998. 
14 (4): 699-726.
    \236\ Feinsod FM, Moore M, Levenson S. Eliminating full-length 
bed rails from long term care facilities. Nurs Home Med. 1997;5:257-
63. Minnick AF, MIon LC0640). We intend to propose a patient restraint measure 
for the LTCHQR Program in future rulemaking.
    Set out below are the quality measures for the FY 2016 payment 
determination and subsequent payment determinations.

       New Quality Measures for the FY 2016 LTCHQR Program Payment
           Determination and Subsequent Payment Determinations
------------------------------------------------------------------------
          NQF Measure ID                        Measure title
------------------------------------------------------------------------
NQF 0138.................  National Health Safety Network
                                     (NHSN) Catheter-associated Urinary
                                     Tract Infection (CAUTI) Outcome
                                     Measure.**
NQF 0139.................  National Health Safety Network
                                     (NHSN) Central line-associated
                                     Blood Stream Infection (CLABSI)
                                     Outcome Measure.**
Application of NQF 0678..  Percent of Residents with Pressure
                                     Ulcers That are New or Worsened
                                     (Short-Stay).**
NQF 0680.................  Percent of Residents or Patients Who
                                     Were Assessed and Appropriately
                                     Given the Seasonal Influenza
                                     Vaccine (Short-Stay).*
NQF 0431.................  Influenza Vaccination Coverage among
                                     Healthcare Personnel.*
------------------------------------------------------------------------
** Adopted for the FY 2014 payment determination and subsequent payment
  determinations.
* Adopted for the FY 2016 payment determination and subsequent payment
  determinations.

5. Timeline for Data Submission Under the LTCHQR Program for the FY 
2015 Payment Determination
    In the FY 2013 IPPS/LTCH PPS proposed rule (77 FR 28100), for the 
FY 2015 payment determination, we proposed requiring data submission on 
LTCH discharges occurring from January 1, 2013 through December 31, 
2013 (CY 2013). We proposed that LTCHs would follow the deadlines 
presented in the table below to complete submission of data for each 
quarter for each proposed measure for the FY 2015 payment 
determination. For each quarter outlined in the table below during 
which LTCHs are required to collect data, we proposed a final 
submission deadline occurring approximately 135 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 
providers to submit data and make any necessary corrections given that 
this is a new quality reporting program.
    We invited public comment on a proposed submission timeline for the 
FY 2015 payment determination.
    We did not receive any public comments. We are finalizing the FY 
2015 timeline for data submission, as proposed.
    Set out below is the timeline for submission of LTCHQR Program 
quality data for the FY 2015 payment determination.

 Timeline for Submission of LTCHQR Program Quality Data for the FY 2015
                          Payment Determination
------------------------------------------------------------------------
                                     Final submission deadline for data
  Data collection timeframe: CY    related to the LTCH Quality Reporting
               2013                Program FY 2015 payment determination
------------------------------------------------------------------------
Q1 (January-March 2013)..........  August 15, 2013.
Q2 (April-June 2013).............  November 15, 2013.
Q3 (July-September 2013).........  February 15, 2014.
Q4 (October-December 2013).......  May 15, 2014.
------------------------------------------------------------------------

6. Timeline for Data Submission Under the LTCHQR Program for the FY 
2016 Payment Determination
    In the FY 2013 IPPS/LTCH PPS proposed rule (77 FR 28101), for the 
FY 2016 payment determination, we proposed to require data submission 
on LTCH discharges occurring from January 1, 2014 through December 31, 
2014 (CY 2014). We proposed 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 proposed that LTCHs would follow the deadlines 
presented in the table below to complete submission of data for each 
quarter. For each quarter outlined in the table below during which 
LTCHs are required to collect data, we proposed a final 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. We also proposed that similar 
calendar year collection and submission deadlines would apply to future 
years payment determinations.
    We invited public comment on a proposed submission timeline for the 
FY 2016 payment determination.
    Comment: One commenter objected to the reduction of the submission 
timeframe from 135 days to 45 days after each quarter.
    Response: During the early phase of LTCHQR Program, recognizing 
that LTCHQR Program is a new reporting requirement for LTCHs, we are 
allowing 135 days after each quarter for submission of data for the FY 
2014 and FY 2015 payment update determinations. For the FY 2016 payment 
determination, we will allow 45 days and believe this is sufficient 
time for LTCHs to submit data because they will have had an opportunity 
to become familiar with the data submission requirements.
    After consideration of the public comments we received, we are 
finalizing the timeline for FY 2016, as proposed. Set out below is the 
timeline for submission of LTCHQR Program

[[Page 53637]]

quality data for the FY 2016 payment determination.

 Timeline for Submission of LTCHQR Program Quality Data for the FY 2016
 Payment Determination and Subsequent Fiscal Year Payment Determinations
------------------------------------------------------------------------
                                     Final submission deadlines for the
  Data collection timeframe: CY        LTCHQR Program FY 2016 payment
               2014                            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
------------------------------------------------------------------------

7. Public Display of Data Quality Measures
    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. In 
addition, 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. In addition, the statute requires that the 
Secretary shall report quality measures that relate to services 
furnished in LTCHs on our Internet Web site. Therefore, the Secretary 
will publicly report quality measure data that is reported under the 
LTCHQR Program. We did not propose procedures or timelines for public 
reporting of LTCHQR Program data in the proposed rule.
    Comment: One commenter urged CMS to publicly report the LTCHQR 
Program data on Hospital Compare. This commenter further noted that the 
lack of established procedures or timelines for public reporting of 
these data is inappropriate and does not reflect the commitment to 
accountability and transparency CMS has shown in other quality 
reporting programs. Another commenter noted that a preview period of 
quality reports prior to their being made public must be present.
    Response: We agree with these commenters. We appreciate the need 
for accountability and transparency for the LTCHQR Program similar to 
our other quality reporting programs. To this end, we are continuing to 
undertake efforts to establish procedures and a timeline for the public 
reporting of data for the LTCHQR Program and we will communicate this 
information as soon as it is available. Further, similar to our other 
quality reporting programs, we will provide for a preview period of 
quality reports under the LTCHQR Program prior to making quality data 
public.

E. Quality Reporting Requirements Under the Ambulatory Surgical Center 
Quality Reporting (ASCQR) Program

1. Background

    Section 109(b) of the Medicare Improvements and Extension Act of 
2006, under Division B, Title I of the Tax Relief and Health Care Act 
of 2006, Public Law 109-432 (MIEA-TRHCA) amended section 1833(i) of the 
Act by redesignating clause (iv) as clause (v) and adding new clause 
(iv) to paragraph (2)(D) and by adding new paragraph (7). Section 
1833(i)(2)(D)(iv) of the Act authorizes, but does not require, the 
Secretary to implement the revised ASC payment system ``in a manner so 
as to provide for a reduction in any annual update for failure to 
report on quality measures in accordance with paragraph (7).'' 
Paragraph (7) contains subparagraphs (A) and (B). Subparagraph (A) of 
paragraph (7) states the Secretary may provide that an ASC that does 
not submit ``data required to be submitted on measures selected under 
this paragraph with respect to a year'' to the Secretary in accordance 
with this paragraph will incur a 2.0 percentage point reduction to any 
annual increase provided under the revised ASC payment system for such 
year. It also specifies that this reduction applies only with respect 
to the year involved and will not be taken into account in computing 
any annual increase factor for a subsequent year.
    Subparagraph (B) of paragraph (7) states ``[e]xcept as the 
Secretary may otherwise provide,'' the provisions of subparagraphs (B) 
through (E) of paragraph (17) of section 1833(t) of the Act, which 
contain requirements for quality reporting for hospital outpatient 
services, ``shall apply with respect to services of [ASCs] under this 
paragraph in a similar manner to the manner in which they apply under 
such paragraph'' and any reference to a hospital, outpatient setting, 
or outpatient hospital services is deemed a reference to an ASC, the 
setting of an ASC, or services of an ASC, respectively. Pertinent to 
this proposed rule are subparagraphs (B) and (E) of section 1833(t)(17) 
of the Act. Subparagraph (B) of section 1833(t)(17) of the Act requires 
subsection (d) hospitals to ``submit data on measures selected under 
this paragraph to the Secretary in a form and manner, and at a time, 
specified by the Secretary for purposes of this paragraph.'' 
Subparagraph (E) of section 1833(t)(17) of the Act requires the 
Secretary to ``establish procedures for making data submitted under 
this paragraph available to the public.'' Further, these procedures 
shall ensure that hospitals have the opportunity to review the data 
before these data are made public. Additionally, the Secretary must 
``report quality measures of process, structure, outcome, patients' 
perspectives on care, efficiency, and costs of care that relate to 
services furnished in outpatient settings in hospitals'' on CMS' 
Internet Web site.
    Thus, subsections (i)(7)(B) and (t)(17)(B) of section 1833 of the 
Act, read together, require that ASCs submit quality data in a form and 
manner, and at a time, that the Secretary specifies. Pertinent to this 
final rule, subsections (i)(7)(B) and (t)(17)(B) of section 1833 of the 
Act, read together, require the Secretary to establish procedures for 
making data submitted available to the public and to report quality 
measures of process, structure, outcome, patients' perspectives on 
care, efficiency, and cost of care that relate to services furnished in 
ASCs on CMS' Internet Web site. Subsection (i)(7)(B) of section 1833 of 
the Act also specifies that these provisions apply except as the 
Secretary may otherwise provide.
    In the CY 2012 OPPS/ASC final rule with comment period, we 
finalized our proposal to implement the ASC Quality Reporting (ASCQR) 
Program beginning

[[Page 53638]]

with the CY 2014 payment determination (76 FR 74492 through 74517). We 
adopted claims-based measures for the CY 2014 payment determination for 
services furnished between October 1, 2012 and December 31, 2012. For 
the CY 2015 payment determination, we adopted the same claims-based 
measures as adopted for the CY 2014 payment determination and two 
structural measures. We did not specify the data collection period for 
the claims-based measures for the CY 2015 payment determination, but 
specified that reporting for the structural measures would be between 
July 1, 2013 and August 15, 2013, for services furnished between 
January 1, 2012 and December 31, 2012, using an online measure 
submission Web page available at: http://www.QualityNet.org. For the CY 
2016 payment determination, we adopted the same claims-based and 
structural measures as adopted for the CY 2015 payment determination 
and one process of care measure. We did not specify the data collection 
period for the claims-based or structural measures, but specified that 
data collection for the process of care measure would be via the 
National Healthcare Safety Network beginning on October 1, 2014, and 
continuing through March 31, 2015.
    In the CY 2012 OPPS/ASC final rule with comment period (76 FR 
74515), we indicated our intent to issue proposals for administrative 
requirements, data validation and completeness requirements, and 
reconsideration and appeals processes in the FY 2013 IPPS/LTCH PPS 
proposed rule rather than in the CY 2013 OPPS/ASC proposed rule because 
the FY 2013 IPPS/LTCH PPS proposed rule is scheduled to be finalized 
earlier and before data collection for the CY 2014 payment 
determination, which is to begin with services furnished on October 1, 
2012.
    In the FY 2013 IPPS/LTCH PPS proposed rule (77 FR 28101 through 
28105), we issued proposals for administrative requirements, data 
completeness requirements, extraordinary circumstance waiver or 
extension requests, and a reconsideration process. As discussed below, 
we did not propose to validate claims-based and structural measures. 
Further, we intend to address appeals of reconsideration decisions in a 
future rulemaking. To be eligible to receive the full annual increase, 
we proposed that ASCs must comply with the requirements specified below 
for the respective payment determination year.
    We invited public comment on these proposals.
2. Requirements for Reporting Under the ASCQR Program
a. Administrative Requirements
(1) Requirements Regarding QualityNet Account and Administrator for the 
CYs 2014 and 2015 Payment Determinations
    A QualityNet account is required to submit quality measure data to 
the QualityNet Web site and, in accordance with CMS policy, a 
QualityNet administrator is necessary to set-up a user account for the 
purpose of submitting this information to the QualityNet Web site. The 
main purpose of a QualityNet administrator is to serve as a point of 
contact for security purposes for quality reporting programs. We 
believe from our experience that a QualityNet administrator typically 
fulfills a variety of tasks related to quality reporting, such as 
creating, approving, editing, and terminating QualityNet user accounts 
within an organization, and monitoring QualityNet usage to maintain 
proper security and confidentiality measures. Thus, we highly recommend 
that ASCs have and maintain a QualityNet administrator. However, in the 
FY 2013 IPPS/LTCH PPS proposed rule (77 FR 28102), we did not propose 
that ASCs be required to do so for the CY 2014 payment determination 
because ASCs are not required to submit data to the quality data 
warehouse for the CY 2014 payment determination (76 FR 74504) and we do 
not want to unduly burden ASCs by requiring ASCs to have a QualityNet 
administrator. We note that a QualityNet account is not necessary to 
access information that is posted to the QualityNet Web site, such as 
specifications manuals and educational materials.
    As finalized in the CY 2012 OPPS/ASC final rule with comment period 
(76 FR 74504 through 74509), for the CY 2015 payment determination, we 
require ASCs to submit structural measure data to the QualityNet Web 
page. To enter these data into our data system, we proposed that ASCs 
will need to identify and register a QualityNet administrator who 
follows the registration process located on the QualityNet Web site and 
submits the information as specified on this site. Because submission 
of structural measure data is not required until the July 1, 2013 to 
August 15, 2013 time period, we proposed that ASCs would be required to 
have a QualityNet administrator at the time facilities submit 
structural measure data in 2013 for the CY 2015 payment determination, 
which is no later than August 15, 2013. ASCs may have a QualityNet 
administrator prior to this date, but we did not propose that ASCs be 
required to do so.
    We note that there are necessary mailing and processing procedures 
for having a QualityNet administrator assigned by CMS separate from 
completion of the forms by the ASC that can require significant time to 
complete and we strongly caution ASCs to not wait until the deadline to 
apply; instead, we recommend allowing a minimum of 2 weeks, while 
strongly suggesting allowing additional time prior to the deadline to 
submit required documentation in case of unforeseen issues. Because 
ASCs will need a QualityNet administrator only to have the ability to 
set up a user account for the purpose of submitting structural measure 
data once a year, we proposed that ASCs would not be required to 
maintain a QualityNet administrator after the entry of the structural 
measure data in 2013 for the CY 2015 payment determination. Although we 
highly recommend that ASCs have and maintain a QualityNet 
administrator, we believe that requiring an ASC to maintain a 
QualityNet administrator throughout the year would increase the burden 
on ASCs.
    We invited public comment on these proposals.
    Comment: Some commenters supported not requiring ASCs to maintain a 
QualityNet administrator until 2013, but recommended that the 
inactivity deactivation window be extended to one year because many 
ASCs will need to access their accounts solely on an annual basis.
    Response: We appreciate the commenters' support. We understand the 
commenters' concerns that the QualityNet accounts may be deactivated 
because ASCs would not be submitting data frequently. As a commenter 
noted in the CY 2012 OPPS/ASC final rule with comment period (76 FR 
74515), QualityNet accounts are automatically deactivated after a 120-
day period of inactivity in accordance with CMS security policy. Both 
the length of this timeframe and the requirement to maintain a 
QualityNet administrator when a facility is submitting data to a CMS 
system are dictated by our security policy. If an account is 
deactivated due to inactivity, it can be reactivated by contacting the 
QualityNet Help Desk; contact information for the QualityNet Help Desk 
is located on the QualityNet Web site.
    After consideration of the public comments we received, we are 
finalizing our proposals without modification that ASCs will need to 
identify and register a QualityNet

[[Page 53639]]

administrator who follows the registration process located on the 
QualityNet Web site and submits the information as specified on this 
site and that ASCs would be required to have a QualityNet administrator 
at the time facilities submit structural measure data in 2013 for the 
CY 2015 payment determination, which is no later than August 15, 2013.
(2) Requirements Regarding Participation Status for the CY 2014 Payment 
Determination and Subsequent Payment Determination Years
    We finalized in the CY 2012 OPPS/ASC final rule with comment period 
a policy to consider an ASC as participating in the ASCQR Program for 
the CY 2014 payment determination if the ASC includes Quality Data 
Codes (QDCs) specified for the Program on their CY 2012 claims relating 
to the finalized measures (76 FR 74516).
    In the FY 2013 IPPS/LTCH PPS proposed rule (77 FR 28103), we 
proposed that once an ASC submits any quality measure data, it would be 
considered as participating in the ASCQR Program. Further, we proposed 
that, once an ASC submits any quality measure data and is considered to 
be participating in the ASCQR Program, an ASC would continue to be 
considered participating in the Program, regardless of whether the ASC 
continues to submit quality measure data, unless the ASC withdraws from 
the Program by indicating on a participation form that it is 
withdrawing, as discussed below. For example, if an ASC includes any 
QDCs on its claims for the CY 2014 payment determination, it would be 
considered participating in the ASCQR Program for the CY 2014 payment 
determination and for every subsequent payment determination unless the 
ASC withdraws. Likewise, if an ASC did not submit any QDCs for the CY 
2014 payment determination, but submitted quality measure data for the 
CY 2015 payment determination, the ASC would be considered 
participating in the ASCQR Program starting with the CY 2015 payment 
determination and continuing for subsequent payment determinations 
unless the ASC withdraws from the Program.
    We considered whether to propose that an ASC be required to 
complete and submit a notice of participation form for the CY 2015 
payment determination or subsequent payment determination years to 
indicate that the ASC is participating in the ASCQR Program as we 
require for hospitals, but decided against this proposal because we 
were concerned about the burden on ASCs. We believe these proposals 
will reduce burden on ASCs while accomplishing the purpose of notifying 
CMS of an ASC's participation in the ASCQR Program.
    We proposed that any and all quality measure data submitted by the 
ASC while participating in the ASCQR Program could be made publicly 
available. This policy would allow us to provide information on the 
quality of care provided to Medicare beneficiaries which promotes 
transparency.
    We proposed that, once an ASC submits quality measure data 
indicating its participation in the ASCQR Program, an ASC must complete 
and submit an online participation form indicating withdrawal to 
withdraw from the Program. This form would be located on the QualityNet 
Web site starting in July 2013. We proposed that an ASC would indicate 
on the form the initial payment determination year to which the 
withdrawal applies. We proposed a different process for ASCs to 
withdraw from participation than the process we proposed for an ASC to 
participate in the ASCQR Program because of the payment implications of 
withdrawal. We proposed that, in withdrawing from the Program, the ASC 
would incur a 2.0 percentage point reduction in its annual payment 
update for that payment determination year and any subsequent payment 
determination year(s) in which it is withdrawn.
    We will not make quality measure data publicly available for that 
payment determination year and any subsequent payment determination 
year(s) for which the ASC is withdrawn from the Program.
    We proposed that an ASC would continue to be deemed withdrawn 
unless the ASC starts submitting quality measure data again. Once an 
ASC starts submitting quality measure data, the ASC would be considered 
participating unless the ASC withdraws, as discussed above. Again, we 
believe that these proposals would reduce the burden on ASCs of having 
to notify CMS as to when they are participating.
    We proposed that an ASC can withdraw from the Program at any time 
up to August 31, 2013 for the CY 2014 payment determination; we 
anticipate that this will be the latest date possible to allow an ASC 
to withdraw before payment determinations affecting CY 2014 payment are 
made. We proposed that an ASC can withdraw from the Program at any time 
up to August 31, 2014, for the CY 2015 payment determination. We will 
propose withdrawal dates for later payment determinations in future 
rulemakings.
    We proposed that these administrative requirements would apply to 
all ASCs designated as open in the CASPER system before January 1, 
2012, for the CY 2014 payment determination. Because ASCs are not 
required to include QDCs on claims until October 2012 for the CY 2014 
payment determination, an ASC designated as open in the CASPER system 
before January 1, 2012, would be operating for at least 10 months 
before having to report any data. We believe this would be a sufficient 
amount of time for ASCs to be established to report quality data for 
the CY 2014 payment determination.
    For the CY 2015 payment determination, we proposed that these 
administrative requirements would apply to all ASCs designated as open 
in the CASPER system for at least 4 months prior to January 1, 2013. We 
believe that this date and length of operations experience would 
provide new ASCs sufficient time before having to meet quality data 
reporting requirements after the ASCQR Program's initial implementation 
year.
    We invited public comment on these proposals.
    Comment: Commenters supported the CMS proposal that ASCs would 
indicate their participation in the ASCQR Program solely by beginning 
to submit QDCs to CMS because they believe this is the least burdensome 
means for ASCs to indicate their participation status.
    Response: We appreciate the commenters' support. We believe this is 
the least burdensome means for ASCs to indicate their participation 
status.
    Comment: Commenters supported the CMS proposal to have an active 
mechanism for ASCs to withdraw from the ASCQR Program. Commenters also 
agreed quality measure data should not be publicly available for a 
payment determination year and any subsequent payment determination 
year(s) for which an ASC is withdrawn from the Program. One commenter 
stated that this active mechanism will help distinguish those ASCs who 
are aware of the requirements, but choose not to participate, from 
those that are participating unsuccessfully or who are not aware of the 
Program, and could allow for more targeted educational efforts.
    Response: We appreciate the commenters' support.
    Comment: Commenters agreed that CMS had the right to make any data 
collected under the ASCQR Program publicly available, but made 
suggestions regarding various facets of public reporting including the 
ability of facilities to preview data, delaying public reporting, the 
ability of facilities to resolve accuracy concerns, limiting

[[Page 53640]]

the information reported for the first years of the Program to whether 
the ASC successfully participated in the ASCQR Program, and including 
explanatory narrative for individual measures.
    Response: We thank the commenters for their views and suggestions. 
Regarding public reporting, we only proposed that any and all quality 
measure data submitted by the ASC while participating in the ASCQR 
Program could be made publicly available; commenters agreed with this 
proposal. We did not make any other proposals regarding public 
reporting. We will consider these additional comments addressing public 
reporting of ASCQR Program data in future rulemaking.
    After consideration of the public comments we received, we are 
finalizing our proposals without modification regarding participation 
in and withdrawing from the ASCQR Program as discussed above.
b. Requirements Regarding Form, Manner, and Timing for Claims-Based 
Measures for CYs 2014 and 2015 Payment Determinations
(1) Background
    In the CY 2012 OPPS/ASC final rule with comment period, we adopted 
claims based measures for the CYs 2014 and 2015 payment determinations 
(76 FR 74504 through 74509). We also finalized that, to be eligible for 
the full CY 2014 ASC annual payment update, an ASC must submit complete 
data on individual quality measures through a claims-based reporting 
mechanism by submitting the appropriate QDCs on the ASC's Medicare 
claims (76 FR 74515 through 74516). Further, we finalized the data 
collection period for the CY 2014 payment determination, as the 
Medicare fee-for-service ASC claims submitted for services furnished 
between October 1, 2012 and December 31, 2012. We did not finalize a 
date by which claims would be processed to be considered for CY 2014 
payment determinations.
    In the FY 2013 IPPS/LTCH PPS proposed rule (77 FR 28104), we 
proposed that claims for services furnished between October 1, 2012 and 
December 31, 2012 would have to be paid by the administrative 
contractor by April 30, 2013 to be included in the data used for the CY 
2014 payment determination. We believe that this claim paid date would 
allow ASCs sufficient time to submit claims while allowing sufficient 
time for CMS to complete required data analysis and processing to make 
payment determinations and to supply this information to administrative 
contractors.
    We did not finalize a data collection and processing period for the 
CY 2015 payment determination, but stated that we intended to do so in 
the CY 2013 OPPS/ASC proposed rule.
    We invited public comments on these proposals.
    Comment: Some commenters agreed with the CMS proposal that claims 
for services furnished between October 1, 2012 and December 31, 2012 
that are paid by April 30, 2013 be included in the data used for the CY 
2014 payment determination stating that they believed that this April 
30, 2013 date would allow for sufficient time for claims processing. 
However, other commenters believed the proposed period for the 
collection of claims data may be too abbreviated to capture all 
pertinent data. Because ASCs have up to 1 year to submit claims for 
services rendered, some commenters suggested that the period for the 
collection of claims data be as close to 1 year from the date the 
service was provided to be included in a payment determination. Some of 
the commenters that suggested that a longer time period for claims be 
included, suggested that claims for services furnished between January 
1, 2013 and December 31, 2013 be processed by June 30, 2014 for the CY 
2015 payment determination.
    Response: We appreciate the commenters' support of our proposals 
that claims for services furnished between October 1, 2012 and December 
31, 2012 that are paid by April 30, 2013 be included in the data used 
for the CY 2014 payment determination. We agree that sufficient time 
should be allowed for claims processing to obtain complete data. We 
have conducted an internal analysis of claims submission by ASCs and 
have found that over 90 percent of ASC claims are submitted and paid in 
our proposed timeframe. Therefore, we believe that our proposed April 
30 paid date provides sufficient time for claims to be submitted. In 
addition, while we appreciate that a longer timeframe, for example to 
June 30, may be desirable, we believe that April 30 is the latest date 
that would still allow us to acquire and analyze the claims data, make 
payment determinations, and importantly, allow sufficient time for the 
administrative contractors to program their systems.
    We did not make any proposals regarding a data collection and 
processing period for the CY 2015 payment determination, but have done 
so in the CY 2013 OPPS/ASC proposed rule.
    Comment: One commenter expressed concern with the lag between the 
quality data reporting period and the payment reductions in the ASCQR 
Program, noting that CMS finalized its proposal to reduce ASC payments 
in 2014 based on data submitted in 2012. This commenter believed that 
CMS should align the penalty reporting period with the penalty year.
    Response: We understand the commenter's concern with the lag 
between when data are reported and when payment is affected, and we 
will strive to reduce this lag without significant adverse effects on 
data completeness and quality. We interpret the commenter's desire to 
align the penalty reporting period with the penalty year to mean that, 
for example, claims for services furnished in CY 2014 would be used to 
affect CY 2014 payment. This could only be accomplished if we applied 
any reduction retroactively and recouped funds for any such reduction. 
We do not believe this a feasible approach because it could cause undue 
financial hardship on an ASC to have to refund monies and it would be 
administratively burdensome for us.
    After consideration of the public comments we received, we are 
finalizing our proposal, without modification, that claims for services 
furnished between October 1, 2012, and December 31, 2012 be paid by the 
administrative contractor by April 30, 2013, to be included in the data 
used for the CY 2014 payment determination.
(2) Minimum Threshold for Claims-Based Measures Using QDCs
    In the CY 2012 OPPS/ASC final rule with comment period, we 
finalized that data completeness for claims-based measures would be 
determined by comparing the number of claims meeting measure 
specifications that contain the appropriate QDCs with the number of 
claims that would meet measure specifications, but did not have the 
appropriate QDCs on the submitted claim. In other words, the numerator 
will be the total number of claims meeting measure specifications that 
have QDCs and the denominator will be the total number of claims 
meeting measure specifications. We stated our intent to propose how we 
would assess data completeness for claims-based measures in this 
proposed rule (76 FR 74516). For the initial reporting years, we 
believe that a lower threshold for data completeness should be 
established for data collection because ASCs are not familiar with how 
to report quality data under the ASCQR Program, and because many ASCs 
are relatively small and they

[[Page 53641]]

may need more time to set up their reporting systems.
    In the FY 2013 IPPS/LTCH PPS proposed rule (77 FR 28104), for the 
CYs 2014 and 2015 payment determinations, we proposed that the minimum 
threshold for successful reporting be that at least 50 percent of 
claims meeting measure specifications contain QDCs. We believe 50 
percent is a reasonable minimum threshold based upon the considerations 
discussed above for the initial implementation years of the ASCQR 
Program. We intend to propose to increase this percentage for 
subsequent payment determination years as ASCs become more familiar 
with reporting requirements for the ASCQR Program.
    As stated in CY 2012 OPPS/ASC final rule with comment period (76 FR 
74516), ASCs will add the appropriate QDCs on their Medicare Part B 
claim forms, the Form CMS-1500s submitted for payment, to submit the 
applicable quality data. A listing of the codes with long and short 
descriptors is available in transmittal 2425, Change Request 7754 
released March 16, 2012 which can be found on our Web site at: http://www.cms.gov/Regulations-and-Guidance/Guidance/Transmittals/Downloads/R2425CP-.pdf. Details on how to use these codes for submitting 
numerators and denominator information has been available since April 
2012 in the ASCQR Program Specifications Manual and the QualityNet Web 
site at https://www.qualitynet.org/dcs/ContentServer?c=Page&pagename=QnetPublic%2FPage%2FQnetBasic&cid=1228772323772.
    We invited public comment on these proposals.
    Comment: Several commenters strongly supported the proposed 50 
percent minimum threshold for data completeness of claims-based 
measures for the CYs 2014 and 2015 payment determinations. Some 
commenters recommended that claims where Medicare is the secondary 
payer should be excluded from calculations of data completeness for the 
CY 2014 payment determination because private payers will not be fully 
informed of the G-codes until the January 2013 tape release.
    Response: We appreciate the commenters' support. We understand 
that, although CMS issued the G-codes for the ASCQR Program with the 
April 2012 HCPCS release, private payers will not have the files for 
use until January 1, 2013. When we finalized our policy for calculating 
data completeness for the CY 2014 payment determination in the CY 2012 
OPPS/ASC final rule with comment period (76 FR 74516), we did not 
specify whether claims where Medicare is the secondary payer would be 
included for data completeness. However, in the CY 2013 OPPS/ASC 
proposed rule, we stated that we were proposing to use the same method 
for determining data completeness that was finalized for the CY 2014 
payment determination for the CY 2015 payment determination and 
subsequent payment determination years and specified that, in 
calculating data completeness, claims where Medicare is the primary or 
secondary payer would be included. However, because private payers will 
not have the QDCs in their required HCPCS data files until January 1, 
2013, claims with QDCs received prior to January 1, 2013, can be 
rejected for having invalid codes. As it is not possible for ASCs to 
submit differing codes on primary versus secondary payer claims for at 
least some payers, we are specifying that only claims where Medicare is 
the primary payer--not the secondary payer--will be used in the 
calculation of data completeness for the CY 2014 payment determination. 
We intend to finalize what claims would be included in calculating data 
completeness for the CY 2015 payment determination in the CY 2013 OPPS/
ASC final rule with comment period.
    Comment: One commenter claimed that statistics from the PQRS 
Program, which uses G-codes on claims for quality measure reporting, 
show that claims-based reporting is much less accurate than registry-
based reporting. This commenter recommended that ASCs not be subject to 
payment reductions for CY 2014, the first year when payment can be 
reduced under the ASCQR Program.
    Response: We thank the commenter for this information. However, we 
do not know of any analysis for claims-based and registry-based data 
collected under the PQRS to support the claim that statistics from the 
PQRS Program show that claims-based reporting is less accurate than 
registry-based reporting. We are aware of a recently released 
competitive Request for Proposal (RFP) entitled ``Physician Quality 
Reporting System and Electronic Prescribing Incentive Program Data 
Assessment, Accuracy and Improper Payments Identification Support'' 
where we seek, among other purposes, to validate and verify the 
accuracy of Group Practice Reporting Option claims and registry data 
submitted by or on behalf of eligible professionals. This RFP is 
currently available and results from any connected work have not yet 
been initiated.
    We do not agree that all ASCs should not be subject to payment 
reductions for the first year of the Program. We delayed the start of 
required data collection for the CY 2014 payment determination until 
October 1, 2012 (76 FR 74516) as suggested by public comments. We have 
provided time for ASCs to practice using QDCs. QDCs for ASCQR Program 
reporting may be used beginning with April 2012 services. Based upon an 
internal analysis, ASCs are successfully submitting these codes on 
their Medicare claims. Therefore, we did not propose and are not 
delaying the implementation of the payment reduction under the ASCQR 
Program.
    Comment: Many commenters expressed their views on and made 
suggestions for ASCQR Program measures and measure specifications.
    Response: We thank the commenters for taking the time to express 
these views and suggestions. However, we did not make any proposals 
regarding measures or measure specifications. We will consider these 
comments when we make proposals regarding ASCQR Program measures or 
measure specifications.
    After consideration of the public comments we received, we are 
finalizing our proposal that the minimum threshold for successful 
reporting for the CYs 2014 and 2015 payment determinations be that at 
least 50 percent of claims meeting measure specifications contain QDCs. 
As discussed above, only claims where Medicare is the primary payer 
will be used in the calculation of data completeness for the CY 2014 
payment determination.
c. ASCQR Program Validation of Claims-Based and Structural Measures
    We received comments on the CY 2012 OPPS/ASC proposed rule 
requesting that rules for data validation be adopted as soon as 
possible (76 FR 74515). We noted that structural measures historically 
have not been validated through independent medical record review in 
our quality reporting programs for hospitals due to the lack of 
relevant information in medical record documentation for specific data 
elements of the measures, such as use of a safe surgery checklist. 
Likewise, we have not historically validated claims-based measures for 
hospitals. Thus, in the FY 2013 IPPS/LTCH PPS proposed rule (77 FR 
28104), consistent with other CMS quality reporting programs, we did 
not propose to validate claims-based measures (beyond the usual claims 
validation activities conducted by our administrative contractors) and 
structural measures for the ASCQR Program.

[[Page 53642]]

    Comment: Several commenters urged CMS to reconsider the need for 
data validation to ensure standardization and accuracy. Some of these 
commenters believed that such a data validation process should involve 
independent review of medical records. One commenter stated that, 
although it may be acceptable at this time to not perform validity 
testing on the data, it recommended that prior to using ASC measures 
for accountability purposes (for example, public reporting, pay for 
performance), CMS develop and deploy a plan for such testing. The 
commenter believed that scientific acceptability of the measure is, in 
part, based on the quality of the data that is used. Having taken such 
a validation step would be informative in both refining the measure and 
arriving upon a set of ASC measures.
    Response: We appreciate and share the commenters' concern about 
standardization and the desire for accuracy. We agree that, before 
using data collected for a quality data reporting program for such 
activities as public reporting, it is preferable to be able to assess 
the accuracy of the data reported (we note that the ASCQR Program is a 
pay for reporting program and not pay for performance program). 
However, this preference is counterbalanced by the feasibility of being 
able to do so. Structural measures historically have not been validated 
through independent medical record review in our quality reporting 
programs for hospitals (the Hospital IQR and Hospital OQR Programs). We 
have not validated structural measures due to the lack of relevant 
information in medical record documentation for specific data elements 
of the measures, such as use of a safe surgery checklist. Because we do 
not believe at this time that there is a method for us to effectively 
validate structural measure data, we are not requiring a data 
validation process for our current structural measures under the ASCQR 
Program.
    In regard to the current ASCQR Program claims-based measures, the 
number of events expected to be reported is small because most of the 
measures are for adverse or rare events. In this situation, any random 
selection of cases would require a burdensome sample size. Further, we 
expect the accuracy for reported adverse events to be high. Because we 
do not believe at this time that any results that could be obtained 
justify the burden associated with a data validation process which 
would necessitate an independent validation effort, we also are not 
requiring a data validation process for our current claims-based 
measures.
    As we gain more experience with the ASCQR Program, we will reassess 
whether a data validation process for claims-based and structural 
measures is needed.
3. Extraordinary Circumstances Extension or Waiver for the CY 2014 
Payment Determination and Subsequent Payment Determination Years
    In our experience, there have been times when facilities have been 
unable to submit information to meet program requirements due to 
extraordinary circumstances that are not within their control. It is 
our goal to not penalize such entities for such circumstances and we do 
not want to unduly increase their burden during these times. Therefore, 
in the FY 2013 IPPS/LTCH PPS proposed rule (77 FR 28104 through 28105), 
we proposed procedures for extraordinary circumstance extension or 
waiver requests for the submission of information, including but not 
limited to, QDCs submitted on claims, required under the ASCQR Program.
    In the event of extraordinary circumstances, such as a natural 
disaster, that is not within the control of the ASC, we proposed to 
adopt a process for an extension or waiver for submitting information 
for meeting program requirements that is similar to the one adopted for 
the Hospital OQR Program because this process has been effective for 
hospitals, and we believe such a process also would be effective for 
ASCs. We proposed that an ASC would complete a request form that would 
be made available on the QualityNet Web site and submit the request to 
CMS. We proposed that the following information must be noted on the 
form:
     ASC CMS Certification Number (CCN) and related National 
Provider Identifier(s) [NPI(s)];
     ASC Name;
     Contact information for a person at the ASC with whom CMS 
can communicate about this request, including name, email address, 
telephone number, and mailing address (must include a physical address, 
a post office box address is not acceptable);
     ASC's reason for requesting an extension or waiver;
     Evidence of the impact of the extraordinary circumstances, 
including but not limited to photographs, newspaper and other media 
articles; and
     A date when the ASC would be able to submit required ASCQR 
Program information, and a reasonable basis for the proposed date.
    We proposed that the request form would be signed by a person who 
has authority to sign on behalf of the ASC and a request form would be 
required to be submitted within 45 days of the date that the 
extraordinary circumstance occurred.
    Following receipt of such a request, we proposed that CMS would--
    (a) Provide a written acknowledgement using the contact information 
provided in the request, notifying the ASC contact that the ASC's 
request has been received;
    (b) Provide a formal response to the ASC contact using the contact 
information provided in the request notifying the ASC of our decision; 
and
    (c) Complete its review of any request and communicate its response 
within 90 days following CMS's receipt of such a request.
    We proposed that we would also have discretion to grant waivers or 
extensions to ASCs that have not been formally requested by them when 
we determine that an extraordinary circumstance, such as an act of 
nature (for example, hurricane) affects an entire region or locale. We 
proposed that, if we make the determination to grant a waiver or 
extension to ASCs in a region or locale, we would communicate this 
decision to ASCs and vendors through routine communication channels, 
including, but not limited to, emails and notices on the QualityNet Web 
site.
    We invited public comment on this proposed process for granting 
extraordinary circumstances extensions or waivers for the submission of 
information for the ASCQR Program.
    Comment: Many commenters supported having a process for ASCs to 
apply for an extension or waiver of the submission of information under 
the ASCQR Program in the event of extraordinary circumstances. Some of 
these commenters recommended that the period of time an ASC can apply 
be extended, for example, to 90 days after such an event, rather than 
45 days as proposed.
    Response: We appreciate the commenters' support. Regarding the 
timeframe to request an extension or waiver, we have found that 45 days 
is sufficient time for hospitals to make such a request under the 
Hospital OQR Program. We believe that 45 days also would be sufficient 
time for ASCs to make such requests. We believe that more than 45 days 
to complete and submit a form will only serve to delay the process. We 
also proposed and are finalizing a policy that we would have discretion 
to grant waivers or extensions to ASCs that have not been formally 
requested by them when we determine

[[Page 53643]]

that an extraordinary circumstance, such as an act of nature (for 
example, hurricane) affects an entire region or locale.
    Comment: Some commenters noted unforeseen issues related to 
information technology failures that could prevent ASCs from 
participating in the ASCQR Program. Examples of such included 
clearinghouses stripping the QDCs from claims before the claims go to 
the MAC for processing and problems with billing software not allowing 
the reporting of a code with a zero dollar charge.
    Response: We are aware of situations where clearinghouses are 
removing QDCs from claims as well as of non-Medicare payers rejecting 
claims with QDCs as having invalid codes. We note that we issue an 
update tape containing all valid HCPCS codes and that clearinghouses 
should abide by the complete listing of HCPCS codes and should not 
remove these HCPCS codes from claims. However, we would consider 
inappropriate removal or rejection of QDCs by clearinghouses as well as 
private payers an extraordinary circumstance if the ASC was able to 
sufficiently document refusal by a clearinghouse or private payer to 
follow our HCPCS usage standards that could result in the ASC suffering 
substantial risk of having a payment reduction under the ASCQR Program. 
This documentation must include substantive efforts made by the ASC to 
inform the clearinghouse or private payer of the need to follow our 
HCPCS usage standards. We also are aware of the need for the placement 
of a nominal value in the payment field for some billing software and 
we have issued guidance on this issue. This guidance is currently 
available in the Question and Answer Tool on the QualityNet Web site 
located at http://www.Qualitynet.org under the question with Answer ID 
158904 entitled ``What are the G-codes for the ASC measures, and where 
and how do I use them?''
    After consideration of the public comments we received, we are 
finalizing our proposals without modification regarding a process for 
an extension or waiver of the submission of information required under 
the ASCQR Program.
4. ASCQR Program Reconsideration Procedures for the CY 2014 Payment 
Determination and Subsequent Payment Determination Years
    We have established similar processes by which participating 
hospitals can submit requests for reconsideration of quality reporting 
program payment determinations for the Hospital IQR Program and the 
Hospital OQR Program. We believe these reconsideration processes have 
been effective in the hospital quality reporting programs and such a 
process would be effective for ASC quality reporting. Therefore, in the 
FY 2013 IPPS/LTCH PPS proposed rule (77 FR 28105), we proposed to 
implement a reconsideration process for the ASCQR Program modeled after 
the reconsideration processes we implemented for the Hospital IQR and 
Hospital OQR Programs.
    We proposed that an ASC seeking reconsideration would be required 
to submit to CMS a Reconsideration Request form that would be made 
available on the QualityNet Web site. We proposed that the request form 
would be signed by a person who has authority to sign on behalf of the 
ASC and that this form must be submitted by March 17 of the affected 
payment year (for example, for the CY 2014 payment determination, the 
request must be submitted by March 17, 2014).
    We proposed to use a deadline of March 17 to provide sufficient 
time for an ASC to see the effects of a payment reduction on its 
January claims. Administrative contractors have 30 days to process (pay 
or deny) clean claims. Administrative contractors have 45 days to 
process claims other than clean ones (that is, claims that require the 
contractor to query for more information, look at medical 
documentation, among others) (Claims Processing Manual, Chapter 1, 
Section 80; sections 1869(a)(2), 1816(c)(2) and 1842(c)(2) of the Act). 
We proposed March 17 because this date is 45 days after an ASC would 
have had the opportunity to provide one full month of services (that 
is, March 17 is 45 days after January 31).
    This Reconsideration Request form would contain the following 
information:
     ASC CCN and related NPI(s);
     ASC Name;
     CMS-identified reason for not meeting the affected payment 
year's ASCQR Program requirements as provided in any CMS notification 
to the ASC;
     ASC basis for requesting reconsideration. We proposed that 
the ASC must identify the ASC's specific reason(s) for believing it met 
the affected payment year's ASCQR Program requirements and should 
receive the full ASC annual payment update;
     Contact information for a person at the ASC with whom CMS 
can communicate about this request, including name, email address, 
telephone number, and mailing address (must include physical address, 
not just a post office box); and,
     A copy of all materials that the ASC submitted to comply 
with the affected payment year's ASCQR Program requirements. With 
regard to information submitted on claims, we proposed that ASCs would 
not be required to submit copies of all submitted claims, but instead 
would focus on the specific claims at issue. Thus, ASCs would submit 
relevant information, which could include copies of the actual claims 
at issue.
    Following receipt of a request for reconsideration, we proposed 
that we would:
     Provide an email acknowledgement, using the contact 
information provided in the reconsideration request, to the ASC contact 
notifying the ASC that the ASC's request has been received; and
     Provide a formal response to the ASC contact, using the 
contact information provided in the reconsideration request, notifying 
the ASC of the outcome of the reconsideration process.
    We stated that we intend to complete any reconsideration reviews 
and communicate the results of these determinations within 90 days 
following the deadline for submitting requests for reconsideration.
    We stated that we intend to issue proposals regarding appeals of 
ASCQR Program reconsideration decisions in a future rulemaking.
    We invited public comment on our proposed reconsideration 
procedures.
    Comment: Several commenters supported the CMS proposal to have a 
reconsideration process. Some of these commenters recommended longer 
timeframes for an ASC to submit a request than the proposed March 17th 
deadline, including April 15th and a minimum of 90 days.
    Response: We appreciate the commenters' support. We also appreciate 
suggestions by some commenters to extend the time to submit a 
reconsideration request. However, we believe the March 17 deadline to 
submit a reconsideration request provides ASCs with sufficient time to 
assess the effects of a payment reduction on their January claims. We 
also note that the March 17 deadline is later than the February 2 
deadline that the Hospital OQR Program allows and the Hospital OQR 
Program also involves a calendar year payment determination.
    Comment: Some commenters believed that the need for appeals could 
be mitigated if CMS incorporates a reporting feedback program that 
periodically updates ASCs on their reporting status.

[[Page 53644]]

    Response: We thank these commenters for expressing this view. An 
automated reporting system with feedback reports as is supplied for the 
Hospital IQR and OQR Programs will be available for the ASCQR Program. 
We plan to begin a reporting feedback program during 2013. We intend to 
provide feedback on the October 1, 2012, to December 31, 2012 claims-
based measures, via a report that will be supplied via an ASC's 
QualityNet account. ASCs will be able to access these automated reports 
via their QualityNet accounts beginning in 2013. Information regarding 
feedback reports will be available on the QualityNet Web site (http://www.QualityNet.org).
    After consideration of the public comments we received, we are 
finalizing our proposals regarding ASCQR Program reconsideration 
procedures for the CY 2014 payment determination and subsequent payment 
determination years.
    Comment: Commenters expressed views and suggestions regarding 
additional topics including mechanisms to increase ASC awareness of the 
ASCQR Program and alternate reporting mechanisms.
    Response: We thank these commenters for their suggestions for 
improving the ASCQR Program. Although we did not make proposals on 
these topics, we will consider these views for future rulemaking and 
program development. We have been making efforts to supply information 
to ASCs regarding the ASCQR Program including information posted on the 
QualityNet Web site (http://www.QualityNet.org), an educational mailing 
to ASCs, and an online question and answer tool (http://cms-ocsq.custhelp.com) which is also accessible via the QualityNet Web 
site.

F. Inpatient Psychiatric Facilities Quality Reporting (IPFQR) Program

1. Statutory Authority
    Section 1886(s)(4) of the Act, as added and amended by sections 
3401(f) and 10322(a) of the Affordable Care Act, requires the Secretary 
to implement a quality reporting program for inpatient psychiatric 
hospitals and psychiatric units. Section 1886(s)(4)(A)(i) of the Act 
requires that, for rate year (RY) 2014 and each subsequent rate year, 
the Secretary shall reduce any annual update to a standard Federal rate 
for discharges occurring during such rate year by 2.0 percentage points 
for any inpatient psychiatric hospital or psychiatric unit that does 
not comply with quality data submission requirements with respect to an 
applicable rate year.
    We note that section 1886(s)(4)(A)(i) of the Act uses the term 
``rate year.'' Beginning with the annual update of the inpatient 
psychiatric facility prospective payment system (IPF PPS) that took 
effect on July 1, 2011 (RY 2012), we aligned the IPF PPS update with 
the annual update of the ICD-9-CM codes, which are effective on October 
1 of each year. The change allows for annual payment updates and the 
ICD-9-CM coding update to occur on the same schedule and appear in the 
same Federal Register document, thus making updating rules more 
administratively efficient. To reflect the change to the annual payment 
rate update cycle, we revised the regulations at 42 CFR 412.402 to 
specify that, beginning October 1, 2012, the 12-month period of October 
1 through September 30 is referred to as a fiscal year (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 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 quality reporting 
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 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

[[Page 53645]]

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 proposed rule (77 FR 28106), we proposed to add new 
regulatory text at 42 CFR 412.424 to codify these requirements.
    We invited public comment on the proposed application of the 
payment reduction to the annual update of the standard Federal rate for 
failure to report data on measures selected for FY 2014 and subsequent 
years. We did not receive any public comments on this issue.
    We are finalizing the policy for the application of the payment 
reduction to the annual update of the standard Federal rate for failure 
to report quality data for FY 2014 and subsequent years as proposed.
3. Covered Entities
    The quality reporting requirements in this final rule cover those 
psychiatric hospitals and psychiatric units that are reimbursed under 
Medicare's IPF PPS (42 CFR 412.404(b)). For more information on the 
application of and exceptions to the IPF PPS reimbursement, we refer 
readers to the section IV. of the November 15, 2004 IPF PPS final rule 
(69 FR 66926). In this final rule, we are using 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).
    Comment: A few commenters requested that CMS clarify the 
applicability of the IPFQR Program. One commenter recommended that CMS 
indicate the applicable patient population and facilities for the IPFQR 
Program. One commenter asked for clarification on the applicability of 
the IPFQR Program to acute care hospitals containing psychiatric units 
that are paid under the IPF PPS. A few commenters requested 
clarification on whether the program applies to an inpatient 
psychiatric unit within a children's hospital, where both have the same 
CCN number, and whether the payment reduction applies to that unit's 
patients or to the entire hospital.
    Response: As we note in the above section, the IPFQR Program 
applies to all IPFs paid under the IPF PPS. The IPF PPS is applicable 
to freestanding psychiatric hospitals, including government-operated 
psychiatric hospitals, and distinct part psychiatric units of acute 
care hospitals and critical access hospitals (CAHs). The IPFQR Program 
does not apply to inpatient psychiatric units within a children's 
hospital because children's hospitals are paid under a different 
payment system. More specifically, the IPF PPS applies to inpatient 
hospital services furnished by Medicare participating entities in the 
United States \244\ that are classified as psychiatric hospitals or 
psychiatric units as specified in Sec.  412.22, Sec.  412.23(a), 
Sec. Sec.  482.60 through 82.62, Sec.  412.25, and Sec.  412.27. 
However, hospitals paid under the provisions specified in Sec.  
412.22(c) are not paid under the IPF PPS.\245\ If a person is an 
inpatient of an IPF, then all services (both physical and psychiatric) 
must be provided by the IPF and are bundled into the IPF payment.\246\
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    \244\ As specified in Sec.  400.200, the United States means the 
50 States, the District of Columbia, the Commonwealth of Puerto 
Rico, the Virgin Islands, Guam, American Samoa, and the Northern 
Mariana Islands.
    \245\ These include Department of Veterans Affairs 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 specified in section 402(a) 
of Public Law 90-248 (42 U.S.C. 1395b-1) or section 222(a) of Public 
Law 92-603 (42 U.S.C. 1395b-1(note)), and nonparticipating hospitals 
furnishing emergency services to Medicare beneficiaries.
    \246\ Section 412.404 states that the IPF must furnish all the 
necessary covered services to a Medicare beneficiary who is an 
inpatient of the IPF, either directly or under arrangement.
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    Comment: One commenter suggested that CMS partner with the American 
Hospital Association (AHA) to educate IPFs about IPFQR Program 
applicability and to consider delaying the implementation of the IPFQR 
Program until outreach and education has been conducted.
    Response: We thank the commenter for their suggestions and will 
consider collaborating with the AHA and other entities in future 
outreach and education efforts. We note that we conducted two Listening 
Sessions on June 2, 2011 and June 8, 2011 for outreach and educational 
purposes. The transcript is available on the CMS Web site at: http://cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/HospitalQualityInits/HospitalHighlights.html.
    We believe these public listening sessions have provided 
stakeholders adequate information to implement the IPFQR Program within 
their respective entities/organizations. We considered the burden 
associated with quality data reporting, the comments received in this 
rule and during these public listening sessions, and the statutory 
mandate to begin this program effective with the FY 2014 payment 
determination. Based on the general overall support in this rule and 
the public listening sessions, we believe that the public benefit of 
reporting of quality data outweighs the burden associated with quality 
data reporting. We are implementing the IPFQR Program in accordance 
with the proposed schedule.
4. Quality Measures
a. 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. 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.ahrq.gov/workingforquality/nqs/#aims). Implementation of the IPFQR Program will help achieve the 
three-part aim by creating transparency around the quality of care 
provided at IPFs to support patient decision-making and quality 
improvement. Over time, the IPFQR Program will help align the goals for 
quality 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. We applied the following considerations for the development and 
selection of measures:

[[Page 53646]]

     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 hospitals in 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 multistakeholder 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.hhs.gov/secretary/about/priorities.html and http://www.ahrq.gov/workingforquality/ngs):
     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 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.
     CMS Strategic Plan--CMS strives: (1) To ensure measures 
for different Medicare and Medicaid quality programs are aligned with 
priority quality goals, measure specifications are aligned across 
settings, and outcome measures are used whenever possible; and (2) to 
move towards the collection of quality measures from electronic health 
records (EHRs) as appropriate.
    We invited public comments on the considerations used for the 
development and selection of quality measures for the IPFQR Program.
    Comment: Two commenters believed that measures adopted for the 
IPFQR Program should be evidence-based, nationally endorsed, mirror the 
NQS, and measure high cost, high volume, and problem prone areas. 
Additionally, the commenters stated that the methodology for adding and 
removing measures should mirror that of the Hospital IQR Program. Also, 
the commenters recommended that CMS not add new measures in the near 
future while IPFs are acquiring more experience with the IPFQR Program.
    Response: We thank the commenters for the input on the IPFQR 
Program quality measures. As indicated in the proposed rule and moving 
forward in future rulemakings, we intend to consider widely accepted 
measure criteria established in medical literature, adopt measures that 
are endorsed by multi-stakeholders, address the priorities of the NQS, 
and address high cost, high volume and problem prone areas. Our goal is 
to align the administrative requirements of the IPFQR Program with 
other quality reporting programs such as the Hospital IQR Program.
    After consideration of the public comments we received, we are 
finalizing the considerations which we will use for the development and 
selection of the quality measures for the IPFQR Program in the future.
b. Quality Measures Beginning with FY 2014 Payment Determination and 
Subsequent Years
    In the FY 2013 IPPS/LTCH PPS proposed rule (77 FR 28107), we 
proposed to adopt six quality measures for FY 2014 and subsequent 
fiscal years. In selecting the proposed quality measures discussed 
below, we strived to achieve several objectives. First, we believe the 
measures we proposed relate to the general aims of better care, better 
health, and lower cost and address the six domains of quality 
measurement as fully as possible. Second, we believe the measures are 
tailored to the needs of improved quality in IPFs; thus, the measures 
selected are those most

[[Page 53647]]

relevant to IPFs. Third, we believe the measures promote alignment of 
quality improvement objectives across provider settings. Finally, we 
believe the measures are minimally burdensome to IPFs.
    We recognize that any quality reporting program will impose certain 
data collection and reporting requirements on participating facilities. 
However, we believe that the proposed measures minimize the collection 
and reporting burden on IPFs because, under Medicare's IPF CoPs (42 CFR 
482.61), IPFs must maintain documentary evidence of detailed treatment 
approaches and aftercare considerations. Further, under 42 CFR 482.21, 
IPFs are required to develop, implement, and maintain an effective, 
ongoing, hospital-wide data-driven quality assessment and performance 
improvement (QAPI) program as well as documentary evidence of such 
program for purposes of demonstrating their operation to CMS. More 
importantly, Sec.  482.21 requires that IPFs measure, analyze, and 
track certain quality indicators, including adverse patient events, and 
other aspects of performance that enable the hospital to assess 
processes of care, hospital services, and operations as part of their 
QAPI Program. Because the proposed IPFQR Program measures cover 
processes that IPFs are currently recording as Medicare CoPs, we do not 
believe that reporting on the proposed measures under the IPFQR Program 
would impose a significant additional burden on IPFs. We note that over 
one-quarter of IPFs \247\ are also already reporting data needed to 
calculate the proposed measures to The Joint Commission (TJC) for 
purposes of TJC accreditation. Thus, the IPFQR Program will impose 
little additional burden for those IPFs.
---------------------------------------------------------------------------

    \247\ Out of the 1,741 existing IPFs, 450 are currently 
reporting the proposed measures to TJC. This equates to 
approximately 26 percent of IPFs that already report the measures on 
a regular basis.
---------------------------------------------------------------------------

    After considering the recommendations and feedback from content 
area experts and multiple stakeholders, we proposed, for the FY 2014 
payment determination and subsequent years, six NQF-endorsed, Hospital-
Based Inpatient Psychiatric Services (HBIPS) measures, which have been 
developed by and are maintained by TJC for purposes of assessing the 
quality of inpatient psychiatric services. These measures are: (1) 
HBIPS-2: Hours of Physical Restraint Use (NQF 0640); (2) 
HBIPS-3: Hours of Seclusion Use (NQF 0641); (3) HBIPS-4: 
Patients Discharged on Multiple Antipsychotic Medications (NQF 
0552); (4) HBIPS-5: Patients Discharged on Multiple 
Antipsychotic Medications with Appropriate Justification (NQF 
0560); (5) HBIPS-6: Post Discharge Continuing Care Plan 
Created (NQF 0557); and (6) HBIPS-7: Post-Discharge Continuing 
Care Plan Transmitted to Next Level of Care Provider Upon Discharge 
(NQF 0558).\248\
---------------------------------------------------------------------------

    \248\ TJC has developed seven Hospital-Based Inpatient 
Psychiatric Services (HBIPS) measures. Only six of these seven 
measures were proposed for the FY 2014 payment determination; HBIPS-
1 was not proposed.
---------------------------------------------------------------------------

    These six proposed process measures are NQF-endorsed and were 
recommended by the MAP \249\ for inclusion in the IPFQR Program. The 
six proposed measures align with three of the six priorities of the 
National Quality Strategy: Patient safety, promoting effective 
prevention and treatment practices (clinical quality of care), and 
promoting effective communication and coordination of care. Technical 
specifications for these measures can currently be found on the Web 
site of TJC, the measure steward, at: http://www.manual.jointcommission.org/releases/TJC2012B/HospitalBasedInpatientPsychiatricServices.html.
---------------------------------------------------------------------------

    \249\ Measure Application Partnership, Pre-Rulemaking Final 
Report: Input on Measures under Consideration by HHS for 2012 
Rulemaking, pages 95-96,. Available at: http://www.qualityforum.org/map/.
---------------------------------------------------------------------------

    As noted earlier, these six HBIPS measures are currently in use by 
an estimated 450 TJC-accredited IPFs, thereby posing minimal collection 
burden for these facilities. We note that an estimated 1,100 
facilities, which do not routinely report to TJC, will incur some data 
collection burden. In addition, summary analyses of current measure 
results provided to CMS by TJC demonstrate variation in performance 
among the facilities currently reporting results for these measures, 
suggesting continued opportunity for quality improvement.
    Section 1886(s)(4)(D)(i) of the Act requires that quality measures 
selected for the IPFQR Program be endorsed by the entity with a 
contract under section 1890(a) of the Act. As discussed earlier, the 
current holder of this contract is NQF. The proposed measures are 
currently NQF-endorsed for reporting overall performance rates and 
rates for four age groups (children, adolescents, adults, and older 
adults). We proposed to require reporting of data for all four age 
groups for which the measures are currently endorsed. More details 
regarding this proposal are included in section VIII.F.7. of the 
preamble of this final rule. In addition to aligning with previous 
collection and reporting of these measures by TJC, our proposal 
reflects the feedback provided by the subject-matter TEP convened by 
the CMS measure development contractor for this program and focus 
groups of hospitals and vendors involved in providing inpatient 
psychiatric services.
    We proposed to collect aggregate data rather than patient-level 
data for FY 2014 and subsequent years in recognition of the 
considerable burden to IPFs not accustomed to reporting patient-level 
data. Hospitals are free to use our paper abstraction tool and utilize 
commonly available software, like spreadsheets, to enter and compute 
measure rates. We intend to provide a template using a commonly 
available spreadsheet format used by many hospitals which will be 
available on the QualityNet Web site (http://www.qualitynet.org/). 
Further, IPFs are free to procure services from TJC vendors to assist 
them with data collection. However, we note that we do not require the 
use of TJC vendors. Proposals for collection requirements and 
submission timeframes are included in section VIII.F.7. of the preamble 
of this final rule. The six proposed measures for FY 2014 and 
subsequent years are described in more detail below.
    Comment: Many commenters strongly supported the six proposed 
measures for the IPFQR Program. The commenters believed that these 
measures are appropriate and will make these data available on 
behavioral health public and will provide opportunities for national 
benchmarking and maximizing performance improvement.
    Response: We appreciate the encouragement and support of the 
measures. We are committed to promoting and improving the quality of 
care for Medicare beneficiaries with mental illnesses.
(1) HBIPS-2 (Hours of Physical Restraint Use)
    The use of physical restraints increases a patient's risk of 
physical injury as well as psychological harm.250,251 This 
intervention is intended for use only if a patient is in imminent 
danger to him/herself or others and if less restrictive interventions 
have failed. It is not intended to address staff shortages or to

[[Page 53648]]

be used as a form of discipline or coercion. The President's New 
Freedom Commission on Mental Health \252\ explicitly recommends the 
reduction of restraint use to improve quality of care. A measure 
designed to reduce the use of restraints will also help achieve the 
National Quality Strategy's goal to improve patient safety and reduce 
the risk of harm from care.
---------------------------------------------------------------------------

    \250\ Evans, D., Wood, J., & Lambert, L. (2003). Patient injury 
and physical restraint devises: a systematic review. Journal of 
Advanced Nursing, 41: 274-282.
    \251\ New Freedom Commission on Mental Health, Achieving the 
Promise: Transforming Mental Health Care in America. Final Report. 
DHHS Pub. No. SMA-03-3832. Rockville, MD: 2003.
    \252\ New Freedom Commission on Mental Health, Achieving the 
Promise: Transforming Mental Health Care in America. Final Report. 
DHHS Pub. No. SMA-03-3832. Rockville, MD: 2003.
---------------------------------------------------------------------------

    In addition to initiatives to reduce the use of restraints, the 
subject-matter TEP convened by our measure development contractor 
identified patient safety as an important measure concept and 
recommended the use of the measure HBIPS-2 (Hours of Physical Restraint 
Use) in a national IPF quality reporting program. HBIPS-2 is a process 
measure that is reported as the total number of hours of physical 
restraint (HBIPS-2) use for all patients admitted to an inpatient 
psychiatric facility. We believe that fewer reported hours of physical 
restraint use suggest higher quality of care because reduced restraint 
time lowers patient risk for physical injury and psychological harm.
    The numerator is defined as the total number of hours that all 
psychiatric inpatients were maintained in physical restraint. The 
denominator is defined as the number of psychiatric inpatient hours 
overall. Total leave days are excluded from the denominator.
    In addition to meeting the statutory requirements as provided in 
section 1886(s)(4)(D) of the Act, we believe HBIPS-2 also meets a 
number of additional considerations we take into account when proposing 
quality measures for the IPFQR Program. The measure assesses the 
quality of care provided for inpatient psychiatric patients at the 
facility level. Approximately 450 IPFs are already collecting data on 
the measure for purposes of TJC accreditation. HBIPS-2 received support 
from the MAP and is aligned with the National Quality Strategy priority 
for providing safer care.
    We invited public comments on the inclusion of the proposed quality 
measure HBIPS-2, Hours of Physical Restraint Use, in the IPFQR Program 
beginning with the FY 2014 payment determination. We discuss our 
proposals for collection requirements and submission timeframes in 
section VIII.F.7. of the preamble of this final rule.
    Comment: Several commenters supported the inclusion of this 
proposed measure.
    Response: We thank the commenters for the support of this measure.
    Comment: One commenter recommended that HBIPS-2 be revised to 
reduce provider burden and data variability.
    Response: We thank the commenter for the feedback on the measure. 
The NQF submission materials for HBIPS-2 submitted by TJC included data 
from a sample of pilot hospitals that demonstrated that the data 
elements for the measure can be collected in a standardized and 
reliable manner. As we have mentioned, data on this measure are 
currently reported by approximately 450 TJC-accredited IPFs. During 
focus groups with representatives of these facilities, convened by our 
measure development contractor, respondents reported that burden of 
reporting data on the HBIPS-2 measure was not unreasonable as it is 
already reported by a subset of IPFs, and is consistent with the level 
of burden associated with other quality measures. We recognize that 
some reporting burden may occur; however, we believe that the 
significance and importance of the measurement of hours of physical 
restraints use in IPFs outweighs the burden of reporting.
    Comment: One commenter recommended risk adjusting or stratifying 
the measure by diagnosis category and admission characteristics (for 
example, voluntary versus involuntary) to increase its usefulness and 
interpretability. The commenter further recommended excluding the day 
of admission when assessing the number of hours of restraint to control 
for variation related to diagnosis category and admission 
characteristics.
    Response: We appreciate the commenter's feedback. This measure is 
consistent with current treatment guidelines, endorsed by NQF, and 
currently reported, as specified, to TJC. We note that in making its 
endorsement decision, NQF carefully considered the measurement period 
that includes the day of admission and the need to risk adjust or 
stratify performance on HBIPS-2. TJC is currently monitoring reported 
performance to further assess the use of physical restraints.
    Comment: One commenter recommended modifying the measure to assess 
the amount of time spent in restraint in minutes rather than in hours.
    Response: We appreciate the commenter's feedback. During focus 
groups sessions with both TJC-accredited IPFs and nonaccredited IPFs, 
our measure development contractor found that the current practice of 
reporting HBIPS-2 in hours is useful and understandable to them. We 
believe that reporting HBIPS-3 in minutes would require additional user 
testing before it could be implemented.
    After consideration of the public comments we received, we are 
finalizing the HBIPS-2, Hours of Physical Restraint Use measure for the 
FY 2014 payment determination and subsequent years.
(2) HBIPS-3 (Hours of Seclusion Use)
    The use of seclusion increases a patient's risk of physical injury 
as well as psychological harm.253,254 This intervention is 
intended for use only if a patient is in imminent danger to him/herself 
or others and if less restrictive interventions have failed. It is not 
intended to address staff shortages or to be used as a form of 
discipline or coercion. The President's New Freedom Commission on 
Mental Health explicitly recommends the reduction of seclusion use to 
improve quality of care.\255\ Measures designed to reduce the use of 
seclusion will also help achieve the National Quality Strategy's goal 
to improve patient safety and reduce the risk of harm from care.
---------------------------------------------------------------------------

    \253\ Holmes, D., Kennedy, S.L., & Perron, A. (2004). The 
mentally ill and social exclusion: a critical examination of the use 
of seclusion from the patient's perspective. Issues in Mental Health 
Nursing, 25: 559-578.
    \254\ New Freedom Commission on Mental Health, Achieving the 
Promise: Transforming Mental Health Care in America. Final Report. 
DHHS Pub. No. SMA-03-3832. Rockville, MD: 2003.
    \255\ New Freedom Commission on Mental Health, Achieving the 
Promise: Transforming Mental Health Care in America. Final Report. 
DHHS Pub. No. SMA-03-3832. Rockville, MD: 2003.
---------------------------------------------------------------------------

    The subject-matter TEP convened by our measure development 
contractor identified patient safety as an important measure concept 
and recommended the use of HBIPS-3 (Hours of Seclusion Use) in a 
national IPF quality reporting program. HBIPS-3 is a process measure 
that is reported as the total number of hours of seclusion use for all 
patients admitted to an IPF. We believe that fewer reported hours of 
seclusion use suggest higher quality of care because reducing seclusion 
time lowers patient risk for physical injury and psychological harm.
    The numerator is defined as the total number of hours all 
psychiatric inpatients were held in seclusion. The denominator is 
defined as the number of psychiatric inpatient hours overall. Total 
leave days are excluded from the denominator.
    In addition to meeting the statutory requirements as provided in 
section 1886(s)(4)(D) of the Act, we believe HBIPS-3 also meets a 
number of additional considerations we take into

[[Page 53649]]

account when proposing quality measures for the IPFQR Program. The 
measure assesses the quality of care provided for inpatient psychiatric 
patients at the facility level. Approximately 450 IPFs are already 
collecting the measure for purposes of TJC accreditation. HBIPS-3 
received support from the MAP and is aligned with the National Quality 
Strategy priority for providing safer care.
    We invited public comment on the inclusion of the proposed quality 
measure HBIPS-3, Hours of Seclusion Use, in the IPFQR Program beginning 
with the FY 2014 payment determination. We discuss our proposals for 
collection requirements and submission timeframes in section VIII.F.7. 
of the preamble of this final rule.
    Comment: Several commenters supported the inclusion of this 
proposed measure.
    Response: We thank the commenters for the support of this measure.
    Comment: One commenter suggested that HBIPS-3 should be revised to 
reduce provider burden and data variability.
    Response: We thank the commenters for their feedback on the 
measure.
    The NQF submission materials for HBIPS-3 submitted by TJC included 
data from a sample of pilot hospitals that demonstrated that the data 
elements for the measure can be collected in a standardized and 
reliable manner. As we have mentioned, this measure is currently 
reported by approximately 450 TJC-accredited IPFs. During focus groups 
with representatives of these facilities, convened by our measure 
development contractor, respondents reported that burden of reporting 
HBIPS-3 was not unreasonable as it is already reported by a subset of 
IPFs, and is consistent with that associated with other quality 
measures. We recognize there may be some reporting burden. However, we 
believe that the significance and importance of the measurement of 
hours of seclusion use in IPFs outweighs the burden of reporting.
    Comment: One commenter recommended risk adjusting or stratifying 
the measure by diagnosis category and admission characteristics (for 
example, voluntary versus involuntary) to increase its usefulness and 
interpretability. The commenter further recommended excluding the day 
of admission when assessing the number of hours of seclusion to control 
for variation related to diagnosis category and admission 
characteristics.
    Response: We appreciate the commmenter's feedback. This measure is 
consistent with current treatment guidelines, endorsed by NQF, and 
reported, as specified, to TJC. We note that in making its endorsement 
decision, NQF carefully considered the measurement period that includes 
the day of admission and the need to risk adjust or stratify 
performance on HBIPS-3. TJC is currently monitoring reported 
performance to further assess the use of seclusion.
    Comment: One commenter recommended modifying the measure to assess 
the amount of time spent in seclusion in minutes rather than in hours.
    Response: We appreciate the commenter's recommendations. During 
focus group sessions with TJC-accredited IPFs and non-accredited IPFs, 
our measure development contractor found that the current practice of 
reporting HBIPS-2 in hours is useful and understandable to them. We 
believe that reporting HBIPS-3 in minutes would require additional user 
testing before it could be implemented.
    After consideration of the public comments we received, we are 
finalizing the HBIPS-3 (Hours of Seclusion Use) measure for the FY 2014 
payment determination and subsequent years
(3) HBIPS-4 (Patients Discharged on Multiple Antipsychotic Medications)
    An estimated 30 percent to 50 percent of patients in IPFs are 
treated with two or more antipsychotic medications, which can lead to 
serious side effects. Among patients without a history of treatment 
failure on a single antipsychotic, there is insufficient evidence to 
conclude that patients experience better outcomes if they are 
prescribed multiple antipsychotics compared to a single antipsychotic. 
Given the risk of side effects, stakeholders such as the National 
Association of State Mental Health Program Directors have called for 
the reduction of unnecessary use of multiple antipsychotics.\256\ The 
American Psychiatric Association recommends the use of multiple 
antipsychotics only if a patient has had failed attempts on single 
antipsychotics. In efforts to promote effective treatment practices, a 
National Quality Strategy priority, in the FY 2013 IPPS/LTCH PPS 
proposed rule (77 FR 28109), we proposed to include the process measure 
HBIPS-4, Patients Discharged on Multiple Antipsychotic Medications, in 
the FY 2014 IPFQR Program. The MAP and the subject-matter TEP convened 
by our measure development contractor support the inclusion of this 
measure in the IPFQR Program.
---------------------------------------------------------------------------

    \256\ National Association of State Mental Health Program 
Directors. Technical report on polypharmacy. Alexandria, VA: 2001. 
Retrieved from http://www.nasmhpd.org/general_files/publications/med_directors_pubs/Polypharmacy.PDF.
---------------------------------------------------------------------------

    TJC designed HBIPS-4 as part of a paired set with HBIPS-5 
(described below), meaning they were developed to be used together. 
HBIPS-4 is reported as the rate of patients discharged on multiple 
antipsychotics among patients discharged on at least one antipsychotic 
medication. We believe that lower rates are indicative of higher 
quality of care because reducing the use of multiple antipsychotics 
reduces the potential risks of harmful side effects to patients. 
However, there is no expectation that zero percent is the desired 
outcome because it is recognized that in some circumstances, use of 
multiple antipsychotics may be appropriate.
    The numerator is defined as psychiatric inpatients discharged on 
two or more routinely scheduled antipsychotic medications. The 
denominator is defined as all psychiatric inpatient discharges in which 
the patient was discharged on one or more antipsychotic medications. 
The measure excludes patients who died, patients with an unplanned 
departure resulting in discharge due to elopement, and patients with an 
unplanned departure resulting in discharge due to failing to return 
from leave.
    Taken together, HBIPS-4 and HBIPS-5 are intended to help reduce 
unnecessary use of multiple antipsychotics and to promote better 
clinical outcomes and reduced side effects for patients.
    In addition to meeting the statutory requirements as provided in 
section 1886(s)(4)(D) of the Act, we believe HBIPS-4 also meets a 
number of additional considerations we take into account when proposing 
quality measures for the IPFQR Program. The measure assesses the 
quality of care provided for inpatient psychiatric patients at the 
facility level. Approximately 450 IPFs already are collecting and 
reporting the measure for purposes of TJC accreditation. HBIPS-4 
received support from the MAP and is aligned with the National Quality 
Strategy priority for promoting effective prevention and treatment 
practices.
    We invited public comment on the inclusion of the proposed quality 
measure HBIPS-4, Patients Discharged on Multiple Antipsychotic 
Medications, in the IPFQR Program beginning with the FY 2014 payment 
determination. We discuss our proposals for collection requirements and 
submission

[[Page 53650]]

timeframes in section VIII.F.7. of the preamble of this final rule.
    Comment: Several commenters supported the inclusion of this 
proposed measure.
    Response: We appreciate the commenters' support of the measure.
    Comment: One commenter objected to the paired measures HBIPS-4 and 
HBIPS-5, as they are currently specified, citing the potential for 
misinterpretation since a low performance rate on HBIPS-4 indicates 
higher quality care while a high performance rate on HBIPS-5 indicates 
higher quality care. The commenter suggested combining HBIPS-4 and 
HBIPS-5 into a single measure.
    Response: We appreciate the commenter's input on HBIPS-4 and HBIPS-
5. Currently, these two measures are endorsed by NQF as paired 
measures; the measure specifications are consistent with medical 
guidelines and are currently reported, as specified, to TJC. Consistent 
with our experience with other reporting programs, we understand that 
some consumers may misinterpret low rates on HBIPS-4 as poor 
performance. In order to minimize confusion and misunderstanding, we 
intend to test displays with target audiences and incorporate feedback 
into the display before public reporting.
    Comment: Two commenters believed that the denominator for HBIPS-4 
is defined as ``psychiatric inpatients discharged on one or more 
routinely scheduled antipsychotic medications'' as opposed to ``all 
psychiatric inpatient discharges.''
    Response: We inadvertently did not correctly describe the 
denominator in the proposed rule. We clarify that the denominator is 
all psychiatric inpatient discharges ``in which a patient was 
discharged on one or more antipsychotic medications.'' We will ensure 
that the language is accurate in future documents.
    After consideration of the public comments we received, we are 
finalizing the HBIPS-4 (Patients Discharged on Multiple Antipsychotic 
Medications) measure for the FY 2014 payment determination and 
subsequent years. We note that the denominator is defined as all 
psychiatric inpatient discharges in which a patient was discharged on 
one or more antipsychotic medications.
(4) HBIPS-5 (Patients Discharged on Multiple Antipsychotic Medications 
With Appropriate Justification)
    In efforts to promote effective treatment practices, a National 
Quality Strategy priority, in the FY 2013 IPPS/LTCH PPS proposed rule 
(77 FR 28109), we proposed to include the process measure HBIPS-5, 
Patients Discharged on Multiple Antipsychotic Medications with 
Appropriate Justification, in the FY 2014 IPFQR Program. The MAP and 
the subject-matter TEP convened by our measure development contractor 
support the inclusion of this measure in the IPFQR Program.
    TJC designed HBIPS-5 as part of a paired set with HBIPS-4, meaning 
they were developed to be used together. HBIPS-5 is collected on those 
patients discharged on multiple antipsychotics and is reported as the 
rate of patients discharged on multiple antipsychotics with appropriate 
justification. This measure was designed in recognition that there is a 
subsample of patients for whom multiple antipsychotic use may be 
appropriate. TJC has identified the following justifications as 
appropriate reasons for discharging a patient on multiple 
antipsychotics: (1) The medical record contains documentation of a 
history of a minimum of three failed trials of monotherapy; (2) the 
medical record contains documentation of a recommended plan to taper to 
monotherapy or documentation of a plan to decrease the dosage of one or 
more antipsychotic medications while increasing the dosage of another 
antipsychotic medication to a level that manages the patient's symptoms 
with one antipsychotic medication (that is, cross-taper); and (3) the 
medical record contains documentation of augmentation of Clozapine. 
Higher rates on HBIPS-5 indicate higher quality of care because 
documenting the reasons for assigning two or more antipsychotics 
suggests that careful consideration of the benefits of this course of 
treatment were weighed against the potential patient side effects.
    The numerator statement is defined as psychiatric inpatients 
discharged on two or more routinely scheduled antipsychotic medications 
with appropriate justification. The denominator is defined as 
psychiatric inpatients discharged on two or more routinely scheduled 
antipsychotic medications. The measure excludes patients who died, 
patients with an unplanned departure resulting in discharge due to 
elopement, patients with an unplanned departure resulting in discharge 
due to failing to return from leave, and patients with a length of stay 
less than or equal to 3 days.
    Taken together, we believe that HBIPS-4 and HBIPS-5 will help 
reduce unnecessary use of multiple antipsychotics and will lead to 
better clinical outcomes and reduced side effects for patients.
    In addition to meeting the statutory requirements as provided in 
section 1886(s)(4)(D) of the Act, we believe HBIPS-5 also meets a 
number of additional considerations we take into account when proposing 
quality measures for the IPFQR Program. The measure assesses the 
quality of care provided for inpatient psychiatric patients at the 
facility level. Approximately 450 IPFs are already collecting and 
reporting the measure for purposes of TJC accreditation. HBIPS-5 
received support from the MAP and is aligned with the National Quality 
Strategy priority for promoting effective prevention and treatment 
practices.
    We invited public comment on the inclusion of the proposed quality 
measure HBIPS-5, Patients Discharged on Multiple Antipsychotic 
Medications with Appropriate Justification, in the IPFQR Program 
beginning with the FY 2014 payment determination. We discuss our 
proposals for collection requirements and submission timeframes in 
section VIII.F.7. of the preamble of this final rule.
    Comment: Several commenters supported the inclusion of this 
proposed measure.
    Response: We appreciate the commenters' support of the measure.
    After consideration of the public comments we received, we are 
finalizing the HBIPS-5 (Patients Discharged on Multiple Antipsychotic 
Medications with Appropriate Justification) measure for the FY 2014 
payment determination and subsequent years.
(5) HBIPS-6 (Post-Discharge Continuing Care Plan Created)
    When patients are discharged from the hospital, they may benefit 
from communication of information regarding the care they received or 
recommendations for their continued care. For a seamless transition 
from one treatment setting to another, providers that receive patients 
from inpatient settings need to know information regarding the 
patient's treatment during hospitalization, recommendations for post-
discharge care, and any medications the patient was discharged on. A 
discharge plan facilitates this transition of information from one 
setting to another and has been shown to have positive effects on 
readmissions.
    The promotion of effective care coordination is a National Quality 
Strategy priority. In the FY 2013 IPPS/LTCH PPS proposed rule (77 FR 
28110), we proposed process measure HBIPS-6, Post-Discharge Continuing 
Care Plan Created, to promote care coordination for patients in 
inpatient psychiatric

[[Page 53651]]

settings. TJC designed HBIPS-6 as part of a paired set with HBIPS-7; 
they were developed to be used together. HBIPS-6 measures whether a 
post-discharge continuing care plan is created. However, the creation 
of a care plan does not necessarily mean the plan is communicated to 
the patient's next provider. Therefore, HBIPS-7 measures whether a 
post-discharge continuing care plan is created and transmitted to the 
next level of care provider. Together, these two measures can assist 
facilities in determining where breakdowns in care processes occur. 
Quality care under HBIPS-6 is indicated by patients who are discharged 
with a continuing care plan that includes the reason for the 
hospitalization, the principal discharge diagnosis, discharge 
medications, and the next level of care recommendations. HBIPS-6 is 
collected on all patients admitted to IPFs. We believe that higher 
rates on this measure suggest better quality of care because greater 
numbers of post-discharge plans indicate greater opportunities for 
improved patient-provider and provider-provider communication, thus 
leading to improved patient care and health.
    The numerator is defined as psychiatric inpatients for whom the 
post-discharge continuing care plan is created and contains all of the 
following: reason for hospitalization, principal discharge diagnosis, 
discharge medications, and next level of care recommendations. The 
denominator is defined as all psychiatric inpatient discharges. 
Populations excluded from the denominator include patients who died, 
patients with an unplanned departure resulting in discharge due to 
elopement, patients or their guardians who refused aftercare, patients 
or guardians who refused to sign authorization to release information, 
and patients with an unplanned departure resulting in discharge due to 
failing to return from leave.
    In addition to meeting the statutory requirements as provided in 
section 1886(s)(4)(D) of the Act, we believe HBIPS-6 also meets a 
number of additional considerations we take into account when proposing 
quality measures for the IPFQR Program. It is appropriate to facility-
level assessment of quality of care provided by IPFs. Approximately 450 
IPFs are already collecting and reporting the measure for purposes of 
TJC accreditation. HBIPS-6 received support from the MAP and is aligned 
with the National Quality Strategy priority for promoting better care 
coordination.
    We invited public comment on the inclusion of the proposed quality 
measure HBIPS-6, Post-Discharge Continuing Care Plan Created, in the 
IPFQR Program beginning with the FY 2014 payment determination. We 
discuss our proposals for collection requirements and submission 
timeframes in section VIII.F.7. of the preamble of this final rule.
    Comment: Several commenters supported the inclusion of this 
proposed measure.
    Response: We appreciate the commenters' support for the measure.
    Comment: One commenter stated that for this measure, patient lab 
results and pending tests should be included in care plans.
    Response: We thank the commenters for the input for this measure. 
We agree that, when appropriate, this information should be provided in 
care plans. However, for purposes of this measure, these are not 
required data elements.
    Comment: One commenter objected to HBIPS-6 because the commenter 
believed that it is simply a ``check-box'' measure that does not 
advance quality of care.
    Response: We disagree with the commenter's characterization of this 
measure. We believe that assessing the creation of a continuing care 
plan that includes important post-discharge information is an important 
step in improving care coordination and quality of care. Furthermore, 
the measure specifications are consistent with clinical guidelines and 
have been endorsed by NQF.
    Comment: Two commenters recommended expanding the exclusion for the 
measure to cover other possible reasons for a lack of post-discharge 
care, such as out of jurisdiction, no psychiatric care required, and 
admission for observation with pre-arranged discharge back to sending 
provider or to another facility, such as a jail.
    Response: We appreciate the helpful feedback from the commenters. 
This measure is endorsed by NQF, and the measure specifications are 
consistent with medical guidelines; it is currently reported as 
specified. We regularly review measure specifications and consider 
whether they continue to be consistent with best medical practices. We 
will consider these suggestions during the measure maintenance process.
    After consideration of the public comments we received, we are 
finalizing the HBIPS-6 (Post-Discharge Continuing Care Plan Created) 
measure for the FY 2014 payment determination and subsequent years.
(6) HBIPS-7 (Post-Discharge Continuing Care Plan Transmitted to the 
Next Level of Care Provider Upon Discharge)
    The promotion of effective care coordination is a National Quality 
Strategy priority. In the FY 2013 IPPS/LTCH PPS proposed rule (77 FR 
28110), we proposed process measure HBIPS-7, Post-Discharge Continuing 
Care Plan Transmitted to Next Level of Care Provider upon Discharge, to 
promote care coordination for patients in inpatient psychiatric 
settings. TJC designed HBIPS-7 as part of a paired set with HBIPS-6; 
they were developed to be used together. While the creation of a 
discharge care plan (as measured in HBIPS-6) is an important part of 
providing coordinated care, simply creating the plan does not ensure 
that the necessary information is transferred to the patient's next 
provider. HBIPS-7 measures both aspects of coordinated care--the 
creation of a discharge plan and the transmittal of that plan to the 
next provider. Together, these two measures can assist facilities in 
determining where breakdowns in care processes occur. As specified by 
TJC, the discharge plan should be transmitted by the fifth post-
discharge day. This measure is collected on all patients admitted to 
IPFs. We believe that higher rates on this measure suggest better 
quality care because the greater the number of post-discharge plans 
created and transmitted, the greater opportunities for improved 
patient-provider and provider-provider communication and understanding 
of what is necessary to improve patient health.
    The numerator is defined as psychiatric inpatients for whom the 
post-discharge continuing care plan was transmitted to the next level 
of care. The denominator statement is defined as all psychiatric 
inpatient discharges. Populations excluded from the denominator include 
patients who died, patients with an unplanned departure resulting in 
discharge due to elopement, patients who refused (or whose guardians 
refused) aftercare, patients who refused to sign (or whose guardians 
refused to sign) authorization to release information, and patients 
with an unplanned departure resulting in discharge due to failing to 
return from leave.
    In addition to meeting the statutory requirements as provided in 
section 1886(s)(4)(D) of the Act, we believe HBIPS-7 also meets a 
number of additional considerations we take into account when proposing 
quality measures for the IPFQR Program. The measure assesses the 
quality of care

[[Page 53652]]

provided for inpatient psychiatric patients at the facility level. 
Approximately 450 IPFs are already collecting and reporting the measure 
for purposes of TJC accreditation. HBIPS-7 received support from the 
MAP and is aligned with the National Quality Strategy priority for 
promoting better care coordination.
    We invited public comment on the inclusion of the proposed quality 
measure HBIPS-7, Post-Discharge Continuing Care Plan Transmitted to 
Next Level of Care Provider upon Discharge, in the IPFQR Program 
beginning with the FY 2014 payment determination. We discuss our 
proposals for collection requirements and submission timeframes in 
section VIII.F.7. of the preamble of this final rule.
    Comment: Several commenters supported the inclusion of this 
proposed measure.
    Response: We appreciate the commenters' support for the measure.
    Comment: One commenter recommended changing the timeframe for 
transmittal of the discharge plan from ``by the fifth post-discharge 
day'' to ``within one post-discharge day.'' One commenter suggested an 
exclusion be added to the specifications for instances where the next 
level of care is unavailable; for instance, effective follow-up care 
may not be obtainable for uninsured homeless patients. Two commenters 
recommended expanding the exclusion for the measure to cover other 
reasons for a lack of post-discharge care such as out of jurisdiction, 
no psychiatric care required, and admission for observation with pre-
arranged discharge back to sending provider or to another facility, 
such as a jail.
    Response: We appreciate the suggestions for this measure. We 
believe that the timeframe and exclusions currently included in the 
NQF-endorsed measure are valid as specified.
    After consideration of the public comments we received, we are 
finalizing the HBIPS-7 (Post-Discharge Continuing Care Plan Transmitted 
to the Next Level of Care Provider upon Discharge) measure for the FY 
2014 payment determination and subsequent years.
    In summary, we are finalizing six quality measures to be reported 
in aggregate form for FY 2014 and subsequent years. These six measures 
are shown in the table below. Measures adopted for the IPFQR Program 
will remain in the quality program for all subsequent years unless 
specifically stated otherwise (for example, through removal or 
replacement). We discuss the adopted collection requirements and 
submission timeframes for these measures in section VIII.F.7. of the 
preamble of this final rule.

                            Quality Measures Beginning With the FY 2014 IPFQR Program
----------------------------------------------------------------------------------------------------------------
   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.
                                               0558  HBIPS-7...................  Post-Discharge Continuing Care
                                                                                  Plan Transmitted to Next Level
                                                                                  of Care Provider Upon
                                                                                  Discharge.
----------------------------------------------------------------------------------------------------------------

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 hospitals 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 to 
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 proposed rule (77 FR 28111), we stated 
that, 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, changes to 
exclusions to the patient population, definitions, or extension of the 
measure endorsement to apply to other settings. We stated in the 
proposed rule that 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 proposed rule (77 FR 28111), we proposed that 
if the NQF updates an endorsed measure that we have adopted for the 
IPFQR Program in a manner that we consider to not substantially change 
the nature of the measure, we would use a subregulatory process to 
incorporate those updates to the measure specifications that apply to 
the program. Specifically, we would 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 would post 
the updates on the CMS QualityNet Web site at https://www.QualityNet.org. We would provide sufficient lead time for IPFs to 
implement the changes where changes

[[Page 53653]]

to the data collection systems would be necessary.
    We would continue to use the rulemaking process to adopt changes to 
measures that we consider to substantially change the nature of the 
measure. We believe that this proposal adequately balances our need to 
incorporate NQF updates to NQF-endorsed IPFQR Program measures in the 
most expeditious manner possible, while preserving the public's ability 
to comment on updates that so fundamentally change an endorsed measure 
that it is no longer the same measure that we originally adopted. We 
invited public comment on this proposal.
    We did not receive any public comments on our proposal to use a 
subregulatory process to incorporate updates that do not substantially 
change the nature of the measure. However, we proposed the same 
approach for incorporating measure updates across the various quality 
reporting programs in the FY 2013 IPPS/LTCH PPS proposed rule, and we 
did receive public comments on that approach for other systems. We are 
making changes here in response to those public comments in order to 
adopt consistent policy for the IPFQR program.
    Comment: Many commenters supported the proposed subregulatory 
process to update the measure specifications of adopted NQF-endorsed 
measures in the Specifications Manual for nonsubstantive changes that 
arise from the NQF maintenance review, as well as the continuation of 
the rulemaking process for substantive changes that arise from NQF 
review. Several commenters objected to these proposals, and expressed 
concern that there is no clear definition of nonsubstantive updates. 
These commenters believed that changes such as conversion of measures 
to ICD-10 codes and eMeasures format, and exclusions to the patient 
population should be considered substantive changes that would warrant 
rulemaking. Some commenters stated that all changes to measures that 
are not NQF-endorsed measures should be subject to the rulemaking 
process.
    Response: We thank those commenters that supported our proposal to 
update NQF-endorsed measures using a subregulatory process. 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. We also recognize that some changes the NQF 
might make to its endorsed measures are substantive in nature and might 
not be appropriate for adoption using a subregulatory process. 
Therefore, we are finalizing a policy under which we will use a 
subregulatory process to make nonsubstantive updates to NQF-endorsed 
measures used for the IPFQR Program. With respect to what constitutes 
substantive versus nonsubstantive changes, we expect to make this 
determination on a case-by-case basis. 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. We believe that nonsubstantive 
changes may include updates to NQF endorsed measures based upon changes 
to guidelines upon which the measures are based.
    We will continue to use notice-and-comment 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. These policies regarding 
what is considered substantive versus nonsubstantive would apply to all 
measures in the IPFQR program. We note that the NQF process 
incorporates an opportunity for public comment and engagement in the 
measure maintenance process. We will revise the Specifications Manual 
so that it clearly identifies updates and provide links to where 
additional information on the updates can be found.
5. Possible 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. Additionally, we are considering initiating a call for 
future measures to solicit input to assess the following measure 
domains: clinical quality of care; care coordination; patient safety; 
patient and caregiver experience of care; population/community health; 
and efficiency. This approach will enhance better psychiatric care 
while bringing the IPFQR Program in line with other established quality 
reporting and performance improvement programs such as the Hospital IQR 
Program, the Hospital OQR Program, and the ESRD QIP.
    We welcomed public comment on considerations of additional measure 
topics for the IPFQR Program in future rulemaking.
    Comment: One commenter asserted that measures with regard to the 
monitoring of patients on antipsychotic medications for metabolic 
syndrome, primary care follow-up, treatment adherence post-acute care, 
and coordination of care between psychiatric care and alcohol/substance 
abuse treatment are needed. The commenter also suggested that CMS 
include measures assessing patients' experience with care, such as the 
National Association of State Mental Health Program Directors' 
Inpatient Consumer Survey, in the IPFQR Program. Another commenter 
recommended risk-adjustment models be considered in the measures for 
the IPFQR Program to address patient characteristic differences. A 
commenter suggested including the HBIPS-1: Admission Screening for 
Violence Risk, Substance Use, Psychological Trauma History and Patient 
Strengths Completed, which was developed by TJC in conjunction with the 
other six HBIPS measures.
    Response: We thank the commenters for the valuable input and will 
take it into consideration for future measure development and 
selection.
6. 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

[[Page 53654]]

be made public with respect to the psychiatric hospital or unit prior 
to such data being made public. The data collected will be displayed on 
the CMS Web site. Under these requirements, for each payment 
determination year, we proposed to publicly display the submitted data 
on the CMS Web site beginning in the first quarter of the calendar year 
following the respective payment determination year. In the FY 2013 
IPPS/LTCH PPS proposed rule (77 FR 28112), we proposed that, before the 
data are publicly displayed, IPFs will have the opportunity to preview 
their data between September 20 and October 19 of the respective 
payment determination year.
    We believe the proposed timeframe allows sufficient time for both 
IPFs and CMS to correct any potential mistakes and fulfill the preview 
requirement in section 1886(s)(4)(E) of the Act.
    We welcomed public comment on the proposed preview and public 
display procedures for FY 2014 and subsequent years.
    Comment: Some commenters suggested that a footnote should be used 
in cases where a hospital has a small sample size (n) and that rates 
should not be reported. One commenter recommended that CMS establish a 
minimum number of cases.
    Response: We thank the commenters for the suggestions for the 
footnote and the minimum number of cases and will take them into 
consideration when we gain experience from this coming year's data.
    After consideration of the public comments we received, we are 
finalizing the public display requirements for preview and public 
display procedures for the FY 2014 payment determination and subsequent 
years as proposed. Set out below are the preview and public display 
timeframes for FY 2014 through FY 2016.

                                Public Display for FY 2014, FY 2015, and FY 2016
----------------------------------------------------------------------------------------------------------------
                                                                                                 Public display
  Payment determination year  (Fiscal year)                30-day Preview period                (Calendar year)
----------------------------------------------------------------------------------------------------------------
FY 2014.....................................  September 20, 2013-October 19, 2013............               2014
FY 2015.....................................  September 20, 2014-October 19, 2014............               2015
FY 2016.....................................  September 20, 2015-October 19, 2015............               2016
----------------------------------------------------------------------------------------------------------------

7. 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 will be 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. We proposed 
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 for the FY 2014 Payment Determination and 
Subsequent Years
    In order to participate in the IPFQR Program for the FY 2014 
payment determination and subsequent years, in the FY 2013 IPPS/LTCH 
PPS proposed rule (77 FR 28112), we proposed that IPFs must comply with 
the procedural requirements outlined below. 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. We proposed that facilities must do the following:
     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 an 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. 
Accordingly, for the FY 2014 payment determination year, we proposed 
that the timeframe for completing the NOP would be between January 1, 
2013 and August 15, 2013.
     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. Accordingly, we proposed that the withdrawal period for the FY 
2014 payment determination year be between January 1, 2013 and August 
15, 2013. 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 will 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.

[[Page 53655]]

     IPFs must submit the aggregated numerator and denominator 
data for all age groups, for all measures, to avoid the 2.0 percentage 
point reduction.
    As previously noted, we believe that this proposed aggregated data 
collection mode using a Web page will reduce burden to IPFs. We 
anticipate that IPFs already reporting de-identified patient-level data 
to TJC would be able to easily aggregate and report these data on a 
secure Web page to CMS.
    We welcomed public comment on the proposed procedural requirements 
for the FY 2014 payment determination and subsequent years.
    Comment: One commenter supported the proposal regarding the 
registration process.
    Response: We appreciate the commenter' support.
    After consideration of the public comment we received, we are 
finalizing the procedural requirements for the FY 2014 payment 
determination and subsequent years as proposed.
c. Reporting and Submission Requirements for the FY 2014 Payment 
Determination
    IPFs choosing to participate in the IPFQR Program must meet the 
specific data collection and submission requirements as described on 
the QualityNet Web site (http://www.qualitynet.org/) and TJC's 
Specifications Manual for Joint Commission National Quality Measures 
(Specifications Manual) at: http://www.manual.jointcommission.org/releases/TJC2012B/HospitalBasedInpatientPsychiatricServices.html. We 
note that the Specifications Manual is updated at least twice a year 
(and may be updated more often as necessary), and IPFs are responsible 
for using the requirements in the most recent manual. The most current 
version can be found on the Web site at: https://manual.jointcommission.org/bin/view/Manual/WebHome. In the FY 2013 
IPPS/LTCH PPS proposed rule (77 FR 28113), we proposed that IPFs submit 
aggregate data on the measures on an annual basis, beginning in FY 
2014. As noted earlier, IPFs must submit the data to the Web-Based 
Measures Tool found in the Inpatient Psychiatric Facility section on 
the QualityNet Web site. However, 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.
    For the FY 2014 payment determination, we proposed that IPFs report 
on the proposed measures for services provided between Q4 of CY 2012 
and Q1 of CY 2013. These two quarters' data constitute the expected 
data available to CMS when we assess reporting compliance. The 6-month 
timeframe will allow us to establish a full calendar year of reporting 
by FY 2016 as discussed below. We proposed that IPFs submit their 
aggregated data between July 1, 2013 and August 15, 2013. The following 
table summarizes this information.
    We welcomed public comment on the proposed reporting and data 
submission requirements for the FY 2014 payment determination.
    Comment: Some commenters requested that CMS allow data file 
submission from vendors to the QualityNet Web site because it will be 
in alignment with existing data submission of the Hospital IQR and OQR 
Programs.
    Response: We thank the commenters for their input. We intend to 
align the data submission practice with the Hospital IQR and Hospital 
OQR Programs. Based on these comments, we have decided that IPFs may 
choose to delegate to a vendor the submission of the following two 
requirements only: (1) Aggregate measure data; and (2) population and 
sample size data. IPFs may choose to submit their own data to CMS and 
forego any costs associated with paying vendors to submit data on their 
behalf. If an IPF decides to use a vendor, it is important to note that 
the IPF, not the vendor, is responsible for all data submitted to CMS 
and for meeting all the procedural requirements established in this 
rule.
    Comment: A few commenters expressed concern that the start of the 
program, which is on October 1, 2012, may prove to be unattainable for 
some facilities, therefore they recommended we delay and implement 
incremental phases beginning with FY 2014. A few commenters considered 
April 1, 2013 as a reasonable date to implement the IPFQR Program and 
several commenters suggested that CMS consider allowing IPFs to only 
attest or agree to participate instead of reporting data for FY 2014, 
the first payment year.
    Response: We thank the commenters for their input. We recognize 
that some facilities, especially those facilities that are not 
currently reporting quality measures, may face challenges. However, we 
are not requiring facilities to begin submitting data until July 1, 
2013 through August 15, 2013. The lag time between October 1, 2012 and 
the beginning of the data submission period is approximately 9 months 
which we think provides IPFs sufficient time to be prepared.
    Comment: One commenter considered the CMS data collection proposal 
as duplicative because some IPFs are already submitting the data to 
TJC. The commenter urged CMS to grant ``deemed'' status to those IPFs 
that are already submitting the data to TJC.
    Response: We thank the commenter for the input. However, the 
purpose of the IPFQR Program is to ensure facility-wide quality 
reporting and ultimately improve quality of care for Medicare 
beneficiaries receiving behavioral services in the IPF settings. The 
granting of ``deemed'' status to some IPFs will make our data 
collection incomplete and does not meet our intended objectives to 
obtain all quality measure data from each IPF, apply the appropriate 
payment, and display the measure rates on the CMS Web site.
    Comment: One commenter urged CMS to work with TJC to establish a 
process for automatic data exchange between CMS and TJC in order to 
reduce the reporting burden for accredited IPFs. Another commenter 
recommended using the same process for data submission used by TJC to 
avoid burden to IPFs.
    Response: We thank the commenters for their input. We strive to 
work closely with TJC to attain maximum alignment in current reporting 
practices, reporting requirements, and reporting format. We will 
consider establishing a process for automatic data exchange between CMS 
and TJC for future efforts through the rulemaking process. We also 
recognize that approximately 1,500 IPFs are not reporting any IPF 
quality data to TJC. The vast majority of these IPFs are not hospital-
based, and use a different process for accreditation than the TJC.
    Comment: One commenter supported the CMS proposal requiring IPFs to 
submit aggregate versus patient-level data. A few commenters supported 
the proposed electronic submission of data and expressed concern that 
the burden of collection occurs at the patient-level of reporting.
    Response: We appreciate the commenters' support and input. We 
recognize there will be some challenges when a new program is 
initiated. We believe that requiring IPFs to submit aggregate versus 
patient-level data will prove less burdensome and will allow more time 
for IPFs to become familiar with our reporting processes, especially 
for those IPFs that are not currently reporting the measures.
    Furthermore, the selected measures minimize the collection and 
reporting burden on IPFs because, under Medicare's IPF CoPs (42 CFR 
482.61), IPFs must maintain documentary evidence of detailed treatment

[[Page 53656]]

approaches and aftercare considerations. In addition, under 42 CFR 
482.21, IPFs are required to develop, implement, and maintain an 
effective, ongoing, hospital-wide data-driven quality assessment and 
performance improvement (QAPI) program as well as documentary evidence 
of such program for purposes of demonstrating their operation to CMS.
    Comment: A few commenters requested clarification on whether the 
IPFQR Program requires data validation.
    Response: We are requiring IPFs to submit aggregated data. We did 
not propose any data validation approach and, therefore, are not 
requiring one. However, we encourage the IPFs to use a validation 
method and conduct their own analysis. In future years, should we 
modify the program to require patient-level data, we will consider 
proposals for an appropriate validation method via rulemaking.
    Comment: One commenter objected to the collection of aggregate data 
because it does not allow for validation of data accuracy. The 
commenter was concerned that consumers could potentially be making 
healthcare decisions about the quality of care at IPFs based on 
unvalidated and inaccurate data.
    Response: We thank the commenter for the input. We considered both 
the reduced burden of collecting aggregate data for IPFs, and the 
challenges in validating aggregate data. We recognize that we cannot 
feasibly validate aggregate data using a random sample of medical 
records for all proposed measures because we cannot sample from a list 
of records submitted by the IPF. We intend to assess accuracy of 
aggregate reported data to other sources, including TJC. At this time, 
we believe that the reduced burden of collecting aggregate data 
outweighs the need to validate patient-level records. We seek to 
maximize quality reporting among all facilities, including the 
facilities not currently reporting to TJC. We believe that IPFs will 
submit accurate data, and base this belief in part on the requirement 
that IPFs participating in the IPFQR Program acknowledge the accuracy 
and completeness of their data. This acknowledgement will provides us 
with some assurance that the submitted data are validated and accurate. 
We believe that not establishing a validation process at this time will 
enable IPFs to learn these measures during the initial reporting year. 
This approach is consistent with our approach to validation 
requirements in the Hospital OQR and ASCQR Programs during the initial 
years of these programs. Initially, we want to encourage IPFs to begin 
reporting quality data and using the quality measure information for 
quality improvement purposes.
    Comment: One commenter inquired about the possibility of requiring 
patient-level data in future years and, if so, whether CMS would offer 
an on-line tool for patient-level data.
    Response: In the future, we may consider modifying the IPFQR 
Program to require patient-level data; if we do pursue such a change, 
we would do so through rulemaking. We intend to host National Provider 
Calls to conduct outreach and education sessions and will consider 
providing educational materials during the sessions. Please check the 
QualityNet Web site (http://qualitynet.org//) periodically for updates.
    Comment: One commenter expressed its inability to comment on the 
data submission for FY 2014 because the forms have not been posted on 
QualityNet.
    Response: We regret the commenter could not comment on our data 
submission method. However, although the forms are not yet available, 
we believe we provided sufficient description of the data submission 
process in the proposed rule to enable meaningful comment.
    After consideration of the public comments we received, we are 
finalizing the reporting and submission requirements for the FY 2014 
payment determination as proposed. IPFs must ensure that all the 
reporting and submission requirements are followed by their vendors (if 
data are submitted by vendors on their behalf) because IPFs remain 
responsible for all submitted data regardless if data are submitted by 
a vendor or by the entity/organization themselves. Set out below are 
the final quality reporting periods and submission timeframes for FY 
2014.

                         Quality Reporting Periods and Submission Timeframes for FY 2014
----------------------------------------------------------------------------------------------------------------
Payment determination  (Fiscal     Reporting period for services
             year)                   provided  (Calendar year)                Data submission timeframe
----------------------------------------------------------------------------------------------------------------
FY 2014.......................  Q4 2012............................  July 1, 2013-August 15, 2013.
                                (October 1, 2012-December 31, 2012)
                                Q1 2013............................
                                (January 1, 2013-March 31, 2013)...
----------------------------------------------------------------------------------------------------------------

d. Reporting and Submission Requirements for the FY 2015 and FY 2016 
Payment Determinations
    In the FY 2013 IPPS/LTCH PPS proposed rule (77 FR 28113), we 
proposed that IPFs report on measures for services provided in Q2, Q3, 
and Q4 of CY 2013 for the FY 2015 payment determination and in Q1, Q2, 
Q3, and Q4 of CY 2014 for the FY 2016 payment determination. For FY 
2014 and FY 2015, we proposed that IPFs report data on the proposed 
measures for inpatient psychiatric services provided for 6 and 9 
months, respectively, to move towards data reporting of services 
provided within a full calendar year (12 months) by FY 2016.
    The reporting of data within the timeframes outlined previously 
will allow us to align the IPFQR Program with other quality reporting 
programs that base their data reporting on a calendar year.
    We welcomed public comment on the proposed reporting and data 
submission requirements for the FY 2015 and FY 2016 payment 
determinations.
    Comment: One commenter agreed with the CMS proposed reporting 
period for FY 2015. Although the commenter agreed with the proposed 
reporting period for FY 2016, the commenter urged CMS to delay 
finalizing the proposed reporting requirements for FY 2016 until the FY 
2014 rulemaking cycle in order to be more flexible if the data 
collection efforts do not go as planned.
    Response: We thank the commenter for the input. We recognize that 
as the IPFQR Program evolves, lessons learned from each payment year 
will be valuable to improve our reporting processes. We will consider 
these lessons in future proposals through rulemaking.
    After consideration of the public comments we received, we are 
finalizing the reporting and submission requirements for the FY 2015 
and FY

[[Page 53657]]

2016 payment determinations as proposed. Set out below are the final 
quality reporting periods and submission timeframes for FY 2015 and FY 
2016.

       Quality Reporting Periods and Submission Timeframes for FY 2015 and FY 2016 Payment Determinations
----------------------------------------------------------------------------------------------------------------
Payment determination  (Fiscal     Reporting period for services
             year)                   provided  (Calendar year)                Data submission timeframe
----------------------------------------------------------------------------------------------------------------
FY 2015.......................  Q2 2013............................  July 1, 2014-August 15, 2014.
                                (April 1, 2013-June 30, 2013)......
                                Q3 2013............................
                                (July 1, 2013-September 30, 2013)..
                                Q4 2013............................
                                (October 1, 2013-December 31, 2013)
FY 2016.......................  Q1 2014............................  July 1, 2015-August 15, 2015.
                                (January 1, 2014-March 31, 2014)...
                                Q2 2014............................
                                (April 1, 2014-June 30, 2014)......
                                Q3 2014............................
                                (July 1, 2014-September 30, 2014)..
                                Q4 2014............................
                                (October 1, 2014-December 31, 2014)
----------------------------------------------------------------------------------------------------------------

e. Population, Sampling, and Minimum Case Threshold for FY 2014 and 
Subsequent Years
    In the FY 2013 IPPS/LTCH PPS proposed rule (77 FR 28114), we 
proposed that participating IPFs must meet specific population, sample 
size, and minimum reporting case threshold requirements as specified in 
TJC's Specifications Manual. The Specifications Manual is updated at 
least twice a year (and may be updated more often as necessary), and 
IPFs must follow the requirements in the most recent manual. The most 
current version can be found on the Web site at: https://manual.jointcommission.org/bin/view/Manual/WebHome.
    We proposed that the target population for the proposed measures 
include 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 proposed that IPFs use the applicable sample size 
requirements found in the Specifications Manual. We noted that the 
Specifications Manual gives IPFs the option of sampling their data 
quarterly or monthly. We erroneously noted that the Specifications 
Manual does not require sampling procedures for measures HBIPS-2 and 
HBIPS-3. As noted below, the correct language should have been that 
``the Specifications Manual does not allow sampling procedures for 
measures HBIPS-2 and HBIPS-3.'' Therefore, IPFs are required to submit 
data on all cases for these two measures.
    The Specifications Manual uses the term ``minimum required stratum 
sample size'' to refer to the required sample size for a given initial 
patient population stratum.\257\ To comply with our proposed reporting 
requirements, if the initial patient population stratum size is below a 
certain number of cases,\258\ for measures HBIPS-4, HBIPS-5, HBIPS-6, 
and HBIPS-7, IPFs must submit all applicable measure data rather than 
sample data. More details on sampling procedures are located in the 
Specifications Manual available at the Web site: https://manual.jointcommission.org/bin/view/Manual/WebHome.
---------------------------------------------------------------------------

    \257\ For example, for initial population stratum size of 211-
877, the most current version of the Specifications Manual requires 
a minimum stratum sample size of 20 percent of the initial 
population stratum size. If the initial population size is 44-220, 
the minimum required stratum sample size is 44.
    \258\ In the most current version of the Specifications Manual 
this number is 44.
---------------------------------------------------------------------------

    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 proposed to clearly note that 
the affected measure rates were calculated based on low caseloads that 
may affect the result.
    We invited public comment on the proposed population, sampling, and 
case thresholds and welcomed any comments on methods and approaches for 
future years.
    Comment: One commenter applauded the CMS sampling proposal and 
recognized that requiring data on all patients, not just Medicare 
patients, is important for the program.
    Response: We appreciate the commenter's support.
    Comment: One commenter recommended that CMS continue to maintain 
consistency with TJC's requirements on the population, sampling, case 
threshold, and other technical aspects to ensure future ability to 
perform benchmarking and quality improvement assessment across the TJC 
program and IPFQR Program.
    Response: We thank the commenter for the input. We seek to align 
efforts as much as possible, but must also recognize that the IPFQR 
Program is a separate and distinct program from TJC's program. The 
IPFQR Program's population of patients includes only inpatient 
psychiatric facility patients. We expect that IPFs will submit data on 
Medicare and non-Medicare patients treated under the IPFs CCN, not 
acute care hospital CCNs. For Medicare fee-for-service patients, the 
IPF should require their Medicare claims processing department or 
contractor to correctly identify patients treated and

[[Page 53658]]

billed under the IPF PPS. We also clarify that the IPFs will identify 
their applicable non-Medicare patient population by accessing their 
claims for inpatient psychiatric services submitted to non-Medicare 
payers, such as Blue Cross Blue Shield. By maintaining consistency in 
reporting, these efforts will serve to stabilize the data and set 
benchmarks for future years.
    Comment: One commenter noted that the Specifications Manual 
indicates that it does not ``allow'' sampling procedures for HBIPS-2 
and HBIPS-3 rather than ``require'' sampling procedures, which is the 
term CMS used, and which implies that a hospital may choose to require 
their vendor to implement sampling procedures.
    Response: We thank the commenter for pointing out this issue. We 
have addressed the issue in the introductory discussion above to 
correctly reflect the Specifications Manual.
    After consideration of the public comments we received, we are 
finalizing the population, sampling, and minimum case threshold for FY 
2014 and subsequent years as proposed.
f. Data Accuracy and Completeness Acknowledgement Requirements for the 
FY 2014 Payment Determination and Subsequent Years
    In the FY 2013 IPPS/LTCH PPS proposed rule (77 FR 28114), we 
proposed to require IPFs to acknowledge their data accuracy and 
completeness once annually using a QualityNet Web site Web page. To 
affirm that the data provided to meet the FY 2014 IPFQR Program data 
submission requirement is accurate and complete to the best of a 
facility's knowledge, an IPF would be required to submit the Data 
Accuracy and Completeness Acknowledgment (DACA) form. We would provide 
a link to this form once IPFs have completed entry of all aggregated 
measure data. Data submission would not be complete until the IPF 
submits the DACA form. We proposed that the deadline for submission of 
both measure data and the DACA form would be no later than August 15 
prior to the applicable IPFQR Program payment determination year.
    For the FY 2014 payment determination, for which participating IPFs 
are required to report data for discharges occurring between Q4 of CY 
2012 and Q1 of CY 2013, we proposed to make the submission deadline for 
the DACA no later than August 15, 2013. We proposed that the DACA 
submission deadlines for FY 2015 and FY 2016 would be August 15 of CY 
2014 and CY 2015, respectively. We proposed August 15 as the DACA 
submission deadline for several reasons. First, requiring IPFs to 
acknowledge their data's accuracy and completeness by August 15 of the 
year before the respective payment determination year provides us with 
sufficient time to ensure compliance with the program by October 1, the 
start of the fiscal year, and, therefore, with sufficient time to 
calculate and apply the annual payment update. Second, we believe that 
it is reasonable to make the deadline for the DACA the same as the data 
submission deadline in order to reduce the reporting burden to IPFs. 
Lastly, using August 15 as the DACA deadline allows us to align our 
data acknowledgment deadline with other quality reporting programs, 
such as the Hospital IQR Program.
    We invited public comment on our proposed DACA requirements.
    Comment: One commenter recommended aligning the DACA deadlines 
among the Hospital IQR, Hospital OQR, and IPFQR Programs to make it 
easier for hospitals and IPFs to keep track when completing these 
tasks.
    Response: We thank the commenter for the input regarding the DACA 
deadline. We strive to align our quality reporting programs across 
settings to make quality reporting as efficient as possible for the 
stakeholders. As noted in our proposed rule, we have made every effort 
to align the IPFQR Program with the Hospital IQR and Hospital OQR 
Programs. Any differences in the DACA deadlines among the programs 
result from the inherent differences in the nature of the programs, the 
kind of measures used, and the timing of the statutorily mandated 
implementation. In the future, we will continue to work to align DACA 
deadlines to the extent possible.
    After consideration of the public comments we received, we are 
finalizing the DACA requirements for the FY 2014 payment determination 
and subsequent years as proposed. Set out below are the DACA deadlines 
for the FY 2014 through FY 2016 payment determinations.

    Data Accuracy and Completeness Acknowledgment (DACA) Deadlines for FY 2014, FY 2015, AND FY 2016 Payment
                                                 Determinations
----------------------------------------------------------------------------------------------------------------
                                       Reporting period for services        Data accuracy and  completeness
 Payment determination  (Fiscal year)     provided (Calendar 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).
----------------------------------------------------------------------------------------------------------------

8. Reconsideration and Appeals Procedures for the FY 2014 Payment 
Determination and Subsequent Years
    In the FY 2013 IPPS/LTCH PPS proposed rule (77 FR 28115), we 
proposed 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 proposed 
to institute an annual reconsideration process similar to the Hospital 
IQR Program (74 FR 43892). We would 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. For FY 2014 and subsequent 
years, we proposed that the deadline for IPFs to submit a request for 
reconsideration of their payment determination would be 30 days from 
the date identified on the

[[Page 53659]]

payment determination notification letter. While we want to ensure that 
IPFs have an opportunity to request reconsiderations when warranted, we 
also need to balance this goal with our need to complete the 
reconsideration process in a timely manner and with the IPFs' need to 
obtain final decisions on their requests in a timely manner. We believe 
that a 30-day timeframe best achieves this balance.
    We believe that requiring IPFs to submit a request for 
reconsideration prior to filing an appeal before the Provider 
Reimbursement Review Board (PRRB) is more efficient for both CMS and 
IPFs because it decreases the number of appeals by resolving issues 
earlier in the process. We proposed that, together with a request for 
reconsideration, an IPF must submit all documentation and evidence that 
supports its request for reconsideration. The documentation should 
include copies of any communication, such as emails, that the IPF 
believes demonstrates its compliance with the program requirements, as 
well as any other records that may support the IPF's rationale for 
seeking reconsideration. We proposed to codify the reconsideration 
procedures that IPFs must follow at new Sec.  412.434 under 42 CFR Part 
412, Subpart N. Under these procedures, an IPF must submit to CMS, no 
later than 30 days from the date identified on the IPFQR Program 
payment determination notification letter provided to the IPF, a 
Reconsideration Request form containing the following information:
     The IPF's CMS Certification Number (CCN).
     The name of the IPF.
     Contact information for the IPF's chief executive officer 
and QualityNet system administrator, including each individual's name, 
email address, telephone number, and physical mailing address.
     A summary of the reason(s), as set forth in the IPFQR 
Program Annual Payment Update Notification Letter, that CMS concluded 
the IPF did not meet the requirements of the IPFQR Program.
     A detailed explanation of why the IPF believes that it 
complied with the requirements of the IPFQR Program for the applicable 
fiscal year.
     Any evidence that supports the IPF's reconsideration 
request, such as emails and other documents.
    Following receipt of a request for reconsideration, we will 
provide--
     An email acknowledgment, using the contact information 
provided in the reconsideration request, to the CEO and the QualityNet 
Administrator that the request has been received; and
     Written notification to the hospital CEO, using the 
contact information provided in the reconsideration request, regarding 
our decision. We expect the process to take approximately 90 days from 
the receipt of the reconsideration request.
    We proposed that IPFs must submit a request for reconsideration, as 
described previously, and receive a decision on that request from CMS 
before they can file an appeal with the PRRB. If dissatisfied with the 
decision rendered at the reconsideration level, IPFs can appeal the 
decision with the PRRB under 42 CFR Part 405, Subpart R. We proposed to 
codify this requirement at new Sec.  412.434(c).
    We intend to work with our Medicare administrative contractors to 
process updated IPF claims in an expeditious manner to pay IPFs when 
our annual payment update reduction decision is overturned in 
reconsideration or PRRB review. The timeframe for updating payment 
through retroactive claims processing widely varies, and is dependent 
on the number of IPFs, the number of affected claims, and the advance 
time needed by the Medicare administrative contractor.
    We invited public comment on the proposed procedures for 
reconsideration and appeals.
    Comment: One commenter supported the CMS proposal for 
reconsideration whereby IPFs are afforded 30 days from the date 
identified on the payment determination notification letter to file a 
request for reconsideration.
    Response: We appreciate the commenter' support.
    After consideration of the public comment we received, we are 
finalizing the policy on reconsideration and appeals procedures for the 
FY 2014 payment determination and subsequent years as proposed.
9. 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 IPFs 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 proposed rule (77 FR 28115), we proposed that, for FY 2014 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 facility 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 proposed 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 facilities would submit a request form to CMS that would 
be made available on the QualityNet Web site. The following information 
should be noted on the form:
     The IPF's CCN;
     The IPF's name;
     Contact information for the IPF'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 IPF'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 IPF will again be able to submit IPFQR 
Program data, and a justification for the proposed date.
    We proposed that the request form must be signed by the IPF's CEO, 
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 IPF personnel, notifying them that the IPF's request has 
been received; and (2) provide a formal response to the CEO and any 
additional designated IPF personnel, using the contact information 
provided in the request, notifying them of our decision.
    We indicated in the proposed rule that this proposal would 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 a facility'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 proposed to 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.

[[Page 53660]]

    We invited public comment on this proposal.
    Comment: Some commenters supported providing waivers when there are 
extraordinary circumstances beyond the IPF's control.
    Response: We appreciate the commenters' support.
    After consideration of the public comments we received, we are 
finalizing the requirements for waivers from the quality reporting 
requirements for the FY 2014 payment determination and subsequent years 
as proposed.
10. Electronic Health Records (EHRs)
    Although for initial reporting, the opportunity to utilize EHRs for 
automatic data collection is not applicable because the proposed 
measures will be submitted as aggregate data, we encourage IPFs to take 
steps towards adoption of EHRs (also referred to as electronic medical 
records) 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 suggest that IPFs take due care and be 
diligent to 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.
    We welcomed public comment on the adoption of EHRs for the IPFQR 
Program in the future.
    Comment: One commenter urged CMS to encourage Congress to fund an 
extension of the EHR incentives to behavioral health in order to 
improve care coordination across mental health providers.
    Response: We thank the commenter for the input. We will continue 
our efforts to minimize burden and at the same time, improve quality of 
care across all behavioral health settings by supporting innovative 
strategies such as the EHR in future years when funding is available.
    Comment: Some commenters suggested that CMS not collect the IPFQR 
measure data on all patients until eMeasures are available because the 
proposed data collection and reporting would ``add burden of already 
strapped resources at the local level.''
    Response: We thank the commenters for the input. We are committed 
to improving quality of care and health outcomes for Medicare 
beneficiaries who suffer from behavioral/mental conditions. We cannot 
meet the statutory requirements if we delay the implementation of the 
IPFQR Program.
    We thank the commenters for their input on the EHRs and IPFQR 
Program.

IX. MedPAC Recommendations and Other Related Studies and Reports for 
the IPPS and the LTCH PPS

A. MedPAC Recommendations for the IPPS for FY 2013

    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 2012 ``Report 
to the Congress: Medicare Payment Policy'' and have given the 
recommendations in the report consideration in conjunction with the 
policies set forth in this final rule. MedPAC recommendations for the 
IPPS for FY 2013 are addressed in Appendix B to this final 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.

B. Studies and Reports on Reforming the Hospital Wage Index

1. Secretary's Report to Congress on Wage Index Reform
    Section 3137(b) of the Affordable Care Act requires the Secretary 
of Health and Human Services to submit to Congress a report that 
includes a plan to comprehensively reform the Medicare wage index 
applied under section 1886(d) of the Act relating to the IPPS. In 
developing the plan, the Secretary was directed to take into 
consideration the goals for reforming the wage index that were set 
forth by MedPAC in its June 2007 report entitled ``Report to Congress: 
Promoting Greater Efficiency in Medicare.'' This report is available 
via the Internet at: http://www.medpac.gov/documents/jun07_entirereport.pdf, and was discussed in the FY 2009 IPPS final rule (73 
FR 48567 through 48574), the FY 2010 IPPS/RY 2010 LTCH PPS final rule 
(74 FR 43824 and 43825), and the FY 2011 IPPS/LTCH PPS final rule (75 
FR 50158 and 50159).
    In developing the Report to Congress required by section 3137(b) of 
the Affordable Care Act, CMS contracted with Acumen L.L.C. (Acumen) to 
review the June 2007 MedPAC report and recommend a methodology for an 
improved Medicare wage index system. (The Acumen reports are available 
via the Internet at: http://www.acumenllc.com/reports/cms. After 
consultation with relevant parties during the development of the plan 
(which included an April 12, 2011 special wage index reform open door 
forum, along with a review of electronically submitted comments and 
concerns), the Secretary submitted a ``Report to Congress--Plan to 
Reform the Medicare Hospital Wage Index'' that describes the concept of 
a Commuting Based Wage Index (CBWI) as a potential replacement to the 
current Medicare wage index methodology. The following is a summary of 
the highlights of the report. The complete report can be accessed on 
the CMS Web site at: http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/Wage-Index-Reform.html.
    As discussed in section III.B. of the preamble of this final rule, 
the current wage index methodology relies on labor markets that are 
based on statistical area definitions (Core-Based Statistical Areas 
(CBSAs)) established by the Office of Management and Budget (OMB). 
Hospitals are grouped by geographic location into either an urban labor 
market (that is, a metropolitan statistical area (MSA) or metropolitan 
division) or a statewide rural labor market (any area of a State that 
is not defined as urban). The current system establishes wage indexes 
for hospital labor market areas, not for individual hospitals. Many 
parties have argued that these definitions, in many instances, are not 
reflective of the true cost of labor for any given hospital, 
particularly for hospitals located on the periphery of labor markets or 
at labor market boundaries. Multiple exceptions and adjustments have 
been put into place in attempts to correct perceived inequities. 
However, many of these exceptions and adjustments may create or further 
exacerbate distortions in labor market values. The issue of ``cliffs,'' 
or significant differences in wage index values between proximate 
hospitals, can often be attributed to one hospital benefiting from such 
an exception and adjustment when another hospital cannot.
    On April 11, 2012, the Secretary submitted to Congress a report, 
``Plan to

[[Page 53661]]

Reform the Medicare Hospital Wage Index.'' This broad-based plan for 
reforming the hospital wage index included a fundamental change in the 
description and definition of labor market areas. The concept, referred 
to as the commuting based wage index (CBWI), would improve upon 
Medicare's existing wage index method by using commuting data to define 
hospital labor market areas. The CBWI is based on data on the number of 
hospital workers commuting from home to work to define a hospital's 
labor market. To derive the CBWI, commuting flows would be used to 
identify the specific areas (for example, zip code or census tracts) 
from which a hospital hires its workers and to determine the proportion 
of its workers hired from each area. A CBWI system could use either 
current hospital cost report data or other alternative sources, such as 
the Bureau of Labor Statistics (BLS) Occupational Employment Survey 
data, to calculate labor market area average wage values. While the 
current wage index system aggregates wage data within geographic CBSA-
based areas where hospitals are located, the CBWI would aggregate wage 
data based upon where the hospital workers reside.
    Once the hiring proportions by area and area wage levels are 
determined, the hospital's benchmark wage level would be calculated as 
the weighted average of these two elements. This value would then be 
divided by the national average. This calculation would result in a 
hospital-specific value, which reflects wage levels in the areas from 
which a hospital hires, accounting for variation in the proportion of 
workers hired from each area.
    Using more precisely-defined labor markets, the CBWI values can 
vary for hospitals within the same CBSA or county and, thus, more 
precisely reflect wage differences within and across CBSA boundaries 
and address intra-area variation more precisely than the current 
system. Although the CBWI would allow wage index values to vary within 
a CBSA, the CBWI is less likely to produce large differences--or 
``cliffs''--between wage index values for nearby hospitals in adjacent 
CBSAs because nearby hospitals likely hire workers from areas in 
similar proportions.
    Acumen found in its analysis that the CBWI system would more 
closely reflect hospitals' actual wages than the current CBSA-based 
system and the MedPAC proposal. As MedPAC suggested in its proposal, 
the exceptions and adjustments to the wage index system are the primary 
cause of the often significant ``cliffs'' between wage indexes of 
nearby hospitals. Acumen suggested the CBWI has the potential to reduce 
the need for exceptions and adjustments and further manipulation of 
wage index values (as is central to the MedPAC proposal) to prevent 
these ``cliffs'' between labor market areas.
    The Report to Congress detailed several findings relevant to 
implementation of a CBWI:
     Because the CBWI accounts for specific differences in 
hospitals' geographic hiring patterns, it would yield wage index values 
that more closely correlate to actual labor costs than either the 
current wage index system (with or without geographic reclassification) 
or a system that attempts to reduce wage index differences across 
geographic boundaries, such as MedPAC's proposed wage index based on 
Bureau of Labor Statistics (BLS) data for health care industry workers.
     While a CBWI could be constructed with the most recent 
Census commuting data, were the CBWI to be adopted, a more up-to-date 
reporting system for collecting commuting data from hospitals would 
have to be established so that the wage index calculations would 
accurately reflect the commuting patterns of hospital employees. We 
believe that creating a system of more up-to-date commuting data could 
be achieved with a modest addition to the current reporting 
requirements.
     Concerns about a CBWI leading to hospitals altering hiring 
patterns and distorting labor markets do not appear to be worse than 
under the current system and could be managed with minimal policy 
adjustments.
     As current statutory provisions governing the Medicare 
wage index and exceptions to that wage index were designed for the 
current MSA-based wage index system, their applicability would need to 
be reviewed if a CBWI were to be adopted.
     The Medicare statute has traditionally applied payment 
changes in a budget neutral manner. If a CBWI were to be adopted in a 
budget neutrally manner, payments for some providers would increase 
while payments for other providers would decrease.
    The Secretary was directed to ``consult with relevant affected 
parties'' during the development of the plan. In a special Medicare 
wage index open door forum held on April 12, 2011, hospital and 
hospital association representatives presented several concerns, which 
included issues with commuting data availability, the continuation of 
certain exceptions and adjustment policies, and the impacts of the CBWI 
upon other nonhospital payment systems. Several commenters expressed 
concern that a CBWI could encourage providers to alter or manipulate 
hiring practices in order to improve wage index calculations. However, 
based upon our findings and analysis, we believe it is dubious whether 
any alteration of a hospital's employment patterns would improve its 
competitive advantage over other hospitals that employ workers in the 
same area. We also share a concern expressed by multiple commenters 
regarding whether a CBWI should be applied to other nonhospital payment 
systems. Currently, several other payment systems are based upon the 
Medicare pre-reclassified hospital wage index. It is not clear whether 
it would be advantageous, or even possible, to apply a CBWI to these 
provider types.
2. Institute of Medicine (IOM) Study on Medicare's Approach To 
Measuring Geographic Variations in Hospitals' Wage Costs
    In addition to submitting the aforementioned Report to Congress, in 
April 2010, the Secretary commissioned the Institute of Medicine (IOM) 
to evaluate Medicare's approach for measuring geographic variation in 
the wage costs faced by hospitals. The IOM's Phase I report, published 
in September 2011, is available via the Internet at: http://iom.edu/Reports/2011/Geographic-Adjustment-in-Medicare-Payment-Phase-I-Improving-Accuracy.aspx. In that report, IOM's Committee on Geographic 
Adjustment Factors in Medicare Payment proposed a set of 
recommendations for modifying the hospital wage index in both the 
method used in its construction and the data used in its calculation.
    In constructing the wage index, the IOM recommends altering the 
current labor market definitions to account for the out-commuting 
patterns of health care workers who travel to a place of employment in 
an MSA other than the one in which they live. The IOM's recommendation 
is based on its theory that county-to-MSA commuting patterns reveal the 
degree of integration of labor markets across geographically drawn 
boundaries (that is, MSAs) and a commuting-based smoothing adjustment 
to the wage index would more accurately measure the market wage each 
hospital faces. The IOM model uses workers' out-commuting patterns to 
smooth wage index values for hospitals in different counties, similar 
to the out-migration adjustment used in the current wage index system. 
The IOM also suggests that using out-commuting shares in the smoothing 
adjustment creates an index based on the wage

[[Page 53662]]

levels of workers living in that area in which a hospital is located, 
as opposed to wage levels of workers employed in that area, as in the 
CBWI model. In calculating its smoothed wage index, the IOM uses the 
following four steps:
     Step 1--Compute a wage index for each MSA, adhering to 
Medicare's current approach for calculating the average hourly wage 
(AHW) paid by all IPPS hospitals located in the MSA (this step 
replicates the current pre-reclassification wage index).
     Step 2--Compute an area wage for each county equal to a 
weighted average of MSA-level AHWs, where the weight for each MSA 
measures the share of all hospital workers living in the county who 
commute to hospitals located in that MSA.
     Step 3--Assign all hospitals located in the county a 
hospital wage index value equal to the county area wage index.
     Step 4--Normalize wage indices to ensure budget 
neutrality, similar to the approach currently implemented by Medicare.
    In addition, the IOM's wage index model uses hourly wage data from 
the BLS Occupational Employment Survey rather than from hospital cost 
reports. The IOM also recommends measuring hourly wages using data for 
all health care workers rather than only hospital workers and using a 
fuller set of occupations incorporated in the hospital wage index 
occupational mix adjustment. The IOM suggests that BLS data would 
reduce administrative burdens placed upon hospitals and, by broadening 
the array of reported occupations from what is currently covered in the 
hospital cost report, would achieve more accurate labor market 
definitions and reduce year-to-year volatility. The IOM encourages CMS 
to establish an ongoing agreement with the BLS to use occupational 
survey data specific to health care workers to calculate average hourly 
wage values. The IOM suggests, for instance, that the 5-year American 
Community Survey is a potential source of the necessary commuting 
information, assuming CMS can arrange to obtain certain nonpublic 
``micro-data'' from the BLS.
    Preliminary findings demonstrate that the IOM hospital wage index 
method would result in the reduction in wage index ``cliffs,'' and 
would diminish the need to maintain current wage index exceptions and 
adjustments. The IOM also recommends that the hospital wage values 
should be applied to other nonhospital health care providers, shifting 
to a single measurement of geographic variation to be used in multiple 
Medicare provider payment systems. However, we believe that, by 
creating a wage index that measures the wage level only of workers who 
live near a hospital rather than of all workers who could potentially 
work at the hospital (including those who live far away from the 
hospital), IOM's approach may have some problematic implications. 
First, some of the wage information used by the IOM index is based on 
workers employed outside of the hospital's pertinent labor market. 
Second, the IOM index neglects market-relevant information regarding 
the wages of workers employed at the hospital who live outside the 
county of the hospital's location. If the in-commuting workers come 
from high wage areas, this information should contribute to increasing 
the hospital's wage index values. Likewise, if such workers live in low 
wage areas, they should contribute to decreasing the hospital's wage 
index values.
    We are aware of numerous concerns from hospital and hospital 
association representatives regarding whether the BLS Occupational 
Employment Survey data is an acceptable source for hospital wage index 
calculations. (We refer readers to a discussion of the BLS occupational 
survey data in the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 
43824 and 43825).) While the IOM proposal suggested a more refined use 
of BLS data than did the previous MedPAC recommendation, there may be 
significant operational challenges in accessing and compiling health 
care sector specific wage, occupational mix, and commuting data from 
the available datasets. Additional research would be required to 
determine whether the IOM recommendation for applying its hospital wage 
index to nonhospital providers would be appropriate.
    Comment: The AHA commented that, in June 2011, the AHA Board of 
Trustees created the AHA Area Wage Index Task Force to further review 
the CMS, MedPAC, and IOM reports, as well as examine other design 
issues around the wage index. The AHA anticipates issuing a report on 
the subject by early 2013. Most other commenters indicated they were 
withholding opinion pending an analysis of the AHA study. Many 
commenters supported the concept of significant wage reform, and some 
commenters indicated that an ideal wage index system would reduce or 
eliminate the need for wage index reclassifications.
    Response: We look forward to reviewing the findings of the upcoming 
AHA report, and appreciate the commenters' continued interest and 
support in the wage index reform process.
    Comment: MedPAC expressed concerns regarding several aspects of the 
CBWI methodology. MedPAC favored a methodology that includes a broader 
definition of labor inputs than one limited to hospital workers and is 
concerned that the CBWI could potentially create a ``great circularity 
risk'' due to its reliance on hospital-specific employment patterns.
    MedPAC stated that the CBWI contradicts the following principles 
contained in the IOM report:
     Geographic adjustment for input price differences is 
intended to reflect the input prices faced by providers, not the costs 
incurred by providers.
     Geographic adjustment, where possible, should reflect the 
areawide input prices for labor faced by all employers operating in the 
same local market and should not be drawn exclusively from data on the 
prices paid by hospitals or health care practitioners.
    Response: We disagree with MedPAC's assertion that the CBWI 
contradicts these certain key principles. The IOM principles refer to 
the characteristics of the wage data used in constructing the wage 
index, not the method used to group those data into wage areas that 
attempt to reflect the boundaries of labor markets. The advantage of 
the CBWI is its method for refining the boundaries of labor markets. 
The CBWI can be constructed with many different sources of wage data--
the more closely the data reflect input prices faced by providers, the 
better; CBWI does not require that the wage data be limited to data 
from hospitals or health care practitioners. The empirical application 
of the CBWI described in the proposed rule was constructed with the CMS 
wage survey data that are currently used for the Medicare wage index. 
That choice facilitates comparisons of the CBWI to the current wage 
index by isolating the effect of the method for defining labor markets 
from the effect of the wage data. The CMS wage survey data are based on 
wages paid solely by hospitals, but they are adjusted for differences 
in the occupational mix of nurses, in an attempt to make the reported 
wages more closely reflect input prices.
    Regarding the increased risk of ``circularity'' and distortions in 
labor markets, MedPAC provides an example of a town with one hospital, 
with that hospital essentially setting its own wage index. MedPAC 
expresses its preference for methods that ``draw on a bigger pool of 
workers (all workers in an entire MSA) and are therefore less 
influenced by an individual hospital's wages.''

[[Page 53663]]

However, we believe that these statements do not acknowledge that much 
of the impetus for geographic reclassification and other modifications 
of the current Medicare wage index result from inaccuracies in current 
MSA-based labor market boundaries. These boundary problems rarely would 
occur in areas where there are few hospitals, but in areas where many 
hospitals draw their employees from overlapping areas. By defining wage 
areas on the basis of areas from which hospitals draw their employees, 
the CBWI provides a method for refining boundaries that offers 
potential for addressing the central problem of the current wage index. 
We further point out that circularity issues exist within the current 
wage index system, as well as the existent current single provider 
MSAs. However, as discussed in the Report to Congress, we believe 
relatively minor policy revisions can be implemented to mitigate any 
related effects within a CBWI system, including expanding ZIP or census 
tract areas to ensure a minimum number of different hospital employees 
are represented in any given labor market.
    Comment: MedPAC stated that ``CMS should publish simulated data on 
a hospital-by-hospital basis to make sure that hospitals in the same 
city would not have materially different wage indexes under the 
proposed wage index system.''
    Response: The empirical application of the CBWI based on commuting 
data from the 2000 Census examined this relationship and found that the 
closer together two hospitals were, the more similar were their CBWI 
values (``Report to Congress: Plan to Reform the Medicare Wage Index--
Technical Appendix A,'' April 2012, p. 6). We agree with MedPAC that 
further simulations would be helpful, but only if more up-to-date 
commuting pattern data were to be made available. We note that data are 
available to simulate or reconstruct the CBWI in the ``Wage Index 
Reform'' section of the CMS Web page at: http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/.
    Comment: MedPAC asserted that the CBWI is not consistent with how 
hospital labor markets work because it ``ignores well understood 
relationships between wage rates and commuting costs and implicitly 
assumes that workers will demand the same wage from a job with an hour 
commute as a job with a 10 minute commute.''
    Response: It is possible to adjust the CBWI for commuting costs, 
but it might be impractical to do so and would certainly add 
considerable complexity to the CBWI. Commuting times and costs may vary 
widely within an MSA, and we are not convinced that failing to account 
for commuting costs would be more of a problem for the CBWI than it is 
for an MSA-based wage index.
    Comment: MedPAC stated that using the correlation of the wage index 
and actual wages is a poor measure of the validity of a wage index, 
noting that an index set equal to the hospital wage would have a 
correlation of 1.0.
    Response: We agree that candidate wage index methodologies should 
not be measured solely based on their correlation with a hospital's 
observed wage, but the correlation does provide useful information 
describing the relationship between a hospital's wage index values and 
reported wages. The correlation coefficient assists in identifying 
whether sharp differences exist between actual and fitted wages; 
sizable differences would arise if a wage index induces artificial 
cliffs across boundaries that do not mirror actual circumstances. An R-
squared statistic in a regression model would serve a similar role.
    Comment: MedPAC stated that CMS erroneously reported the properties 
of the three proposals (CMS', IOM's and MedPAC's). MedPAC noted that 
the table in the proposed rule at 77 FR 28119 failed to include its 
recommendation that MedPAC's proposed hospital compensation index 
should be used in the home health and skilled nursing facility 
prospective payment systems. MedPAC also stated that ``contrary to the 
claims in the table at * * * [77 FR] 28119, no occupational mix 
adjustment is necessary under MedPAC's proposal or the IOM proposal.''
    Response: We agree that we made an error in not including MedPAC's 
recommendation for nonhospital providers in the table in the proposed 
rule. Therefore, we have corrected this error in the table below. The 
``Occupational Mix'' section of the table is intended to show how each 
of the wage index proposals would incorporate occupational data, 
including those established in the BLS Occupational Employment Survey. 
We did not intend to imply that a separate occupational mix adjustment 
would be necessary under the MedPAC or IOM methodology. We have added a 
footnote in the table below to clarify this point.

                                    Comparison of Wage Index Reform Proposals
----------------------------------------------------------------------------------------------------------------
                                  Current wage index          IOM               MedPAC               CBWI
----------------------------------------------------------------------------------------------------------------
                                             Labor Market Definition
----------------------------------------------------------------------------------------------------------------
Labor Market Area...............  MSAs or             MSAs or             Blend of county     Creates separate
                                   Metropolitan        Metropolitan        and MSA labor       but linked labor-
                                   Divisions/rural     Divisions/rural     market              market for each
                                   ``rest of State''   ``rest of State''   definitions (50/    hospital using
                                   areas.              areas.              50).                small geographic
                                                                                               areas (for
                                                                                               example, zip
                                                                                               codes).
Commuting Adjustment............  Section 505 Out-    Adjusts hospitals'  None..............  Uses in-commuting
                                   Commuting           wage index values                       patterns relevant
                                   Adjustment.         based on the out-                       for individual
                                                       commuting                               hospitals to
                                                       patterns of                             weight benchmark
                                                       health care                             wages constructed
                                                       workers.                                for small
                                                                                               geographic areas.

[[Page 53664]]

 
Other Adjustments...............  Multiple            IOM proposes three  Smoothing           None.
                                   Reclassifications   smoothing           algorithm uses
                                   and/or Floors       specifications:     iterative process
                                   (for example,      (1) Apply to all     to eliminate
                                   Frontier State      counties;.          large differences
                                   floor, Lugar       (2) Apply only to    in index values
                                   counties, MGCRB,    counties to which   across county
                                   and Section 508     at least 10         boundaries.
                                   reclassifications   percent of
                                   and special         workers commute;.
                                   exceptions).       (3) Apply only to
                                                       counties to which
                                                       at least 10
                                                       percent of
                                                       workers commute
                                                       and hospital wage
                                                       index is higher
                                                       than home-county
                                                       hospital wage
                                                       index..
----------------------------------------------------------------------------------------------------------------
                                           Measurement of Worker Wages
----------------------------------------------------------------------------------------------------------------
Wage Data Source................  Hospital cost       BLS Occupational    BLS Occupational    Any source of
                                   reports.            Employment Survey.  Employment Survey.  establishment
                                                                                               wage data could
                                                                                               potentially be
                                                                                               used (for
                                                                                               example, hospital
                                                                                               cost reports, BLS
                                                                                               Occupational
                                                                                               Employment
                                                                                               Survey).
Industry Sectors Used to Measure  Hospitals.........  Health care sector  All Industries      The CBWI could be
 Wages.                                                                    (for example,       implemented using
                                                                           hospitals, other    any industry
                                                                           health care and     sector.
                                                                           nonhealth care
                                                                           sectors).
Occupational Mix*...............  Occupational mix    Occupational mix    Occupational mix    Occupational mix
                                   adjustment based    adjustment based    adjustment based    adjustment based
                                   on occupational     on all              on 30 occupations   on all
                                   categories of       occupations.        with the highest    occupations
                                   nurses reported                         wage share in the   available in the
                                   on cost reports.                        hospital industry.  wage data source
                                                                                               selected.
----------------------------------------------------------------------------------------------------------------
                                             Other Provider Settings
----------------------------------------------------------------------------------------------------------------
Wage Index for Nonhospital        Pre-floor, pre-     Use identical       Use hospital        Considerations
 Providers.                        reclassification    hospital wage       compensation        include:
                                   version of the      index               index for home     (1) Collect
                                   current hospital    methodology,        health and          commuting data
                                   wage index.         except create an    skilled nursing     for each provider
                                  A version of this    industry-specific   facility            type and apply
                                   index with an       occupational mix    prospective         CBWI;
                                   occupational mix    adjustment for      payment systems.   (2) Apply CBWI
                                   adjustment has      each provider                           framework, but
                                   also been used      type.                                   use hospital wage
                                   for payments for                                            and commuting
                                   other specialized                                           data; or
                                   hospital                                                   (3) Measure using
                                   inpatient                                                   a weighted
                                   services.                                                   average of nearby-
                                                                                               hospital CBWI
                                                                                               values.
----------------------------------------------------------------------------------------------------------------
 * ``Occupational Mix'' refers to any occupationally weighted adjustment that is performed as a separate process
  during the wage index development process, or is included in an established wage data set (for example, BLS
  Occupational Employment Survey)

X. Quality Improvement Organization (QIO) Regulation Changes Related to 
Provider and Practitioner Medical Record Deadlines and Claims Denials

    In the FY 2013 IPPS/LTCH PPS proposed rule (77 FR 28119 through 
28120), we explained that QIOs have historically experienced difficulty 
in obtaining medical information in a timely manner from providers and 
even more difficulty obtaining this information in a timely manner from 
practitioners. Although the regulations at 42 CFR Part 476 refer to 
practitioners' responsibilities in certain instances, Sec.  476.78, 
which relates to the submission of medical information, addresses only 
the obligations of providers and not practitioners. Moreover, we 
explained that while Sec.  476.90 addresses steps that a QIO may take 
when providers or practitioners fail to cooperate with the QIO, Sec.  
476.90(b) limits the QIO's authority to deny claims to providers for 
failing to respond to a QIO's request for information, and no similar 
provision exists for practitioners.
    In light of the issues discussed above, in the FY 2013 IPPS/LTCH 
PPS proposed rule (77 FR 28119 and 28120), we proposed several changes 
to the regulations at Sec. Sec.  476.1, 476.78, and 476.90 to more 
clearly convey the responsibilities of providers and practitioners in 
submitting medical information and to specify the QIO's authority 
should the information not be received.
     We proposed to add a definition of ``providers'' under 
Sec.  476.1 to clearly denote that certain requirements in Part 476 
apply to health care facilities, institutions, and organizations 
involved in the delivery of health care services to Medicare 
beneficiaries.
     We proposed to change the section heading of Sec.  476.78 
from

[[Page 53665]]

``Responsibilities of health care facilities'' to ``Responsibilities of 
providers and practitioners''. In addition, we proposed to add 
references to ``practitioners'' in Sec.  476.78(b)(2) so that the 21-
day and 30-day timeframes for submittal of information apply equally to 
practitioners and providers. We also proposed one minor technical 
change to Sec.  476.78 that is unrelated to the application of 
timeframes to providers or practitioners. We proposed to remove the 
sentence, ``QIOs pay providers paid under the prospective payment 
system for the costs of photocopying records required by the QIO in 
accordance with the payment rate determined under the methodology 
described in paragraph (c) of this section and for first-class postage 
for mailing the records to the QIO'', because it is merely a reference 
to paragraph (c) of Sec.  476.78.
     We proposed changes to Sec.  476.90 that will provide 
improved instructions to QIOs when attempting to resolve issues 
associated with practitioners and providers that fail to submit medical 
information within the timeframes set forth in Sec.  476.78. These 
proposed changes included: changing the section heading from ``Lack of 
cooperation by a health care facility or practitioner'' to ``Lack of 
cooperation by a provider or practitioner''; incorporating the broader 
term ``provider'' (as reflected in our proposed change to Sec.  476.1) 
within Sec.  476.90, as well as references to ``practitioners'', where 
appropriate. We proposed to add references to ``practitioners'' in 
Sec.  476.90(a)(2) to denote that the QIO's authority includes the 
ability to make financial liability determinations for both providers 
and practitioners, and we proposed to add the word ``may'' to clarify 
that the QIO has the discretion to report a provider's or 
practitioner's failure to provide evidence of the medical necessity or 
quality of care provided to the Inspector General. In addition, we 
proposed modifications to Sec.  476.90 (b) to denote that QIOs will 
also deny claims if practitioners fail to submit medical information as 
requested. We also proposed to add new language to Sec.  476.90(b) to 
convey the right of providers and practitioners to request a 
reconsideration by the QIO of its decision to deny the claim based on 
the failure to receive the medical information, and that no further 
appeal rights exist beyond the QIO.
     We proposed to make a technical correction to a cross-
reference to ``Sec.  474.30(c)'' that appears in Sec.  476.90(a)(1). 
This cross-reference is to the Office of Inspector General regulations 
that convey the obligations of providers and practitioners; these 
regulations are now located in 42 CFR 1004.10(c).
    We invited public comment on our proposals, including the 
definition of ``providers'', the timeframes for practitioners and 
providers to follow in submitting medical information, the QIO's 
authority when medical information is not received, as well as the 
technical corrections. We did not receive any public comments on these 
proposed changes. Therefore, in this final rule, we are adopting the 
proposed changes as final.

XI. 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. We listed the data files and the cost for 
each file, if applicable, in the FY 2013 IPPS/LTCH PPS proposed rule 
(77 FR 28120 through 28122).
    Commenters interested in discussing any data used in constructing 
this final rule should contact Nisha Bhat at (410) 786-5320.

B. Collection of Information Requirements

1. 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 the FY 2013 IPPS/LTCH PPS proposed rule (77 FR 28122), we 
solicited public comment on each of these issues for the following 
sections of this document that contain information collection 
requirements (ICRs). We discuss and respond to any public comments we 
received in the relevant sections.
2. ICRs for Add-On Payments for New Services and Technologies
    Section II.I.1. of the preamble of the proposed rule and this final 
rule discusses add-on payments for new services and technologies. 
Specifically, this section states that applicants for add-on payments 
for new medical services or technologies for FY 2014 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, and 
2013, we received 1, 4, 5, 3, 3, and 5 applications, respectively.
    We did not receive any public comments regarding these information 
collections.
3. ICRs for the Occupational Mix Adjustment to the FY 2013 Index 
(Hospital Wage Index Occupational Mix Survey)
    Section II.F. of the preamble of the proposed rule and this final 
rule discusses the occupational mix adjustment to the FY 2013 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

[[Page 53666]]

collect the data via the occupational mix survey.
    The burden associated with this information collection requirement 
is the time and effort required to collect and submit the data in the 
Hospital Wage Index Occupational Mix Survey to CMS. The aforementioned 
burden is subject to the PRA; however, it is currently approved under 
OCN 0938-0907, with an expiration date of February 28, 2013.
    We did not receive any public comments regarding these information 
collections.
4. Hospital Applications for Geographic Reclassifications by the MGCRB
    Section III.H.3. of the preamble of the proposed rule and this 
final 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 
distribution of additional residency positions under section 5503 of 
the Affordable Care Act, addressed under section IV.I.3. of this 
preamble, are not subject to the Paperwork Reduction Act (44 U.S.C. 
Chapter 35), as stated in section 5503(c) of the Affordable Care Act. 
The information collection requirements associated with the 
preservation of resident cap positions from closed hospitals, addressed 
under section IV.I.4. of this preamble, also are not subject to the 
Paperwork Reduction Act, as stated in section 5506 of the Affordable 
Care Act.
    We did not receive any public comments regarding these information 
collections.
6. ICRs for the Hospital Inpatient Quality Reporting (IQR) Program
    The Hospital Inpatient Quality Reporting (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 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. We are currently seeking reinstatement of the information 
collection and will publish the required 60-day and 30-day notices in 
the Federal Register to solicit public comments.
    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. New 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. We are currently seeking reinstatement of the information 
collection and will publish the required 60-day and 30-day notices in 
the Federal Register to solicit public comments.
    For the FY 2015 payment 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 1 chart-
abstracted measure (Elective Delivery Prior to 39 Weeks Gestation), 1 
survey-based measure, and 3 claims-based measures. In addition, we will 
remove 1 chart-abstracted measure (SCIP-VTE-1: Surgery patients with 
recommended venous thromboembolism prophylaxis) and 16 claims-based 
measures. We estimate that the changes to our FY 2015 payment 
determination measure set will result in a total collection burden to 
IPPS hospitals of approximately 6,750,000 hours per year.
    With respect to the new chart-abstracted measure for the FY 2015 
payment determination, we are adding add a chart-abstracted measure: 
Elective delivery Prior to 39 Completed Weeks Gestation: Percentage of 
babies electively delivered prior to 39 completed weeks gestation. 
Hospitals will be required to submit data on patients with elective 
vaginal deliveries or elective cesarean sections at >=37 and LTCH PPS 
final rule to remove one chart-abstracted measures, SCIP-VTE-1: Surgery 
patients with recommended venous thromboembolism prophylaxis beginning 
with the FY 2015 payment determination. In addition, beginning with the 
FY 2015 payment determination, we are removing 16 claims-based 
measures. We estimate that the removal of these measures will reduce 
the total burden to hospitals by a total of 150,000 hours.
    We are adding a structural measure for the FY 2016 payment 
determination, the Safe Surgery Checklist Use measure. This measure 
will require hospitals to report their yes/no response regarding use of 
a safe surgery checklist. We estimate that 3,300 hospitals will spend 
about 2 minutes each to answer this question each year, resulting in an 
estimated total increase of 110 hours in terms of the total burden to 
hospitals each year.

[[Page 53667]]

7. ICRs for PPS-Exempt Cancer Hospital Quality Reporting (PCHQR) 
Program
    As discussed in section VIII.B. of the preamble of this final 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. To comply with the statutory mandate, we 
are implementing the PCHQR Program 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.
    For the FY 2014 program year, as we proposed, we are adopting 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).

------------------------------------------------------------------------
               Topic                          Quality meassures
------------------------------------------------------------------------
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).
------------------------------------------------------------------------

    We estimate that 11 PCHs will submit data on approximately 27,273 
cases annually for these measures, and it will require, on average, 2.5 
hours for a PCH to abstract the information from medical records and 
submit it for each case.
    Although PCHs have not previously reported data on quality measures 
to CMS, they have some familiarity and experience with the reporting of 
quality data. More specifically, out of the 11 existing PCHs, 10 (or 91 
percent) are currently reporting the proposed cancer-specific measures 
to the ACoS/CoC. Likewise, a majority of the PCHs are currently 
submitting data on the HAI measures to the CDC. We believe that because 
the majority of the PCHs have demonstrated the ability to report these 
measures, the reporting requirements we are finalizing in this final 
rule for the PCHQR Program will not significantly impact PCHs.
    Furthermore, we estimate that reporting the quality data to the CDC 
and the CMS contractor will not be costly to PCHs. In our burden 
calculation, we have included the time used for chart abstraction and 
for training personnel on collection of chart-abstracted data, as well 
as training for submitting the data through these entities (CDC and the 
CMS contractor). We estimate that the annual hourly burden to each PCH 
for the collection, submission, and training of personnel for 
submitting all quality measure data will be approximately 6,293.5 hours 
per year for each PCH. The average hourly burden to each PCH will be 
approximately 524 hours per month. This final rule would affect all 
PCHs participating in Medicare. The facilities would have to register 
with QualityNet and take the proper training in order to be adequately 
prepared to use the QualityNet system to submit the Notice of 
Participation form. The anticipated burden to these providers consists 
of the following: (1) The initial registration with the CDC, CMS 
contractor, and CMS QualityNet; (2) training of the appropriate staff 
members on how to use the QualityNet reporting program; (3) the time 
required for collection of data; and (4) the time required for entry of 
the data to the CDC and the CMS contractor database by the PCH's 
representative.
    Comment: Commenters urged CMS to leverage with the ACoS/CoC 
infrastructure because the PCHQR Program could pose a ``sizeable 
expense for each participating institution and a significant time 
investment.''
    Response: We are appreciative of the commenters' concerns 
surrounding administrative burden and duplicative reporting. We intend 
to align closely with the ACoS/CoC data infrastructure and apply 
consistent reporting format in an effort to minimize burden.
8. ICRs for the Hospital Value-Based Purchasing (VBP) Program
    In section VIII.C. of the preamble of the proposed rule and this 
final rule, we discuss requirements for the Hospital VBP Program. 
Specifically, in this final rule, for the FY 2015 program, we are 
removing a measure from the Clinical Process of Care domain. We are 
adding two additional measures in the Outcome domain, an AHRQ Patient 
Safety Indicators composite measure and CLABSI: Central Line-Associated 
Blood Stream Infection. We also are adding a measure, Medicare Spending 
per Beneficiary, in the Efficiency domain. 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 VIII.D. of the preamble of this final 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 rate year, 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 2 percentage points. The 
initial requirements for the LTCH Quality Reporting (LTCHQR) Program 
were finalized in section VII.C. of the FY 2012 IPPS/LTCH PPS final 
rule (76 FR 51743 through 51756).
    In section VIII.D.3.d. of the preamble of this final rule, for FY 
2015, we have finalized the use of three quality measures that were 
previously finalized for use in the LTCHQR Program in the FY 2012 IPPS/
LTCH PPS final rule. These measures are: (1) Catheter-Associated 
Urinary Tract Infections (CAUTI); (2) Central Line Catheter-

[[Page 53668]]

Associated Blood Stream Infection Event (CLABSI); and (3) Pressure 
Ulcers that are New or Have Worsened. We stated that the NQF had 
expanded the scope of endorsement of the CAUTI and CLABSI measures to 
additional care settings, including LTCHs. The revision of these 
measures has not changed the way that the data for these measures is to 
be collected.
    In this final rule, we are finalizing our adoption of the expanded 
versions of the CAUTI and CLABSI measures for the FY 2014 payment 
determination and all subsequent fiscal year payment determinations. We 
are also retaining an application of the Pressure Ulcer measure for the 
FY 2014 and subsequent years payment determinations.
    In the FY 2012 IPPS/LTCH PPS final rule (76 FR 51780 through 
51781), we estimated that the total yearly cost to all LTCH 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 believe that this remains a valid 
estimation of the total financial burden that all LTCHs will incur as a 
result of the LTCHQR Program, even considering that the CAUTI and 
CLABSI measures were reviewed and expanded by the NQF.
    We do not believe that the burden estimate we made in the FY 2012 
IPPS/LTCH PPS final rule is affected by the NQF's expansion of the 
CAUTI and CLABSI measures because these expanded measures are 
essentially the same measures that were adopted in the FY 2012 IPPS/
LTCH PPS final rule. While the measures will now be calculated using a 
standardized infection ratio (SIR), the expansion of the CAUTI and 
CLABSI measures has made no differences in the way that these data are 
to be collected and reported by LTCHs. Thus, use of the expanded CAUTI 
and CLABSI measures will place no additional burden on LTCHs. In 
addition, we believe that this burden should remain relatively stable 
over the first several years of this quality reporting program, subject 
to normal inflationary increases, such as increased labor wage rates.
    As stated in section VIII.D.3.d. of the preamble of this final 
rule, for the FY 2016 LTCHQR Program, we had proposed the addition of 
five new quality measure but are finalizing the addition of only two of 
these new quality measures to the LTCHQR Program measure set. The 
quality measures that we have finalized in this rule 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 three of the LTCH measures, namely Catheter-Associated 
Urinary Tract Infection (CAUTI) Outcome Measure, NHSN Central Line-
Associated Bloodstream Infection (CLABSI) Outcome Measure, and 
Influenza Vaccination Coverage among Healthcare Personnel, will be 
collected via the CDC's NHSN online data submission system (http://www.cdc.gov/nhsn/). As we proposed, LTCHs will report data on these 
measures according to measure specifications of these NQF-endorsed 
measures.
    The NHSN is a secure, Internet-based surveillance system that is 
maintained and managed by CDC. Many LTCHs already submit data to the 
NHSN either voluntarily or as part of mandatory State reporting 
requirements for HAIs. There are currently 442 LTCHs in operation in 
the United States and, according to CDC, over 200 of these LTCHs 
already submit HAI data to NHSN. For these LTCHs, we believe the burden 
related to complying with the requirements of the quality reporting 
program will be reduced because of pre-existing familiarity with the 
NHSN submission process.
    Further, the initial setup and acclimation to the NHSN system will 
have already occurred through the implementation of the NHSN Catheter-
Associated Urinary Tract Infection (CAUTI) Outcome Measure and the NHSN 
Central Line-Associated Bloodstream Infection (CLABSI) Outcome Measure 
for the FY 2014 LTCHQR Program payment determination. Even though these 
measures have been recently reviewed by the NQF and expanded to 
postacute care settings, including LTCHs, there has been no change in 
the way that the data for these measures is to be collected and 
reported to NHSN. Likewise, there has been no change in the 
registration and training requirements for providers that are new to 
the NHSN reporting system. In addition, LTCH providers will begin to 
use the NHSN system to report CAUTI and CLABSI data on October 1, 2012. 
By the time that any new measures are finalized and reporting of the 
same begins, LTCH providers should be very familiar and comfortable 
with the NHSN reporting system.
    The burden associated with these quality measures is the time and 
effort associated with collecting and submitting the data concerning 
CAUTI, CLABSI, and Influenza Vaccination Coverage among Healthcare 
Personnel to NHSN for LTCHs that are not currently reporting such data. 
As we have stated above, for LTCHs that already submit data regarding 
these measures to NHSN, we believe there should be little, if any, 
additional burden. For LTCHs that submit data to NHSN for other HAIs, 
but not data for these three proposed measures, there may be some added 
burden. However, we believe that this burden will be significantly 
decreased because these LTCHs will already be enrolled in the NHSN 
system and will be already familiar with the NHSN data submission 
process. The CDC reports that 321 LTCHs are presently enrolled and are 
reporting data through the NHSN system and that 198 of these LTCHs are 
presently submitting data on the CAUTI measure, for example.
    There are currently 442 LTCHs in the United States paid under the 
LTCH PPS. We estimate that each LTCH will submit 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 63,648 
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 (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 to all LTCHs in the 
United States for reporting to NHSN is 26,520 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 provider will be $1,739 and the total yearly 
cost to all LTCHs for the submission of CAUTI and CLABSI data to NHSN 
will be $768,497.\259\ While these requirements are subject to the 
Paperwork Reduction Act, we believe the associated burden hours are 
accounted for in the

[[Page 53669]]

information collection request currently approved, OCN 0920-0666.
---------------------------------------------------------------------------

    \259\ Nursing Time--24 hours @ $41.59 per hour = $998.16; 
$998.16 x 442 LTCHs = approximately $441,187.
    Admin Time--36 hours @ $20.57 per hour = $740.52; $740.52 x 442 
LTCHs = approximately $327,310.
    TOTAL = $441,187 + $327,310 = $768,497.
---------------------------------------------------------------------------

    We analyzed the information collection requirements for the FY 2014 
LTCHQR Program quality reporting measure ``Percent of Residents with 
Pressure Ulcers that are New or Worsened (NQF 0678)'' in the 
FY 2012 IPPS/LTCH PPS final rule (76 FR 51781). This same estimate 
applies to the measures affecting the FY 2015 payment determination as 
they are the same three (3) measures.
    As stated in section VIII.D.3.d. of this final rule, the other new 
quality measure that we have finalized for addition to the LTCHQR 
Program is the Percent of Residents or Patients Who Were Assessed and 
Appropriately Given the Seasonal Influenza Vaccine. This measure is to 
be collected using the LTCH CARE Data Set. In order to do so, the LTCH 
CARE Data Set will require modification with the addition of the item 
sets necessary to collect the data needed for this measure.
    In the FY 2013 IPPS/LTCH PPS proposed rule collection of 
information section, we proposed that we would post the specific 
additional data elements that would need to be added to the LTCH CARE 
Data set in order to collect the data necessary to calculate the 
Percent of Residents or Patients Who Were Assessed and Appropriately 
Given the Seasonal Influenza Vaccine measure. We further proposed to 
post the corresponding modified technical data specifications at a 
later date, on our LTCH Quality Reporting Program Web site. We made 
this proposal because, we had not yet completed the necessary technical 
development of the data items and the modifications to the data 
collection instrument that LTCHs will use to submit the data for this 
new measure. Because the forms are still under development, we cannot 
make a complete burden estimate at this time. We proposed that 
reporting and submission of the Percent of Residents or Patients Who 
Were Assessed and Appropriately Given the Seasonal Influenza Vaccine 
measure be incorporated into the existing data collection and 
submission framework of the LTCH CARE Data Set. This is the same data 
collection and submission framework that will be used by CMS to support 
providers for reporting on the Percent of Residents with Pressure 
Ulcers That Are New or Worsened measure.\260\
---------------------------------------------------------------------------

    \260\ The LTCH CARE Data Set, the data collection instrument 
that will be used to submit data on this measure, is currently under 
Paperwork Reduction Act (PRA) review by the Office of Management and 
Budget. It is discussed in a PRA Notice which appeared in the 
Federal Register on September 2, 2011 (Volume 76, Issue 171). The 
file number for the LTCH PRA package is CMS-10409.
---------------------------------------------------------------------------

    By building upon preexisting resources for data collection and 
submission, we intend to foster alignment between measures that helps 
to reduce the administrative burden related to data collection and 
submission. We anticipate that the initial setup and acclimation to the 
data collection by the LTCH CARE Data Set will have already occurred 
with the adoption of the Pressure Ulcer measure for the LTCHQR Program 
for the FY 2014 payment determination. Therefore, we believe the 
transition to reporting the four measures via the LTCH CARE Data Set 
may be less burdensome.
    The delivery of high quality care in the LTCH setting is 
imperative. We believe that collecting quality data on all patients in 
the LTCH setting supports CMS' mission to ensure quality care for 
Medicare beneficiaries. Collecting data on all patients provides the 
most robust and accurate reflection of quality in the LTCH setting.
    At this time, we have not completed development of the information 
collection instrument that LTCHs would have to submit to comply with 
the aforementioned reporting requirements regarding the measures 
proposed for data collection by the LTCH CARE Data Set for the FY 2016 
LTCHQR payment determination. Because the forms are still under 
development, we cannot make a complete burden estimate at this time. 
Once the forms are available, we will prepare and submit the required 
Paperwork Reduction Act (PRA) package which will fully set forth the 
anticipated burden to LTCH providers as a result of the new data items 
(questions) that need to be added to the LTCH CARE Data Set. The PRA 
process provides for the publication of two PRA notices in the Federal 
Register which are followed by 60 and 30 day comment periods 
respectively. The PRA notice and comment process is similar to that 
provided for with the proposed and final rule notice and comment 
process. Therefore, even though it is not possible, at this time, for 
CMS to provide all of the necessary burden estimate information related 
to the new measures that we proposed to add to the LTCHQR Program, 
stakeholders will still be afforded opportunities to submit public 
comments in accordance with the PRA rules and guidelines.
    Comment: Several commenters expressed concern about CMS' burden 
estimate. They believed that 50 hours per LTCH per year (or roughly 20 
minutes per patient) for submission of the pressure ulcer measure is 
unrealistic. Several commenters estimated that data collection and 
submission would take closer to 2 hours per patient. One commenter 
noted that in order for LTCHs to achieve the 20 minute estimate, CMS 
needs to reduce the amount of data collected for calculating the 
pressure ulcer measure. Several commenters noted that CMS' conclusion 
that reporting four measures via the LTCH CARE Data Set will not be 
burdensome because data collection using this data collection mechanism 
is a preexisting tool is flawed because CMS' burden estimate for the 
pressure ulcer measure is underestimated. Several commenters noted that 
LTCHs believe it will be necessary to hire at least one additional 
staff member in order to meet the reporting requirements. One commenter 
added that CMS was incorrect in its assumption that clerical staff will 
be able to collect these data, when many data will need to be collected 
by wound care or nursing staff (both of whom generally have higher 
wages). Another commenter argued that it is not necessary to complete 
the LTCH CARE Data Set for all patients and all care transitions.
    Response: We acknowledge the commenters' concern regarding the 
number of data elements that are included on the LTCH Care Data Set and 
the amount of time that it may take to complete the LTCH CARE Data Set. 
We are sensitive to the commenters' concern for the amount of time and 
money that they will have to expend to comply with the reporting 
pressure ulcer data.
    In response to those concerns, we have carefully reviewed the LTCH 
CARE Data Set and our rationale for the collection quality measure data 
in the LTCH setting. We have given much consideration to the benefits 
of collecting quality measure data versus the burden that will be 
placed upon LTCH providers when required to report this data to CMS 
using the LTCH CARE Data Set or the National Healthcare Safety Network 
(NHSN). In addition, we considered the number and types of LTCHs that 
are present in the United States today and the effect that size, 
financial status, access to technical vendor services, and other 
factors that may have an impact upon each LTCHs abilities to comply 
with the demands of reporting quality data using the LTCH CARE Data 
Set. We further considered the likelihood of and degree of burden to 
which LTCHs of various sizes, corporate structure, financial status and 
varying specialties would be able to successfully comply with the 
requirements of the section 3004 of the

[[Page 53670]]

Affordable Care Act for the LTCHQR Program.
    For reasons that we explain in section VIII.D.3.a. of the preamble 
of this final rule, we are finalizing that certain data elements 
contained on the LTCH CARE Data Set will be voluntary. What we mean by 
this is that failure to submit data on these items will not cause CMS 
to find an LTCH provider to be in noncompliance with the rules and 
regulations of the LTCHQR Program. LTCHs can submit data on these items 
on a voluntary basis, and we strongly encourage this.
    Under this policy, LTCHs will only be required to complete a subset 
of the data elements that comprise the LTCH CARE Data Set. For purposes 
of this discussion, we have broken down the items which make up the 
LTCH CARE Data Set into three categories and have deemed them to be 
either required or voluntary. These elements are: (1) A limited set of 
administrative items that are necessary in order to identify each LTCH 
and properly attribute patients to it for purposes of calculating the 
measure rate; (2) the data elements necessary to populate the pressure 
ulcer measure, consistent with the NQF-endorsed specifications for that 
measure; (3) the data elements necessary to enable CMS to validate that 
the pressure ulcer measure data elements were accurately reported. All 
other data elements on the LTCH Care Data Set can be completed on a 
voluntary basis but will have no impact on the measure rate 
calculations or on our determination of whether the LTCH has met the 
reporting requirements under the LTCHQR Program. We will post on the 
CMS Web site a detailed matrix that identifies which data elements will 
be required and which will be voluntary.
    As noted above, we have decided to make a portion of the LTCH CARE 
Data Set voluntary. However, we are required by the Paperwork Reduction 
Act of 1995 to report the burden for information collection requests 
that are voluntary. Therefore, even though our position has changed 
with respect to how many of the LTCH CARE Data Set items are now 
considered to be required for successful reporting, this will not 
affect the burden estimate that we must render.
    Although we have reviewed and made some adjustments to our policy 
related to the mandatory or voluntary nature of each item in the LTCH 
CARE Date set, we believe that these adjustments have no effect on our 
previously stated burden estimates. Upon review of the burden 
calculations that we previously put forth in the proposed rule, we were 
not able to find any information that would lead us to believe that it 
will take close to 2 hours per patient to complete the full LTCH CARE 
Data Set (including all required and voluntary items). Furthermore, we 
have not been able to find any facts that would lead us to believe that 
LTCHs would have to dedicate one full-time staff position to the 
responsibility for completion of a full LTCH CARE Data Set assessment 
for each patient, or for an assessment that does not include all of the 
voluntary items. The likelihood of the need for a dedicated staff 
person is further reduced by our decision to make a portion of the 
items on the LTCH CARE Data Set voluntary in nature. We have several 
rationales in support of our conclusions, which we will discuss below.
    First, we note that the full LTCH CARE Data Set Admission 
Assessment consists of 29 data items (which shall now be divided into 
required and voluntary categories). When we originally calculated our 
burden estimate for the LTCH CARE Data set, we considered burden 
information data pertaining to how long it took to complete similar 
data items on similar assessment instruments. Data obtained during the 
Post Acute Care Payment Reform Demonstration (PAC-PRD) included 
estimates of the response time necessary for each CARE tool item. PAC-
PRD data revealed that it took approximately 0.7 minutes to complete 
each question on the CARE tool that was being used during this 
demonstration.
    In addition, we also considered burden estimates from other data 
collection tools such as the Outcome and Assessment Information Set 
(OASIS-C). The OASIS-C is a data collection instrument which is 
approved under OMB control number 0938-0760. The OASIS-C is used by 
home health providers for Medicare payment and quality reporting 
purposes. We have estimated that the time required to complete this 
information collection is estimated to average 0.7 minutes per 
response, including the time to review instructions, search existing 
data resources, gather the data needed and complete and review the 
information collection. The time estimates for these quality data 
collection instruments are consistent with our previously stated time 
estimate of approximately 20 minutes for completion of the LTCH CARE 
Data Set or 0.7 minutes per response (either voluntary or required).
    Second, the first 20 data items on the LTCH CARE Data Set consist 
of basic patient demographic information typically collected by most 
providers. A portion of these items, while not necessary for the 
calculation of the pressure ulcer measure, are required in order for 
the record to be accepted by the CMS online data submission system. 
Often, this information is provided to the LTCH by the transferring 
facility, or by the patient and/or their family members upon admission. 
Only rarely should the person responsible for the completion of the 
LTCH CARE Data Set have to elicit this information directly from the 
patient or their family members. Because the patient's demographic 
information should be readily available in the patient's medical 
records, we believe that it should take no more that the estimated 0.7 
minutes per item to complete these particular data items, whether these 
items are required or voluntary (A0050 to A1820).
    Third, many LTCHs are now using EHRs. With the recent movement 
towards use of EHRs and the advancement of this technology, those LTCHs 
using EHR technology may gain additional time efficiencies in the 
completion of the LTCH CARE Data Set by working with their vendors to 
pull the specified patient demographic data (A0050 to A1820) from their 
EHRs to populate the corresponding field of the LTCH-CARE data set. We 
are in the process of obtaining Logical Observation Identifiers Names & 
Codes (LOINC) codes for all LTCH-CARE data items to facilitate 
electronic interoperability.
    Fourth, a review of the remaining nine data items of the LTCH CARE 
Data Set reveal that these are items related to a clinical physical 
assessment of various body systems or functions. Several of these items 
on the LTCH CARE Data Set that are necessary for the calculation of the 
pressure ulcer measure as well as matching of patient data at admission 
and discharge for the calculation of the pressure ulcer measure remain 
mandatory items, while others (items that are not necessary for the 
calculation of the pressure ulcer measure) are considered voluntary. We 
will post on our Web site a detailed matrix that identifies which data 
elements of the LTCH CARE Data Set are mandatory (that is, will be 
required), and which will be voluntary. This matrix will also be 
incorporated into the final LTCHQR Program Manual which will be posted 
on CMS LTCHQR Program Web site and available for download from http://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/LTCH-Quality-Reporting/index.html. Each of these sections 
contain data items that are assessment-based and should be performed on 
an ongoing basis by clinical staff for each patient as a routine part 
of safe and effective patient care, and irrespective of the 
requirements for completion of the

[[Page 53671]]

LTCH CARE Data Set. Therefore, most, if not all LTCHs, should be 
assessing their patients for the information that is captured in the 
LTCH CARE Data Set \261\ and documenting their findings in the medical 
record as part of their normal patient care.
---------------------------------------------------------------------------

    \261\ Mandatory data elements are the administrative section, 
skin conditions section, and assessment of risk factors used as 
covariates for the NQF-endorsed Pressure Ulcer measure (NQF)678) of 
the LTCH CARE Data Set. The covariate items include: functional 
status assessment, bowel continence, active diagnosis such as 
diabetes and peripheral vascular disease, documentation of height 
and weight to calculate patient body mass index, and skin assessment 
to capture new or worsening of pressure ulcers (Stage 2, 3 or 4) 
between admission and discharge assessment.
---------------------------------------------------------------------------

    As with the patient demographic questions, completion of the 
patient physical assessment data items may be possible through the use 
of EHR technology. Data required for the LTCH CARE Data Set could be 
electronically captured directly from the patient's electronic medical 
records and placed into the LTCH CARE Data Set to populate the data 
item fields. The time required for the LTCHs with the capability to 
complete the entire LTCH CARE Data Set in this manner may be 
significantly less than that for those LTCHs that do not use this type 
of technology.
    Finally, we do not believe that it should take more than 20 minutes 
to complete a full LTCH CARE Data Set assessment on each LTCH patient 
because, pursuant to PRA requirements, we are not required to include 
in our burden estimates, any time that a provider would spend in the 
performance of normal patient care. Nor are we required to factor into 
our burden estimate any other work that an LTCH provider would perform 
in the normal course of business (that is, if they had not been asked 
to collect the information that is the LTCH CARE Data Set). This 
principle would apply to all data items, whether they are voluntary or 
required, because pursuant to the Paperwork Reduction Act of 1995, we 
are obligated to report the burden for all information collection 
requests, whether they be voluntary or mandatory.
    Collection of patient demographic information is done in the normal 
course of business, typically when a patient is received into an LTCH 
facility. Patient assessment, and more particularly, the skin 
assessments are performed and the results documented by the LTCH 
clinical staff on an ongoing basis during the patient's stay. To the 
extent that we ask LTCHs to provide any of this information to us on 
the LTCH CARE Data Set, this information is already being collected and 
documented during the normal course of business and in the normal 
course of patient care, and we are not required to factor it into our 
burden assessment.
    Comment: Several commenters noted that CMS provided a burden 
estimate for NHSN data submission but did not provide data for the 
estimated level of burden for submission of LTCH CARE Data Set data for 
the newly proposed measures.
    Response: In the FY 2013 IPPS/LTCH PPS proposed rule, we noted that 
we could not provide a burden estimate for the time that it will take 
to complete the LTCH CARE Data Set given the newly proposed measures 
selected for use in the LTCHQR Program, as the LTCH CARE Data set has 
not yet been updated to include the data items needed for the measures 
CMS is finalizing. We further explained that the data for four of these 
new measures is to be collected using the LTCH CARE Data Set. However, 
since the time of the publication of the proposed rule, we have elected 
not to proceed with three of the new measures that we had named in the 
proposed rule. We instead decided to proceed with the addition of two 
new measures (that is, Percent of Residents or Patients Who Were 
Assessed and Appropriately Given the Seasonal Influenza Vaccine (Short-
Stay) (NQF 0680); and Influenza Vaccination Coverage Among 
Healthcare Personnel (NQF 0431), in addition to the three 
measures that were previously finalized for use in the LTCHQR Program.
    The data for the staff influenza vaccination measure will be 
reported by LTCHs to NHSN. However, the addition of the inpatient 
influenza vaccination measure has required us to add additional item 
sets to the LTCH CARE Data Set. We are currently in the process of 
developing these new item sets but this work has not yet been 
completed. We cannot provide an accurate burden estimate for revised 
LTCH CARE Data Set which incorporates the new item sets until these new 
items have been completely developed.
    We also stated in the FY 2013 IPPS/LTCH PPS proposed rule that, 
upon completion of the revised LTCH CARE Data Set (which will contain 
the new item sets), we will file a PRA package in which we will provide 
a complete burden estimate for the revised LTCH CARE Data Set. This PRA 
process will supply LTCH providers with not only one, but two separate 
notices and comment periods which will afford them with the opportunity 
to view PRA documents that we file and to submit public comments 
related to these PRA documents.
    The PRA process provides for the publication of an initial 60 day 
PRA notice in the Federal Register. LTCHs will have 60 days from the 
date of publication of this 60 day PRA notice in which to file their 
public comments in response to the PRA documents that we file. These 
PRA documents will be posted on the CMS PRA Web site. After the 
expiration of the 60-day notice and comment period, we will respond to 
any comments that we receive. Thereafter, a second, 30 day PRA notice 
will be posted in the Federal Register which will begin the 30-day 
notice and comment period. This is an additional opportunity to file 
public comments in response to the second PRA publication and posting.
    Comment: One commenter expressed concern regarding the burden of 
inputting data into LASER because LASER was developed without user 
input.
    Response: While the LTCHQR Program and the LASER program are new, 
the LASER program was developed by CMS contractors who have had 
extensive experience with the design, development, and implementation 
of similar data collection programs. These computer programs correspond 
to data collection instruments that are used by CMS to obtain data for 
payment and quality measurement purposes. One such program is the 
JIRVEN program that is used to collect data from the Inpatient 
Rehabilitation Facility Assessment- Patient Assessment Instrument (IRF-
PAI). This instrument is used to determine IRF PPS payments and will 
also be used for the collection of IRF quality reporting program data 
beginning on October 1, 2012. Another such program is the RAVEN 
software, which is used to collect data for the Minimum Data Set, 3.0 
(MDS 3.0). The MDS 3.0 data collection instrument is used in skilled 
nursing facilities to collect information that is used for payment and 
quality measurement purposes. CMS also offers another free software 
program to stakeholders, known as HAVEN, which is used to collect data 
for OASIS-C.
    We believe that the CMS contractors who created the LASER program 
have used the past knowledge and experience, which they gained from 
development of similar data collection programs when creating the LASER 
program. In addition, during the design process for the LASER program, 
the contractors were in frequent contact with the various CMS subject 
matter experts and technical advisors, who provided them with 
information about the LTCH setting, so that the LASER

[[Page 53672]]

program would be customized to fit the needs of the LTCH setting.
    We disagree with the contention that we did not get user input 
during the creation of the LASER program, or that lack of input will 
cause increased burden to LTCHs. When the LASER program was being 
created, we made numerous attempts to reach out to the LTCH community 
to educate the community about the LTCHQR Program and to also seek 
input about various areas of the LTCHQR Program, including the 
development of the LASER program. We held vendor calls on November 16, 
2011 and June 28, 2012, during which the LTCH community and their 
vendors were invited to participate and share their questions and 
concerns about the LASER program.
    We have also reached out to the LTCH community through the use of 
several different types of activities, including Open Door Forums, the 
posting of information on the LTCH Quality Reporting Program Web page 
(https://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/LTCH-Quality-Reporting/LTCHTechnicalInformation.html and a 
2-day in-person training conference. LTCH Special Open Door Forums were 
held on September 21, 2011 and April 13, 2012. Open Door Forums 
provided an opportunity for LTCHs to receive information about selected 
topics and to ask questions and seek information about the LTCH quality 
reporting program. A tape recording of each of these Open Door Forums 
was made available for a short period of time following the date of the 
presentation. Also, a transcript of each Open Door Forum is available 
at the CMS Open Door Forum Web site and the LTCHQR Program Web page.
    Finally, we have posted informational updates about the status of 
the LTCHQR Program on an ongoing basis to the LTCHQR Program Web page. 
Information about the LASER data collection program for the LTCHQR 
Program also has been posted, including draft and final technical 
specifications.
    In summary, we believe that the LASER Program was created by 
experienced CMS contractors with input from the LTCH vendors and 
provider community, as well as CMS subject matter experts, taking into 
account provider and vendor comments and interactions as outlined 
above, so we do not foresee any increased burden to providers caused by 
the method in which this program was created.
10. ICRs for the Ambulatory Surgical Center (ASC) Quality Reporting 
Program
    In section VIII.E. of the preamble of the proposed rule and this 
final rule, we discuss the requirements for the ASCQR Program for 
payment determinations affecting CY 2014 and subsequent years. In 
section XIV.K. of the CY 2012 OPPS/ASC final rule with comment period 
(76 FR 74492 through 74517), we finalized our proposal to implement a 
quality reporting program for ASCs beginning with the CY 2014 payment 
determination. We refer readers to the CY 2012 OPPS/ASC final rule with 
comment period (76 FR 74554) for a detailed discussion of the ASCQR 
Program collection of information requirements for the claims-based and 
structural measures for the CY 2014 and CY 2015 payment determinations.
    In the CY 2012 OPPS/ASC final rule with comment period (76 FR 
74516), we finalized our proposal to consider an ASC to be 
participating in the ASCQR Program for the CY 2014 payment 
determination if the ASC includes Quality Data Codes (QDCs) specified 
for the program on their CY 2012 claims relating to the finalized 
measures.
    For the CY 2015 payment determination and subsequent payment 
determination years, we proposed and are finalizing that once an ASC 
submits any quality measure data, it would be considered to be 
participating in the ASCQR Program. For the CY 2014 payment 
determination and subsequent payment determination years, if the ASC 
submits quality measure data, there is no additional action required by 
the ASC to indicate participation in the Program. Once an ASC submits 
quality measure data indicating its participation in the ASCQR Program, 
in order to withdraw, an ASC must complete and submit an online form 
indicating that it is withdrawing from the quality reporting program.
    The burden associated with the requirements to withdraw from the 
program is the time and effort associated with accessing, completing, 
and submitting the online form. Based on the number of hospitals that 
have withdrawn from the Hospital OQR Program over the past 4 years, we 
estimate that 2 ASCs would withdraw per year and that an ASC would 
expend 30 minutes to access and complete the form, for a total burden 
of 1 hour per year.
    For the CY 2015 payment determination, we proposed and are 
finalizing the requirement that ASCs identify and register a QualityNet 
administrator in order to set up accounts necessary to enter structural 
measure data. We estimate that, based upon previous experience with the 
Hospital OQR Program, it would take an ASC 10 hours to obtain, 
complete, and submit an application for a QualityNet administrator and 
then set up the necessary accounts for structural measure data entry. 
We estimate the total burden to meet these requirements to be 51,750 
hours (10 hours x 5,175 ASCs). We previously discussed the burden 
associated with the data entry of structural measure information for 
the ASCQR Program in the CY 2012 OPPS/ASC final rule with comment 
period (76 FR 74554).
    We proposed and are finalizing a process for an extension or waiver 
for submitting information required under the ASCQR Program due to 
extraordinary circumstances that are not within the ASC's control for 
the CY 2014 payment determination and subsequent payment determination 
years. We proposed and are finalizing that an ASC would complete a 
request form that would be available on the QualityNet Web site, supply 
requested information, and submit the request. The burden associated 
with these requirements is the time and effort associated with 
gathering required information as well as accessing, completing, and 
submitting the form. Based on the number of hospitals that have 
submitted a request for an extension or waiver from the Hospital OQR 
Program over the past 4 years, we estimate that 1 ASC per year would 
request an extension or waiver and that an ASC would expend 2 hours to 
gather required information as well as access, complete, and submit the 
form, for a total burden of 2 hours per year.
    We also proposed and are finalizing a reconsideration process that 
would apply to the CY 2014 payment determination and subsequent payment 
determination years under the ASC Quality Reporting Program. While 
there is burden associated with an ASC filing a reconsideration 
request, the regulations at 5 CFR 1320.4 for the Paperwork Reduction 
Act of 1995 exclude collection activities during the conduct of 
administrative actions such as redeterminations, reconsiderations, and/
or appeals.
    We requested public comments on these information collection 
requirements.
    We did not receive any public comments regarding these information 
collections.

[[Page 53673]]

11. ICRs for the Inpatient Psychiatric Facilities Quality Reporting 
(IPFQR) Program
    In section VIII.F. of the preamble of the proposed rule and this 
final rule, we discuss the implementation of the Inpatient Psychiatric 
Facilities Quality Reporting (IPFQR) Program.
    Historically, IPFs have not been required to report quality data to 
CMS. However, they have been required to report quality measures to 
other entities such as TJC or State survey and certification 
organizations. Therefore, although IPFs have not reported on quality 
measures to CMS, they have some familiarity with and experience in 
reporting of quality data. More specifically, out of the 1,741 existing 
IPFs, 450 are currently reporting the proposed measures to TJC. This 
equates to 26.02 percent of IPFs that already report the measures on a 
regular basis. The fact that over one-quarter of the IPFs have 
demonstrated the ability to report the measures indicates the proposed 
regulation would not significantly impact IPFs.
    Furthermore, we estimate that reporting aggregated-level data on 
QualityNet will not be costly to IPFs. In our burden calculation, we 
have included the time used for chart abstraction and for training 
personnel on collection of chart-abstracted data, aggregation of the 
data, as well as training for submitting the 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 is approximately 821 hours in a year 
for each IPF. The average hourly burden to each IPF is approximately 68 
hours per month.
    This rule would affect all IPFs participating in Medicare. The 
facilities would have to register with QualityNet and take the proper 
training in order to be adequately prepared to use the QualityNet 
system to submit the data. The anticipated burden to these providers 
consists of the following: (1) The initial registration of the facility 
with QualityNet; (2) training of the appropriate staff members on how 
to use the QualityNet reporting program; (3) the time required for 
collection and aggregation of data; and (4) the time required for entry 
of the data into the QualityNet database by the IPF's representative.
    This rule would affect all IPFs that currently do not already 
report data to CMS. These facilities will have to register with CMS and 
take the proper training in order to be adequately prepared to use the 
CMS QualityNet System for data submission.
    Those IPFs that already report quality measures to the TJC will be 
minimally affected because the abstraction methods, population, 
sampling, and reporting approaches are similarly adopted by CMS. 
Therefore, IPFs that report the proposed IPFQR Program quality measures 
will experience a minimum burden.
    We requested public comments on these information collection 
requirements.
    We did not receive any public comments regarding these information 
collections.

List of Subjects

42 CFR Part 412

    Administrative practice and procedure, Health facilities, Medicare, 
Puerto Rico, Reporting and recordkeeping requirements.

42 CFR Part 413

    Health facilities, Kidney diseases, Medicare, Puerto Rico, 
Reporting and recordkeeping requirements.

42 CFR Part 424

    Conditions for Medicare payment.

42 CFR Part 476

    Health care, Health professional, Health record, Peer Review 
Organization (PRO), Penalties, Privacy, Reporting and recordkeeping 
requirements.

    For the reasons stated in the preamble, the Centers for Medicare & 
Medicaid Services is amending 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 412.1 is amended by adding new paragraphs (a)(5) and (a)(6) 
to read as follows:

Sec.  412.1  Scope of part.

    (a) * * *
    (5) This part implements section 1886(q) of the Act, which provides 
that, effective for discharges from an ``applicable hospital'' 
beginning on or after October 1, 2012, payments to those hospitals 
under section 1886(d) of the Act will be reduced to account for certain 
excess readmissions, under the Hospital Readmissions Reduction Program. 
This reduction will be made through an adjustment to the hospital's 
base operating DRG payment amounts under the prospective payment system 
for inpatient operating costs.
    (6) This part implements section 1886(o)(1)(B) of the Act, which 
directs the Secretary to begin to make value-based incentive payments 
under the Hospital Value-Based Purchasing Program to hospitals for 
discharges occurring on or after October 1, 2012, through an adjustment 
to the base operating DRG payment amounts under the prospective payment 
system for inpatient operating costs.
* * * * *

0
3. Section 412.64 is amended--
0
a. Revising paragraph (d)(1)(iv).
0
b. Revising the introductory text of paragraph (h)(4).
0
c. Revising paragraph (h)(4)(v).
0
d. Adding a new paragraph (h)(4)(vi).
    The revisions and addition read as follows:

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

* * * * *
    (d) * * *
    (1) * * *
    (iv) For fiscal years 2012 and 2013, the percentage increase in the 
market basket index less a multifactor productivity adjustment (as 
determined by CMS) and less 0.1 percentage point for prospective 
payment hospitals (as defined in Sec.  413.40(a) of this subchapter) 
for hospitals in all areas.
* * * * *
    (h) * * *
    (4) For discharges on or after October 1, 2004 and before October 
1, 2013, CMS establishes a minimum wage index for each all-urban State, 
as defined in paragraph (h)(5) of this section. This minimum wage index 
value is computed using the following methodology.
* * * * *
    (v) The product determined under paragraph (h)(4)(iv) of this 
section is the minimum wage index value for the State, except as 
provided under paragraph (h)(4)(vi) of this section;
    (vi) 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 paragraph (h)(4)(iv) of this section or the 
value computed using the following alternative methodology:
    (A) CMS estimates a percentage representing the average percentage 
increase in wage index for hospitals receiving the rural floor due to 
such floor.

[[Page 53674]]

    (B) For each all-urban State, CMS makes a onetime determination of 
the lowest hospital wage index in the State (including all adjustments 
to the hospital's wage index, except for the rural floor, the rural 
floor budget neutrality, and the outmigration adjustment) and increases 
this wage index by the percentage determined under paragraph 
(h)(4)(vi)(A) of this section, the result of which establishes the 
alternative minimum wage index value for the State.
* * * * *

0
4. Section 412.92 is amended by--
0
a. Revising paragraph (b)(2)(i).
0
b. Adding paragraphs (b)(2)(v) and (b)(3)(iv).
    The revision and additions read as follows:

Sec.  412.92  Special treatment: Sole community hospitals.

* * * * *
    (b) * * *
    (2) * * * (i) Sole community hospital status is effective 30 days 
after the date of CMS' written notification of approval, except as 
provided in paragraph (b)(2)(v) of this section.
* * * * *
    (v) If a hospital that is classified as an MDH under Sec.  412.108 
applies for classification as a sole community hospital because its 
status under the MDH program expires with the expiration of the MDH 
program, and that hospital's sole community hospital status is 
approved, the effective date of approval of sole community hospital 
status is the day following the expiration date of the MDH program if 
the hospital--
    (A) Applies for classification as a sole community hospital prior 
to 30 days before the expiration of the MDH program; and
    (B) Requests that sole community hospital status be effective with 
the expiration of the MDH program.
    (3) * * *
    (iv) A sole community hospital must report to the fiscal 
intermediary or MAC any factor or information that could have affected 
its initial classification as a sole community hospital.
    (A) If CMS determines that a sole community hospital has failed to 
comply with the requirement of paragraph ((b)(3)(iv) of this section, 
CMS may cancel the hospital's classification as a sole community 
hospital effective with the date the hospital failed to meet the 
criteria for such classification, consistent with the provisions of 
Sec.  405.1885 of this chapter.
    (B) Effective on or after October 1, 2012, if a hospital reports to 
CMS any factor or information that could have affected its initial 
determination and CMS determines that the hospital should not have 
qualified for sole community hospital status, CMS will cancel the sole 
community hospital status effective 30 days from the date of the 
determination.
* * * * *

0
5. Section 412.105 is amended by revising paragraph (b)(4) to read as 
follows:

Sec.  412.105  Special treatment: Hospitals that incur indirect costs 
for graduate medical education programs.

* * * * *
    (b) * * *
    (4) Beds otherwise countable under this section used for outpatient 
observation services, skilled nursing swing-bed services, or inpatient 
hospice services.
* * * * *

0
6. Section 412.140 is amended by revising paragraphs (a)(3)(i) and (b) 
to read as follows:

Sec.  412.140  Participation, data submission, and validation 
requirements under the Hospital Inpatient Quality Review (IQR) Program.

    (a) * * *
    (3) * * *
    (i) A hospital that would like to participate in the program for 
the first time (and to which paragraph (a)(3)(ii) of this section does 
not apply), or that previously withdrew from the program and would now 
like to participate again, must submit to CMS a completed Notice of 
Participation Form by December 31 of the calendar year preceding the 
first quarter of the calendar year in which data submission is required 
for any given fiscal year.
* * * * *
    (b) Withdrawal from the Hospital IQR Program. A subsection (d) 
hospital may withdraw from the Hospital IQR Program by submitting to 
CMS a withdrawal form that can be found in the secure portion of the 
QualityNet Web site. The hospital must submit the withdrawal form by 
May 15 prior to the start of the payment year affected. For example, if 
a hospital seeks to withdraw from the FY 2015 payment determination, 
the hospital must submit the withdrawal form to CMS by May 15, 2014.
* * * * *

0
7. Subpart I is added to part 412 to read as follows:
Subpart I--Adjustments to the Base Operating DRG Payment Amounts Under 
the Prospective Payment Systems for Inpatient Operating Costs
Sec.
412.150 Basis and scope of subpart.

Payment Adjustments Under the Hospital Readmissions Reduction Program

412.152 Definitions for the Hospital Readmissions Reduction Program.
412.154 Payment adjustments under the Hospital Readmissions 
Reduction Program.
412.155-412.159 [Reserved]

Incentive Payments Under the Hospital Value-Based Purchasing Program

412.160 Definitions for the Hospital Value-Based Purchasing (VBP) 
Program.
412.161 Applicability of the Hospital Value-Based Purchasing (VBP) 
Program
412.162 Process for reducing the base operating DRG payment amount 
and applying the value-based incentive payment amount adjustment 
under the Hospital Value-Based Purchasing (VBP) Program.
412.163 Process for making hospital-specific performance information 
under the Hospital Value-Based Purchasing (VBP) Program available to 
the public.
412.164 Measure selection under the Hospital Value-Based Purchasing 
(VBP) Program.
412.165 Performance standards under the Hospital Value-Based 
Purchasing (VBP) Program.
412.167 Appeal under the Hospital Value-Based Purchasing (VBP) 
Program.
412.168-412.169 [Reserved]

Subpart I--Adjustments to the Base Operating DRG Payment Amounts 
Under the Prospective Payment Systems for Inpatient Operating Costs

Sec.  412.150  Basis and scope of subpart.

    (a) Section 1886(q) of the Act requires the Secretary to establish 
a Hospital Readmissions Reduction program, under which payments to 
applicable hospitals are reduced in order to account for certain excess 
readmissions, effective for discharges beginning on October 1, 2012. 
The rules for determining the payment adjustment under the Hospital 
Readmission Reductions Program are specified in Sec. Sec.  412.152 and 
412.154.
    (b) Section 1886(o) of the Act requires the Secretary to establish 
a Value-Based Purchasing (VBP) Program for inpatient hospitals 
(Hospital VBP Program), which requires CMS to make value-based 
incentive payments to hospitals that meet performance standards for 
applicable performance periods, effective for discharges beginning on 
October 1, 2012. The rules for determining the payment adjustment under 
the Hospital Value-Based

[[Page 53675]]

Purchasing Program are specified in Sec. Sec.  412.160 through 412.167.

Payment Adjustments Under the Hospital Readmissions Reduction Program

Sec.  412.152  Definitions for the Hospital Readmissions Reduction 
Program.

    As used in this section and in Sec.  412.154, the following 
definitions apply:
    Aggregate payments for all discharges is, for a hospital for the 
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 excess readmissions is, for a hospital for 
the applicable period, the sum, for the applicable conditions, of the 
product for each applicable condition of:
    (1) The base operating DRG payment amount for the hospital for the 
applicable period for such condition;
    (2) The number of admissions for such condition for the hospital 
for the applicable period; and
    (3) The excess readmission ratio for the hospital for the 
applicable period minus 1.
    Applicable condition is a condition or procedure selected by the 
Secretary among conditions and procedures for which:
    (1) Readmissions represent conditions or procedures that are high 
volume or high expenditures; and
    (2) Measures of such readmissions have been endorsed by the entity 
with a contract under section 1890 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).
    Applicable hospital is a hospital described in section 
1886(d)(1)(B) of the Act or 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.
    Applicable period is, with respect to a fiscal year, the 3-year 
period (specified by the Secretary) from which data are collected in 
order to calculate excess readmission ratios and adjustments under 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.
    Excess readmissions ratio is a hospital-specific ratio for each 
applicable condition for an applicable period, which is the ratio (but 
not less than 1.0) 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.
    Floor adjustment factor is the value that the readmissions 
adjustment factor cannot be less than for a given fiscal year. The 
floor adjustment factor is set at 0.99 for FY 2013, 0.98 for FY 2014, 
and 0.97 for FY 2015 and subsequent fiscal years.
    Readmission is the case of an individual who is discharged from an 
applicable hospital, the admission of the individual to the same or 
another applicable hospital within a time period of 30 days from the 
date of such discharge.
    Readmissions adjustment factor is equal to the greater of:
    (1) 1 minus the ratio of the aggregate payments for excess 
readmissions to aggregate payments for all discharges; or
    (2) The floor adjustment factor.
    Wage-adjusted DRG operating payment is 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 cost-of-living 
adjustment for hospitals located in Alaska and Hawaii). This amount 
includes an applicable payment adjustment for transfers under Sec.  
412.4(f).

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

    (a) Scope. This section sets forth the requirements for determining 
the payment adjustments under the Hospital Readmissions Reduction 
Program for applicable hospitals to account for excess readmissions in 
the hospital.
    (b) Payment adjustment. (1) General. To account for excess 
readmissions, except as provided for in paragraph (d) of this section, 
an applicable hospital's base operating DRG payment amount is adjusted 
for each discharge occurring during the fiscal year. The payment 
adjustment for each discharge is determined by subtracting the product 
of the base operating DRG payment amount (as defined in Sec.  412.152) 
for such discharge by the hospital's readmission payment adjustment 
factor for the fiscal year (determined under paragraph (c) of this 
section) from the base operating DRG payment amount for such discharge.
    (2) Special treatment for sole community hospitals. In the case of 
a sole community hospital that receives payments under Sec.  412.92(d) 
based on the hospital-specific rate, the difference between the 
hospital-specific rate payment and the Federal rate payment determined 
under subpart D of this part is not affected by this payment 
adjustment.
    (c) Methodology to calculate the readmissions payment adjustment 
factor. A hospital's readmissions payment adjustment factor is the 
higher of the ratio described in paragraph (c)(1) of this section or 
the floor adjustment factor set forth in paragraph (c)(2) of this 
section.
    (1) Ratio. The ratio is equal to 1 minus the ratio of the aggregate 
payments for excess readmissions as defined in Sec.  412.152 and the 
aggregate payments for all discharges as defined in Sec.  412.152.
    (2) Floor adjustment factor. The floor adjustment factor is:
    (i) For FY 2013, 0.99;
    (ii) For FY 2014, 0.98; and
    (iii) For FY 2015 and subsequent fiscal years, 0.97.
    (d) Hospitals paid under section 1814(b)(3) of the Act (certain 
Maryland hospitals). The Secretary will consider whether to exempt 
Maryland hospitals that are paid under section 1814(b)(3) of the Act 
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 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 for the Hospital 
Readmissions 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 the Secretary to determine whether Maryland will be exempted 
from the program for a given fiscal year.
    (2) Maryland's annual report to the Secretary and request for 
exemption from the Hospital Readmissions

[[Page 53676]]

Reduction Program must be resubmitted and reconsidered annually.
    (e) Limitations on review. There is no administrative or judicial 
review under this subpart of the following:
    (1) The determination of base operating DRG payment amounts.
    (2) The methodology for determining the adjustment factor under 
paragraph (c) of this section, including the excess readmissions ratio, 
aggregate payments for excess readmissions, and aggregate payments for 
all discharges.
    (3) The applicable period.
    (4) The applicable conditions.
    (f) Reporting of hospital-specific information. CMS will make 
information available to the public regarding readmissions rates of 
each applicable hospital (as defined in Sec.  412.152) under the 
Hospital Readmissions Reduction Program.
    (1) To ensure that an applicable hospital has the opportunity to 
review and submit corrections for its excess readmission ratios for the 
applicable conditions for a fiscal year that are used to determine its 
readmissions payment adjustment factor under paragraph (c) of this 
section, CMS will provide each applicable hospital with confidential 
hospital-specific reports and discharge level information used in the 
calculation of its excess readmission ratios.
    (2) Applicable hospitals will have a period of 30 days after 
receipt of the information provided in paragraph (f)(1) of this section 
to review and submit corrections for the excess readmission ratios for 
each applicable condition that are used to calculate the readmissions 
payment adjustment factor under paragraph (c) of this section for the 
fiscal year.
    (3) The administrative claims data used to calculate an applicable 
hospital's excess readmission ratios for the applicable conditions for 
a fiscal year are not subject to review and correction under paragraph 
(f)(1) of this section.
    (4) CMS will post the excess readmission ratios for the applicable 
conditions for a fiscal year for each applicable hospital on the 
Hospital Compare Web site.

Sec. Sec.  412.155-412.159  [Reserved]

Incentive Payments Under the Hospital Value-Based Purchasing Program

Sec.  412.160  Definitions for the Hospital Value-Based Purchasing 
(VBP) Program.

    As used in this section and in Sec. Sec.  412.161 through 412.167:
    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.
    Applicable percent means the following:
    (1) For FY 2013, 1.0 percent;
    (2) For FY 2014, 1.25 percent;
    (3) For FY 2015, 1.50 percent;
    (4) For FY 2016, 1.75 percent; and
    (5) For FY 2017 and subsequent fiscal years, 2.0 percent.
    Base operating DRG payment amount means the following:
    (1) With respect to a subsection (d) hospital (as defined in 
section 1886(d)(1)(B) of the Act), 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 Readmissions Reduction Program, 
as specified under Sec.  412.154. 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, or a low volume 
of discharges under Sec.  412.101.
    (2) With respect to a Medicare-dependent, small rural hospital that 
receives payments under Sec.  412.108(c) or a sole community hospital 
that receives payments under Sec.  412.92(d), the wage-adjusted DRG 
operating payment plus any applicable new technology add-on payments 
under subpart F of this part. 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, or a low volume 
of discharges under Sec.  412.101. 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.
    (3) With respect to a hospital that is paid under section 
1814(b)(3) of the Act, the payment amount under section 1814(b)(3) of 
the Act.
    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.
    Cited for deficiencies that pose immediate jeopardy means that, 
during the applicable performance period, the Secretary cited the 
hospital for immediate jeopardy on at least two surveys using the Form 
CMS-2567, Statement of Deficiencies and Plan of Correction.
    Domain means a grouping of measures used for purposes of 
calculating the Total Performance Score for each hospital with respect 
to a fiscal year.
    Domain score means the total number of points awarded to a hospital 
for a domain.
    Hospital means a hospital described in section 1886(d)(1)(B) of the 
Act, but does not include a hospital, with respect to a fiscal year, 
for which one or more of the following applies:
    (1) The hospital is subject to the payment reduction under section 
1886(b)(3)(B)(viii)(I) of the Act for the fiscal year;
    (2) The Secretary cited the hospital for deficiencies that pose 
immediate jeopardy to the health or safety of patients during the 
performance period that applies with respect to the fiscal year;
    (3) There are not a minimum number of measures that apply to the 
hospital for the performance period for the fiscal year; or
    (4) There are not a minimum number of cases for the measures that 
apply to the hospital for the performance period for the fiscal year.
    Immediate jeopardy has the same meaning as that term is defined in 
Sec.  489.3 of this chapter.
    Improvement threshold (or improvement performance standard) means 
an individual hospital's performance level on a measure during the 
baseline period with respect to a fiscal year.
    Linear Exchange Function is the means to translate a hospital's 
total performance score into a value-based incentive payment percentage 
such that:
    (1) Each eligible hospital's value-based incentive payment 
percentage is based on its total performance score; and
    (2) The total amount of value-based incentive payments to all 
hospitals in a fiscal year is equal to the total amount available for 
value-based incentive payments in such fiscal year.
    Performance period means the time period during which data are 
collected for the purpose of calculating hospital performance on 
measures with respect to a fiscal year.
    Performance standards are the levels of performance that hospitals 
must meet or exceed in order to earn points under the Hospital VBP 
Program.
    Total Performance Score means the numeric score ranging from 0 to 
100 awarded to each hospital based on its performance under the 
Hospital VBP Program with respect to a fiscal year.
    Value-based incentive payment adjustment factor is the number that

[[Page 53677]]

will be multiplied by the base operating DRG payment amount for each 
discharge from a hospital, during a fiscal year, in order to adjust the 
hospital's payment as a result of its performance under the Hospital 
VBP Program.
    Value-based incentive payment percentage means the percentage of 
the base operating DRG payment amount for each discharge that a 
hospital has earned with respect to a fiscal year, based on its Total 
Performance Score for that fiscal year.
    Wage-adjusted DRG operating payment is the applicable average 
standardized amount adjusted for--
    (1) Resource utilization by the applicable MS-DRG relative weight;
    (2) Differences in geographic costs by the applicable area wage 
index (and by the applicable cost-of-living adjustment for hospitals 
located in Alaska and Hawaii); and
    (3) Any applicable payment adjustment for transfers under Sec.  
412.4(f).

Sec.  412.161  Applicability of the Hospital Value-Based Purchasing 
(VBP) Program

    (a) General rule. Except as provided in paragraph (b) of this 
section, the Hospital VBP Program applies to hospitals, as that term is 
defined in Sec.  412.160.
    (b) Special rule for hospitals paid under section 1814 of the Act. 
The Secretary may exempt hospitals paid under section 1814 of the Act 
from the requirements of the Hospital VBP Program for a fiscal year 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.

Sec.  412.162  Process for reducing the base operating DRG payment 
amount and applying the value-based incentive payment amount adjustment 
under the Hospital Value-Based Purchasing (VBP) Program.

    (a) General. If a hospital meets or exceeds the performance 
standards that apply to the Hospital VBP Program for a fiscal year, CMS 
will make value-based incentive payments to the hospital under the 
requirements and conditions specified in this section.
    (b) Value-based incentive payment amount. (1) Available amount. The 
value-based incentive payment amount for a discharge is the portion of 
the payment amount that is attributable to the Hospital VBP Program. 
The total amount available for value based incentive payments to all 
hospitals for a fiscal year is equal to the total amount of base-
operating DRG payment reductions for that fiscal year, as estimated by 
the Secretary.
    (2) Calculation of the value-based incentive payment amount. The 
value-based incentive payment amount is calculated by multiplying the 
base operating DRG payment amount by the value-based incentive payment 
percentage.
    (3) Calculation of the value-based incentive payment percentage. 
The value-based incentive payment percentage is calculated as the 
product of: the applicable percent as defined in Sec.  412.160, the 
hospital's Total Performance Score divided by 100, and the exchange 
function slope.
    (c) Methodology to calculate the value-based incentive payment 
adjustment factor. The value-based incentive payment adjustment factor 
for each discharge is determined by subtracting the applicable percent 
as specified in Sec.  412.160 from the value-based incentive payment 
percentage and then adding that difference to one.

Sec.  412.163  Process for making hospital-specific performance 
information under the Hospital Value-Based Purchasing (VBP) Program 
available to the public.

    (a) CMS will make information available to the public regarding the 
performance of each hospital under the Hospital VBP Program.
    (b) To ensure that a hospital has the opportunity to review and 
submit corrections for the information to be made public under this 
section, CMS will provide each hospital with confidential hospital-
specific reports and discharge level information used in the 
calculation of its performance with respect to each measure, condition, 
and domain, and the calculation of its Total Performance Score.
    (c) Hospitals will have a period of 30 days after CMS provides the 
information specified in paragraph (b) of this section to review and 
submit corrections for the information.
    (d) CMS will post the information specified in paragraph (b) for 
each hospital on the Hospital Compare Web site.

Sec.  412.164  Measure selection under the Hospital Value-Based 
Purchasing (VBP) Program.

    (a) CMS will select measures, other than measures of readmissions, 
for purposes of the Hospital VBP Program. The measures will be a subset 
of the measures specified under section 1886(b)(3)(B)(viii) of the Act 
(the Hospital Inpatient Quality Reporting Program).
    (b) CMS will post data on each measure on the Hospital Compare Web 
site for at least 1 year prior to the beginning of a performance period 
for the measure under the Hospital VBP Program.

Sec.  412.165  Performance scoring under the Hospital Value-Based 
Purchasing (VBP) Program.

    (a) Points awarded based on hospital performance. (1) CMS will 
award points to hospitals for performance on each measure for which the 
hospital reports the applicable minimum number of cases during the 
applicable performance period.
    (2) CMS will award from 1 to 9 points for achievement to each 
hospital whose performance on a measure during the applicable 
performance period meets or exceeds the achievement threshold but is 
less than the benchmark for that measure.
    (3) CMS will award from 0 to 9 points for improvement to each 
hospital whose performance on a measure during the applicable 
performance period exceeds the improvement threshold but is less than 
the benchmark for that measure.
    (4) CMS will award 10 points to a hospital whose performance on a 
measure during the applicable performance period meets or exceeds the 
benchmark for that measure.
    (b) Calculation of the Total Performance Score. The hospital's 
Total Performance Score for a program year is calculated as follows:
    (1) CMS will calculate a domain score for a hospital when it 
reports the minimum number of measures in the domain.
    (2) CMS will sum all points awarded for each measure in a domain to 
calculate an unweighted domain score.
    (3) CMS will normalize each domain score to ensure that it is 
expressed as a percentage of points earned out of 100.
    (4) CMS will weight the domain scores with the finalized domain 
weights for each fiscal year.
    (5) The sum of the weighted domain scores is the hospital's Total 
Performance Score for the fiscal year.

Sec.  412.167  Appeal under the Hospital Value-Based Purchasing (VBP) 
Program.

    (a) A hospital may appeal the following issues:
    (1) CMS' decision to deny a hospital's correction request that the 
hospital submitted under the review and corrections process;
    (2) Whether the achievement/improvement points were calculated 
correctly;
    (3) Whether CMS properly used the higher of the achievement/
improvement points in calculating the hospital's measure/dimension 
score;

[[Page 53678]]

    (4) Whether CMS correctly calculated the domain scores, including 
the normalization calculation;
    (5) Whether CMS used the proper lowest dimension score in 
calculating the hospital's HCAHPS consistency points;
    (6) Whether CMS calculated the HCAHPS consistency points correctly;
    (7) Whether the correct domain scores were used to calculate the 
Total Performance Score;
    (8) Whether each domain was weighted properly;
    (9) Whether the weighted domain scores were properly summed to 
arrive at the Total Performance Score; and,
    (10) Whether the hospital's open/closed status (including mergers 
and acquisitions) is properly specified in CMS' systems.
    (b) Appeals must be submitted within 30 days of CMS' decision to 
deny a corrections request under Sec.  412.163 or within 30 days of the 
conclusion of the review and corrections period, as applicable, and 
must contain the following information:
    (1) Hospital's CMS Certification Number (CCN).
    (2) Hospital name.
    (3) Hospital's basis for requesting an appeal. This must identify 
the hospital's specific reason(s) for appealing the hospital's Total 
Performance Score or performance assessment with respect to the 
performance standards.
    (4) CEO contact information, including name, email address, 
telephone number, and mailing address (must include the physical 
address, not just the post office box).
    (5) QualityNet System Administrator contact information, including 
name, email address, telephone number, and mailing address (must 
include the physical address, not just the post office box).
    (c) Limitations on review. There is no administrative or judicial 
review of the following:
    (1) The methodology used to determine the amount of the value-based 
incentive payment under section 1886(o)(6) of the Act and the 
determination of such amount.
    (2) The determination of the amount of funding available for value-
based incentive payments under section 1886(o)(7)(A) of the Act and the 
payment reduction under section 1886(o)(7)(B)(i) of the Act.
    (3) The establishment of the performance standards under section 
1886(o)(3) of the Act and the performance period under section 
1886(o)(4) of the Act.
    (4) The measures specified under section 1886(b)(3)(B)(viii) of the 
Act and the measures selected under section 1886(o)(2) of the Act.
    (5) The methodology developed under section 1886(o)(5) of the Act 
that is used to calculate hospital performance scores and the 
calculation of such scores.
    (6) The validation methodology that is specified under section 
1886(b)(3)(B)(viii)(XI) of the Act.

Sec. Sec.  412.168-412.169  [Reserved].

0
8. Section 412.424 is amended by adding a new paragraph (d)(1)(vi) to 
read as follows:

Sec.  412.424  Methodology for calculating the Federal per diem payment 
amount.

* * * * *
    (d) * * *
    (1) * * *
    (vi) Applicable percentage change for fiscal year 2014 payment 
determination and for subsequent years. (A) In the case of an inpatient 
psychiatric facility that is paid under the prospective payment system 
in Sec.  412.1(a)(2) that does not submit quality data to CMS, in the 
form and manner and at a time specified by CMS, the applicable annual 
update to a Federal standard rate is reduced by 2.0 percentage points.
    (B) Any reduction in the applicable annual update to a Federal 
standard rate will apply only to the fiscal year involved and will not 
be taken into account in computing the annual payment update for a 
subsequent year.
* * * * *

0
9. Section 412.434 is added to subpart N to read as follows:

Sec.  412.434  Reconsideration and appeals procedures of Inpatient 
Psychiatric Facilities Quality Reporting (IPFQR) Program decisions.

    (a) An inpatient psychiatric facility may request reconsideration 
of a decision by CMS that the inpatient psychiatric facility has not 
met the requirements of the IPFQR Program for a particular fiscal year. 
An inpatient psychiatric facility must submit a reconsideration request 
to CMS no later than 30 days from the date identified on the IPFQR 
Program Annual Payment Update Notification Letter provided to the 
inpatient psychiatric facility.
    (b) A reconsideration request must contain the following 
information:
    (1) The inpatient psychiatric facility's CMS Certification Number 
(CCN);
    (2) The name of the inpatient psychiatric facility;
    (3) Contact information for the inpatient psychiatric facility's 
chief executive officer and QualityNet system administrator, including 
each individual's name, email address, telephone number, and physical 
mailing address;
    (4) A summary of the reason(s), as set forth in the IPFQR Program 
Annual Payment Update Notification Letter, that CMS concluded the 
inpatient psychiatric facility did not meet the requirements of the 
IPFQR Program;
    (5) A detailed explanation of why the inpatient psychiatric 
facility believes that it complied with the requirements of the IPFQR 
Program for the applicable fiscal year; and
    (6) Any evidence that supports the inpatient psychiatric facility's 
reconsideration request, such as emails and other documents.
    (c) An inpatient psychiatric facility that is dissatisfied with a 
decision made by CMS on its reconsideration request may file an appeal 
with the Provider Reimbursement Review Board under part 405, subpart R 
of this chapter.

0
10. Section 412.523 is amended by--
0
a. Adding a new paragraph (c)(3)(ix).
0
b. Revising paragraph (d)(3).
    The addition and revision read as follows:

Sec.  412.523  Methodology for calculating the Federal prospective 
payment rates.

* * * * *
    (c) * * *
    (3) * * *
    (ix) For long-term care hospital prospective payment system fiscal 
year beginning October 1, 2012, and ending September 30, 2013. (A) The 
standard Federal rate for the long-term care hospital prospective 
payment system beginning October 1, 2012, and ending September 30, 
2013, 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.
    (B) With respect to discharges occurring on or after October 1, 
2012 and before December 29, 2012, payments are based on the standard 
Federal rate in paragraph (c)(3)(ix)(A) of this section without regard 
to the adjustment provided for under paragraph (d)(3)(ii) of this 
section.
* * * * *
    (d) * * *
    (3)(i) General. The Secretary reviews payments under this 
prospective payment system and may make a one-time prospective 
adjustment to the long-term care hospital prospective payment system 
rates no earlier than December 29, 2012, 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

[[Page 53679]]

perpetuated in the prospective payment rates for future years.
    (ii) Adjustment to the standard Federal rate. The standard Federal 
rate determined in paragraph (c)(3) of this section is permanently 
adjusted by 3.75 percent to account for the estimated difference 
between projected aggregate payments in FY 2003 made under the 
prospective payment system implemented under this subpart and the 
projected aggregate payments that would have been made in FY 2003 under 
Part 413 of this chapter without regard to the implementation of the 
prospective payment system implemented under this subpart, excluding 
the effects of sections 1886(b)(2)(E) and (b)(3)(J) of the Act. This 
adjustment is transitioned over 3 years beginning in FY 2013.
    (iii) Special rule for certain discharges occurring during FY 2013. 
The adjustment applied under paragraph (d)(3)(ii) of this section is 
not applicable when making payments under this subpart for discharges 
occurring on or after October 1, 2012, and on or before December 28, 
2012.
* * * * *

0
11. Section 412.529 is amended by revising paragraph (d)(4)(i)(C) to 
read as follows:

Sec.  412.529  Special payment provisions for short-stay outliers.

* * * * *
    (d) * * *
    (4) * * *
    (i) * * *
    (C) The payment amount specified under paragraph (d)(4)(i)(B) of 
this section may not exceed the full amount comparable to what would 
otherwise be paid under the hospital inpatient prospective payment 
system determined under paragraph (d)(4)(i)(A) of this section.
* * * * *

0
12. Section 412.534 is amended by--
0
a. In the following paragraphs, removing the date ``October 1, 2012'' 
and adding in its place the date ``October 1, 2013'':
0
1. Paragraph (c)(1) heading;
0
2. Paragraph (c)(1)(i);
0
3. Paragraph (c)(1)(ii);
0
4. Paragraph (c)(2) heading;
0
5. Paragraph (d)(1) heading;
0
6. Paragraph (d)(1)(i);
0
7. Paragraph (d)(2) heading;
0
8. Paragraph (e)(1) heading;
0
9. Paragraph (e)(1)(i); and
0
10. Paragraph (e)(2) heading.
0
b. Revising paragraph (c)(3).
0
c. Revising paragraph (d)(3).
0
d. Revising paragraph (e)(3).
0
e. Revising paragraphs (h)(4) and (h)(5).
0
f. Adding a new paragraph (h)(6).
    The revisions and addition read as follows:

Sec.  412.534  Special payment provisions for long-term care hospitals 
within hospitals and satellites of long-term care hospitals.

* * * * *
    (c) * * *
    (3) For a long-term care hospital satellite facility described in 
Sec.  412.22(h)(3)(i), payments are determined as follows:
    (i) For cost reporting periods beginning on or after July 1, 2007 
and before July 1, 2012, and for cost reporting period beginning on or 
after October 1, 2012 and before October 1, 2013, payment will be 
determined using the methodology specified in paragraph (c)(1) of this 
section, except that the applicable percentage threshold for Medicare 
discharges is 50 percent.
    (ii) For cost reporting periods beginning on or after July 1, 2012, 
and before October 1, 2012, for discharges occurring on or after 
October 1, 2012, and before the beginning of the next cost reporting 
period, payment will be determined using the methodology specified in 
paragraph (c)(1) of this section, except that the applicable percentage 
threshold for Medicare discharges is 50 percent.
    (iii) In determining the percentage of patients admitted to a 
satellite from the co-located hospital, patients on whose behalf an 
outlier payment was made to the co-located hospital are not counted 
toward the 50-percent threshold.
    (d) * * *
    (3) For cost reporting periods beginning on or after July 1, 2007, 
and before July 1, 2012, and beginning on or after October 1, 2012, and 
before October 1, 2013, payment for a long-term care hospital satellite 
facility described in Sec.  412.22(h)(3)(i) are determined as follows:
    (i) For cost reporting periods beginning on or after July 1, 2007 
and before July 1, 2012, and for cost reporting period beginning on or 
after October 1, 2012 and before October 1, 2013, payment will be 
determined using the methodology specified in paragraph (c)(1) of this 
section, except that the applicable percentage threshold for Medicare 
discharges is 75 percent.
    (ii) For cost reporting periods beginning on or after July 1, 2012, 
and before October 1, 2012, for discharges occurring on or after 
October 1, 2012, and before the beginning of the next cost reporting 
period, payment will be determined using the methodology specified in 
paragraph (c)(1) of this section, except that the applicable percentage 
threshold for Medicare discharges is 75 percent.
    (iii) In determining the percentage of patients admitted to a 
satellite from the co-located hospital, patients on whose behalf an 
outlier payment was made to the co-located hospital are not counted 
toward the 75-percent threshold.
    (e) * * *
    (3) For cost reporting periods beginning on or after July 1, 2007 
and before July 1, 2012 and for cost reporting periods beginning on or 
after October 1, 2012, and before October 1, 2013, payments for a long-
term care hospital satellite facility described in Sec.  
412.22(h)(3)(i) are determined as follows:
    (i) For cost reporting periods beginning on or after July 1, 2007 
and before July 1, 2012, and for cost reporting period beginning on or 
after October 1, 2012 and before October 1, 2013, payment will be 
determined using the methodology specified in paragraph (c)(1) of this 
section, except that the applicable percentage threshold for Medicare 
discharges is 75 percent.
    (ii) For cost reporting periods beginning on or after July 1, 2012, 
and before October 1, 2012, for discharges occurring on or after 
October 1, 2012, and before the beginning of the next cost reporting 
period, payment will be determined using the methodology specified in 
paragraph (c)(1) of this section, except that the applicable percentage 
threshold for Medicare discharges is 75 percent.
    (iii) In determining the percentage of patients admitted to a 
satellite from the co-located hospital, patients on whose behalf an 
outlier payment was made to the co-located hospital are not counted 
toward the 75-percent threshold.
* * * * *
    (h) * * *
    (4) Except as provided in paragraph (h)(6) of this section, for a 
long-term care hospital described in Sec.  412.23(e)(2)(i) that meets 
the criteria in Sec.  412.22(f), the policies set forth in this 
paragraph (h) and in Sec.  412.536 do not apply for discharges 
occurring in cost reporting periods beginning on or after July 1, 2007 
and before July 1, 2012, and for cost reporting periods beginning on or 
after October 1, 2012 and before October 1, 2013.
    (5) Except as provided in paragraph (h)(6) of this section, for a 
long-term care hospital or satellite facility that, as of December 29, 
2007, was co-located with an entity that is a provider-based, off-
campus location of a subsection (d) hospital which did not provide 
services payable under section 1886(d) of the Act at the off-campus 
location, the policies set forth in this paragraph (h) and in Sec.  
412.536 do not apply for discharges

[[Page 53680]]

occurring in cost reporting periods beginning on or after July 1, 2007 
and before July 1, 2012, and for cost reporting periods beginning on or 
after October 1, 2012 and before October 1, 2013.
    (6) For long-term care hospitals and satellite facilities with cost 
reporting periods beginning on or after July 1, 2012 and before October 
1, 2012.
    (i) Payments to long-term care hospitals and satellite facilities 
described in paragraphs (h)(4) and (h)(5) of this section are 
determined using the methodology specified in paragraph (c)(1) of this 
section for discharges occurring prior to October 1, 2012 during the 
hospital's or satellite facility's cost reporting period beginning on 
or after July 1, 2012 and before October 1, 2012. Such policies will 
not be applied to discharges occurring on or after October 1, 2012 and 
before the beginning of the hospital's or satellite facility's next 
cost reporting period.
    (ii) In determining the percentage of Medicare discharges admitted 
from the co-located hospital under this paragraph, patients on whose 
behalf a Medicare high-cost outlier payment was made at the co-located 
referring hospital are not counted toward that threshold.

0
13. Section 412.536 is amended by revising the introductory text of 
paragraph (a)(2) and adding a new paragraph (a)(3) to read as follows:

Sec.  412.536  Special payment provisions for long-term care hospitals 
and satellites of long-term care hospitals that discharged Medicare 
patients admitted from a hospital not located in the same building or 
on the same campus as the long-term care hospital or satellite of the 
long-term care hospital.

    (a) * * *
    (2) For cost reporting periods beginning on or after July 1, 2007 
and before July 1, 2012, and for cost reporting periods beginning on or 
after October 1, 2012 and before October 1, 2013, the policies set 
forth in this section are not applicable to discharges from:
* * * * *
    (3) For certain long-term care hospitals with cost reporting 
periods beginning on or after July 1, 2012 and before October 1, 2012--
    (i) Payments to long-term care hospitals described in paragraph 
(a)(1)(iv) of this section are determined using the methodology 
specified in either paragraph (b)(1) or paragraph (b)(2) of this 
section, except that such policies will not be applied to discharges 
occurring on or after October 1, 2012, and before October 1, 2012.
    (ii) In determining whether the percentage of long-term care 
hospital discharges during a long-term care hospital's cost reporting 
period beginning on or after July 1, 2012 and before July 1, 2013 
exceeds the 25 percent threshold, those discharges occurring on or 
after October 1, 2012, and before October 1, 2013, will not be counted 
towards that threshold.
    (iii) In determining the percentage of Medicare discharges admitted 
to the long-term care hospital from any referring hospital not co-
located with the long-term care hospital or with the satellite facility 
of a long-term care hospital under paragraphs (b)(1) and (b)(2) of this 
section, patients on whose behalf a Medicare high cost outlier payment 
was made to the referring hospital are not counted toward the 25 
percent threshold from that referring hospital.
* * * * *

PART 413--PRINCIPLES OF REASONABLE COST REIMBURSEMENT; PAYMENT FOR 
END-STAGE RENAL DISEASE SERVICES; OPTIONAL PROSPECTIVELY DETERMINED 
PAYMENT RATES FOR SKILLED NURSING FACILITIES

0
14. The authority citation for Part 413 continues to read as follows:

    Authority: Secs. 1102, 1812(d), 1814(b), 1815, 1833(a), (i), and 
(n), 1861(v), 1871, 1881, 1883, and 1886 of the Social Security Act 
(42 U.S.C. 1302, 1395d(d), 1395f(b), 1395g, 1395l(a), (i), and (n), 
1395x(v), 1395hh, 1395rr, 1395tt, and 1395ww); and sec. 124 of Pub. 
L. 106-133 (113 Stat. 1501A-332).

0
15. Section 413.24 is amended by revising paragraph (a) to read as 
follows:

Sec.  413.24  Adequate cost data and cost finding.

    (a) Principle. Providers receiving payment on the basis of 
reimbursable cost must provide adequate cost data. This must be based 
on their financial and statistical records which must be capable of 
verification by qualified auditors. The cost data must be based on an 
approved method of cost finding and on the accrual basis of accounting, 
except for--
    (1) Governmental institutions which operate on a cash basis method 
of accounting. Cost data based on such basis of accounting will be 
acceptable, subject to appropriate treatment of capital expenditures.
    (2) Costs of qualified defined benefit pension plans shall be 
reported on a cash basis method of accounting, as described at Sec.  
413.100(c)(2)(vii)(D) for cost reporting periods beginning on or after 
October 1, 2011.
* * * * *

0
16. Section 413.79 is amended by--
0
a. Revising paragraphs (e)(1), (e)(2), (e)(3), and (e)(4).
0
b. Adding a new paragraph (e)(5).
0
c. Revising paragraph (f)(7)(i)(B).
0
d. Redesignating paragraphs (n)(2)(ii) and paragraph (n)(2)(iii) as 
paragraphs (n)(2)(iii) and paragraph (n)(2)(iv), respectively.
0
e. Adding new paragraph (n)(2)(ii).
0
f. Revising newly redesignated paragraphs (n)(2)(iii) and (n)(2)(iv).
    The revisions and addition read as follows:

Sec.  413.79  Direct GME payments: Determination of the weighted number 
of FTE residents.

* * * * *
    (e) * * *
    (1) If a hospital had no allopathic or osteopathic residents in its 
most recent cost reporting period ending on or before December 31, 
1996, and it begins training residents in a new medical residency 
training program(s) for the first time on or after January 1, 1995, but 
before October 1, 2012, the hospital's unweighted FTE resident cap 
under paragraph (c) of this section may be adjusted for new residency 
training programs based on the sum of the products of the highest 
number of FTE residents in any program year during the third year of 
the first new program's existence and the number of years in which 
residents are expected to complete the program based on the minimum 
accredited length for each type of program. The adjustment to the cap 
may not exceed the number of accredited slots available to the hospital 
for the new program. If a hospital had no allopathic or osteopathic 
residents in its most recent cost reporting period ending on or before 
December 31, 1996, and it begins training residents in a new medical 
residency training program(s) for the first time on or after October 1, 
2012, the hospital's unweighted FTE resident cap under paragraph (c) of 
this section may be adjusted for new residency training programs based 
on the sum of the products of the highest number of FTE residents in 
any program year during the fifth year of the first new program's 
existence and the number of years in which residents are expected to 
complete the program based on the minimum accredited length for each 
type of program. The adjustment to the cap may not exceed the number of 
accredited slots available to the hospital for the new program.
    (i) If a hospital begins training residents in a new medical 
residency

[[Page 53681]]

training program(s) for the first time on or after January 1, 1995, but 
before October 1, 2012, and if the residents are spending portions of a 
program year (or years) at one hospital and the remainder of the 
program at another hospital(s), the adjustment to each qualifying 
hospital's cap for a new medical residency training program(s) is equal 
to the sum of the products of the highest number of FTE residents in 
any program year during the third year of the first new program's 
existence and the number of years in which residents are expected to 
complete the program based on the minimum accredited length for each 
type of program and the number of years the residents are training at 
each respective hospital. If a hospital begins training residents in a 
new medical residency training program(s) for the first time on or 
after October 1, 2012, and if the residents are spending portions of a 
program (or years) at one hospital and the remainder of the program at 
another hospital(s), the adjustment to each qualifying hospital's cap 
for new residency training program (s) is equal to the sum of the 
products of three factors (limited to the number of accredited slots 
for each program):
    (A) The highest total number of FTE residents trained in any 
program year during the fifth year of the first new program's existence 
at all of the hospitals to which the residents in the program rotate;
    (B) The number of years in which residents are expected to complete 
the program, based on the minimum accredited length for each type of 
program.
    (C) The ratio of the number of FTE residents in the new program 
that trained at the hospital over the entire 5-year period to the total 
number of FTE residents that trained at all hospitals over the entire 
5-year period.
    (ii) If a hospital begins training residents in a new medical 
residency training program(s) for the first time on or after January 1, 
1995, but before October 1, 2012, prior to the implementation of the 
hospital's adjustment to its FTE cap beginning with the fourth year of 
the hospital's first new residency program(s), the hospital's cap may 
be temporarily adjusted during each of the first 3 years of the 
hospital's first new residency program using the actual number of 
residents participating in the new program. The adjustment may not 
exceed the number of accredited slots available to the hospital for 
each program year. If a hospital begins training residents in a new 
medical residency training program(s) for the first time on or after 
October 1, 2012, prior to the implementation of the hospital's 
adjustment to its FTE cap beginning with the sixth year of the 
hospital's first new residency program(s), the hospital's cap may be 
adjusted temporarily during each of the first 5 years of the hospital's 
first new residency program using the actual number of FTE residents 
participating in the new program. The adjustment may not exceed the 
number of accredited slots available to the hospital for each program 
year.
    (iii) If a hospital begins training residents in a new medical 
residency training program for the first time on or after January 1, 
1995, but before October 1, 2012, the cap will not be adjusted for new 
programs established more than 3 years after residents begin training 
in the first new program, or if a hospital begins training residents in 
a new medical residency training program for the first time on or after 
October 1, 2012, the cap will not be adjusted for new programs 
established more than 5 years after residents begin training in the 
first new program.
    (iv) Effective for Medicare GME affiliation agreements entered into 
on or after October 1, 2005, an urban hospital that qualifies for an 
adjustment to its FTE cap under paragraph (e)(1) of this section is 
permitted to be part of a Medicare GME affiliated group for purposes of 
establishing an aggregate FTE cap only if the adjustment that results 
from the affiliation is an increase to the urban hospital's FTE cap.
    (v) A rural hospital that qualifies for an adjustment to its FTE 
cap under paragraph (e)(1) of this section is permitted to be part of a 
Medicare GME affiliated group for purposes of establishing an aggregate 
FTE cap.
    (2) If a hospital had allopathic or osteopathic residents in its 
most recent cost reporting period ending on or before December 31, 
1996, the hospital's unweighted FTE cap may be adjusted for a new 
medical residency training program(s) established on or after January 
1, 1995, and on or before August 5, 1997. The adjustment to the 
hospital's FTE resident cap for new residency training programs is 
based on the sum of the product of the highest number of FTE residents 
in any program year during the third year of the newly established 
program and the number of years in which residents are expected to 
complete each program based on the minimum accredited length for the 
type of program.
    (i) If the residents are spending portions of a program year (or 
years) at one hospital and the remainder of the program at another 
hospital(s), the adjustment to each respective hospital's cap for each 
program is equal to the product of the highest number of FTE residents 
in any program year during the third year of each program's existence 
and the number of years in which residents are expected to complete the 
program based on the minimum accredited length for each type of program 
and the number of years the residents are training at each respective 
hospital.
    (ii) Prior to the implementation of the hospital's adjustment to 
its FTE cap beginning with the fourth year of the hospital's residency 
program, the hospital's cap may be temporarily adjusted during each of 
the first 3 years of the hospital's new residency program, using the 
actual number of FTE residents in the new programs. The adjustment may 
not exceed the number of accredited slots available to the hospital for 
each program year.
    (3) If a rural hospital participates in new medical residency 
training programs, regardless of whether the rural hospital had 
allopathic or osteopathic residents in its most recent cost reporting 
period ending on or before December 31, 1996, the hospital's unweighted 
FTE cap may be adjusted in the same manner described in paragraph 
(e)(2) of this section to reflect the increase for residents training 
in a new medical residency training program(s) established after August 
5, 1997 and before October 1, 2012. If a rural hospital participates in 
new medical residency training programs on or after October 1, 2012, 
the hospital's unweighted FTE cap is adjusted in accordance with 
paragraph (e)(1) of this section, except that the adjustment is based 
on the sum of the products of the highest number of FTE residents in 
any program year during the fifth year of each new program's existence 
and the number of years in which residents are expected to complete the 
program based on the minimum accredited length for each type of 
program.
    (4) A hospital seeking an adjustment to its FTE cap must provide 
documentation to its fiscal intermediary justifying the adjustment.
    (5) The cap will not be adjusted for expansion of existing or 
previously existing programs.
    (f) * * *
    (7) * * *
    (i) * * *
    (B) Specify the effective period of the emergency Medicare GME 
affiliation agreement (which must, in any event, terminate at the 
conclusion of four academic years following the academic year in which 
the section 1135 emergency period began).
* * * * *

[[Page 53682]]

    (n) * * *
    (2) * * *
    (ii) If a hospital receives an increase in the otherwise applicable 
FTE resident cap under paragraph (n)(1) of this section, and does not 
use all of that increase in its final (12-month or partial) cost report 
of the 5-year period beginning July 1, 2011 and ending June 30, 2016, 
the Medicare contractor will remove the applicable unused slots, and 
the hospital's increase in the otherwise applicable FTE resident cap 
received under paragraph (n)(1) of this section will be reduced for 
portions of cost reporting periods on or after July 1, 2016. The number 
of applicable unused slots is equal to the difference between the 
increase in the otherwise applicable FTE resident cap and the 
applicable slots used. In determining the applicable slots used, the 
following amounts are added, as relevant:
    (A) If a hospital uses the increase in the otherwise applicable FTE 
resident cap under paragraph (n)(1) of this section to expand an 
existing program(s), the used slots are equal to the lesser of the 
number of slots used for an expansion(s) in the fourth 12-month cost 
report or the final cost report.
    (B) If a hospital uses the increase in the otherwise applicable FTE 
resident cap under paragraph (n)(1) of this section to start a new 
program(s), the used slots are equal to the number of slots used for a 
new program(s) in the final cost report.
    (C) The portion, if any, of the increase in the otherwise 
applicable FTE resident cap under paragraph (n)(1) of this section used 
for cap relief, subject to the requirements in paragraph (n)(2)(i) of 
this section.
    (iii) CMS may determine whether a hospital has met the requirements 
under paragraphs (n)(2)(i) and (n)(2)(ii) of this section during the 5-
year period of July 1, 2011, through June 30, 2016, in such manner and 
at such time as CMS determines appropriate, including at the end of 
such 5-year period.
    (iv) In a case where the Medicare contractor determines that a 
hospital did not meet the requirements under paragraphs (n)(2)(i), 
(n)(2)(ii), and (n)(2)(iii) of this section in a cost reporting period 
within the 5-year time period, the Medicare contractor will reduce the 
otherwise applicable FTE resident cap of the hospital by the amount by 
which such limit was increased under paragraph (n)(1) of this section 
from the earliest cost reporting period that is reopenable in which it 
would be determined that the hospital did not meet the requirements.
* * * * *

0
17. Section 413.100 is amended by adding a new paragraph (c)(2)(vii)(D) 
to read as follows:

Sec.  413.100  Special treatment of certain accrued costs.

* * * * *
    (c) * * *
    (2) * * *
    (vii) * * *
    (D) Exception: Qualified defined benefit pension plans, which are 
funded deferred compensation arrangements, shall be reported on a cash 
accounting basis as follows:
    (1) The allowable pension cost shall be equal to the amount of 
actual pension contributions funded during the hospital's current 
Medicare cost reporting period, plus any contributions funded in a 
prior period and carried forward, subject to the limit under paragraph 
(c)(2)(vii)(D)(2) of this section.
    (2) Except as provided in paragraph (c)(2)(vii)(D)(3) of this 
section, the allowable pension cost shall not exceed 150 percent of the 
average contribution(s) funded during the three consecutive Medicare 
cost reporting periods that produce the highest average 
contribution(s), out of the five most recent Medicare cost reporting 
periods (ending with the current cost reporting period). Contributions 
in excess of the limit may be carried forward to future period(s). In 
the case of a newly adopted pension plan, the 5-year look-back period 
and/or the 3-year averaging period will be limited to the number of 
cost reporting periods the provider sponsored a qualified defined 
benefit pension plan.
    (3) A waiver of the limit imposed under paragraph (c)(2)(vii)(D)(2) 
of this section may be granted for a specific Medicare cost reporting 
period for all or a portion of the contributions in excess of the limit 
imposed under paragraph (c)(2)(vii)(D)(2) of this section if it is 
determined that such excess costs are reasonable and necessary for that 
period.
* * * * *

PART 424--CONDITIONS FOR MEDICARE PAYMENT

0
18. The authority citation for Part 424 continues to read as follows:

    Authority:  Secs. 1102 and 1871 of the Social Security Act (42 
U.S.C. 1302 and 1395(hh)).

0
19. Section 424.30 is revised to read as follows:

Sec.  424.30  Scope.

    This subpart sets forth the requirements, procedures, and time 
limits for claiming Medicare payments. Claims must be filed in all 
cases except when services are furnished on a prepaid capitation basis 
by an MA organization, or through cost settlement with either a health 
maintenance organization (HMO), a competitive medical plan (CMP), or a 
health care prepayment plan (HCPP), or as part of a demonstration. 
Therefore, claims must be filed by hospitals seeking IME payment under 
Sec.  412.105(g) of this chapter, and/or direct GME payment under Sec.  
413.76(c) of this chapter, and/or nursing or allied health education 
payment under Sec.  413.87 of this chapter associated with inpatient 
services furnished on a prepaid capitation basis by an MA organization. 
Hospitals that must report patient data for purposes of the DSH payment 
adjustment under Sec.  412.106 of this chapter for inpatient services 
furnished on a prepaid capitation basis by an MA organization, or 
through cost settlement with an HMO/CMP, or as part of a demonstration, 
are required to file claims by submitting no pay bills for such 
inpatients. Special procedures for claiming payment after the 
beneficiary has died and for certain bills paid by organizations are 
set forth in subpart E of this part.

PART 476--UTILIZATION AND QUALITY CONTROL REVIEW

0
20. The authority citation for Part 476 continues to read as follows:

    Authority:  Secs. 1102 and 1871 of the Social Security Act (42 
U.S.C. 1302 and 1395(hh)).

0
21. Section 476.1 is amended by adding a definition of ``Provider'' in 
alphabetical order, to read as follows:

Sec.  476.1  Definitions.

* * * * *
    Provider means a health care facility, institution, or 
organization, including but not limited to a hospital, involved in the 
delivery of health care services for which payment may be made in whole 
or in part under Title XVIII of the Act.
* * * * *

0
22. Section 476.78 is amended by revising the section heading and the 
introductory text of paragraph (b)(2) to read as follows:

Sec.  476.78  Responsibilities of providers and practitioners.

* * * * *
    (b) * * *
    (2) Providers and practitioners must provide patient care data and 
other pertinent data to the QIO at the time the QIO is collecting 
review information

[[Page 53683]]

that is required for the QIO to make its determinations. When the QIO 
does postadmission, preprocedure review, the provider must provide the 
necessary information before the procedure is performed, unless it must 
be performed on an emergency basis. Providers and practitioners must--
* * * * *

0
23. Section 476.90 is revised to read as follows:

Sec.  476.90  Lack of cooperation by a provider or practitioner.

    (a) If a provider or practitioner refuses to allow a QIO to enter 
and perform the duties and functions required under its contract with 
CMS, the QIO may--
    (1) Determine that the provider or practitioner has failed to 
comply with the requirements of 42 CFR 1004.10(c) and report the matter 
to the HHS Inspector General; or
    (2) Issue initial denial determinations for those claims it is 
unable to review, make the determination that financial liability will 
be assigned to the provider or practitioner, and may report the matter 
to the HHS Inspector General.
    (b) If a QIO gives a provider or practitioner sufficient notice and 
a reasonable amount of time to respond to a request for information 
about a claim, and if the provider or practitioner does not respond in 
a timely manner, the QIO will deny the claim. A provider or 
practitioner may request that the QIO reconsider its decision to deny 
the claim. No further appeal rights are available.

(Catalog of Federal Domestic Assistance Program No. 93.773, 
Medicare--Hospital Insurance; Program No. 93.774, Medicare--
Supplementary Medical Insurance Program; and Program No. 93.778, 
Medical Assistance)

    Dated: July 27, 2012.
Marilyn Tavenner,
Acting Administrator, Centers for Medicare & Medicaid Services.
    Dated: July 31, 2012.
Kathleen Sebelius,
Secretary.

    Note: The following Addendum and Appendixes will not appear in 
the Code of Federal Regulations.

Addendum--Schedule of Standardized Amounts, Update Factors, and Rate-
of-Increase Percentages Effective With Cost Reporting Periods Beginning 
On or After October 1, 2012 and Payment Rates for LTCHs Effective for 
Discharges Occurring On or After October 1, 2012

I. Summary and Background

    In this Addendum, we are setting forth a description of the methods 
and data we used to determine the prospective payment rates for 
Medicare hospital inpatient operating costs and Medicare hospital 
inpatient capital-related costs for FY 2013 for acute care hospitals. 
We also are setting forth the rate-of-increase percentages for updating 
the target amounts for certain hospitals excluded from the IPPS for FY 
2013. 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 final rule, we are finalizing 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, 2012.
    In addition, we are setting forth a description of the methods and 
data we used to determine the standard Federal rate that would be 
applicable to Medicare LTCHs for FY 2013.
    In general, except for SCHs and hospitals located in Puerto Rico, 
for FY 2013, each hospital's payment per discharge under the IPPS is 
based on 100 percent of the Federal national rate, also known as the 
national adjusted standardized amount. This amount reflects the 
national average hospital cost per case from a base year, updated for 
inflation.
    Currently, SCHs are paid based on whichever of the following rates 
yields the greatest aggregate payment: the Federal national rate; the 
updated hospital-specific rate based on FY 1982 costs per discharge; 
the updated hospital-specific rate based on FY 1987 costs per 
discharge; the updated hospital-specific rate based on FY 1996 costs 
per discharge; or the updated hospital-specific rate based on the FY 
2006 costs per discharge.
    We note that, as discussed in section IV.G. of the preamble of this 
final rule, section 3124 of the Affordable Care Act extended the MDH 
program from the end of FY 2011 (that is, for discharges occurring 
before October 1, 2011) to the end of FY 2012 (that is, for discharges 
occurring before October 1, 2012). (Under prior law, the MDH program 
was to be in effect through the end of FY 2011 only.) Therefore, due to 
the expiration of the MDH program beginning with FY 2013, we are not 
including hospitals that are currently MDHs (until October 1, 2012) in 
our update of the hospital-specific rates for FY 2013.
    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 making 
changes in the determination of the prospective payment rates for 
Medicare inpatient operating costs for acute care hospitals for FY 
2013. In section III. of this Addendum, we discuss our policy changes 
for determining the prospective payment rates for Medicare inpatient 
capital-related costs for FY 2013. In section IV. of this Addendum, we 
are setting forth our changes for determining the rate-of-increase 
limits for certain hospitals excluded from the IPPS for FY 2013. In 
section V. of this Addendum, we are making changes in the determination 
of the standard Federal rate for LTCHs paid under the LTCH PPS for FY 
2013. The tables to which we refer in the preamble of this final rule 
are listed in section VI. of this Addendum and are available via the 
Internet.

II. Changes to Prospective Payment Rates for Hospital Inpatient 
Operating Costs for Acute Care Hospitals for FY 2013

    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 used for determining the 
prospective payment rates for FY 2013.
    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.
     An update of 1.8 percent for all areas (that is, the FY 
2013 estimate of

[[Page 53684]]

the market basket rate-of-increase of 2.6 percent less an adjustment of 
0.7 percentage point for MFP and less 0.1 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 
update is -0.2 percent (that is, the FY 2013 estimate of the market 
basket rate-of-increase of 2.6 percent, less 2.0 percentage points for 
failure to submit data under the Hospital IQR Program, less an 
adjustment of 0.7 percentage point for MFP, and less 0.1 percentage 
point).
     An update of 1.8 percent to the Puerto Rico-specific 
standardized amount (that is, the FY 2013 estimate of the market basket 
rate-of-increase of 2.6 percent less an adjustment of 0.7 percentage 
point for MFP and less 0.1 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 2012 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 2012 outlier offset and 
apply an offset for FY 2013, 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 final rule, an adjustment to meet the requirements of sections 
7(b)(1)(A) and 7(b)(1)(B) of Public Law 110-90 to adjust the 
standardized amounts to offset the estimated amount of the increase in 
aggregate payments (including interest) due to the effect of 
documentation and coding that did not reflect real changes in case-mix 
for discharges occurring during FY 2008 and FY 2009. As discussed 
below, for FY 2013, we are making an adjustment to the standardized 
amounts to complete the necessary adjustments required by the 
provisions of sections 7(b)(1)(A) and 7(b)(1)(B) of Public Law 110-90. 
(We note as discussed in greater detail in section II.D. of the 
preamble of this final rule, at this time, we are not finalizing our 
proposed adjustment to the standardized amount for FY 2013 to offset 
the estimated amount of the increase in aggregate payments due to the 
effect of documentation and coding that did not reflect real changes in 
case-mix for discharges occurring during FY 2010.)
    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 2012, for FY 2013, we are 
continuing to apply the rural floor budget neutrality adjustment to 
hospital wage indices rather than the standardized amount. 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 applying a uniform, national budget neutrality adjustment to the 
FY 2013 wage index for the rural floor. We note that, as finalized in 
the FY 2012 IPPS/LTCH PPS final rule, we extended the imputed floor 
through FY 2013 (76 FR 51593). Therefore, for this final rule, we are 
continuing to include the imputed floor in calculating the uniform, 
national rural floor budget neutrality adjustment to the wage indices. 
Thus, the imputed floor is reflected in the FY 2013 wage index. 
Additionally, in the FY 2013 IPPS/LTCH PPS proposed rule, we proposed 
an alternative temporary methodology for computing the imputed floor 
index in section II.G.2. of the preamble of that proposed rule. We are 
finalizing that alternative methodology and have included this 
alternative methodology in our calculation of rural floor budget 
neutrality in this final rule.
    We note that, in the FY 2012 IPPS/LTCH PPS final rule (76 FR 51788 
through 51790), we finalized an adjustment of 1.1 percent to the 
standardized amount (that is, a factor of 1.011) in light of the Cape 
Cod decision. The adjustment is a one-time permanent adjustment that is 
left permanently on the standardized amount.

A. Calculation of the Adjusted Standardized Amount

1. Standardization of Base-Year Costs or Target Amounts
    In general, the national standardized amount is based on per 
discharge averages of adjusted hospital costs from a base period 
(section 1886(d)(2)(A) of the Act), updated and otherwise adjusted in 
accordance with the provisions of section 1886(d) of the Act. For 
Puerto Rico hospitals, the Puerto Rico-specific standardized amount is 
based on per discharge averages of adjusted target amounts from a base 
period (section 1886(d)(9)(B)(i) of the Act), updated and otherwise 
adjusted in accordance with the provisions of section 1886(d)(9) of the 
Act. The September 1, 1983 interim final rule (48 FR 39763) contained a 
detailed explanation of how base-year cost data (from cost reporting 
periods ending during FY 1981) were established for urban and rural 
hospitals in the initial development of standardized amounts for the 
IPPS. The September 1, 1987 final rule (52 FR 33043 and 33066) contains 
a detailed explanation of how the target amounts were determined and 
how they are used in computing the Puerto Rico rates.
    Sections 1886(d)(2)(B) and 1886(d)(2)(C) of the Act require us to 
update base-year per discharge costs for FY 1984 and then standardize 
the cost data in order to remove the effects of certain sources of cost 
variations among hospitals. These effects include 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

[[Page 53685]]

this provision to the labor-related share for hospitals located in 
Puerto Rico.)
    For FY 2013, we are continuing to use a labor-related share of 68.8 
percent for discharges occurring on or after October 1, 2012, for the 
national standardized amounts and 62.1 percent for the Puerto Rico-
specific standardized amount. Consistent with section 1886(d)(3)(E) of 
the Act, we are applying the wage index to a labor-related share of 62 
percent for all IPPS hospitals whose wage index values are less than or 
equal to 1.0000. For all IPPS hospitals whose wage indices are greater 
than 1.0000, we are applying the wage index to a labor-related share of 
68.8 percent of the national standardized amount. For FY 2013, all 
Puerto Rico hospitals have a wage index less than 1.0. Therefore, the 
national labor-related share is 62 percent because the wage index for 
all Puerto Rico hospitals is less than 1.0.
    For hospitals located in Puerto Rico, we are applying a labor-
related share of 62.1 percent if its Puerto Rico-specific wage index is 
greater than 1.0000. For hospitals located in Puerto Rico whose Puerto-
Rico specific wage index values are less than or equal to 1.0000, we 
are applying a labor share of 62 percent.
    The standardized amounts for operating costs appear in Tables 1A, 
1B, and 1C that are listed and published in section VI. of the Addendum 
to this final 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 calculating the FY 2013 
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. As discussed in section IV.H. 
of the preamble of this final 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 reducing the FY 2013 applicable percentage 
increase (which is based on the second quarter 2012 forecast of the FY 
2006-based IPPS market basket) by the MFP adjustment (the 10-year 
moving average of MFP for the period ending FY 2013) of 0.7 percent, 
which is calculated based on IHS Global Insight, Inc.'s (IGI's) second 
quarter 2012 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 further updating the 
standardized amount for FY 2013 by the estimated market basket 
percentage increase less 0.1 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) 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 2012 second quarter forecast of the 
hospital market basket increase (as discussed in Appendix B of this 
final rule), the most recent forecast of the hospital market basket 
increase for FY 2013 is 2.6 percent. Thus, for FY 2013, the update to 
the average standardized amount is 1.8 percent for hospitals in all 
areas (that is, the FY 2013 estimate of the market basket rate-of-
increase of 2.6 percent less an adjustment of 0.7 percentage point for 
MFP and less 0.1 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 operating standardized amount is -0.2 percent 
(that is, the FY 2013 estimate of the market basket rate-of-increase of 
2.6 percent, less 2.0 percentage points for failure to submit data 
under the Hospital IQR Program, less an adjustment of 0.7 percentage 
point for MFP, and less 0.1 percentage point). The standardized amounts 
in Tables 1A through 1C that are published in section VI. of this 
Addendum and 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 finalizing an 
applicable percentage increase to the Puerto Rico-specific standardized 
amount of 1.8 percent.
    Although the update factors for FY 2013 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 
2013 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 final recommendation on the update factors is set forth in 
Appendix B of this final rule.
4. Other Adjustments to the Average Standardized Amount
    As in the past, we are adjusting the FY 2013 standardized amount to 
remove the effects of the FY 2012 geographic reclassifications and 
outlier payments before applying the FY 2013 updates. We then apply 
budget neutrality offsets for outliers and geographic reclassifications 
to the standardized amount based on FY 2013 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

[[Page 53686]]

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.
    Comment: One commenter noted that it is still likely that CMS is 
including charges for anti-hemophilic blood factor (which are paid 
separately under the IPPS) in the MedPAR claims used to determine the 
budget neutrality adjustments. The commenter explained that the 
majority of patients receiving blood clotting drugs have a pharmacy 
indicator of ``5'', which denotes ``general drugs and/or IV therapy and 
blood clotting drugs.'' The commenter searched the MedPAR file and 
found 67,548 claims reporting patients receiving blood clotting drugs 
and 843 of these claims had a pharmacy indicator of ``3''. From the 
subset of 843 claims, 5 had pharmacy charges in excess of $100,000 and 
724 claims had pharmacy charges greater than $100,000 with a pharmacy 
indicator of ``5''. The commenter noted that the bulk of these 843 
claims contain a pharmacy indicator of ``5''; however, the MedPAR file 
as currently constructed does not allow for the separation of anti-
hemophilic blood factor charges from other pharmacy charges. The 
commenter concluded that the inclusion of all pharmacy charges with a 
pharmacy indicator of ``5'' is inappropriate.
    Response: We appreciate the commenter's concern regarding including 
charges that may not be appropriate to include within our modeling. As 
acknowledged by the commenter, the MedPAR file as currently constructed 
does not allow for the separation of anti-hemophilic blood factor 
charges from other pharmacy charges. We will explore the possibility of 
uniquely identifying anti-hemophilic blood factor pharmacy charges 
within the MedPAR file for future rulemaking.
    Section 3021 of the Affordable Care Act, codified under section 
1115A of the Act, authorizes CMS to test innovative payment and service 
delivery models with the goal of reducing Medicare program expenditures 
while preserving or enhancing the quality of care furnished to 
individuals. Because initiatives established under this authority could 
result in IPPS hospitals receiving a payment that is different from 
what they otherwise would receive under the IPPS, we believe it is 
important to identify how these initiatives are addressed in the 
context of our budget neutrality calculations.
    The Bundled Payments for Care Improvement (BPCI) initiative, 
developed by CMS' Center for Medicare and Medicaid Innovation under the 
authority of section 3021 of the Affordable Care Act (codified under 
section 1115A of the Act), will test four payment models that link 
payments for multiple services during an episode of care. On August 23, 
2011, CMS invited providers to apply to help develop and test four 
models of bundling payments under the BPCI. We refer readers to section 
IV.H.4. of the preamble of this final rule for a discussion on the BPCI 
initiative. We note that under Models 1, 2, and 4, participating IPPS 
hospitals could receive a payment for all or selected IPPS claims under 
the BPCI that differs from payments they would otherwise receive under 
the IPPS. We also note that Model 3 addresses payments for related 
readmissions and postacute care services. Therefore, we believe it is 
not necessary to address the treatment of any data for participating 
hospitals in Model 3.
    In the proposed rule, for purposes of computing the budget 
neutrality calculations to determine the average standardized amount, 
we proposed 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 (which includes recalibration of 
the MS-DRG relative weights, ratesetting, calculation of the budget 
neutrality factors, and the impact analysis). In essence, we would 
continue to treat these hospitals the same as in prior fiscal years for 
purposes of the FY 2013 (and subsequent years) IPPS payment modeling 
and ratesetting process without regard to a hospital's participation 
within these three bundled payment models (that is, we would treat 
these hospitals as if they are not participating in Model 1, Model 2, 
or Model 4 under the BPCI initiative). We stated that we believe it is 
appropriate to include all applicable data from these subsection (d) 
hospitals in our IPPS payment modeling and ratesetting calculations 
because these hospitals are still receiving IPPS payments under section 
1886(d) of the Act (in addition to the reconciliation payment the 
hospital may receive under Model 2 of the BPCI initiative). Moreover, 
the Secretary has the authority to make appropriate adjustments for 
payment amounts under section 1886(d)(5)(I)(i) of the Act to include 
all applicable data from these ``subsection (d)'' hospitals in our IPPS 
ratesetting calculations. We further stated that we believe it is 
appropriate to use the Secretary's authority under section 
1886(d)(5)(I)(i) of the Act to include all IPPS short-term acute care 
hospitals and their data within the IPPS ratesetting calculations 
because excluding these hospitals would diminish the number of 
providers used to determine the IPPS rates, which could cause 
fluctuations to the IPPS rates and could produce instability in the 
IPPS rates. We did not receive any public comments on this proposal 
and, therefore, we are finalizing our proposal as presented in the FY 
2013 IPPS proposed rule (77 FR 28138 through 28139) and summarized 
above without modification.

[[Page 53687]]

Specifically, we are adopting as final our methodology 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 (which includes recalibration of the MS-DRG relative 
weights, ratesetting, calculation of the budget neutrality factors, and 
the impact analysis).
    The Affordable Care Act established the Hospital Readmissions 
Reduction Program and the Hospital Value-Based Purchasing (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 the proposed rule we stated that 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 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 hospitals under section 1886(d) of the Act will 
be reduced to account for certain excess readmissions. Under the 
Hospital Readmissions Reduction Program under section 1886(q) of the 
Act, payments for discharges from an ``applicable hospital'' will be in 
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, for discharges 
beginning on October 1, 2012. (The statute also specifies that any 
applicable 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, are not affected by 
the adjustment for excess readmissions under the Hospital Readmissions 
Reduction Program.) In other words, payment under section 1886(q) is 
the base operating DRG payment amount multiplied by the adjustment 
factor, calculated separately from any outliers, IME, DSH, or low-
volume payment adjustment the hospital may otherwise receive. We refer 
readers to section IV.A. of the preamble of this final rule for full 
details of our implementation of the Hospital Readmissions Reduction 
Program for FY 2013, including definitions of the ``base operating DRG 
payment amount.'' Under current law, the Hospital Readmissions 
Reduction Program under section 1886(q) of the Act is not budget 
neutral.
    Section 1886(o) of the Act requires the Secretary to establish a 
hospital value-based purchasing program under which, beginning in FY 
2013, value-based incentive payments will be 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, the cost of these value-
based incentive payments are funded by a reduction applied to each 
eligible hospital's base-operating DRG payment amount, for each 
discharge occurring in the fiscal year, beginning with FY 2013. For FY 
2013, the reduction amount is equal to 1.00 percent. 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 estimated base-operating DRG 
payment reductions (the applicable percent reduction for FY 2013 is 
1.0), as estimated by the Secretary. We refer readers to section 
VIII.C. of the preamble of this final rule for details regarding our 
implementation of the Hospital VBP Program, including the definition of 
the ``base operating DRG payment amount.''
    Unlike the Hospital Readmissions Reduction Program (where an 
adjustment factor is applied to reduce the base-operating DRG payment 
amount for excess readmissions), the Hospital VBP Program is estimated 
to have no effect on overall payments. As mentioned above, for FY 2013, 
the total amount of the funding pool for value-based incentive payments 
is estimated to equal the total amount of the eligible hospitals' base-
operating DRG payment amount reductions. In other words, the funding 
pool that CMS sets aside for the Hospital VBP Program is then equally 
redistributed by applying the hospital VBP adjustment. However, both 
the hospital readmissions payment adjustment (reduction) and the 
hospital VBP 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 sum 
aggregate payments on each side of the comparison, we proposed to apply 
the hospital readmissions payment adjustment and the hospital VBP 
adjustment on each side of the comparison. We did not receive any 
public comments on this proposal. Therefore, to assure that aggregate 
payments are estimated correctly in light of the effects of the 
Hospital Readmissions Reduction Program and the Hospital VBP Program, 
we are finalizing our proposal as presented in the FY 2013 IPPS/LTCH 
PPS proposed rule (77 FR 28138 through 28139) without modification, and 
are applying the readmissions payment adjustment and the Hospital VBP 
payment adjustment 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 proposed rule, for the purpose of modeling the aggregate 
payments for excess readmissions and the readmissions adjustment 
factors, we used excess readmission ratios for the applicable hospitals 
from the 3-year period of July 1, 2007, to June 30, 2010 (the 3-year 
period preceding the FY 2013 ``applicable period'' of July 1, 2008, to 
June 30, 2011, that was finalized in last year's rulemaking (76 FR 
51671 through 51672), because the underlying data from this period had 
already been made available to the public on the Hospital Compare Web 
site (as of July 2011). At that time, the data from the 3-year 
applicable period of July 1, 2008, to June 30, 2011, for FY 2013 had 
not been through the review and correction process required by section 
1886(q)(6) of the Act. As we indicated in the proposed rule, for this 
final rule, we are using excess readmission ratios based on admissions 
for the finalized applicable period of July 1, 2008, to June 30, 2011, 
to calculate the aggregate payments for excess readmissions and 
ultimately to calculate the readmissions payment adjustment factors for 
FY 2013, because applicable hospitals have had the opportunity to 
review and correct these

[[Page 53688]]

data before the data were made public under our proposal set forth in 
the proposed rule regarding the reporting of hospital-specific 
readmission rates, consistent with section 1886(q)(6) of the Act (as 
discussed in section IV.A.3.d. of the preamble of this final rule).
a. 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 final 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 
making a budget neutrality adjustment to ensure that the requirement of 
section 1886(d)(4)(C)(iii) of the Act is met.
    Section 1886(d)(3)(E)(i) of the Act requires us to update the 
hospital wage index on an annual basis beginning October 1, 1993. This 
provision also requires us to make any updates or adjustments to the 
wage index in a manner that ensures that aggregate payments to 
hospitals are not affected by the change in the wage index. Section 
1886(d)(3)(E)(i) of the Act requires that we implement the wage index 
adjustment in a budget neutral manner. However, section 
1886(d)(3)(E)(ii) of the Act sets the 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 2013, we are adjusting 100 
percent of the wage index factor for occupational mix. We describe the 
occupational mix adjustment in section III.F. of the preamble of this 
final rule.
    For FY 2013, 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 2011 discharge data to simulate payments and 
compared aggregate payments using the FY 2012 labor-related share 
percentages, the FY 2012 relative weights, and the FY 2012 pre-
reclassified wage data and applied the FY 2013 hospital readmissions 
payment adjustments and estimated FY 2013 hospital VBP payment 
adjustments to aggregate payments using the FY 2012 labor-related share 
percentages, the FY 2013 relative weights, and the FY 2012 pre-
reclassified wage data and applied the same hospital readmissions 
payment adjustments and estimated hospital VBP adjustments. Based on 
this comparison, we computed a budget neutrality adjustment factor 
equal to 0.998431. As discussed in section IV. of this Addendum, we 
also are applying the MS-DRG reclassification and recalibration budget 
neutrality factor of 0.998431 to the hospital-specific rates that are 
effective for cost reporting periods beginning on or after October 1, 
2012.
    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 an MS-DRG reclassification and 
recalibration budget neutrality factor of 0.998431 (by using the same 
methodology described above to determine the MS-DRG reclassification 
and recalibration budget neutrality factor for the Puerto Rico 
standardized amount and hospital-specific rates). Secondly, to compute 
a budget neutrality factor for wage index and labor-related share 
changes, we used FY 2011 discharge data to simulate payments and 
compared aggregate payments using FY 2013 relative weights and FY 2012 
pre-reclassified wage indices, applied the FY 2012 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 FY 2013 hospital 
readmissions payment adjustment and the FY 2013 estimated hospital VBP 
payment adjustment when estimating aggregate payments using the FY 2013 
relative weights and the FY 2013 pre-reclassified wage indices, applied 
the labor-related share for FY 2013 of 68.8 percent to all hospitals 
(regardless of whether the hospital's wage index was above or below 
1.0), and applied the same FY 2013 hospital readmissions payment 
adjustments and estimated FY 2013 hospital VBP payment adjustments. In 
addition, we applied the 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 2012 to FY 2013. By applying this methodology, we 
determined a budget neutrality factor of 1.000331 for changes to the 
wage index. Finally, we multiplied the MS-DRG reclassification and 
recalibration budget neutrality factor of 0.998431(derived in the first 
step) by the budget neutrality factor of 1.000331 for changes to the 
wage index (derived in the second step) to determine the MS-DRG 
reclassification and recalibration and updated wage index budget 
neutrality factor of 0.998761.
b. Reclassified Hospitals--Budget Neutrality Adjustment
    Section 1886(d)(8)(B) of the Act provides that, effective with 
discharges occurring on or after October 1, 1988, certain rural 
hospitals are deemed urban. In addition, section 1886(d)(10) of the Act 
provides for the reclassification of hospitals based on determinations 
by the MGCRB. Under section 1886(d)(10) of the Act, a hospital may be 
reclassified for purposes of the wage index.
    Under section 1886(d)(8)(D) of the Act, the Secretary is required 
to adjust the standardized amount to ensure that aggregate payments 
under the IPPS after implementation of the provisions of sections 
1886(d)(8)(B) and (C) and 1886(d)(10) of the Act are equal to the 
aggregate prospective payments that would have been made absent these 
provisions. We note that the wage index adjustments provided 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

[[Page 53689]]

not be taken into account ``in applying any budget neutrality 
adjustment with respect to such index'' under section 1886(d)(8)(D) of 
the Act. To calculate the budget neutrality factor for FY 2013, we used 
FY 2011 discharge data to simulate payments and compared total IPPS 
payments with FY 2013 relative weights, FY 2013 labor-related share 
percentages, and FY 2013 wage data prior to any reclassifications under 
sections 1886(d)(8)(B) and (C) and 1886(d)(10) of the Act and applied 
the FY 2013 hospital readmissions payment adjustments and the estimated 
FY 2013 hospital VBP payment adjustments to total IPPS payments with FY 
2013 relative weights, FY 2013 labor-related share percentages, and FY 
2013 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 an 
adjustment factor of 0.991276 to ensure that the effects of these 
provisions are budget neutral, consistent with the statute.
    The FY 2013 budget neutrality adjustment factor is applied to the 
standardized amount after removing the effects of the FY 2012 budget 
neutrality adjustment factor. We note that, the FY 2013 budget 
neutrality adjustment reflects FY 2013 wage index reclassifications 
approved by the MGCRB or the Administrator.
c. Rural Floor and Imputed Floor Budget Neutrality Adjustment
    As noted above, as discussed in section III.G. 2.b. of the preamble 
of this final rule, in the FY 2012 IPPS/LTCH PPS final rule, we 
extended the imputed floor through FY 2013. 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 final rule, we are finalizing our 
proposal to use an alternative temporary methodology for computing the 
imputed floor index. In the proposed rule, we did not apply this 
alternative in our calculation of the proposed uniform, national rural 
floor budget neutrality adjustment to the wage indices because the 
projected impact of that proposal was estimated at less than $5 million 
and, therefore, would have a negligible impact on the adjustment. For 
this final rule, consistent with our methodology for treating the 
imputed floor, we have included this alternative methodology for 
computing the imputed floor index in the calculation of the uniform, 
national rural floor budget neutrality adjustment in this final rule. 
Consistent with section 3141 of the Affordable Care Act and as 
discussed in section III.G. of the preamble of this final 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 final 
rule (76 FR 51593), for FY 2013, we are calculating 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.
    To calculate the national rural floor and imputed floor budget 
neutrality adjustment factor and Puerto Rico-specific rural floor 
budget neutrality adjustment factor, we used FY 2011 discharge data and 
FY 2013 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 national rural budget neutrality 
adjustment factor of 0.991340 and the Puerto Rico-specific budget 
neutrality adjustment factor of 0.987620. 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. Case-Mix Budget Neutrality Adjustment
    Below we summarize the adjustments to the FY 2013 payment rates to 
account for the effect of changes in documentation and coding that do 
not reflect real changes in case-mix. We refer readers to section II.D. 
of the preamble of this final rule for a complete discussion regarding 
our proposals and final policies (including our historical adjustments 
to the payment rates) to eliminate the estimated effect of changes in 
documentation and coding that do not reflect real changes in case-mix.
(1) Prospective Adjustments for Documentation and Coding in FY 2008 and 
FY 2009 Authorized by Section 7(b)(1)(A) of Public Law 110-90 and 
Section 1886(d)(3)(A)(vi) of the Act
    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.
    For FY 2013, as proposed, we are finalizing a -1.9 percent 
adjustment to the standardized amount to complete the adjustment 
required under section 7(b)(1)(A) of Public Law 110-90. We refer 
readers to section II.D. of the preamble of this final rule for a 
complete discussion on our historical adjustments and the FY 2013 
adjustment to the standardized amount pursuant to section 7(b)(1)(A) of 
Public Law 110-90.
(2) Prospective Adjustments for Documentation and Coding in FY 2010 
Authorized by 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 reviewing public comments and 
recommendations received from MedPAC, we analyzed claims data in FY 
2010 to determine whether any additional adjustment would be required 
to ensure that the introduction of MS-DRGs was implemented in a

[[Page 53690]]

budget neutral manner. As discussed in section II.D. of the preamble of 
this final rule, our analysis showed a documentation and coding effect 
in FY 2010 of 0.8 percent, and we proposed to make an additional -0.8 
percent adjustment to account for the effects of documentation and 
coding that did not reflect an increase in case-mix severity in FY 
2010.
    As discussed earlier in this preamble, we are not finalizing an 
additional -0.8 percent adjustment to the FY 2013 standardized amount 
to account for documentation and coding that did not reflect an actual 
increase in case-mix in FY 2010. (However, as discussed above, we still 
are making an adjustment of -1.9 percent to the standardized amount, 
accounting for all documentation and coding effects observed between FY 
2008 though FY 2009.)
(3) Recoupment or Repayment Adjustment for Documentation and Coding in 
FY 2008 and FY 2009 Authorized by Section 7(b)(1)(B) of Public Law 110-
90
    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. As discussed in section 
II.D.5. of the preamble of this final rule, we determined that an 
aggregate adjustment of -5.8 percent in FYs 2011 and 2012 would be 
necessary in order to meet these statutory requirements.
    In the FY 2011 IPPS/LTCH PPS final rule, for FY 2011, we made an 
adjustment to the standardized amount of -2.9 percent, representing 
approximately half of the required adjustment. 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). Therefore, the 
required recoupment for overpayments due to documentation and coding 
effects on discharges occurring in FYs 2008 and 2009 has been completed 
within the required statutory timeframes. However, to avoid continuing 
the -2.9 percent adjustment finalized in FY 2012, for FY 2013, we are 
finalizing the +2.9 percent adjustment to the standardized amount as we 
proposed. This adjustment removes the one-time -2.9 percent adjustment 
implemented in FY 2012.
(4) Documentation and Coding Adjustment to the Puerto Rico-Specific 
Standardized Amount
    As discussed in section II.D.9. of the preamble of this final rule, 
in the FY 2011 IPPS/LTCH PPS final rule (75 FR 50071 through 50073), 
using the same methodology we applied to estimate documentation and 
coding changes under IPPS for non-Puerto Rico hospitals, our best 
estimate, based on the then most recently available data (FY 2009 
claims paid through March 2010), was that for documentation and coding 
changes that occurred over FY 2008 and FY 2009, a cumulative adjustment 
of -2.6 percent was required to eliminate the full effect of the 
documentation and coding changes on future payments based on the Puerto 
Rico-specific standardized amount. In FY 2011, as finalized in the FY 
2011 IPPS/LTCH PPS final rule (75 FR 50071 through 50073), we applied 
an adjustment of -2.6 percent to the Puerto Rico-specific standardized 
amount. Therefore, because the Puerto Rico-specific standardized amount 
received a full prospective adjustment of -2.6 percent in FY 2011, in 
section II.D.9. of the preamble of this final rule, as we proposed, we 
are not making any further adjustment for FY 2013. For a complete 
discussion on our policy, we refer readers to section II.D.9. of the 
preamble of this final rule.
    We note that, based upon our analysis of FY 2010 claims data; we 
found no significant additional effect of documentation and coding that 
would warrant any additional adjustment to the Puerto Rico-specific 
standardized amount.
e. Rural Community Hospital Demonstration Program Adjustment
    As discussed in section IV.K. of the preamble to this final rule, 
section 410A of Public Law 108-173 originally required the Secretary to 
establish a demonstration 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 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 2012 IPPS/LTCH PPS 
final rule (76 FR 51700 through 51705), 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 2013, for the 23 hospitals participating in the 
demonstration program, we are adjusting the national IPPS payment rates 
according to the methodology set forth elsewhere in this final rule. 
For this final rule, the estimated amount for the adjustment to the 
national IPPS payment rates for FY 2013 is $34, 288,129. (For the 
proposed rule, the estimated amount for the adjustment to the national 
IPPS payment rates for FY 2013 was $35,077,708.) Accordingly, to 
account for the estimated costs of the demonstration program for the 
specific time periods as explained in detail in section IV.K. of the 
preamble of this final rule, for FY 2013, we computed a factor of 
0.999677 for the rural community hospital demonstration program budget 
neutrality adjustment that will be applied to the IPPS standard Federal 
payment rate.
    In the proposed rule, we stated that if updated data became 
available prior to the publication of the FY 2013 IPPS/LTCH PPS final 
rule, we would use that data, to the extent appropriate, to estimate 
the costs of the demonstration

[[Page 53691]]

program in FY 2013. Therefore, this estimated budget neutrality offset 
amount in this final rule reflects updated data.
    In addition, we proposed in the proposed rule that if settled cost 
reports for all of the demonstration hospitals that participated in the 
applicable fiscal year (2007, 2008, 2009, or 2010) were made available 
prior to this FY 2013 IPPS/LTCH PPS final rule, we would incorporate 
into the FY 2013 budget neutrality offset amount the difference between 
the final cost of the demonstration in any of these years (as described 
previously) and the budget neutrality offset amount applicable to such 
year as finalized in the respective year's IPPS final rule. Because 
settled cost reports are not available for these years, we are not 
incorporating into the FY 2013 budget neutrality offset amount the 
difference between the final cost of the demonstration in any of these 
years and the budget neutrality offset amount applicable to such year 
as finalized in the respective year's IPPS final rule. We expect that 
the settled cost reports will be available prior to the FY 2014 IPPS/
LTCH PPS proposed rule, and that we will be able to propose to make 
this adjustment at the appropriate time.
f. Outlier Payments
    Section 1886(d)(5)(A) of the Act provides for payments in addition 
to the basic prospective payments for ``outlier'' cases involving 
extraordinarily high costs. To qualify for outlier payments, a case 
must have costs greater than the sum of the prospective payment rate 
for the DRG, any IME and DSH payments, any new technology add-on 
payments, and the ``outlier threshold'' or ``fixed-loss'' amount (a 
dollar amount by which the costs of a case must exceed 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 
2013 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.hhs.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/index.html?redirect=AcuteInpatientPPS/04_outlier.asp#TopOfPage.
(1) FY 2013 Outlier Fixed-Loss Cost Threshold
    For FY 2013, we proposed to continue to use the same methodology 
that we first used for FY 2009 (73 FR 48763 through 48766) to calculate 
the outlier threshold. Similar to the methodology used in the FY 2009 
IPPS final rule, for FY 2013, we proposed to apply an adjustment factor 
to the CCRs to account for cost and charge inflation (as explained 
below). As we have done in the past, to calculate the proposed FY 2013 
outlier threshold, we simulated payments by applying proposed FY 2013 
payment rates and policies using cases from the FY 2011 MedPAR file. 
Therefore, in order to determine the proposed FY 2013 outlier 
threshold, we inflated the charges on the MedPAR claims by 2 years, 
from FY 2011 to FY 2013.
    We also proposed to continue to use a refined methodology that 
takes into account the lower inflation in hospital charges that are 
occurring as a result of the outlier final rule (68 FR 34494), which 
changed our methodology for determining outlier payments by 
implementing the use of more current CCRs. Our refined methodology uses 
more recent data that reflect the rate-of-change in hospital charges 
under the new outlier policy.
    Using the most recent data available, we calculated the 1-year 
average annualized rate-of-change in charges per case from the last 
quarter of FY 2010 in combination with the first quarter of FY 2011 
(July 1, 2010, through December 31, 2010) to the last quarter of FY 
2011 in combination with the first quarter of FY 2012 (July 1, 2011, 
through December 31, 2011). This rate-of-change was 6.8 percent 
(1.068003) or 14.06 percent (1.140630) over 2 years. As we have done in 
the past, we established the proposed FY 2013 outlier threshold using 
hospital CCRs from the December 2011 update to the Provider-Specific 
File (PSF)--the most recent available data at the time of the proposed 
rule.
    As discussed in the FY 2007 IPPS final rule (71 FR 48150), we 
worked with the Office of Actuary to derive the methodology described 
below to develop the CCR adjustment factor. For FY 2013, we proposed to 
continue to use the same methodology to calculate the CCR adjustment by 
using the FY 2011 operating cost per discharge increase in combination 
with the actual FY 2011 operating market basket percentage increase 
determined by IHS Global Insight, Inc. (IGI), as well as the charge 
inflation factor described above to estimate the adjustment to the 
CCRs. (We note that, the FY 2011 actual (otherwise referred to as 
``final'') operating market basket percentage increase reflects 
historical data, whereas the published FY 2011 operating market basket 
update factor was based on IGI's 2010 second quarter forecast with 
historical data through the first quarter of 2010. We also note that, 
while the FY 2011 published operating market basket update was based on 
the FY 2002-based IPPS market basket, the actual or ``final'' market 
basket percentage increase is based on the FY 2006-based IPPS market 
basket. Similarly, the FY 2011 published capital market basket update 
factor was based on the FY 2002-based capital market basket and the 
actual or ``final'' capital market basket percentage increase is based 
on the FY 2006-based capital market basket.) By using the operating 
market basket percentage increase and the increase in the average cost 
per discharge from hospital cost reports, we are using two different 
measures of cost inflation.
    Under our proposal to continue to use the same methodology to 
calculate the CCR adjustment for FY 2013, we determined the proposed 
adjustment by taking the percentage increase in the operating costs per 
discharge from FY 2009 to FY 2010 (1.0160) from the cost report and 
dividing it by the final operating market basket percentage increase 
from FY 2010 (1.0210). This

[[Page 53692]]

operation removes the measure of pure price increase (the market 
basket) from the percentage increase in operating cost per discharge, 
leaving the nonprice factors in the cost increase (for example, 
quantity and changes in the mix of goods and services). We repeated 
this calculation for 2 prior years to determine the 3-year average of 
the rate of adjusted change in costs between the operating market 
basket percentage increase and the increase in cost per case from the 
cost report (the FY 2007 to FY 2008 percentage increase of operating 
costs per discharge of 1.0505 divided by the FY 2008 final operating 
market basket percentage increase of 1.0400, and the FY 2008 to FY 2009 
percentage increase of operating costs per discharge of 1.0295 divided 
by the FY 2009 final operating market basket percentage increase of 
1.0260). For FY 2013, we averaged the differentials calculated for FY 
2008, FY 2009, and FY 2010, which resulted in a mean ratio of 1.0029. 
We multiplied the 3-year average of 1.0029 by the FY 2011 final 
operating market basket percentage increase of 1.0270, which resulted 
in an operating cost inflation factor of 2.99 percent or 1.029948. We 
then divided the operating cost inflation factor by the 1-year average 
change in charges (1.068003) and we proposed to apply an adjustment 
factor of 0.964368 to the operating CCRs from the PSF (calculation 
performed on unrounded numbers).
    As stated in the FY 2009 IPPS final rule (73 FR 48763), we continue 
to believe it is appropriate to apply only a 1-year adjustment factor 
to the CCRs. On average, it takes approximately 9 months for a fiscal 
intermediary or MAC to tentatively settle a cost report from the fiscal 
year end of a hospital's cost reporting period. The average ``age'' of 
hospitals' CCRs from the time the fiscal intermediary or the MAC 
inserts the CCR in the PSF until the beginning of FY 2009 is 
approximately 1 year. Therefore, as stated above, we believe a 1-year 
adjustment factor to the CCRs is appropriate.
    We used the same methodology for the capital CCRs and determined 
the proposed adjustment by taking the percentage increase in the 
capital costs per discharge from FY 2009 to FY 2010 (1.0102) from the 
cost report and dividing it by the final capital market basket 
percentage increase from FY 2010 (1.010). We repeated this calculation 
for 2 prior years to determine the 3-year average of the rate of 
adjusted change in costs between the capital market basket percentage 
increase and the increase in cost per case from the cost report (the FY 
2007 to FY 2008 percentage increase of capital costs per discharge of 
1.0809 divided by the FY 2008 final capital market basket percentage 
increase of 1.0150, and the FY 2008 to FY 2009 percentage increase of 
capital costs per discharge of 1.0499 divided by the FY 2009 final 
capital market basket percentage increase of 1.0150). For FY 2013, we 
averaged the differentials calculated for FY 2008, FY 2009, and FY 
2010, which resulted in a mean ratio of 1.0332. We multiplied the 3-
year average of 1.0332 by the FY 2011 final capital market basket 
percentage increase of 1.0120, which resulted in a capital cost 
inflation factor of 4.56 percent or 1.045567. We then divided the 
capital cost inflation factor by the 1-year average change in charges 
(1.068003) and we proposed to apply an adjustment factor of 0.978993 to 
the capital CCRs from the PSF (calculation performed on unrounded 
numbers). We proposed to use the same charge inflation factor for the 
capital CCRs that was used for the operating CCRs. The charge inflation 
factor is based on the overall billed charges. Therefore, we believe it 
is appropriate to apply the charge factor to both the operating and 
capital CCRs.
    As stated above, for FY 2013, we applied the proposed FY 2013 rates 
and policies using cases from the FY 2011 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 final 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 2013, 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 2013. If 
we did not take into account this provision, our estimate of total FY 
2013 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.
    In the proposed rule, we stated that our estimate of the cumulative 
effect of changes in documentation and coding due to the adoption of 
the MS-DRGs of 5.4 percent from FY 2008 and FY 2009 and 0.8 percent 
from FY 2010 is already included within the claims data (FY 2011 MedPAR 
files) used to calculate the proposed FY 2013 outlier threshold. We 
also stated in the proposed rule that we estimated that there would be 
no continued changes in documentation and coding in FYs 2011 and 2012. 
Therefore, the cumulative effect of documentation and coding that has 
occurred is already reflected within the FY 2011 MedPAR claims data, 
and we did not believe there was any need to inflate FY 2011 claims 
data for any additional case-mix growth projected to have occurred 
since FY 2010.
    As we did in establishing the FY 2009 outlier threshold (73 FR 
57891), in our projection of FY 2013 outlier payments, we did not 
propose to make any adjustments for the possibility that hospitals' 
CCRs and outlier payments may be reconciled upon cost report 
settlement. We indicated that we continue to believe that, due to the 
policy implemented in the June 9, 2003 outlier final rule (68 FR 
34494), CCRs will no longer fluctuate significantly and, therefore, few 
hospitals will actually have these ratios reconciled upon cost report 
settlement. In addition, it is difficult to predict the specific 
hospitals that will have CCRs and outlier payments reconciled in any 
given year. We also noted that reconciliation occurs because hospitals' 
actual CCRs for the cost reporting period are different than the 
interim CCRs used to calculate outlier payments when a bill is 
processed. Our simulations assume that CCRs accurately measure hospital 
costs based on information available to us at the time we set the 
outlier threshold. For these reasons, we proposed not to make any 
assumptions about the effects of reconciliation on the outlier 
threshold calculation.
    As described in sections IV.A. and VIII.B., respectively, of the 
preamble of this final rule, sections 1886(q) and 1886(o) of the Act 
establish the Hospital Readmissions Reduction Program and the Hospital 
VBP Program, respectively. As we discussed in the proposed rule, we do 
not believe it is appropriate to include the hospital VBP payment 
adjustments and the hospital

[[Page 53693]]

readmissions payment adjustments in the outlier threshold calculation 
or the outlier offset to the standardized amount. Specifically, 
consistent with our proposed definition of the base operating DRG 
payment amount for the Hospital Readmissions Reduction Program under 
proposed Sec.  412.152 and the Hospital VBP Program under proposed 
Sec.  412.160, we indicated that 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 adjustment). Consequently, we 
proposed to exclude the hospital VBP payment adjustments and the 
hospital readmissions payment adjustments from the calculation of the 
outlier fixed-loss cost threshold.
    Using this methodology, we proposed an outlier fixed-loss cost 
threshold for FY 2013 equal to the prospective payment rate for the 
DRG, plus any IME and DSH payments, and any add-on payments for new 
technology, plus $27,425.
    We note that on June 11, 2012, we published a correction notice to 
the FY 2013 IPPS/LTCH PPS proposed rule (77 FR 34326 through 34331). In 
that correction notice, we stated that we inadvertently applied the 
incorrect adjustment factors to the operating and capital cost-to-
charge ratios (CCRs) from the PSF when performing the calculation of 
the proposed FY 2013 outlier fixed-loss cost threshold for the proposed 
rule. The correction of this error resulted in a decrease in the 
proposed outlier fixed-loss cost threshold of approximately $1,000, 
which resulted in a corrected proposed FY 2013 outlier fixed-loss cost 
threshold of $26,337.
    We also noted in that correction notice that the corrected proposed 
FY 2013 outlier fixed-loss cost threshold represented a $3,952 (or 17.7 
percent) increase from the final FY 2012 outlier fixed-loss cost 
threshold of $22,385. Since FY 2009, the outlier fixed-loss cost 
threshold has been between $20,185 and $23,140. Therefore, we were 
concerned about this large increase in the outlier fixed-loss cost 
threshold from FY 2012.
    In the proposed rule, we further noted that the proposed 2-year 
charge inflation factor of 14.06 percent applied to the FY 2011 MedPAR 
claims used to compute the FY 2013 outlier fixed-loss cost threshold is 
higher than the 2-year charge inflation factor of 7.94 percent applied 
to the FY 2010 MedPAR claims used to compute the FY 2012 final outlier 
fixed-loss cost threshold. We stated that we believe that a large 
increase in the charge inflation factor for FY 2013 (from FY 2012) 
increased projected total outlier payments. With an increase in 
projected outlier payments, in order for CMS to meet the 5.1 percent 
target, it would be necessary to reduce the amount of outlier payments 
by raising the outlier fixed-loss cost threshold. Therefore, in 
addition to being concerned about the large increase in the fixed-loss 
threshold proposed for FY 2013 compared to FY 2012, we were concerned 
about this large charge inflation increase and how it potentially 
affected the proposed FY 2013 outlier fixed-loss cost threshold. As 
described above, to determine the 1-year average annualized rate-of-
change in charges per case, we currently use a methodology that 
compares the average charge per case from the most recent 6-month 
period of MedPAR data that are available to the same 6-month period of 
MedPAR data from the prior year. We adopted this methodology in the FY 
2005 IPPS final rule (69 FR 49277) as a result of the special 
circumstances surrounding the revisions to the outlier payment 
methodology at that time. In that rule, we stated that we would 
continue to consider other methodologies for determining charge 
inflation when calculating the outlier threshold in the future. We 
welcomed public comment on possible modifications to our current 
methodologies, including the possibility of looking at a larger time 
period beyond 6 months to determine the average charge per case to 
measure the charge inflation factor.
    In addition, as pointed out by commenters who responded to the 
policies presented in last year's final rule (76 FR 51793 through 
51795), in this year's proposed rule we noted that CMS has not met the 
5.1 percent target for some time and the commenters have recommended 
enhancements to the methodology to improve the calculation of the 
outlier fixed-loss cost threshold. Commenters have focused on CMS' 
underestimation of actual outlier payments. Since FY 2009, we have used 
the same methodology to calculate the outlier fixed-loss cost 
threshold. While we have been reluctant to make changes to our 
methodology, as discussed below, our proposed estimate for FY 2011 was 
that outlier payments would be approximately 4.7 percent of actual 
total MS-DRG payments and for FY 2012 outlier payments would be 
approximately 6.0 percent of actual total MS-DRG payments (we have 
revised both of these estimates for the final rule using the latest 
data available as discussed below). In the proposed rule, we stated 
that while these estimates differ--with one being under the target and 
one above the target--they draw attention to the potential for 
improving our estimation methodology so that we meet the 5.1 percent 
target. We welcomed public comment on ways to enhance the accuracy of 
our methodology to calculate the FY 2013 outlier fixed-loss cost 
threshold, especially additional analyses that could inform potential 
technical improvements.
    Comment: Commenters analyzed the CCRs used in the proposed rule to 
calculate the outlier fixed-loss cost threshold and found that CMS used 
outdated CCRs for the proposed rule. The commenters attempted to match 
the CCRs from the proposed rule impact file to the CCRs in the March 
2012 PSF update with an effective date prior to January 15, 2012, and 
found that the CCRs in the impact file matched the CCRs in the March 
2012 PSF update for only 200 providers. The commenter used CMS' 
methodology to calculate the outlier fixed-loss cost threshold and 
determined that the proposed outlier fixed-loss cost threshold should 
have been $23,780 for FY 2013.
    Response: We appreciate the commenters pointing out this error. 
After further research, we discovered that we inadvertently removed all 
CCRs from the December 2011 PSF update that had an effective date after 
December 2010. Therefore, we used ``outdated'' CCRs to calculate the 
proposed outlier fixed-loss cost threshold. After this error was 
brought to our attention, we calculated the proposed outlier fixed-loss 
cost threshold with the ``best available'' CCRs. Specifically, we used 
operating and capital CCRs from the latest effective date in the 
December 2011 update of the PSF and determined that the proposed 
outlier fixed-loss cost threshold for FY 2013 should have been $23,630.
    Comment: 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.
    Several commenters suggested three alternative methodologies 
(discussed below) to adjust the CCRs, while other commenters only 
recommended the first and third options listed below. The

[[Page 53694]]

commenters that suggested the three methodologies stated that they 
believed that a 1-year CCR adjustment is not appropriate since 
hospitals have different fiscal year ends and, therefore, different 
adjustments should be applied to the CCRs.
    The first methodology the commenters recommended was for CMS to 
project CCRs over periods of time based on variations in hospital cost 
reporting fiscal year ends rather than 1 year in order to better 
reflect the CCRs as they are expected to exist during FY 2013 (we 
received similar comments in response to the policies presented in last 
year's rule recommending the adoption of this methodology to adjust the 
CCRs (75 FR 51793)). Using this methodology to adjust the CCRs, the 
commenters determined an outlier fixed-loss cost threshold for FY 2013 
of $23,190.
    The second methodology suggested by commenters was similar to the 
first methodology but projected CCRs by quarter rather than using 
hospital cost reporting fiscal year ends. For example, commenters 
suggested that CCRs in the PSF from June 2011 through September 2011 be 
projected 2 years from June 2013 through September 2013. Using this 
methodology to adjust the CCRs, the commenters determined an outlier 
fixed-loss cost threshold for FY 2013 of $23,195.
    The third methodology recommended by commenters used historical CCR 
data from the PSF to compute a rate-of-change in CCRs. Under this 
approach, the average case-weighted operating and capital CCR from 
October 2010 was compared to the average case-weighted operating and 
capital CCR from October 2011, and determined a -2.73 percent reduction 
for the operating CCRs and a -2.25 percent reduction for the capital 
CCRs. Although this adjustment would still 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.
    Similar to comments received in response to the policies presented 
last year (76 FR 51793 through 51794), one commenter suggested that, if 
CMS did not incorporate the changes described above to its methodology 
for estimating outlier payments, it would recommend incorporating an 
``estimate adjustment factor'' into the outlier projections. This 
commenter explained that outlier payments have been underpaid in every 
year since FY 2003. Based on estimated actual payments determined by 
the commenter's data analysis, the commenter asserted that the 
underpayment has exceeded 0.5 percent in all years since FY 2003. The 
commenter recommended that CMS determine an outlier fixed-loss cost 
threshold that would maintain the 5.1 percent target by applying an 
``estimate adjustment factor'' when determining the outlier fixed-loss 
cost threshold. The commenter provided an example by taking the average 
variance of 0.68 percentage point in the actual payment from FY 2009 
and FY 2011. Based on this factor, CMS would model the threshold to a 
level of 5.78 percent (5.1 percent plus 0.68 percent). If CMS were to 
estimate that it made outlier payments in excess of the 5.1 percent 
target, then the ``estimate adjustment factor'' would be negative. The 
commenter stated that this would fulfill the statutory requirement 
under section 1886(d)(5)(A) of the Act that requires CMS to establish 
thresholds such that outlier payments will be projected to achieve at 
least 5.1 percent of DRG payments and would more closely achieve a 
result that is fully consistent with the statute.
    Some commenters noted that some hospitals are at a financial 
disadvantage compared to others and outliers should not be among the 
reasons of this disadvantage. The commenters recommended that CMS lower 
the threshold, thereby increasing the chance that CMS will pay within 
the congressionally mandated target range of 5 to 6 percent. Another 
commenter, from a society representing transplant surgeons, applauded 
CMS' recognition and concern for the large increase in the outlier 
threshold. The commenter was concerned that the large increase in the 
outlier fixed-loss cost threshold may affect the reimbursement for 
transplant cases because these cases are typically high in costs and, 
therefore, reach outlier payment status. The commenter requested that 
CMS study the rapid rise in the outlier fixed-loss cost threshold while 
assuring stability in the outlier fixed-loss cost threshold and 
authorizing appropriate additional payment to transplant centers facing 
extraordinarily resource-intensive cases. Other commenters recommended 
that CMS maintain the outlier fixed-loss cost threshold from FY 2012 
for FY 2013 until CMS develops a more reliable methodology for 
determining the outlier fixed-loss cost threshold.
    Response: 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 believe the most prudent approach is to study the merits of each 
methodology and, if appropriate, make a proposal in next year's 
proposed rule if we believe making a change to our current methodology 
would improve our methodology for projecting the outlier fixed-loss 
cost threshold. As we have stated in prior years, using our current 
methodology, it is possible that some of the CCRs in the March 2012 PSF 
will be used in FY 2013 for actual outlier payments, while other CCRs 
may be 1 year old. Therefore, we apply a 1-year adjustment to the CCRs. 
The adjusted CCR is applied throughout the fiscal year within the 
outlier model. For this final rule, we are continuing to use the 
methodology we have used since FY 2009 to adjust the CCRs used to 
determine the outlier fixed-loss cost threshold. However, as stated 
above, we intend to study the merits of the commenters' suggestions for 
future rulemaking.
    With regard to the comment that CMS implement an ``estimate 
adjustment factor'', as we stated last year, further analysis by CMS is 
necessary to determine if the commenter's approach to applying such a 
factor is appropriate. We will consider the commenter's suggestion to 
apply an ``estimate adjustment factor'' (in conjunction with analyzing 
the alternative methodologies to adjust the CCRs discussed above), for 
future rulemaking if, based on our analysis, we determine that 
application of an ``estimate adjustment factor'' is appropriate and 
consistent with the statute.
    Also, as noted above, section 1886(d)(5)(A)(iv) of the Act requires 
outlier payments to be not less than 5 percent nor more than 6 percent 
of total estimated or projected payments. Therefore, we cannot adopt 
the commenter's suggestion to maintain the FY 2012 outlier fixed-loss 
cost threshold for FY 2013 because setting a threshold that is based on 
the current fiscal year for the coming fiscal year is inconsistent with 
the statute.
    Comment: Commenters noted that from FYs 2007 through 2011, in each 
rulemaking cycle the final threshold is always significantly lower than 
the proposed threshold. The commenters believed this decline is most 
likely the result of using more recently updated CCRs in the 
calculations for the final rule. The commenter emphasized the need for 
CMS to use the most recent data available when it calculates the 
outlier fixed-loss cost threshold.
    One commenter recommended that CMS use the June 2012 PSF update 
instead of the March 2012 update to the PSF to calculate the outlier 
fixed-loss cost threshold for the final rule. The commenter explained 
that there was a delay in hospitals filing the form CMS

[[Page 53695]]

2552-10 cost reports and the March 2012 update to the PSF does not 
contain CCRs from these cost reports. The commenter stated that the 
June 2012 PSF is probably the first update that would contain updated 
CCRs from the CMS 2552-10 cost reports.
    Response: CMS' historical policy is to use the best available data 
when setting the payment rates and factors in both the proposed and 
final rules. Sometimes there are variables that change between the 
proposed and final rule due to the availability of more recent data, 
such as the charge inflation factor and the CCR adjustment factors that 
can cause fluctuations in the threshold amount. Other factors such as 
changes to the wage indexes and market basket increase can also cause 
the outlier fixed-loss cost threshold to fluctuate between the proposed 
and final rule each year. CMS uses the latest data that is available at 
the time of the proposed and final rule, such as the most recent update 
of MedPAR claims data and CCRs from the most recent update of the PSF.
    With regard to the commenters recommendation to use the June 2012 
PSF update, this file was not available in time for the FY 2013 final 
rule and, therefore, we used the latest data available, which was the 
March 2012 PSF update.
    Comment: One commenter was concerned that CMS did not include 
outlier reconciliations in developing the outlier fixed-loss cost 
threshold, and its failure to provide objective data concerning the 
number of hospitals that have been subjected to reconciliation and the 
amount recovered during this process. The commenter searched Worksheet 
E, Part A, line 24.99 and line 52 and provided a summary table of 
operating outlier dollars (total of $82,080,928) recovered through the 
reconciliation process. The commenter concluded that absent the 
disclosure of data showing that these recoveries were immaterial, the 
commenter requested that CMS consider these recoveries in its 
determination of the outlier fixed-loss cost threshold.
    Response: We received a similar comment in response to the policies 
presented in last year's rule, and we appreciate the commenter, again, 
informing us of its concern regarding our policy of not including 
outlier reconciliation within the development of the outlier fixed-loss 
cost threshold. However, as stated above, we continue to believe that, 
due to the policy implemented in the June 9, 2003 outlier final rule 
(68 FR 34494), CCRs will no longer fluctuate significantly and, 
therefore, few hospitals will actually have these ratios reconciled 
upon cost report settlement. In addition, it is difficult to predict 
the specific hospitals that will have CCRs and outlier payments 
reconciled in any given year. We also noted that reconciliation occurs 
because hospitals' actual CCRs for the cost reporting period are 
different than the interim CCRs used to calculate outlier payments when 
a bill is processed. Our simulations assume that CCRs accurately 
measure hospital costs based on information available to us at the time 
we set the outlier threshold. For these reasons, we proposed and are 
again finalizing our policy not to make any assumptions about the 
effects of reconciliation on the outlier threshold calculation.
    Also, outlier reconciliation is a function of the cost report and 
Medicare contractors record the outlier reconciliation amount on each 
provider's cost report (and are not required to report these data to 
CMS outside of the cost report settlement process). Therefore, the 
outlier reconciliation data that the commenter is requesting is 
publicly available through the cost report. Since the effective date of 
Change Request 7192 on April 1, 2011, we have approved the 
reconciliation of outlier payments for some providers. Other providers 
that were flagged for outlier reconciliation are still under review for 
approval. In addition, some providers flagged for outlier 
reconciliation may experience a delay in reconciling their outlier 
payments due to circumstances that prevent the Medicare contractor from 
finalizing the hospital's cost report (such as other payments that may 
need to be reconciled aside from outlier payments).
    We note that we did not receive any public comments on possible 
modifications to our current charge inflation methodology or the 
possibility of looking at a larger time period beyond 6 months to 
determine the average charge per case to measure the charge inflation 
factor.
    Because we are not making any changes to our methodology for this 
final rule, for FY 2013, we are using the same methodology we proposed 
to calculate the outlier threshold for FY 2013 (using the most recent 
data available at the time of this final rule).
    Using the most recent data available, we calculated the 1-year 
average annualized rate-of-change in charges per case from the first 
quarter of FY 2011 in combination with the second quarter of FY 2011 
(October 1, 2010, through March 31, 2011) to the first quarter of FY 
2012 in combination with the second quarter of FY 2012 (October 1, 2011 
through March 31, 2011). This rate-of-change was 4.24 percent 
(1.042411) or 8.94 percent (1.0866203) over 2 years. As we have done in 
the past, we established the final FY 2013 outlier threshold using 
hospital CCRs from the March 2012 update to the PSF--the most recent 
available data at the time of this final rule.
    For FY 2013, we calculated the CCR adjustment by using the FY 2011 
operating cost per discharge increase in combination with the actual FY 
2011 operating market basket percentage increase determined by IHS 
Global Insight, Inc. (IGI), as well as the charge inflation factor 
described above to estimate the adjustment to the CCRs. (As noted 
above, the FY 2011 actual (otherwise referred to as ``final'') 
operating market basket percentage increase reflects historical data, 
whereas the published FY 2011 operating market basket update factor was 
based on IGI's 2010 second quarter forecast with historical data 
through the first quarter of 2010. As also noted above, while the FY 
2011 published operating market basket update was based on the FY 2002-
based IPPS market basket, the actual or ``final'' market basket 
percentage increase is based on the FY 2006-based IPPS market basket. 
Similarly, the FY 2011 published capital market basket update factor 
was based on the FY 2002-based capital market basket and the actual or 
``final'' capital market basket percentage increase is based on the FY 
2006-based capital market basket.) By using the operating market basket 
percentage increase and the increase in the average cost per discharge 
from hospital cost reports, we are using two different measures of cost 
inflation. For FY 2013, we determined the adjustment by taking the 
percentage increase in the operating costs per discharge from FY 2009 
to FY 2010 (1.0290) from the cost report and divided it by the final 
operating market basket percentage increase from FY 2010 (1.0160). This 
operation removes the measure of pure price increase (the market 
basket) from the percentage increase in operating cost per discharge, 
leaving the nonprice factors in the cost increase (for example, 
quantity and changes in the mix of goods and services). We repeated 
this calculation for 2 prior years to determine the 3-year average of 
the rate-of-adjusted change in costs between the operating market 
basket percentage increase and the increase in cost per case from the 
cost report (the FY 2007 to FY 2008 percentage increase of operating 
costs per discharge of 1.0505 divided by the FY 2008 final operating 
market basket percentage increase of 1.0400, and the

[[Page 53696]]

FY 2008 to FY 2009 percentage increase of operating costs per discharge 
of 1.0295 divided by FY 2009 final operating market basket percentage 
increase of 1.0260). For FY 2013, we averaged the differentials 
calculated for FY 2008, FY 2009, and FY 2010, which resulted in a mean 
ratio of 1.0029. We multiplied the 3-year average of 1.0029 by the FY 
2011 final operating market basket percentage increase of 1.0270, which 
resulted in an operating cost inflation factor of 2.99 percent or 
1.029948. We then divided the operating cost inflation factor by the 1-
year average change in charges (1.042411) and applied an adjustment 
factor of 0.988044 to the operating CCRs from the PSF (calculation 
performed on unrounded numbers).
    We used the same methodology for the capital CCRs and determined 
the adjustment by taking the percentage increase in the capital costs 
per discharge from FY 2009 to FY 2010 (1.0102) from the cost report and 
dividing it by the final capital market basket percentage increase from 
FY 2010 (1.010). We repeated this calculation for 2 prior years to 
determine the 3-year average of the rate-of-adjusted change in costs 
between the capital market basket percentage increase and the increase 
in cost per case from the cost report (the FY 2007 to FY 2008 
percentage increase of capital costs per discharge of 1.0809 divided by 
the FY 2008 final capital market basket percentage increase of 1.0150, 
and the FY 2008 to FY 2009 percentage increase of capital costs per 
discharge of 1.0499 divided by the FY 2009 final capital market basket 
percentage increase of 1.0150). For FY 2013, we averaged the 
differentials calculated for FY 2008, FY 2009, and FY 2010, which 
resulted in a mean ratio of 1.0332. We multiplied the 3-year average of 
1.0332 by the FY 2010 final capital market basket percentage increase 
of 1.0120, which resulted in a capital cost inflation factor of 4.56 
percent or 1.045567. We then divided the capital cost inflation factor 
by the 1-year average change in charges (1.042411) and applied an 
adjustment factor of 1.003028 to the capital CCRs from the PSF 
(calculation performed on unrounded numbers). We are using the same 
charge inflation factor for the capital CCRs that was used for the 
operating CCRs. The charge inflation factor is based on the overall 
billed charges.
    As stated above, for FY 2013, we applied the final FY 2013 payment 
rates and policies using cases from the FY 2011 MedPAR file in 
calculating the final outlier fixed-loss cost threshold for FY 2013.
    As discussed in section III.B.3. of the preamble of the FY 2011 
IPPS/LTCH PPS final rule (75 FR 50160 and 50161) and in section III.F. 
of the preamble of this final 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 final outlier fixed-loss cost threshold for FY 2013, it was 
necessary to apply this provision by adjusting the wage index of those 
eligible hospitals in a frontier State when calculating the outlier 
fixed-loss cost threshold that results in outlier payments being 5.1 
percent of total payments for FY 2013. If we did not take into account 
this provision, our estimate of total FY 2013 payments would be too 
low, and, as a result, our proposed outlier threshold would be too 
high, such that estimated outlier payments would be less than our 
projected 5.1 percent of total payments.
    Also, for this final rule, the cumulative effect of documentation 
and coding that we estimate has occurred is already reflected within 
the FY 2011 MedPAR claims data, and we did not believe there was any 
need to inflate FY 2011 claims data for any additional case-mix growth 
projected to have occurred since FY 2010.
    As discussed above, in our projection of FY 2013 outlier payments, 
we did not make any adjustments for the possibility that hospitals' 
CCRs and outlier payments may be reconciled upon cost report 
settlement. Also, we are finalizing our proposal to exclude the 
hospital VBP payment adjustments and the hospital readmissions payment 
adjustments from the calculation of the outlier fixed-loss cost 
threshold.
    Using this methodology, we calculated a final outlier fixed-loss 
cost threshold for FY 2013 equal to the prospective payment rate for 
the MS-DRG, plus any IME and DSH payments, and any add-on payments for 
new technology, plus $21,821. We note, that the final outlier fixed-
loss cost threshold is $1,089 less than the revised corrected proposed 
threshold amount ($23,630) mentioned above (which used the correct CCRs 
from December 2010 PSF update and properly adjusted the CCRs). We 
believe this decrease is attributable to the reduction in the charge 
inflation factor from 14.06 percent in the proposed rule to 8.94 
percent in this final rule (a reduction of 5.12 percentage points). A 
lower charge inflation factor decreases the projected total outlier 
payments. With a decrease in projected outlier payments, in order for 
CMS to meet the 5.1 percent target, it would be necessary to increase 
the amount of outlier payments by reducing the outlier fixed-loss cost 
threshold.
    In addition, at this time, we are not finalizing our proposal to 
make an adjustment to the standardized amounts to offset the estimated 
amount of the increase in aggregate payments due to the effect of 
documentation and coding that did not reflect real changes in case-mix 
for discharges occurring during FY 2010. Therefore, an increase to the 
standardized amount relative to the proposed rule also decreases the 
projected total outlier payments, which requires a reduction in the 
outlier fixed-loss cost threshold in order to increase the amount of 
outlier payments. Also, the final outlier fixed-loss cost threshold of 
$21,821 is $1,369 less than the outlier fixed-loss cost threshold of 
$23,190 requested by the commenters above. Because we are using the 
most recent available CCR data to calculate the final outlier fixed-
loss cost threshold and the final outlier fixed-loss cost threshold is 
much lower than the threshold amount requested by the commenters, as 
discussed above, we believe it is prudent to closely analyze the 
commenters' suggestions on modifying the methodology to calculate the 
outlier fixed-loss cost threshold and how to improve our estimation of 
the outlier payout from prior years after this final rule so that, if 
warranted, we can make any proposals related to these issues in a 
future rulemaking.
(2) Other Changes Concerning Outliers
    As stated in the FY 1994 IPPS final rule (58 FR 46348), we 
establish an outlier threshold that is applicable to both hospital 
inpatient operating costs and hospital inpatient capital-related costs. 
When we modeled the combined operating and capital outlier payments, we 
found that using a common threshold resulted in a lower percentage of 
outlier payments for capital-related costs than for operating costs. We 
project that the thresholds for FY 2013 will result in outlier payments 
that will

[[Page 53697]]

equal 5.1 percent of operating DRG payments and 6.38 percent of capital 
payments based on the Federal rate.
    In accordance with section 1886(d)(3)(B) of the Act, we are 
reducing the FY 2013 standardized amount by the same percentage to 
account for the projected proportion of payments paid as outliers.
    The outlier adjustment factors that are applied to the standardized 
amount based on the FY 2013 outlier threshold are as follows:

------------------------------------------------------------------------
                                             Operating
                                           standardized       Capital
                                              amounts      federal rate
------------------------------------------------------------------------
National................................        0.948999        0.936209
Puerto Rico.............................        0.944760        0.925579
------------------------------------------------------------------------

    We are applying the outlier adjustment factors to the FY 2013 rates 
after removing the effects of the FY 2012 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 1.146 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 
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, 2012, these statewide 
average ratios will replace the ratios posted on the Internet at http://www.cms.gov/AcuteInpatientPPS/FR2012/list.asp#TopOfPage. Table 8B 
listed in section VI. of this Addendum (and available via the Internet) 
contains the comparable statewide average capital CCRs. Again, the CCRs 
in Tables 8A and 8B will be used during FY 2013 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 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. Additionally, 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 2011 and FY 2012 Outlier Payments
    In the FY 2012 IPPS final rule (76 FR 51795 through 51796), we 
stated that, based on available data, we estimated that actual FY 2011 
outlier payments would be approximately 4.7 percent of actual total MS-
DRG payments. This estimate was computed based on simulations using the 
FY 2010 MedPAR file (discharge data for FY 2010 claims). That is, the 
estimate of actual outlier payments did not reflect actual FY 2011 
claims, but instead reflected the application of FY 2011 payment rates 
and policies to available FY 2010 claims.
    Our current estimate, using available FY 2011 claims data, is that 
actual outlier payments for FY 2011 were approximately 4.8 percent of 
actual total MS-DRG payments. Thus, the data indicate that, for FY 
2011, the percentage of actual outlier payments relative to actual 
total payments is lower than we projected for FY 2011. 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 2011 
are equal to 5.1 percent of total MS-DRG payments.
    In the proposed rule, we estimated that actual outlier payments for 
FY 2012 will be approximately 6.0 percent of actual total MS-DRG 
payments, approximately 0.9 percentage point higher than the 5.1 
percent we projected when setting the outlier policies for FY 2012. 
This estimate of 6.0 percent was based on simulations using the FY 2011 
MedPAR file (discharge data for FY 2011 claims). We note that, similar 
to our error in estimating the proposed outlier fixed-loss cost 
threshold, this estimate was incorrect because we inadvertently used 
CCRs with an effective date prior to December 2010. For this final 
rule, using the latest CCRs from the March 2012 update of the PSF, we 
estimate that actual outlier payments for FY 2012 will be approximately 
5.0 percent of actual total MS-DRG payments, approximately 0.1 
percentage point lower than the 5.1 percent we projected when setting 
the outlier policies for FY 2012. This estimate of 5.0 percent is based 
on simulations using the FY 2011 MedPAR file (discharge data for FY 
2011 claims).
    Comment: Commenters disagreed with CMS' use of modeled data versus 
actual payment data to compute the outlier payment percentage for FY 
2011. The commenters stated that they performed their own analyses 
using actual payment information in the MedPAR file, which resulted in 
outlier payments being 4.42 percent of actual MS-DRG payments for FY 
2011. The commenters recommended that CMS determine the FY 2011 outlier 
payment percentage using actual payments rather than modeled payments.
    The commenters disagreed with CMS' reasons presented in the FY 2011 
IPPS/LTCH PPS final rule (75 FR 50431) for using modeled data instead 
of actual data. In that final rule, CMS supported its decision to use 
modeled data in part because ``while accurate at the time the MedPAR 
file is constructed, claims can be cancelled, edited and resubmitted to 
NCH after the MedPAR file is built, and,

[[Page 53698]]

therefore, the payment field shown on MedPAR is subject to change and 
does not necessarily represent the final payment on that claim.'' The 
commenters stated that while this is true, the argument applies equally 
to modeling payments from the MedPAR data. The commenters explained 
that if a claim is cancelled after the MedPAR file is built, the 
modeled payment for that claim will be included in overall estimates.
    The commenters further noted that, in the FY 2011 IPPS/LTCH PPS 
final rule, CMS expressed concern that SCHs and MDHs complicate the use 
of the payment field shown on the MedPAR file (75 FR 50431). The 
commenter disagreed with CMS and stated that CMS' argument is valid for 
determining the DRG-based operating payments needed to calculate 
outlier payment levels; however, the SCH/MDH argument does not apply to 
outlier payments. The commenters claimed that ``the PRICER program 
determines outlier payments for all hospitals, including SCH/MDHs, 
based on the Federal rate only.'' The commenters added that ``the 
outlier payments are recorded in the ``OUTLIER AMOUNT'' field (and not 
included in the DRG PRICE).'' Therefore, the commenters asserted that 
``obtaining the outlier payments directly from the MedPAR file does not 
introduce complications related to the SCH/MDH status.'' Moreover, the 
commenters stated, ``that SCH/MDH hospitals represent a small percent 
of hospitals overall.''
    The commenters also believed that CMS' estimate is not as accurate 
as it could be. The commenter noted that CMS' statement in the FY 2012 
IPPS/LTCH PPS final rule (76 FR 51796) indicates that CMS estimated 
outlier payments for FY 2010 using a single CCR. The commenter stated 
that they were perplexed that CMS would not use the actual CCRs 
utilized in the actual payment process given that they are readily 
available in the PSF.
    Using actual payment data, the commenter computed an outlier payout 
of 4.74 percent and 4.13 percent for FY 2009 and FY 2010 respectively, 
versus the 5.3 percent and 4.7 percent that CMS published in the FY 
2011 and FY 2012 final rules. The commenter concluded that using 
modeled data has consistently overestimated outlier payments. The 
commenter recommended that CMS publish in the final rule the outlier 
percentage for FYs 2009 through 2011 based on actual payments.
    Response: We responded to similar comments in response to policies 
presented in last year's final rule and refer readers to the FY 2012 
IPPS/LTCH PPS final rule (76 FR 51796).
    Comment: One commenter was not aware that in determining the FY 
2011 outlier payout, CMS first identifies SCHs then sums up the total 
Federal payments and hospital-specific rate (HSP) payments and then 
excludes from the outlier calculation those SCHs whose HSP payments 
were greater than their Federal payments. Using actual payments, the 
commenter performed a similar edit for SCHs and an edit for MDHs (by 
excluding 75 percent of their standard Federal rate based on MS-DRG and 
outlier payments). Using the payment amounts on the claims, the 
commenter determined an outlier payout of 4.39 percent for FY 2011. The 
commenter also modeled the FY 2011 outlier payout by incorporating the 
same edit described above for SCHs and MDHs, and used CCRs that were in 
effect during FY 2011 from the March 2012 PSF update, and DSH and IME 
factors from the FY 2011 final rule impact file. The commenter used FY 
2011 payment rates and determined a modeled outlier payout of 4.42 
percent for FY 2011. The commenter noted that the modeled outlier 
percentage of 4.42 was very close to the actual outlier payment 
percentage of 4.39. The commenter added that using this model, an 
outlier fixed-loss cost threshold of $20,055 would have resulted in an 
outlier payout of 5.1 percent for FY 2011 versus CMS' final FY 2011 
outlier fixed-loss cost threshold of $23,075 (which represents a 15 
percent error in setting the threshold).
    The commenter also used cost report data from the March 2012 HCRIS 
update to analyze the historical actual outlier payout from 2003 
through 2010. To determine the outlier payout for each year, the 
commenter summed up total MS-DRG payments and outlier payments for each 
fiscal year based on cost report begin dates within the fiscal year. 
The commenters stated that CMS did not meet the 5.1 percent target in 
any of these fiscal years.
    The commenter also stated that it is important for CMS to assess 
how closely the prior year's threshold achieved its target. The 
commenter explained that if outlier payments from the prior year 
closely approximate the target, unless there are policy changes imposed 
by Congress or the agency or indications that demographic or public 
health factors had an impact on inpatient service intensity, then there 
is little need for dramatic change to the threshold from the prior year 
for the upcoming fiscal year.
    The commenter modeled the FY 2012 outlier payout by using FY 2011 
MedPAR data and inflating the charges by 6.8 percent. The commenter 
used the FY 2012 IPPS/LTCH PPS final rule impact file for payment 
variables and FY 2012 payment rules and determined an outlier payment 
of 5.8 percent. In the proposed rule, CMS calculated a 6.0 percent 
outlier payout for FY 2012. The commenter believed that the reason for 
this high outlier payout is due to the use of out of date CCRs. The 
commenter explained that they used CCRs from the March 2012 PSF update 
for the first three quarters of FY 2012 and projected forward CCRs by 1 
year for the last quarter of FY 2012. The commenter noted that the 
estimate of 5.8 percent may still be too high because it is expected 
that many hospitals will have their CCRs updated in the last quarter of 
FY 2012 due to the delay in filing form CMS 2552-10 cost reports (and 
CCRs tend to trend lower over time which would lower the threshold). 
The commenter noted that this delay probably impacts the estimated FY 
2012 outlier payout because hospitals did not have their CCR updated in 
the PSF, which caused relatively ``older'' CCRs to be used for payment 
of outliers longer than normal. (These older CCRs typically are higher 
than more recent updated CCRs, which would result in higher outlier 
payments during FY 2012.)
    Response: We appreciate the commenter's analysis above. We believe 
it is necessary to annually recompute the outlier fixed-loss cost 
threshold because section 1886(d)(5)(A)(iv) of the Act requires outlier 
payments to be not less than 5 percent nor more than 6 percent of total 
estimated or projected payments. Additionally, aside from the statute, 
there are many variables such as the market basket increase, wage 
index, charge inflation factor and other adjustments to the 
standardized amount that could affect the outlier fixed-loss cost 
threshold from one year to the next, which warrants an annual 
recalculation of the outlier fixed-loss cost threshold factoring in 
these changes so that we can meet our target of a 5.1 percent outlier 
payout. However, we recognize the commenter's concerns with our 
methodology for calculating the outlier fixed-loss cost threshold and 
our calculation of the outlier payout from prior years. Therefore, as 
stated above, we plan to closely analyze the commenters' suggestions 
for modifying the methodology to calculate the outlier fixed-loss cost 
threshold amount and to improve our estimation of the outlier payout 
from prior years after this final rule so that, if warranted, we can 
make

[[Page 53699]]

any proposals on these issues in a future rulemaking.
5. FY 2013 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 national standardized amounts that we are applying to all 
hospitals, except hospitals located in Puerto Rico, for FY 2013. The 
Puerto Rico-specific amounts are shown in Table 1C listed and published 
in section VI. of this Addendum (and available via the Internet). The 
amounts shown in Tables 1A and 1B differ only in that the labor-related 
share applied to the standardized amounts in Table 1A is the labor-
related share of 68.8 percent, and Table 1B is 62 percent. In 
accordance with sections 1886(d)(3)(E) and 1886(d)(9)(C)(iv) of the 
Act, we are applying a labor-related share of 62 percent, unless 
application of that percentage would result in lower payments to a 
hospital than would otherwise be made. In effect, the statutory 
provision means that we will apply a labor-related share of 62 percent 
for all hospitals (other than those in Puerto Rico) whose wage indices 
are less than or equal to 1.0000.
    In addition, Tables 1A and 1B include the standardized amounts 
reflecting the applicable percentage increase of 1.8 percent for FY 
2013, and an 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 labor-related and nonlabor-related portions of 
the national average standardized amounts for Puerto Rico hospitals for 
FY 2013 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 Puerto Rico standardized amounts. The labor-related share 
applied to the Puerto Rico-specific standardized amount is the labor-
related share of 62.1 percent, or 62 percent, depending on which 
provides higher payments to the hospital. (Section 1886(d)(9)(C)(iv) of 
the Act, as amended by section 403(b) of Public Law 108-173, provides 
that the labor-related share for hospitals located in Puerto Rico be 62 
percent, unless the application of that percentage would result in 
lower payments to the hospital.)
    The following table illustrates the changes from the FY 2012 
national standardized amount. The second column shows the changes from 
the FY 2012 standardized amounts for hospitals that satisfy the quality 
data submission requirement and, therefore, receive the full update of 
1.8 percent. The third column shows the changes for hospitals receiving 
the reduced update of -0.2 percent. The first row of the table shows 
the updated (through FY 2012) average standardized amount after 
restoring the FY 2012 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 2012 factors are not removed from this table.

   Comparison of FY 2012 Standardized Amounts to the FY 2013 Standardized Amount With Full and Reduced Update
----------------------------------------------------------------------------------------------------------------
                                   Full update (1.8    Full update (1.8    Reduced update (-   Reduced Update (-
                                    percent); wage      percent); wage    0.2 percent); wage  0.2 percent); Wage
                                   index is greater   index is less than   index is greater   index is less than
                                      than 1.0000     or equal to 1.0000      than 1.0000     or equal to 1.0000
----------------------------------------------------------------------------------------------------------------
FY 2012 Base Rate, after          Labor: $4,060.65..  Labor: $3,659.31..  Labor: $4,060.65..  Labor: $3,659.31.
 removing geographic              Nonlabor:           Nonlabor:           Nonlabor:           Nonlabor:
 reclassification budget           $1,841.46.          $2,242.80.          $1,841.46.          $2,242.80.
 neutrality, rural community
 hospital demonstration program
 budget neutrality, cumulative
 FY 2008 and FY 2009
 documentation and coding
 adjustment, FY 2012
 documentation and coding
 recoupment, and outlier offset
 (based on the
 labor[dash]related share
 percentage for FY 2012).
FY 2013 Update Factor...........  1.018.............  1.018.............  0.998.............  0.998.
FY 2013 MS[dash]DRG               0.998761..........  0.998761..........  0.998761..........  0.998761.
 Recalibration and Wage Index
 Budget Neutrality Factor.
FY 2013 Reclassification Budget   0.991276..........  0.991276..........  0.991276..........  0.991276.
 Neutrality Factor.
FY 2013 Rural Community           0.999677..........  0.999677..........  0.999677..........  0.999677.
 Demonstration Program Budget
 Neutrality Factor.
FY 2013 Operating Outlier Factor  0.948999..........  0.948999..........  0.948999..........  0.948999.
Documentation and coding          0.9478............  0.9478............  0.9478............  0.9478.
 adjustments required under
 sections 7(b)(1)(A) and
 7(b)(1)(B) of Pub. L. 110-90.
National Standardized Amount for  Labor: $3,679.95..  Labor: $3,316.23..  Labor: $3,607.65..  Labor: $3,251.08.
 FY 2013.                         Nonlabor:           Nonlabor:           Nonlabor:           Nonlabor:
                                   $1,668.81.          $2,032.53.          $1,636.02.          $1,992.59.
----------------------------------------------------------------------------------------------------------------

    The following table illustrates the changes from the FY 2012 Puerto 
Rico-specific payment rate for hospitals located in Puerto Rico. The 
second column shows the changes from the FY 2012 Puerto Rico specific 
payment rate for hospitals with a Puerto Rico-specific wage index 
greater than 1.0000. The third column shows the changes from the FY 
2012 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 updated (through FY 2012) Puerto Rico-specific payment rate 
after restoring the FY 2012 offsets for Puerto Rico-specific outlier 
payments, rural community hospital demonstration

[[Page 53700]]

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 2012 Puerto Rico-Specific Payment Rate to the FY 2013
                    Puerto Rico-Specific Payment Rate
------------------------------------------------------------------------
                                      Update (1.8         Update (1.8
                                    percent); wage      percent); wage
                                   index is  greater  index is less than
                                      than 1.0000     or equal to 1.0000
------------------------------------------------------------------------
FY 2012 Puerto Rico Base Rate,    Labor: $1,643.77..  Labor: $1,641.13
 after removing geographic        Nonlabor:           Nonlabor:
 reclassification budget           $1,003.21.          $1,005.85.
 neutrality, the rural community
 hospital demonstration program
 budget neutrality, Puerto Rico
 outlier offset (based on the
 Puerto Rico specific labor-
 related share percentage for FY
 2012).
FY 2013 Update Factor...........  1.018.............  1.018.
FY 2013 MS-DRG Recalibration      0.998431..........  0.998431.
 Budget Neutrality Factor.
FY 2013 Reclassification Budget   0.991276..........  0.991276.
 Neutrality Factor.
FY 2013 Rural Community Hospital  0.999677..........  0.999677.
 Demonstration Program Budget
 Neutrality Factor.
FY 2013 Puerto Rico Operating     0.944760..........  0.944760.
 Outlier Factor.
Puerto Rico-Specific Payment      Labor: $1,564.17..  Labor: $1,561.65
 Rate for FY 2013.                Nonlabor: $954.62.  Nonlabor: $957.14.
------------------------------------------------------------------------

B. 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 labor-related and 
nonlabor-related shares that we used to calculate the prospective 
payment rates for hospitals located in the 50 States, the District of 
Columbia, and Puerto Rico for FY 2013. This section addresses two types 
of adjustments to the standardized amounts that are made in determining 
the prospective payment rates as described in this Addendum.
1. Adjustment for Area Wage Levels
    Sections 1886(d)(3)(E) and 1886(d)(9)(C)(iv) of the Act require 
that we make an adjustment to the labor-related portion of the national 
and Puerto Rico prospective payment rates, respectively, to account for 
area differences in hospital wage levels. This adjustment is made by 
multiplying the labor-related portion of the adjusted standardized 
amounts by the appropriate wage index for the area in which the 
hospital is located. In section III. of the preamble of this final 
rule, we discuss the data and methodology for the FY 2013 wage index.
2. 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 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 rule (77 FR 28145 and 28146), 
we explained that sections 1911 through 1919 of the Nonforeign Area 
Retirement Equity Assurance Act, as contained in subtitle B of title 
XIX of the National Defense Authorization Act (NDAA) for Fiscal Year 
2010 (Pub. L. 111-84, October 28, 2009), transitions the Alaska and 
Hawaii COLAs to locality pay. We further explained in the proposed rule 
that, beginning in FY 2012, as OPM transitioned away from COLAs, we 
continued to use the same ``frozen'' COLA factors (published by OPM) 
that we used to adjust payments in FY 2011 (which were based on OPM's 
2009 COLA factors) to adjust the nonlabor-related portion of the 
standardized amount for hospitals located in Alaska and Hawaii. We 
refer readers to the FY 2013 IPPS/LTCH PPS proposed rule for a more 
detailed discussion of our rationale for continuing to use the frozen 
COLAs.
    In the FY 2013 IPPS/LTCH PPS proposed rule, for FY 2013, we 
proposed to continue to use the same COLA factors that are used to 
adjust payments in FY 2012 (as originally used to adjust payments in FY 
2011, which are based on OPM's 2009 COLA factors), and we also proposed 
a methodology to update the COLA factors published by OPM beginning in 
FY 2014. Specifically, we proposed to update the COLA factors published 
by OPM that we used to adjust payments in FY 2011 (which are based on 
OPM's 2009 COLA factors) by using the comparison of the growth in the 
overall CPI relative to the growth in the CPI in Anchorage and Honolulu 
to update the COLA adjustment factors for all areas in Alaska and 
Hawaii, respectively. We noted that OPM's COLA factors were calculated 
with a statutorily mandated cap of 25 percent, and we have exercised 
our discretionary authority to adjust Alaska and Hawaii payments by 
incorporating this cap. We again refer readers to the FY 2013 IPPS/LTCH 
PPS proposed rule for a more detailed discussion of our methodology. 
Lastly, as we stated in the proposed rule, we are updating the COLA 
factors based on our methodology every 4 years, at the same time as the 
update to the labor-related share of the IPPS market basket. The labor-
related share of the IPPS market basket is currently not scheduled to 
be updated until FY 2014.
    We did not receive any public comments on this proposal. Therefore, 
we are finalizing our proposals without modification. Specifically, we 
are adopting as final our proposed methodology to update the COLA 
factors annually beginning in FY 2014. We also are finalizing our 
proposal for FY 2013 to continue to use the same COLA factors used to 
adjust payments

[[Page 53701]]

in FY 2012. Therefore, the COLA factors which will be used to adjust 
the nonlabor-related portion of the standardized amount for hospitals 
located in Alaska and Hawaii for FY 2013 remain unchanged from FY 2012. 
The table below shows the COLA factors that we are establishing for FY 
2013:

 FY 2013 Cost-of-Living Adjustment Factors: Alaska and Hawaii Hospitals
------------------------------------------------------------------------
                                                               Cost of
                                                                living
                            Area                              adjustment
                                                                factor
------------------------------------------------------------------------
Alaska:
  City of Anchorage and 80-kilometer (50-mile) radius by            1.23
   road....................................................
  City of Fairbanks and 80-kilometer (50-mile) radius by            1.23
   road....................................................
  City of Juneau and 80-kilometer (50-mile) radius by road.         1.23
  Rest of Alaska...........................................         1.25
Hawaii:
  City and County of Honolulu..............................         1.25
  County of Hawaii.........................................         1.18
  County of Kauai..........................................         1.25
  County of Maui and County of Kalawao.....................         1.25
------------------------------------------------------------------------

C. Calculation of the Prospective Payment Rates

General Formula for Calculation of the Prospective Payment Rates for FY 
2013
    In general, the operating prospective payment rate for all 
hospitals paid under the IPPS located outside of Puerto Rico, except 
SCHs, for FY 2013 equals the Federal rate. (As noted above, due to the 
expiration of the MDH program, beginning with FY 2013, we are not 
including MDHs in our discussion of the update of the hospital-specific 
rates for FY 2013.)
    Currently, SCHs are paid based on whichever of the following rates 
yields the greatest aggregate payment: The Federal national rate; the 
updated hospital-specific rate based on FY 1982 costs per discharge; 
the updated hospital-specific rate based on FY 1987 costs per 
discharge; the updated hospital-specific rate based on FY 1996 costs 
per discharge; or the updated hospital-specific rate based on the FY 
2006 costs per discharge to determine the rate that yields the greatest 
aggregate payment.
    The prospective payment rate for SCHs for FY 2013 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 2013 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 IV.D. of the preamble of this final 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 the 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).
    We note that, in the FY 2012 IPPS/LTCH final rule (76 FR 51799), we 
finalized an adjustment of 0.9 percent to the hospital-specific rate 
(that is, a factor of 1.009) in light of the Cape Cod decision. The 
adjustment is a one-time permanent adjustment to the hospital-specific 
rates.
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 applicable percentage increase to the hospital-specific rates 
applicable to SCHs is 1.8 percent (that is, the FY 2013 estimate of the 
market basket rate-of-increase of 2.6 percent less an adjustment of 0.7 
percentage point for MFP and less 0.1 percentage point) for hospitals 
that submit quality data or -0.2 percent (that is, the FY 2013 estimate 
of the market basket rate-of-increase of 2.6 percent, less 2.0 
percentage points for failure to submit data under the Hospital IQR 
Program, less an adjustment of 0.7 percentage point for MFP, and less 
0.1 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 IV.B. of the preamble of this final 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

[[Page 53702]]

so that aggregate IPPS payments are unaffected. Therefore, a SCH's 
hospital-specific rate is adjusted by the MS-DRG reclassification and 
recalibration budget neutrality factor of 0.998431, 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, 2012.
c. Documentation and Coding Adjustment to the FY 2013 Hospital-Specific 
Rate for SCHs
    As discussed in section II.D. of the preamble of this final rule, 
because hospitals paid based in whole or in part on the hospital-
specific rate (that is, SCHs and, until October 1, 2012, MDHs) use the 
same MS-DRG system as other hospitals, we believe they have the 
potential to realize increased payments from documentation and coding 
changes that do not reflect real increases in patients' severity of 
illness. Under section 1886(d)(3)(A)(vi) of the Act, Congress 
stipulated that hospitals paid based on the standardized amount should 
not receive additional payments based on the effect of documentation 
and coding changes that do not reflect real changes in case-mix. 
Similarly, we believe that hospitals paid based on the hospital-
specific rate should not have the potential to realize increased 
payments due to documentation and coding changes that do not reflect 
real increases in patients' severity of illness. Therefore, as 
discussed in the FY 2011 IPPS/LTCH PPS final rule (75 FR 50426) and in 
section II.D. of the preamble of this final rule, we believe they 
should be equally subject to a prospective budget neutrality adjustment 
that we are applying for adoption of the MS-DRGs to all other 
hospitals. While we continue to believe that section 1886(d)(3)(A)(vi) 
of the Act does not provide explicit authority for application of the 
documentation and coding adjustment to the hospital-specific rates, we 
believe that we have the authority to apply the documentation and 
coding adjustment to the hospital-specific rates to ensure rates are 
not increased in a manner that does not reflect real changes in case-
mix, and using our special exceptions and adjustment authority under 
section 1886(d)(5)(I)(i) of the Act.
    As we discuss in section II.D. of the preamble of this final rule, 
we have determined that a cumulative adjustment of -5.4 percent is 
required to eliminate the full effect of changes in documentation and 
coding that occurred in FY 2008 and FY 2009 on future payments to SCHs. 
Currently, we have made cumulative adjustments to the hospital-specific 
rates to account for 4.9 percent of the 5.4 percent effect of changes 
in documentation and coding that occurred in FY 2008 and FY 2009. (For 
FY 2011, we established a prospective adjustment of -2.9 percent to the 
hospital-specific rates, and, for FY 2012, we established a prospective 
adjustment to the hospital-specific rates of -2.0 percent.) In the FY 
2012 IPPS/LTCH PPS final rule (76 FR 51499), we indicated that, because 
the -2.0 percent adjustment we made in FY 2012 did not reflect the 
entire remaining required adjustment amount of -2.5 percent, an 
additional -0.5 percent adjustment to the hospital-specific rates would 
be required in a future rulemaking.
    In this final rule, as we proposed, we are finalizing a -0.5 
percent prospective adjustment to the hospital-specific rate to account 
for the remainder of the 5.4 percent effect of documentation and coding 
that occurred in FY 2008 and FY 2009. We continue to believe that 
hospitals paid based on their hospital-specific rate (that is, SCHs 
and, until October 1, 2012, MDHs) had the same opportunity to benefit 
from improvements in documentation and coding that did not reflect an 
increase in patient severity, and we continue to believe that any 
resulting adjustments should be applied similarly to all subsection (d) 
hospitals, when possible.
    As discussed in section II.D. of the preamble of this final rule, 
consistent with our policy for IPPS hospitals based upon a review of FY 
2010 claims data using the same methodology, we proposed to make an 
additional -0.8 percent adjustment to the hospital-specific rates to 
account for documentation and coding that did not reflect an actual 
increase in case-mix in FY 2010. In the proposed rule, we stated that 
we believe that a full prospective adjustment is the most appropriate 
means to take into account the effect of documentation and coding 
changes on payments, while maintaining equity as much as possible 
between different IPPS hospitals paid using the MS-DRG system. 
Therefore, as discussed in more detail in the preamble of this final 
rule, we proposed a combined adjustment of -1.3 percent (-0.5 percent + 
-0.8 percent) to the hospital-specific rates, accounting for all 
documentation and coding effects observed between FY 2008 though FY 
2010.
    As discussed in section II.D. of the preamble of this final rule, 
we are not finalizing an additional -0.8 percent adjustment to the FY 
2013 hospital-specific rates to account for documentation and coding 
that did not reflect an actual increase in case-mix in FY 2010. 
However, as stated above, we are making an adjustment of -0.5 percent 
to the hospital-specific rates, accounting for all documentation and 
coding effects observed during FY 2008 and FY 2009.
3. General Formula for Calculation of Prospective Payment Rates for 
Hospitals Located in Puerto Rico Beginning on or after October 1, 2012, 
and before October 1, 2013
    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.
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

[[Page 53703]]

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.

III. Changes to Payment Rates for Acute Care Hospital Inpatient 
Capital-Related Costs for FY 2013

    The PPS for acute care hospital inpatient capital-related costs was 
implemented for cost reporting periods beginning on or after October 1, 
1991. Effective with that cost reporting period, hospitals were paid 
during a 10-year transition period (which extended through FY 2001) to 
change the payment methodology for Medicare acute care hospital 
inpatient capital-related costs from a reasonable cost-based 
methodology to a prospective methodology (based fully on the Federal 
rate).
    The basic methodology for determining Federal capital prospective 
rates is set forth in the regulations at 42 CFR 412.308 through 
412.352. Below we discuss the factors that we used to determine the 
capital Federal rate for FY 2013, which is effective for discharges 
occurring on or after October 1, 2012.
    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 below in section III.A.4. of this Addendum, 
there is no longer a need for an exceptions payment adjustment factor.) 
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 Federal Hospital Inpatient Capital-Related 
Prospective Payment Rate Update

    In the discussion that follows, we explain the factors that we used 
to determine the capital Federal rate for FY 2013. In particular, we 
explain why the FY 2013 capital Federal rate increases approximately 
1.0 percent, compared to the FY 2012 capital Federal rate. As discussed 
in the impact analysis in Appendix A to this final rule, we estimate 
that capital payments per discharge will increase 1.8 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 update 
factor for FY 2013 under that framework is 1.2 percent based on the 
best data available at this time. The update factor under that 
framework is based on a projected 1.2 percent increase in the CIPI, a 
0.0 percent adjustment for intensity, a 0.0 percent adjustment for 
case-mix, a 0.0 percent adjustment for the FY 2011 DRG reclassification 
and recalibration, and a forecast error correction of 0.0 percent. As 
discussed below in section III.C. of this Addendum, we continue to 
believe that the CIPI is the most appropriate input price index for 
capital costs to measure capital price changes in a given year. We also 
explain the basis for the FY 2013 CIPI projection in that same section 
of this Addendum. (We note that, as discussed in section V.C. of the 
preamble of this final rule, at this time, we are not finalizing our 
proposal to apply a -0.8 percent adjustment to the capital Federal rate 
in FY 2013 to account for the effect of changes in documentation and 
coding under the MS-DRGs that do not correspond to changes in real 
increases in patients' severity of illness.) Below we describe the 
policy adjustments that we are applying in the update framework for FY 
2013.
    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
     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

[[Page 53704]]

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 2013, 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 2013. The 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 net 
adjustment for case-mix change in FY 2013 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 2011 DRG reclassification and recalibration as part 
of our update for FY 2013. We estimate that FY 2011 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 making a 0.0 percent adjustment for 
reclassification and recalibration in the update framework for FY 2013.
    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 0.0 percentage point was calculated 
for the FY 2013 update. That is, current historical data indicate that 
the forecasted FY 2011 CIPI (1.2 percent) used in calculating the FY 
2011 update factor is the same as the actual realized price increases 
(1.2 percent). Because we estimate forecast error for the FY 2011 CIPI, 
we are making a 0.0 percent adjustment for forecast error in the update 
for FY 2013.
    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 final rule, we are continuing to use a Medicare-specific 
intensity measure that is based on a 5-year adjusted average of cost 
per discharge for FY 2013 (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 2013, we are using an 
intensity measure that is based on an average of cost per discharge 
data from the 5-year period beginning with FY 2005 and extending 
through FY 2010. Based on these data, we estimated that case-mix 
constant intensity declined during FYs 2005 through 2010. 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 continue to apply a zero 
intensity adjustment for FY 2013. Therefore, we are making a 0.0 
percent adjustment for intensity in the update for FY 2013.
    Above, we described the basis of the components used to develop the 
1.2 percent capital update factor under the capital update framework 
for FY 2013 as shown in the table below.

          CMS FY 2013 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 2011 Reclassification and Recalibration............     0.0
Forecast Error Correction.......................................     0.0
                                                                 -------
    Total Update................................................     1.2
------------------------------------------------------------------------

b. Comparison of CMS and MedPAC Update Recommendation
    In its March 2012 Report to Congress, MedPAC did not make a 
specific update recommendation for capital IPPS payments for FY 2013. 
(We refer readers to MedPAC's Report to the Congress: Medicare Payment 
Policy, March 2012, 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 2012, we estimated that outlier payments for capital would 
equal 6.18 percent of inpatient capital-related payments based on the 
capital Federal rate in FY 2012. Based on the thresholds as set forth 
in section II.A. of this Addendum, we estimate that outlier payments 
for capital-related costs will equal 6.38 percent for inpatient 
capital-related payments based on the capital Federal rate in FY 2013. 
Therefore, we are applying an outlier adjustment

[[Page 53705]]

factor of 0.9362 in determining the capital Federal rate for FY 2013. 
Thus, we estimate that the percentage of capital outlier payments to 
total capital Federal rate payments for FY 2013 will be somewhat higher 
than the percentage for FY 2012. This increase in estimated capital 
outlier payments is primarily due to the decrease in the outlier 
threshold used to identify outlier cases for both inpatient operating 
and inpatient capital-related payments, which is discussed in section 
II.A. of this Addendum. That is, because the outlier threshold used to 
identify outlier cases is lower, cases will receive higher outlier 
payments and more cases will qualify for outlier payments.
    The outlier reduction factors are not built permanently into the 
capital rates; that is, they are not applied cumulatively in 
determining the capital Federal rate. The FY 2013 outlier adjustment of 
0.9362 is a -0.21 percent change from the FY 2012 outlier adjustment of 
0.9382. Therefore, the net change in the outlier adjustment to the 
capital Federal rate for FY 2013 is 0.9976 (0.9362/0.9382). Thus, the 
outlier adjustment will decrease the FY 2013 capital Federal rate by 
0.21 percent compared to the FY 2012 outlier adjustment.
3. Budget Neutrality Adjustment Factor for Changes in DRG 
Classifications and Weights and the GAF
    Section 412.308(c)(4)(ii) requires that the capital Federal rate be 
adjusted so that aggregate payments for the fiscal year based on the 
capital Federal rate after any changes resulting from the annual DRG 
reclassification and recalibration and changes in the GAF are projected 
to equal aggregate payments that would have been made on the basis of 
the capital Federal rate without such changes. Because we implemented a 
separate GAF for Puerto Rico, we apply separate budget neutrality 
adjustments for the national GAF and the Puerto Rico GAF. We apply the 
same budget neutrality factor for DRG reclassifications and 
recalibration nationally and for Puerto Rico. Separate adjustments were 
unnecessary for FY 1998 and earlier because the GAF for Puerto Rico was 
implemented in FY 1998.
    To determine the factors for FY 2013, we compared (separately for 
the national capital rate and the Puerto Rico capital rate) estimated 
aggregate capital Federal rate payments based on the FY 2012 MS-DRG 
classifications and relative weights and the FY 2012 GAF to estimated 
aggregate capital Federal rate payments based on the FY 2012 MS-DRG 
classifications and relative weights and the FY 2013 GAFs. To achieve 
budget neutrality for the changes in the national GAFs, based on 
calculations using updated data, we are applying an incremental budget 
neutrality adjustment factor of 1.0003 for FY 2013 to the previous 
cumulative FY 2012 adjustment factor of 0.9908, yielding an adjustment 
factor of 0.9911, through FY 2013. For the Puerto Rico GAFs, we are 
applying an incremental budget neutrality adjustment factor of 1.0056 
for FY 2013 to the previous cumulative FY 2012 adjustment factor of 
1.0043, yielding a cumulative adjustment factor of 1.0100 through FY 
2013.
    We then compared estimated aggregate capital Federal rate payments 
based on the FY 2012 MS-DRG relative weights and the FY 2013 GAFs to 
estimate aggregate capital Federal rate payments based on the 
cumulative effects of the FY 2013 MS-DRG classifications and relative 
weights and the FY 2013 GAFs. The incremental adjustment factor for DRG 
classifications and changes in relative weights is 0.9996 both 
nationally and for Puerto Rico. The cumulative adjustment factors for 
MS-DRG classifications and changes in relative weights and for changes 
in the GAFs through FY 2013 are 0.9904 nationally and 1.0095 for Puerto 
Rico. We note that all the values are calculated with unrounded 
numbers.
    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.
    For FY 2012, we established a GAF/DRG budget neutrality adjustment 
factor of 1.0004 (76 FR 51803). For FY 2013, we are establishing a GAF/
DRG budget neutrality adjustment factor of 0.9998. 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 that estimated 
aggregate payments each year be no more or less than they would have 
been in the absence of the annual DRG reclassification and 
recalibration and changes in the GAFs. The incremental change in the 
adjustment factor from FY 2012 to FY 2013 is 0.9998. The cumulative 
change in the capital Federal rate due to this adjustment is 0.9904 
(the product of the incremental factors for FYs 1995 through 2012 and 
the incremental factor of 0.9998 for FY 2013). (For a historical 
listing of the DRG and GAF budget neutrality adjustment factors, we 
refer readers to section III. of the Addendum to the FY 2012 IPPS/LTCH 
PPS final rule (76 FR 51803).)
    The factor accounts for the MS-DRG reclassifications and 
recalibration and for changes in the GAFs. It also incorporates the 
effects on the GAFs of FY 2013 geographic reclassification decisions 
made by the MGCRB compared to FY 2012 decisions. However, it does not 
account for changes in payments due to changes in the DSH and IME 
adjustment factors.
4. Exceptions Payment Adjustment Factor
    Section 412.308(c)(3) of our regulations requires that the capital 
standard Federal rate be reduced by an adjustment factor equal to the 
estimated proportion of additional payments for both regular exceptions 
and special exceptions under Sec.  412.348 relative to total capital 
PPS payments.
    Since FY 2002, an adjustment for regular exception payments was no 
longer necessary in determining the capital Federal rate because, in 
accordance with Sec.  412.348(b), regular exception payments were only 
made for cost reporting periods beginning on or after October 1, 1991, 
and before October 1, 2001. Accordingly, in FY 2002 and subsequent 
fiscal years, no payments are made under the regular exceptions 
provision (66 FR 39949). Furthermore, as discussed in the FY 2012 IPPS/
LTCH PPS final rule (76 FR 51804), there are no longer any remaining 
hospitals eligible to receive a special exceptions payment under Sec.  
412.348(g) because they have reached the limitation on the period for 
exception payments under Sec.  412.348(g)(7). Therefore, beginning with 
FY 2012, there is no longer a need for an exceptions payment adjustment 
factor.

[[Page 53706]]

5. Capital Federal Rate for FY 2013
    For FY 2012, we established a capital Federal rate of $421.42 (76 
FR 51804). We are establishing an update of 1.2 percent in determining 
the FY 2013 capital Federal rate for all hospitals. (As discussed in 
greater detail in section V.E. of the preamble of this final rule, at 
this time we are not adopting our proposal to make an additional -0.8 
percent adjustment to the national capital Federal rate in FY 2013 to 
account for the effect of changes in case-mix resulting from 
documentation and coding changes that do not reflect real changes in 
the case-mix in light of the adoption of MS-DRGs. However, the 
cumulative documentation and coding adjustment factor of 0.9479 applied 
in determining the FY 2012 capital Federal rate remains applied to that 
rate. As a result of the 1.2 percent update and other budget neutrality 
factors discussed above, we are establishing a national capital Federal 
rate of $425.49 for FY 2013. The national capital Federal rate for FY 
2013 was calculated as follows:
     The FY 2013 update factor is 1.0120, that is, the update 
is 1.2 percent.
     The FY 2013 budget neutrality adjustment factor that is 
applied to the capital Federal rate for changes in the MS-DRG 
classifications and relative weights and changes in the GAFs is 0.9998.
     The FY 2013 outlier adjustment factor is 0.9362.
    Because the 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 making additional adjustments 
in the capital Federal rate for these factors, other than the budget 
neutrality factor for changes in the MS-DRG classifications and 
relative weights and for changes in the GAFs. (As discussed in section 
III.A.4. of this Addendum, there is no longer a need for an exceptions 
payment adjustment factor in determining the capital Federal rate.)
    We are providing the following chart that shows how each of the 
factors and adjustments for FY 2013 affects the computation of the FY 
2013 national capital Federal rate in comparison to the FY 2012 
national capital Federal rate. The FY 2013 update factor has the effect 
of increasing the capital Federal rate by 1.2 percent compared to the 
FY 2012 capital Federal rate. The GAF/DRG budget neutrality adjustment 
factor has the effect of decreasing the capital Federal rate by 0.02 
percent. The FY 2013 outlier adjustment factor has the effect of 
decreasing the capital Federal rate by 0.21 percent compared to the FY 
2012 capital Federal rate. The combined effect of all the changes will 
increase the national capital Federal rate by 0.97 percent compared to 
the FY 2012 national capital Federal rate.

      Comparison of Factors and Adjustments: FY 2012 Capital Federal Rate and FY 2013 Capital Federal Rate
----------------------------------------------------------------------------------------------------------------
                                                                                                       Percent
                                                                FY 2012      FY 2013       Change       change
----------------------------------------------------------------------------------------------------------------
Update Factor \1\...........................................       1.0150       1.0120       1.0120         1.20
GAF/DRG Adjustment Factor \1\...............................       1.0040       0.9998       0.9998        -0.02
Outlier Adjustment Factor \2\...............................       0.9382       0.9362       1.0019        -0.21
Capital Federal Rate........................................      $421.42      $425.49       1.0097         0.97
----------------------------------------------------------------------------------------------------------------
\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 2012 to FY 2013 resulting from the
  application of the 0.9998 GAF/DRG budget neutrality adjustment factor for FY 2013 is a net change of 0.9998
  (or -0.02 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 FY 2013 outlier adjustment factor is 0.9362/0.9382, or 0.9979 (or -0.21 percent).

    In this final rule, we also are providing the following chart that 
shows how the final FY 2013 capital Federal rate differs from the 
proposed FY 2013 capital Federal rate as presented in the FY 2013 IPPS/
LTCH PPS proposed rule.

 Comparison of Factors and Adjustments: Proposed FY 2013 Capital Federal Rate and Final FY 2013 Capital Federal
                                                      Rate
----------------------------------------------------------------------------------------------------------------
                                                               Proposed *    Final FY                  Percent
                                                                FY 2013        2013        Change       change
----------------------------------------------------------------------------------------------------------------
Update Factor...............................................       1.0130       1.0120       0.9990        -0.10
GAF/DRG Adjustment Factor...................................       1.0002       0.9998       0.9997        -0.03
Outlier Adjustment Factor...................................       0.9357       0.9362       1.0005         0.05
MS-DRG Documentation and Coding Adjustment Factor...........       0.9404       0.9479       1.0080         0.80
Capital Federal Rate........................................      $422.47      $425.49       1.0071         0.71
----------------------------------------------------------------------------------------------------------------
* The proposed FY 2013 capital Federal rate reflects the correction to the outlier adjustment factor presented
  in the FY 2013 IPPS/LTCH PPS correction notice (77 FR 34328).

6. 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).

[[Page 53707]]

    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 budget neutrality 
adjustment factors for the national GAF and for the Puerto Rico GAF, 
and the 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 2012, the special capital rate for hospitals located in 
Puerto Rico was $203.86 (76 FR 51805). With the changes we are making 
to the other factors used to determine the capital Federal rate, the FY 
2013 special capital rate for hospitals in Puerto Rico is $207.25.

B. Calculation of the Inpatient Capital-Related Prospective Payments 
for FY 2013

    For purposes of calculating payments for each discharge during FY 
2013, 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 outlier thresholds for FY 2013 are in section II.A. of 
this Addendum. For FY 2013, a case would qualify as a cost outlier if 
the cost for the case plus the (operating) IME and DSH payments is 
greater than the prospective payment rate for the MS-DRG plus the 
fixed-loss amount of $21,821.
    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 to reflect the changing composition of inputs for 
operating and capital expenses. In the FY 2010 IPPS/RY 2010 LTCH PPS 
final rule (74 FR 44021), we rebased and revised the CIPI to a FY 2006 
base year to reflect the more current structure of capital costs in 
hospitals. A complete discussion of this rebasing is provided in 
section IV. of the preamble of that final rule.
2. Forecast of the CIPI for FY 2013
    Based on the latest forecast by IHS Global Insight, Inc. (second 
quarter of 2012), we are forecasting the FY 2006-based CIPI to increase 
1.2 percent in FY 2013. This reflects a projected 1.8 percent increase 
in vintage-weighted depreciation prices (building and fixed equipment, 
and movable equipment), and a projected 1.9 percent increase in other 
capital expense prices in FY 2013, partially offset by a projected 2.3 
percent decline in vintage-weighted interest expenses in FY 2013. The 
weighted average of these three factors produces the 1.2 percent 
increase for the FY 2006-based CIPI as a whole in FY 2013.

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

    Historically, hospitals and hospital units excluded from the 
prospective payment system received payment for inpatient hospital 
services they furnished on the basis of reasonable costs, subject to a 
rate-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 all 
categories of excluded providers (rehabilitation hospitals and units 
(now referred to as IRFs), psychiatric hospitals and units (now 
referred to as IPFs), LTCHs, children's hospitals, and cancer 
hospitals).
    Payments for services furnished in children's hospitals and cancer 
hospitals that are excluded from the IPPS continue to be subject to the 
rate-of-increase ceiling based on the hospital's own historical cost 
experience. (We note that, in accordance with Sec.  403.752(a), RNHCIs 
are also subject to the rate-of-increase limits established under Sec.  
413.40 of the regulations.)
    In the FY 2013 IPPS/LTCH PPS proposed rule (77 FR 27998), we 
proposed that the FY 2013 rate-of-increase percentage for updating the 
target amounts for cancer and children's hospitals and RNHCIs would be 
the estimated percentage increase in the FY 2013 IPPS operating market 
basket, in accordance with applicable regulations at Sec.  413.40. In 
the proposed rule, we estimated the percentage increase in the FY 2013 
IPPS operating market basket to be 3.0 percent (that is, the estimate 
of the market basket rate-of-increase). Based on IHS Global Insight, 
Inc.'s 2012

[[Page 53708]]

first quarter forecast, with historical data through the 2011 fourth 
quarter, we estimated the IPPS operating market basket update would be 
3.0 percent for FY 2013. However, we proposed 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 2013. Therefore, based on 
IHS Global Insight, Inc.'s 2012 second quarter forecast, with 
historical data through the 2012 first quarter, we estimate that the 
final FY 2013 update to the IPPS operating market basket is 2.6 
percent. For cancer and children's hospitals and RNHCIs, the final FY 
2013 rate-of-increase percentage that will be applied to the FY 2012 
target amounts in order to determine the final FY 2013 target amount is 
2.6 percent.
    IRFs, IPFs, and LTCHs were previously paid under the reasonable 
cost methodology. However, the statute was amended to provide for the 
implementation of prospective payment systems for IRFs, IPFs, and 
LTCHs. In general, the prospective payment systems for IRFs, IPFs, and 
LTCHs provide transitioning periods of varying lengths of time during 
which a portion of the prospective payment 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 VII. of the preamble and section V. of the 
Addendum to this final rule for the update changes to the Federal 
payment rates for LTCHs under the LTCH PPS for FY 2013. The annual 
updates for the IRF PPS and the IPF PPS are issued by the agency in 
separate Federal Register documents.

V. Changes to the Payment Rates for the LTCH PPS for FY 2013

A. LTCH PPS Standard Federal Rate for FY 2013

1. Background
    In section VII. of the preamble of this final rule, we discuss our 
changes to the payment rates, factors, and specific policies under the 
LTCH PPS for FY 2013.
    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 FY 2012, 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.
    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 VII.D.2.d. of the preamble of 
this final 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 VII.D.2.d. of the preamble of 
this final 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 2012, consistent with our historical practice, we 
established an update to the LTCH PPS standard Federal rate based on 
the full estimated LTCH PPS market basket increase of 2.9 percent and 
the 1.1 percentage point reductions required by sections 
1886(m)(3)(A)(i) and (m)(4)(C) of the Act. Accordingly, at Sec.  
412.523(c)(3)(viii) of the regulations, we established an annual update 
of 1.8 percent to the standard Federal rate for FY 2012 (76 FR 51769 
through 51771 and 51807).
    In this final rule, for FY 2013, as discussed in greater detail in 
section VII.D.2. of the preamble of this final rule, we are 
establishing 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 0.1 percentage point required by sections 
1886(m)(3)(A)(ii) and (m)(4)(C) of the Act. Specifically, in this final 
rule, based on the best available data, we are establishing an annual 
update to the standard Federal rate of 1.8 percent, which is based on 
the full estimated increase in the LTCH PPS market basket 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.
2. Development of the FY 2013 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

[[Page 53709]]

basket, including any statutory adjustments. Consistent with our 
historical practice, we applied the annual update to the LTCH PPS 
standard Federal rate from the previous year. In determining the 
standard Federal rate for FY 2013, we also made certain regulatory 
adjustments. Specifically, we made a one-time prospective adjustment to 
the standard Federal rate under Sec.  412.523(d)(3), as discussed in 
greater detail in section VII.E.4. of the preamble of this final rule 
(which will not be applicable to payments for discharges occurring 
prior to December 29, 2012, consistent with the statute. In addition, 
in determining the FY 2013 standard Federal rate, we applied 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 2012 IPPS/LTCH PPS final rule (76 FR 51769 through 51771 
and 51807), we established an annual update to the LTCH PPS standard 
Federal rate of 1.8 percent for FY 2012 based on the full estimated 
LTCH PPS market basket increase of 2.9 percent, less the MFP adjustment 
of 1.0 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)(viii), we established an annual update to the standard 
Federal rate for FY 2012 of 1.8 percent. That is, we applied an update 
factor of 1.018 to the FY 2011 Federal rate of $39,599.95 to determine 
the FY 2012 standard Federal rate. Furthermore, for FY 2012, we applied 
an area wage level budget neutrality factor of 0.99775 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 2012 of $40,222.05 
(calculated as $39,599.95 x 1.018 x 0.99775), which is applicable to 
LTCH PPS discharges occurring on or after October 1, 2011, through 
September 30, 2012.
    In the FY 2013 IPPS/LTCH PPS proposed rule (77 FR 28153), we 
proposed to establish an annual update to the LTCH PPS standard Federal 
rate of 2.1 percent for FY 2013, based on the full estimated increase 
in the proposed LTCH PPS market basket of 3.0 percent less the proposed 
MFP adjustment of 0.8 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. Therefore, under 
proposed Sec.  412.523(c)(3)(ix)(A), we proposed to apply a factor of 
1.021 to the FY 2012 standard Federal rate of $40,222.05 (as 
established in the FY 2012 IPPS/LTCH PPS final rule (76 FR 51807)) to 
determine the proposed FY 2013 standard Federal rate. In that same 
proposed rule, we also proposed that the standard Federal rate for FY 
2013 would be further adjusted by the proposed one-time prospective 
adjustment factor for FY 2013 of 0.98734 under proposed Sec.  
412.523(d)(3) (ii)(which would not be applicable to payments for 
discharges occurring prior to December 29, 2012, consistent with the 
statute). In addition, for FY 2013, we proposed to apply an area wage 
level budget neutrality factor of 0.99903 to the standard Federal rate 
to ensure that any 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. Consequently, that same proposed 
rule, we proposed to establish a standard Federal rate for FY 2013 of 
$40,507.48 (calculated as $40,222.05 x 1.021 x 0.98734 x 0.99903). 
Furthermore, consistent with the statute, the proposed one-time 
prospective adjustment to the standard Federal rate for FY 2013 of 
0.98734 would not apply to payments for discharges occurring before 
December 29, 2012. Therefore, we proposed that payment for discharges 
occurring on or after October 1, 2012 and on or before December 28, 
2012, would not reflect that proposed adjustment and instead would be 
paid based on a standard Federal rate of $41,026.88 (calculated as 
$40,507.48 divided by 0.98734).
    Comment: One commenter stated that the proposed update to the 
standard Federal rate for FY 2013 did not take into account the 
expected ``across the board 2-percent payment cut or sequester'' that 
will be effective in January 2013 under current law. In light of the 
impending sequester, the commenter recommended that CMS vacate the 
implementation of the proposed MFP adjustment and the 0.1 percentage 
point reduction required by sections 1886(m)(3)(A)(ii) and(m)(4)(C) of 
the Act, as well as the proposed one-time prospective adjustment of 
approximately -1.3 percent. Another commenter requested that CMS 
provide guidance on how CMS will implement the 2-percent sequestration 
reduction to Medicare payment to LTCHs that will take effective in 
January 2013, as required under current law.
    Response: Section 1886(m)(3)(A) of the 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 1886(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.
    Specifically, for FY 2013, 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, and sections 
1886(m)(3)(A)(ii) and 1886(m)(4)(C) of the Act require that any annual 
update to the standard Federal rate be reduced by 0.1 percentage point. 
Therefore, we are not adopting the commenter's suggestion to not apply 
these statutorily required adjustments in determining the FY 2013 
standard Federal rate. In section VII.E.4. of the preamble of this 
final rule, we discuss and provide responses to the public comments we 
received on our proposal to apply a one-time prospective adjustment of 
approximately -1.3 percent in determining the FY 2013 standard Federal 
rate. For the reasons discussed in that section, we continue to believe 
it is appropriate to apply a one-time prospective adjustment to the 
standard Federal rate for FY 2013, and therefore are not adopting the 
commenter's suggestion to vacate the application of that adjustment.
    We are not addressing the implementation of the spending reductions 
(sequestration order) required by Public Law 112-25 (the Budget Control 
Act of 2011) in this final rule as those provisions would impact 
Medicare payments across settings, and not just affect LTCH PPS 
payments.
    In this final rule, for FY 2013, as noted above and as discussed in 
greater detail in section VII.D.2. of the preamble of this final rule, 
consistent with our historical practice, we are establishing an annual 
update to the LTCH PPS standard Federal rate of 1.8 percent, based on 
the full estimated increase in the LTCH PPS market basket of 2.6 
percent less the MFP adjustment of 0.7 percentage point consistent with 
section 1886(m)(3)(A)(i) and less the 0.1 percentage point required by 
sections 1886(m)(3)(A)(ii) and(m)(4)(C) of the

[[Page 53710]]

Act. Furthermore, as discussed in section VII.E.4. of the preamble of 
this final rule, in determining the standard Federal rate for FY 2013, 
we are making a one-time prospective adjustment to the standard Federal 
rate under Sec.  412.523(d)(3) of approximately -1.3 percent (which 
will not be applicable to payments for discharges occurring prior to 
December 29, 2012, consistent with the statute).
    In this final rule, under Sec.  412.523(c)(3)(ix)(A), we applied a 
factor of 1.018 to the FY 2012 standard Federal rate of $40,222.05 (as 
established in the FY 2012 IPPS/LTCH PPS final rule (76 FR 51807)) to 
determine the FY 2013 standard Federal rate. In addition, as discussed 
in section VII.E.4. of the preamble of this final rule, the standard 
Federal rate is further adjusted by the one-time prospective adjustment 
factor of 0.98734 for FY 2013 under Sec.  412.523(d)(3)(ii). However, 
consistent with the statute, we specify at Sec.  412.523(c)(3)(ix)(B) 
that, for payments for discharges occurring on or after October 1, 
2012, and before December 29, 2012, payments are based on the standard 
Federal rate in paragraph (c)(3)(ix)(A) of this section without regard 
to the one-time prospective adjustment provided for under Sec.  
412.523(d)(3)(ii). In addition, as discussed in greater detail in 
section V.B.5. of this Addendum, 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, in this final rule, under 
Sec.  412.523(c)(3)(ix)(A), 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 section 114(c)(4) of the MMSEA, 
as amended by sections 3106(a) and 10312 of the Affordable Care Act, 
the one-time prospective adjustment to the standard Federal rate for FY 
2013 of 0.98734 will not be applied to payments for discharges 
occurring before December 29, 2012. Therefore, payment for discharges 
occurring on or after October 1, 2012, and on or before December 28, 
2012, will not reflect this adjustment and instead will be paid based 
on a standard Federal rate of $40,915.95 (calculated as $40,397.96 
divided by 0.98734).

B. Adjustment for Area Wage Levels Under the LTCH PPS for FY 2013

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 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. 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 updated the LTCH PPS CBSA-based labor market area 
definitions annually since they were adopted for RY 2006 (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. (The OMB bulletin is 
available on the OMB Web site at http://www.whitehouse.gov/OMB. Go to 
``Agency Information'' and click on ``Bulletins''.) We 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 (76 FR 51808).
    In 2013, OMB plans to announce new area delineations based on its 
2010 standards (75 FR 37246) and the 2010 Census data. We did not 
receive any public comments on our proposal. Therefore, in this final 
rule, consistent with our proposal, for the FY 2013 area wage 
adjustment, we will continue to use the same labor market areas that we 
adopted for FY 2012.
3. 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

[[Page 53711]]

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.
    For FY 2012, we revised and rebased the market basket used under 
the LTCH PPS by adopting the newly created FY 2008-based RPL market 
basket. Accordingly, the current LTCH PPS labor-related share is based 
on the relative importance of the labor-related share of operating 
costs and capital costs of the RPL market basket based on FY 2008 data, 
as those were the best available data at that time that reflected the 
cost structure of LTCHs. For FY 2012, we established a labor-related 
share of 70.199 percent based on the best available data at that time 
from the FY 2008-based RPL market basket for FY 2012 (76 FR 51766 
through 51769 and 51808). (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).)
    As discussed in section VII.C. of the preamble of this final rule, 
we are revising and rebasing the market basket used under the LTCH PPS 
by adopting the newly created FY 2009-based LTCH-specific market 
basket. As we proposed, in this final rule, 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. Consistent with the current labor-related share 
determined from the relative importance of each labor-related cost 
category of the FY 2008-based RPL market basket, 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 believe these are currently the 
best data available to reflect the cost structure of LTCHs.
    In this final rule, consistent with our proposal to use the most 
recent available data to determine the labor-related share for FY 2013, 
we are establishing a labor-related share under the LTCH PPS for FY 
2013 based on IGI's second quarter 2012 forecast of the FY 2009-based 
LTCH-specific market basket for FY 2013, as these are the most recent 
available data at this time that reflect the cost structure of LTCHs. 
As discussed in greater detail in section VII.D.3.f. of this preamble, 
the sum of the relative importance for FY 2013 for operating costs 
(Wages and Salaries, Employee Benefits, Professional Fees: Labor-
Related, Administrative and Business Support Services, and All-Other: 
Labor-Related Services) is 58.843 percent and the labor-related share 
of capital costs is 4.253 percent. Therefore, in this final rule, under 
the authority set forth in section 123 of the BBRA as amended by 
section 307(b) of the BIPA, we are establishing a labor-related share 
of 63.096 percent (58.843 percent plus 4.253 percent) under the LTCH 
PPS for FY 2013, which will be effective for discharges occurring on or 
after October 1, 2012, and through September 30, 2013. (For additional 
details on the development of the LTCH PPS labor-related share for FY 
2013, we refer readers to section VII.D.3.f. of the preamble of this 
final rule.)
4. LTCH PPS Wage Index for FY 2013
    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 2012 LTCH PPS final rule (76 FR 51808 through 51809), we 
calculated the FY 2012 LTCH PPS wage index values using the same data 
used for the FY 2012 acute care hospital IPPS (that is, data from cost 
reporting periods beginning during FY 2008), 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 2012 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 (as discussed in 
section III.D. of the preamble of this final rule). 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 2013, 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, as we proposed, we used wage data 
collected from cost reports submitted by IPPS hospitals for 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. We used FY 2009 data because these data are the most recent 
complete data available. These are the same data used to compute the FY 
2013 acute care hospital inpatient wage index, as discussed in section 
III. of the preamble of this final 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).)
    As we proposed, the FY 2013 LTCH PPS wage index values we are 
presenting in this final rule are computed consistent with the urban 
and rural geographic classifications (labor market areas) discussed 
above in section V.B.2. of the Addendum to this final rule and 
consistent with the pre-reclassified 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 final rule). Furthermore, in determining the FY 
2013 LTCH PPS wage index values in this final rule, as we proposed, we 
continued to use our existing policy for determining wage index values 
in areas where there are no IPPS wage data.
    As discussed in the FY 2013 IPPS/LTCH PPS proposed rule (77 FR 
28154), 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 as we proposed, we are

[[Page 53712]]

continuing to use this methodology for FY 2013. (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 2013. 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 2009 IPPS wage data that we used to determine the 
FY 2013 LTCH PPS wage index values in this final rule, there are no 
IPPS wage data for the urban area Hinesville-Fort Stewart, GA (CBSA 
25980). Consistent with the methodology discussed above, we calculated 
the FY 2013 wage index value for CBSA 25980 as the average of the wage 
index values for all of the other urban areas within the State of 
Georgia (that is, CBSAs 10500, 12020, 12060, 12260, 15260, 16860, 
17980, 19140, 23580, 31420, 40660, 42340, 46660, and 47580), as shown 
in Table 12A, which is listed in section VI. of the Addendum to this 
final 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 2009 IPPS wage data that we used to determine the FY 
2013 LTCH PPS wage index values in this final 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 2013. 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 FY 2013 LTCH wage index values that will be applicable for LTCH 
discharges occurring on or after October 1, 2012, through September 30, 
2013, 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 
final rule and available via the Internet on the CMS Web site.
5. 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. In the FY 2012 
IPPS/LTCH PPS final rule (76 FR 51771 through 51773 and 51809), under 
Sec.  412.525(c)(2), we established that any changes to the wage index 
values or labor-related share will be 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 
established that we will 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 FY 2013, in accordance with Sec.  412.523(d)(4), we applied an 
area wage level adjustment budget neutrality factor to adjust the 
standard Federal rate to account for the estimated effect of any 
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, as we proposed, we determined an area wage 
level adjustment budget neutrality factor that will be applied to the 
standard Federal rate under at Sec.  412.523(d)(4) for FY 2013 using 
the following methodology:
    Step 1--We simulated estimated aggregate LTCH PPS payments using 
the FY 2012 wage index values (as established in Tables 12A and 12B 
listed in the Addendum to the FY 2012 IPPS/LTCH PPS final rule and 
available via the Internet on the CMS Web site) and the FY 2012 labor-
related share of 70.199 percent (as established in the FY 2012 IPPS/
LTCH PPS final rule (76 FR 51767 and 51808).
    Step 2--We simulated estimated aggregate LTCH PPS payments using 
the FY 2013 wage index values (as shown in Tables 12A and 12B listed in 
the Addendum to this final rule and available via the Internet on the 
CMS Web site) and the FY 2013 labor related share of 63.096 percent 
(based on the latest available data as discussed in section VII.C.3.f. 
of this preamble).
    Step 3--We calculated the ratio of these estimated total LTCH PPS 
payments by dividing the estimated total LTCH PPS payments using the FY 
2012 area wage level adjustments (calculated in Step 1) by the 
estimated total LTCH PPS payments using the FY 2013 area wage level 
adjustments (calculated in Step 2) to determine the area wage level 
adjustment budget neutrality factor for FY 2013.
    Step 4--We then applied the FY 2013 area wage level adjustment 
budget neutrality factor from Step 3 to determine the FY 2013 LTCH PPS 
standard Federal rate after the application of the FY 2013 annual 
update (discussed in section V.A.2. of the Addendum to this final 
rule). For this final rule, using the steps in the methodology 
described above, we determined a FY 2013 area wage level adjustment 
budget neutrality factor of 0.999265. Accordingly, in section V.A.2. of 
the Addendum to this final rule, to determine the FY 2013 LTCH PPS 
standard Federal rate, we applied an area wage level adjustment budget 
neutrality factor of 0.099265, in accordance with Sec.  412.523(d)(4). 
The FY 2013 LTCH PPS standard Federal rate shown in Table 1E of the 
Addendum to this final rule reflects this adjustment factor.

C. 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.
    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 in Alaska and Hawaii. Recent statutory changes

[[Page 53713]]

transition 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). As stated previously, we do not believe it 
is appropriate to use either the 2010 or 2011 reduced COLA factors to 
adjust the nonlabor-related portion of the standard Federal rate for 
LTCHs in Alaska and Hawaii for Medicare payment purposes. Therefore, 
for FY 2012, we continued to use the same COLA factors (published by 
OPM) that we used to adjust payments in FY 2011 (which were based on 
OPM's 2009 COLA factors) to adjust the nonlabor-related portion of the 
standard Federal rate for LTCHs located in Alaska and Hawaii.
    As we discuss in section VII.D.4. of the preamble of this final 
rule, we believe it was appropriate to use ``frozen'' COLA factors to 
adjust payments in FY 2012, while we explored alternatives for updating 
the COLA factors in the future. In the FY 2013 IPPS/LTCH PPS proposed 
rule (77 FR 28019 through 28020 and 28155), we proposed to continue to 
use the same ``frozen'' COLA factors used in FY 2012 to adjust the 
nonlabor-related portion of the standard Federal rate for LTCHs in 
Alaska and Hawaii in FY 2013 under Sec.  412.525(b). In that same 
proposed rule, we also proposed a methodology to update the COLA 
factors for Alaska and Hawaii, beginning in FY 2014, 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 discussed 
in section VII.D.4. of the preamble of this final rule, we did not 
receive any public comments on these proposals and we are adopting them 
as final, without modification, in this final rule. As explained 
previously, we believe using these COLA factors will appropriately 
adjust the nonlabor-related portion of the standard Federal rate for 
LTCHs in Alaska and Hawaii. (For additional details on the methodology 
we are adopting in this final rule to update the COLA factors for 
Alaska and Hawaii beginning in FY 2014, we refer readers to section 
VII.D.4. of the preamble of this final rule.)
    In this final rule, for FY 2013, under the broad authority 
conferred upon the Secretary by section 123 of the BBRA, as amended by 
section 307(b) of BIPA, to determine appropriate adjustments under the 
LTCH PPS, consistent with our current policy, we are applying a COLA to 
the LTCH PPS payments to LTCHs located in Alaska and Hawaii by 
multiplying the nonlabor-related portion of the standard Federal 
payment rate by the factors listed in the chart below. These factors 
are the same COLA factors used to adjust payments in FY 2012 (which are 
based on OPM's 2009 COLA factors). As stated above, we believe using 
these COLA factors will appropriately adjust the nonlabor-related 
portion of the standard Federal rate for LTCHs in Alaska and Hawaii 
under Sec.  412.525(b).

  Cost-of-Living Adjustment Factors for Alaska and Hawaii Hospitals for
                        the LTCH PPS for FY 2013
------------------------------------------------------------------------
 
------------------------------------------------------------------------
Alaska:
  City of Anchorage and 80-kilometer (50-mile) radius by road...    1.23
  City of Fairbanks and 80-kilometer (50-mile) radius by road...    1.23
  City of Juneau and 80-kilometer (50-mile) radius by road......    1.23
    All other areas of Alaska...................................    1.25
Hawaii:
  City and County of Honolulu...................................    1.25
  County of Hawaii..............................................    1.18
  County of Kauai...............................................    1.25
  County of Maui and County of Kalawao..........................    1.25
------------------------------------------------------------------------
(The above factors are based on data obtained from the U.S. Office of
  Personnel Management Web site at: http://www.opm.gov/oca/cola/rates.asp.)

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

1. Background
    Under the broad authority conferred upon the Secretary by section 
123 of the BBRA as amended by section 307(b) of BIPA, in the 
regulations at 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 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

[[Page 53714]]

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 the proposed rule, using our 
established methodology for determining the LTCH total CCR ceiling 
(described above), based on IPPS total CCR data from the December 2011 
update of the PSF, we proposed to establish a total CCR ceiling of 
1.210 under the LTCH PPS that would be effective for discharges 
occurring on or after October 1, 2012, through September 30, 2013. 
Consistent with our historical policy of using the best available data, 
we also proposed that if more recent data became available, we would 
use such data to establish a total CCR ceiling for FY 2013 in the final 
rule. We did not receive any public comments on our proposals related 
to determining the LTCH total CCR ceiling for FY 2013, and are adopting 
them as final, without modification, in this final rule.
    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 final rule, as we proposed, 
using our established methodology for determining the LTCH total CCR 
ceiling (described above), based on IPPS total CCR data from the latest 
available data (that is, the March 2012 update of the PSF), we are 
establishing a total CCR ceiling of 1.212 under the LTCH PPS that will 
be effective for discharges occurring on or after October 1, 2012, 
through September 30, 2013.
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.)
    In the 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 2011 update of the PSF, 
we proposed LTCH PPS statewide average total CCRs for urban and rural 
hospitals that would be effective for discharges occurring on or after 
October 1, 2012, through September 30, 2013, in Table 8C listed in 
section VI. of the Addendum to that proposed rule and available via the 
Internet. We did not receive any public comments on our proposals 
related to determining the LTCH PPS statewide average CCRs for FY 2013, 
and are adopting them as final, without modification, in this final 
rule.
    Consistent with our historical practice of using the best available 
data, in this final rule, using our established methodology for 
determining the LTCH statewide average CCRs, based on the most recent 
complete IPPS ``total CCR'' data from the March 2012 update of the PSF, 
we are establishing LTCH PPS statewide average total CCRs for urban and 
rural hospitals that will be effective for discharges occurring on or 
after October 1, 2012, through September 20, 2013, in Table 8C listed 
in section VI. of the Addendum to this final rule (and available via 
the Internet).
    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, as we proposed, consistent with our existing 
methodology, in determining the urban and rural statewide average total 
CCRs for Maryland LTCHs paid under the LTCH PPS, in this final rule, we 
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 use this proxy because we believe that the 
CCR data on the PSF for Maryland hospitals may not be entirely accurate 
(as discussed in greater

[[Page 53715]]

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 LTCH PPS Fixed-Loss Amount for FY 2013
    When we implemented the LTCH PPS, as discussed in the August 30, 
2002 LTCH PPS final rule (67 FR 56022 through 56026), under the broad 
authority of section 123 of the BBRA as amended by section 307(b) of 
BIPA, we established a fixed-loss amount so that total estimated 
outlier payments are projected to equal 8 percent of total estimated 
payments under the LTCH PPS. To determine the fixed-loss amount, we 
estimate outlier payments and total LTCH PPS payments for each case 
using claims data from the MedPAR files. Specifically, to determine the 
outlier payment for each case, we estimate the cost of the case by 
multiplying the Medicare covered charges from the claim by the LTCH's 
CCR. Under 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 proposed rule (77 FR 28175), we 
presented our proposals regarding the methodology and data we would use 
to calculate the fixed-loss amount for FY 2013. In general, we proposed 
to continue to use our existing methodology to calculate a fixed-loss 
amount for FY 2013 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 to the FY 2003 LTCH PPS final rule 
(67 FR 56022 through 56024).) Using our existing methodology, we 
proposed a fixed-loss amount of $15,728 for FY 2013. (We refer readers 
to the FY 2013 IPPS/LTCH PPS proposed rule for additional details on 
our proposals related to the development of the fixed-loss amount for 
FY 2013 (77 FR 28157).)
    Comment: A few commenters expressed support for the proposed fixed-
loss amount for FY 2013, stating that the lower fixed-loss amount 
calculated using our proposed methodology would maintain estimated HCO 
payments at the projected 8 percent of total estimated LTCH PPS 
payments, consistent with current policy.
    Response: We appreciate the commenters' support for our proposed 
methodology.
    In this final rule, we are adopting our proposal as final without 
modification. However, consistent with our historical practice of using 
the best available data, and our proposal to use more recent data if 
they become available, we used the most recent available LTCH claims 
data and CCR data at this time to calculate the fixed-loss amount for 
FY 2013 for this final rule.
    In this final rule, we continued to use our existing methodology to 
calculate the fixed-loss amount for FY 2013 (based on the data and the 
rates and policies presented in this final rule) in order to maintain 
estimated HCO payments at the projected 8 percent of total estimated 
LTCH PPS payments. Consistent with our historical practice of using the 
best data available, in determining the fixed-loss amount for FY 2013, 
we used the most recent available LTCH claims data and CCR data at this 
time. Specifically, for this final rule, we used LTCH claims data from 
the March 2012 update of the FY 2011 MedPAR file and CCRs from the 
March 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 2013 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 established a fixed-loss amount of 
$17,931 for FY 2012. For this final rule, we are establishing a fixed-
loss amount of $15,408 for FY 2013. Thus, we will 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 $15,408). We also note that the fixed-loss amount 
of $15,408 for FY 2013 is lower than the FY 2012 fixed-loss amount of 
$17,931 and slightly lower than the proposed FY 2013 fixed-loss amount 
of $15,728. Based on our payment simulations using the most recent 
available data at this time, the decrease in the fixed-loss amount for 
FY 2013 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 2013, the HCO payment would be 80 percent of the 
difference between the estimated cost of the case and the outlier 
threshold (the sum of the fixed-loss amount of $15,408

[[Page 53716]]

and the amount paid under the SSO policy as specified in Sec.  
412.529).

E. Computing the Adjusted LTCH PPS Federal Prospective Payments for FY 
2013

    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 (FY 2013 values shown in Tables 12A and 12B listed in 
section VI. of the Addendum of this final rule and available via the 
Internet). The standard Federal rate is also adjusted to account for 
the higher costs of hospitals in Alaska and Hawaii by multiplying the 
nonlabor-related portion of the standard Federal rate by the applicable 
cost-of-living factor (FY 2013 factors shown in the chart in section 
V.C. of the Addendum of this final rule) in accordance with Sec.  
412.525(b). In this final rule, we are establishing a standard Federal 
rate for FY 2013 of $40,397.96 (however, payment for discharges 
occurring on or after October 1, 2012, and before December 29, 2012 
will not reflect that adjustment consistent with the statute, and 
instead will be paid based on a standard Federal rate of $40,915.95), 
as discussed above in section V.A.2. of the Addendum of this final 
rule. We illustrate the methodology to adjust the LTCH PPS Federal 
standard rate for FY 2013 in the following example:

    Example: 
    During FY 2013, a Medicare patient is in a LTCH located in 
Chicago, Illinois (CBSA 16974) and discharged on January 1, 2013. 
The FY 2013 LTCH PPS wage index value for CBSA 16974 is 1.0600 
(obtained from Table 12A listed in section VI. of the Addendum of 
this final 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 2013 of 
1.1124 (obtained from Table 11 listed in section VI. of the Addendum 
of this final rule and available via the Internet on the CMS Web 
site).
    To calculate the LTCH's total adjusted Federal prospective 
payment for this Medicare patient in FY 2013, we computed the wage-
adjusted Federal prospective payment amount by multiplying the 
unadjusted FY 2013 standard Federal rate ($40,397.96) by the labor-
related share (63.096 percent) and the wage index value (1.0600). 
This wage-adjusted amount is then added to the nonlabor-related 
portion of the unadjusted standard Federal rate (36.904 percent; 
adjusted for cost of living, if applicable) to determine the 
adjusted Federal rate, which is then multiplied by the MS-LTC-DRG 
relative weight (1.1124) to calculate the total adjusted Federal 
LTCH PPS prospective payment for FY 2013 ($46,693.95). The table 
below illustrates the components of the calculations in this 
example.

------------------------------------------------------------------------
 
------------------------------------------------------------------------
Unadjusted Standard Federal                                   $40,397.96
 Prospective Payment Rate......
Labor-Related Share............                                x 0.63096
Labor-Related Portion of the                                = $25,489.49
 Federal Rate..................
Wage Index (CBSA 16974)........                                 x 1.0600
Wage-Adjusted Labor Share of                                 = $27,018.6
 Federal Rate..................
Nonlabor-Related Portion of the                             + $14,908.46
 Federal Rate ($40,397.96 x
 0.36904)......................
Adjusted Federal Rate Amount...                             = $41,927.32
MS-LTC-DRG 28 Relative Weight..                                 x 1.1124
                                ----------------------------------------
    Total Adjusted Federal                                  = $46,639.95
     Prospective Payment.......
------------------------------------------------------------------------

VI. Tables Referenced in this Final Rule and Available Only Through the 
Internet on the CMS Web Site

    This section lists the tables referred to throughout the preamble 
of this final 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 FY 2012, for the 
FY 2013 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, 6A, 
6B, 6C, 6D, 6E, 6F, 6G, 6I, 6I.1, 6.I.2, 6J, 6J.1, 6K, 7A, 7B, 8A, 8B, 
9A, 9C, 10 and new Tables 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. of the preamble of this final rule, for FY 2013, there will be 
one change to the ICD-9-CM coding system, effective October 1, 2012. We 
are creating new procedure code 00.95 (Injection or infusion of 
glucarpidase). The new procedure code is listed in Table 6B (New 
Procedure Codes) for this final rule, which is available via the 
Internet. There are no new, revised, or deleted diagnosis codes and no 
revised or deleted procedure codes effective October 1, 2012, that are 
usually announced in Tables 6A (New Diagnosis Codes), 6C (Invalid 
Diagnosis Codes), 6D (Invalid Procedure Codes), 6E (Revised Diagnosis 
Code Titles), and 6F (Revised Procedure Codes). Therefore, IPPS Tables 
6A, 6C, 6D, 6E and 6F are not being published as part of this FY 2013 
rulemaking cycle. As discussed in section IV.E. of the preamble of this 
final rule, effective FY 2013 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 IV.E. for 
complete details on the low-volume hospital payment adjustment). 
Therefore, we are no longer including a table (previously Table 14) in 
this final 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 2013 final 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 2013 IPPS 
Final Rule Home Page'' or ``Acute Inpatient--Files for Download''.

Table 2.--Acute Care Hospitals Case-Mix Indexes for Discharges 
Occurring in Federal Fiscal Year 2011; Hospital Wage Indexes for 
Federal Fiscal Year 2013; Hospital Average Hourly Wages for Federal 
Fiscal Years 2011 (2007 Wage Data), 2012 (2008 Wage Data), and 2013 
(2009 Wage Data); and 3-Year Average of Hospital Average Hourly Wages
Table 3A.--FY 2013 and 3-Year* Average Hourly Wage for Acute Care 
Hospitals in Urban Areas by CBSA

[[Page 53717]]

Table 3B.--FY 2013 and 3-Year* Average Hourly Wage for Acute Care 
Hospitals in Rural Areas by CBSA
Table 4A.--Wage Index and Capital Geographic Adjustment Factor (GAF) 
for Acute Care Hospitals in Urban Areas by CBSA and by State--FY 2013
Table 4B.--Wage Index and Capital Geographic Adjustment Factor (GAF) 
for Acute Care Hospitals in Rural Areas by CBSA and by State--FY 2013
Table 4C.--Wage Index and Capital Geographic Adjustment Factor (GAF) 
for Acute Care Hospitals That Are Reclassified by CBSA and by State--FY 
2013
Table 4D.--States Designated as Frontier, with Acute Care Hospitals 
Receiving at a Minimum the Frontier State Floor Wage Index \1\; Urban 
Areas with Acute Care Hospitals Receiving the Statewide Rural Floor or 
Imputed Floor Wage Index--FY 2013
Table 4E.--Urban CBSAs and Constituent Counties for Acute Care 
Hospitals--FY 2013
Table 4F.--Puerto Rico Wage Index and Capital Geographic Adjustment 
Factor (GAF) for Acute Care Hospitals by CBSA--FY 2013
Table 4J.--Out-Migration Adjustment for Acute Care Hospitals--FY 2013
Table 5.--List of Medicare Severity Diagnosis-Related Groups (MS-DRGs), 
Relative Weighting Factors, and Geometric and Arithmetic Mean Length of 
Stay--FY 2013
Table 6B.--New Procedure Codes--FY 2013
Table 6G.--Additions to the CC Exclusions List-FY 2013
Table 6I.--Major CC List--FY 2013
Table 6I.2.--Summary of Deletions from the MS-DRG MCC List--FY 2013
Table 6J.--Complete CC List--FY 2013
Table 6J.1.--Summary of Additions to the MS-DRG CC List--FY 2013
Table 6K.--Complete List of CC Exclusions--FY 2013
Table 7A.--Medicare Prospective Payment System Selected Percentile 
Lengths of Stay: FY 2011 MedPAR Update--March 2012 GROUPER V29.0 MS-
DRGs
Table 7B.--Medicare Prospective Payment System Selected Percentile 
Lengths of Stay: FY 2011 MedPAR Update--March 2012 GROUPER V30.0 MS-
DRGs
Table 8A.--FY 2013 Statewide Average Operating Cost-to-Charge Ratios 
(CCRs) for Acute Care Hospitals (Urban and Rural)
Table 8B.--FY 2013 Statewide Average Capital Cost-to-Charge Ratios 
(CCRs) for Acute Care Hospitals
Table 9A.--Hospital Reclassifications and Redesignations--FY 2013
Table 9C.--Hospitals Redesignated as Rural under Section 1886(d)(8)(E) 
of the Act--FY 2013
Table 10.--New Technology Add-On Payment Thresholds for Applications 
for FY 2014
Table 15.--FY 2013 Final Readmissions Adjustment Factors
Table 16.--Proxy Hospital Inpatient Value-Based Purchasing (VBP) 
Program Adjustment Factors for FY 2013

    The following LTCH PPS tables for this FY 2013 final 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-1588-F.

Table 8C.--FY 2013 Statewide Average Total Cost-to-Charge Ratios (CCRs) 
for LTCHs (Urban and Rural)
Table 11.--MS-LTC-DRGs, Relative Weights, Geometric Average Length of 
Stay, and Short-Stay Outlier (SSO) Threshold for Discharges Occurring 
from October 1, 2012 through September 30, 2013 under the LTCH PPS
Table 12A.--LTCH PPS Wage Index for Urban Areas for Discharges 
Occurring from October 1, 2012 through September 30, 2013
Table 12B.--LTCH PPS Wage Index for Rural Areas for Discharges 
Occurring from October 1, 2012 through September 30, 2013
Table 13A.--Composition of Low-Volume Quintiles for MS-LTC-DRGs--FY 
2013
Table 13B.--No-Volume MS-LTC-DRG Crosswalk for FY 2013

    Table 1A--National Adjusted Operating Standardized Amounts, Labor/Nonlabor (68.8 Percent Labor Share/31.2
                        Percent Nonlabor Share if Wage Index Is Greater Than 1)--FY 2013
----------------------------------------------------------------------------------------------------------------
                            Full update (1.8 percent)                             Reduced update  (-0.2 percent)
----------------------------------------------------------------------------------------------------------------
                                                                     Nonlabor-                       Nonlabor-
                          Labor-related                               related      Labor-related      related
----------------------------------------------------------------------------------------------------------------
$3,679.95.......................................................       $1,668.81       $3,607.65       $1,636.02
----------------------------------------------------------------------------------------------------------------

  Table 1B--National Adjusted Operating Standardized Amounts, Labor/Nonlabor (62 Percent Labor Share/38 Percent
                        Nonlabor Share if Wage Index Is Less Than or Equal to 1)--FY 2013
----------------------------------------------------------------------------------------------------------------
                            Full update (1.8 percent)                             Reduced update  (-0.2 percent)
----------------------------------------------------------------------------------------------------------------
                                                                     Nonlabor-                       Nonlabor-
                          Labor-related                               related      Labor-related      related
----------------------------------------------------------------------------------------------------------------
$3,316.23.......................................................       $2,032.53       $3,251.08       $1,992.59
----------------------------------------------------------------------------------------------------------------

           Table 1C--Adjusted Operating Standardized Amounts for Puerto Rico, Labor/Nonlabor--FY 2013
----------------------------------------------------------------------------------------------------------------
                                                  Rates if wage index is greater    Rates if wage index is less
                                                              than 1                    than or equal to 1
                                                 ---------------------------------------------------------------
                                                       Labor         Nonlabor          Labor         Nonlabor
----------------------------------------------------------------------------------------------------------------
National........................................       $3,679.95       $1,668.81       $3,316.23       $2,032.53
Puerto Rico.....................................        1,564.17          954.62        1,561.65          957.14
----------------------------------------------------------------------------------------------------------------

[[Page 53718]]

        Table 1D--Capital Standard Federal Payment Rate--FY 2013
------------------------------------------------------------------------
                                                               Rate
------------------------------------------------------------------------
National................................................         $425.49
Puerto Rico.............................................          207.25
------------------------------------------------------------------------

    Table 1E--LTCH Standard Federal Prospective Payment Rate--FY 2013
------------------------------------------------------------------------
                                                               Rate
------------------------------------------------------------------------
Standard Federal Rate *.................................      $40,397.96
------------------------------------------------------------------------
* Consistent with section 114(c)(4) of the MMSEA as amended by sections
  3106(a) and 10312 of the Affordable Care Act, the one-time prospective
  adjustment to the standard Federal rate for FY 2013 of 0.98734 is not
  applied to payments for discharges occurring before December 29, 2012.
  Therefore, payment for discharges occurring on or after October 1,
  2012, and on or before December 28, 2012, does not reflect that
  adjustment and instead such discharges are paid based on a standard
  Federal rate of $40,915.95 (calculated as $40,397.96 divided by
  0.98734).

Appendix A: Economic Analyses

I. Regulatory Impact Analysis

A. Introduction

    We have examined the impacts of this final 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 final rule is a major rule as 
defined in 5 U.S.C. 804(2). We estimate that the changes for FY 2013 
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 payment changes in this final 
rule, will result in an estimated $2.45 billion increase in FY 2013 
operating payments (or 2.3 percent change) and an estimated $154 
million increase in FY 2013 capital payments (or 1.8 percent 
change). These changes are relative to payments made in FY 2012. The 
impact analysis of the capital payments can be found in section I.I. 
of this Appendix. In addition, as described in section I.J. of this 
Appendix, LTCHs are expected to experience an increase in payments 
by $92 million in FY 2013 relative to FY 2012.
    Our operating impact estimate includes the 1.0 percent 
documentation and coding adjustment applied to the IPPS standardized 
amounts (which accounts for the -1.9 percent documentation and 
coding adjustment and +2.9 percent adjustment to restore the one-
time recoupment adjustment made to the national standardized amount 
for FY 2012). In addition, our operating impact estimate includes 
the 1.8 percent hospital update to the standardized amount (which 
includes the 2.6 percent market basket update less 0.7 percentage 
point for the multifactor productivity adjustment and less 0.1 
percentage point required under the Affordable Care Act). The 
estimates of IPPS operating payments to acute care hospitals do not 
reflect any changes in hospital admissions or real case-mix 
intensity, which will also affect overall payment changes.
    The analysis in this Appendix, in conjunction with the remainder 
of this document, demonstrates that this final 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 final rule will 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 final 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 final 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 changes in this final rule will 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 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 policy changes, as well as statutory changes 
effective for FY 2013, on various hospital groups. We estimate the 
effects of individual policy changes by estimating payments per case 
while holding all other payment policies constant. We use the best 
data available, but, generally, we do not attempt to make 
adjustments for future changes in such variables as admissions, 
lengths of stay, or case-mix.

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 32 Indian Health Service hospitals in 
our database, which we excluded from the analysis due to the special 
characteristics of the prospective payment methodology for these 
hospitals. Among other short-term, acute care hospitals, only the 45 
such hospitals in Maryland remain excluded from the IPPS pursuant to 
the waiver under section 1814(b)(3) of the Act.
    As of July 2012, there are 3,423 IPPS acute care hospitals 
included in our analysis. This represents about 67 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. 
There are also 1,268 IPPS-excluded hospitals and 2,063 IPPS-excluded 
hospital units. These IPPS-excluded hospitals and units include 
IPFs, IRFs, LTCHs, RNHCIs, children's hospitals, and cancer 
hospitals, which are paid under separate payment systems. Changes in 
the prospective payment systems for IPFs and IRFs are made through 
separate rulemaking. Payment impacts for these IPPS-excluded 
hospitals and units are not included in this final rule. The impact 
of the update and policy changes to the LTCH PPS for FY 2013 is 
discussed in section I.J. of this Appendix.

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

    As of July 2012, there were 3,331 hospitals and hospital units 
excluded from the IPPS. Of these, 94 children's hospitals, 11 cancer 
hospitals, and 18 RNHCIs are being paid on a reasonable cost basis 
subject to the rate-of-increase ceiling under Sec.  413.40. The 
remaining providers, 231 rehabilitation hospitals and 908 
rehabilitation units, and 442 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 final rule. The impacts of the changes on LTCHs 
are discussed in section I.J. of this Appendix.
    In the past, certain hospitals and units excluded from the IPPS 
have been paid based on their reasonable costs subject to limits as 
established by the Tax Equity and Fiscal Responsibility Act of 1982 
(TEFRA). Cancer

[[Page 53719]]

and children's hospitals continue to be paid on a reasonable cost 
basis subject to TEFRA limits for FY 2013. For these hospitals 
(cancer and children's hospitals), consistent with the authority 
provided in section 1886(b)(3)(B)(ii) of the Act, the update is the 
estimated FY 2013 percentage increase in the IPPS operating market 
basket. In compliance with section 404 of the MMA, in the FY 2010 
IPPS/RY 2010 LTCH PPS final rule (74 FR 43930), we replaced the FY 
2002-based IPPS operating and capital market baskets with the 
revised and rebased FY 2006-based IPPS operating and capital market 
baskets. Therefore, consistent with current law, based on IHS Global 
Insight, Inc.'s 2012 second quarter forecast, with historical data 
through the 2012 first quarter, we are estimating that the FY 2013 
update based on the IPPS operating market basket is 2.6 percent 
(that is, the current estimate of the market basket rate-of-
increase). However, the Affordable Care Act requires an adjustment 
for multifactor productivity (currently 0.7 percentage point) and a 
0.1 percentage point reduction to the market basket update resulting 
in a 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. 
RNCHIs, children's hospitals and cancer hospitals are not subject to 
the reductions in the applicable percentage increase required under 
the Affordable Care Act. In accordance with Sec.  403.752(a) of the 
regulations, RNHCIs are paid under Sec.  413.40. Therefore, for 
RNHCIs, the update is the same as for children's and cancer 
hospitals, which is the percentage increase in the FY 2013 IPPS 
operating market basket, estimated at 2.6 percent, without the 
reductions required under the Affordable Care Act.
    The impact of the 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 50 percent of its reasonable 
costs in excess of 110 percent of the limit, or 10 percent of its 
limit. In addition, under the various provisions set forth in Sec.  
413.40, cancer and children's hospitals can obtain payment 
adjustments for justifiable increases in operating costs that exceed 
the limit.

G. Quantitative Effects of the Policy Changes Under the IPPS for 
Operating Costs

1. Basis and Methodology of Estimates

    In this final rule, we are announcing policy changes and payment 
rate updates for the IPPS for FY 2013 for operating costs of acute 
care hospitals. The FY 2013 updates to the capital payments to acute 
care hospitals are discussed in section I.I. of this Appendix.
    Based on the overall percentage change in payments per case 
estimated using our payment simulation model, we estimate that total 
FY 2013 operating payments will increase by 2.3 percent compared to 
FY 2012. In addition to the applicable percentage increase, this 
amount reflects the FY 2013 adjustments for documentation and coding 
described in section II.D. of the preamble of this final rule: 1.0 
percent for the IPPS national standardized amounts and -0.5 percent 
for the IPPS hospital-specific rates. The impacts do not reflect 
changes in the number of hospital admissions or real case-mix 
intensity, which will also affect overall payment changes.
    We have prepared separate impact analyses of the changes to each 
system. This section deals with the changes to the operating 
inpatient prospective payment system for acute care hospitals. Our 
payment simulation model relies on the most recent available data to 
enable us to estimate the impacts on payments per case of certain 
changes in this final rule. However, there are other changes for 
which we do not have data available that will allow us to estimate 
the payment impacts using this model. For those changes, we have 
attempted to predict the payment impacts based upon our experience 
and other more limited data.
    The data used in developing the quantitative analyses of changes 
in payments per case presented below are taken from the FY 2011 
MedPAR file and the most current Provider-Specific File (PSF) that 
is used for payment purposes. Although the analyses of the 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 2011 MedPAR file, we simulated 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 impact 
of payments under the capital IPPS, or the impact of payments for 
costs other than inpatient operating costs, are not analyzed in this 
section. Estimated payment impacts of the capital IPPS for FY 2013 
are discussed in section I.I. of this Appendix.
    We discuss the following changes below:
     The effects of the application of the documentation and 
coding adjustment and 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 annual reclassification of diagnoses 
and procedures, full implementation of the MS-DRG system and 100 
percent cost-based MS-DRG relative weights.
     The effects of the changes in hospitals' wage index 
values reflecting updated wage data from hospitals' cost reporting 
periods beginning during FY 2009, compared to the FY 2008 wage data.
     The effects of the recalibration of the MS-DRG relative 
weights as required by section 1886(d)(4)(C) of the Act, including 
the wage and recalibration budget neutrality factors.
     The effects of the geographic reclassifications by the 
MGCRB that will be effective in FY 2013.
     The effects of the rural floor and imputed floor with 
the application of the national budget neutrality factor applied to 
the wage index, as required by the Affordable Care Act.
     The effects of the frontier State wage index provision 
that requires that hospitals located in States that qualify as 
frontier States cannot have a wage index less than 1.0. This 
provision is not budget neutral.
     The effects of the implementation of section 505 of 
Public Law 108-173, which provides for an increase in a hospital's 
wage index if the hospital qualifies by meeting a threshold 
percentage of residents of the county where the hospital is located 
who commute to work at hospitals in counties with higher wage 
indexes.
     The effects of the policies for implementation of the 
Hospital Readmissions Reduction Program under 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 3124 of the Affordable Care Act 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 2013.
     The total estimated change in payments based on the FY 
2013 policies relative to payments based on FY 2012 policies that 
include the applicable percentage increase of 1.8 percent (or 2.6 
percent market basket update with a reduction of 0.7 percentage 
point for the multifactor productivity adjustment, and a 0.1 
percentage point reduction, as required under the Affordable Care 
Act).
    To illustrate the impact of the FY 2013 changes, our analysis 
begins with a FY 2012 baseline simulation model using: The FY 2013 
applicable percentage increase of 1.8 percent and the documentation 
and coding

[[Page 53720]]

adjustment of 1.0 percent to the Federal standardized amount and the 
-0.5 percent documentation and coding adjustment to the hospital-
specific rate; the FY 2012 MS-DRG GROUPER (Version 29.0); the most 
current CBSA designations for hospitals based on OMB's MSA 
definitions; the FY 2012 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 2012 
because they failed the quality data submission process or did not 
choose to participate. For purposes of the simulations shown below, 
we modeled the payment changes for FY 2013 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 2013.
    Each policy change, statutory or otherwise, is then added 
incrementally to this baseline, finally arriving at an FY 2013 model 
incorporating all of the changes. This simulation allows us to 
isolate the effects of each change.
    Our final comparison illustrates the percent change in payments 
per case from FY 2012 to FY 2013. Three factors not discussed 
separately have significant impacts here. The first factor is the 
update to the standardized amount. In accordance with section 
1886(b)(3)(B)(i) of the Act, we are updating the standardized 
amounts for FY 2013 using an applicable percentage increase of 1.8 
percent. This includes our forecasted IPPS operating hospital market 
basket increase of 2.6 percent with a reduction of 0.7 percentage 
point for the multifactor productivity adjustment and a 0.1 
percentage point reduction as required under the Affordable Care 
Act. (Hospitals that fail to comply with the quality data submission 
requirements will receive an update of -0.2 percent (this update 
includes the 2.0 percentage point reduction for failure to submit 
these data)). Under section 1886(b)(3)(B)(iv) of the Act, the 
updates to the hospital-specific amounts for SCHs are also equal to 
the applicable percentage increase, or 1.8 percent. In addition, we 
are updating 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 2012 to FY 2013 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 2012 that are no longer reclassified in FY 2013. 
Conversely, payments may increase for hospitals not reclassified in 
FY 2012 that are reclassified in FY 2013.
    A third significant factor is that we currently estimate that 
actual outlier payments during FY 2012 will be 5.0 percent of total 
MS-DRG payments. Our updated FY 2012 outlier estimate accounts for 
changes to the FY 2012 IPPS payments required under the Affordable 
Care Act. When the FY 2012 final rule was published, we projected FY 
2012 outlier payments would be 5.1 percent of total MS-DRG plus 
outlier payments; the average standardized amounts were offset 
correspondingly. The effects of the lower than expected outlier 
payments during FY 2012 (as discussed in the Addendum to this final 
rule) are reflected in the analyses below comparing our current 
estimates of FY 2012 payments per case to estimated FY 2013 payments 
per case (with outlier payments projected to equal 5.1 percent of 
total MS-DRG payments).
    Comment: Some commenters stated that CMS' FY 2013 IPPS/LTCH PPS 
proposed rule showed an increase in operating payments of 0.9 
percent or $904 million by 2013, but that the estimated 0.9 percent 
increase failed to account for a decrease in IME payments which will 
be the consequence of changes CMS makes in calculating the number of 
beds to be included in its bed-to-resident ratio, as well as the 
expiration of temporary increases arising from the Affordable Care 
Act.
    Response: Section H of the Addendum provides the impacts of 
other policy changes that we are not able to model in the IPPS 
payment simulation model in the IPPS Operating Impact statement. 
Finally, all estimates due to policy changes in the FY 2013 IPPS/
LTCH PPS final rule are included in the Accounting Statement.

2. Analysis of Table I

    Table I displays the results of our analysis of the changes for 
FY 2013. 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 3,423 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 2,497 
hospitals located in urban areas included in our analysis. Among 
these, there are 1,373 hospitals located in large urban areas 
(populations over 1 million), and 1,124 hospitals in other urban 
areas (populations of 1 million or fewer). In addition, there are 
926 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 2012 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 2,512; 
1,383; 1,129; and 911, respectively.
    The next three groupings examine the impacts of the changes on 
hospitals grouped by whether or not they have GME residency programs 
(teaching hospitals that receive an IME adjustment) or receive DSH 
payments, or some combination of these two adjustments. There are 
2,392 nonteaching hospitals in our analysis, 789 teaching hospitals 
with fewer than 100 residents, and 242 teaching hospitals with 100 
or more residents.
    In the DSH categories, hospitals are grouped according to their 
DSH payment status, and whether they are considered urban or rural 
for DSH purposes. The next category groups together hospitals 
considered urban or rural, in terms of whether they receive the IME 
adjustment, the DSH adjustment, both, or neither.
    The next five rows examine the impacts of the changes on rural 
hospitals by special payment groups (SCHs, RRCs, and MDHs). There 
were 203 RRCs, 326 SCHs, 195 former MDHs, and 118 hospitals that are 
both SCHs and RRCs, and 18 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 2009 or FY 
2008 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 2013. The second grouping 
shows the MGCRB rural reclassifications. The final category shows 
the impact of the policy changes on the 19 cardiac hospitals.
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a. Effects of the Hospital Update and Documentation and Coding 
Adjustment (Column 2)

    As discussed in section II.D. of the preamble of this final 
rule, this column includes the hospital update, including the 2.6 
percent market basket update, the reduction of 0.7 percentage point 
for the multifactor productivity adjustment, and the 0.1 percentage 
point reduction in accordance with the Affordable Care Act. In 
addition, this column includes the FY 2013 documentation and coding 
adjustment of 1.0 percent on the national standardized amount, which 
includes the -1.9 percent prospective adjustment for documentation 
and coding and a 2.9 percent adjustment to restore the one-time 
recoupment adjustment made to the national standardized amount for 
FY 2012. As a result, we are making a 2.8 percent update to the 
national standardized amount.
    This column also includes the 1.3 percent update to the 
hospital-specific rates, which includes the 1.8 percent for the 
hospital update and -0.5 percent documentation and coding 
adjustment.
    Overall, hospitals will experience a 2.7 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, will see a 1.3 percent increase in payments; therefore, 
hospital categories with SCHs paid under the hospital-specific rate 
will see increases in payments less than 2.8 percent.

b. Effects of the Changes to the MS-DRG Reclassifications and Relative 
Cost-Based Weights with Recalibration Budget Neutrality (Column 3)

    Column 3 shows the effects of the changes to the MS-DRGs and 
relative weights with the application of the recalibration budget 
neutrality factor to the standardized amounts. 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 calculating a recalibration 
budget neutrality factor to account for the changes in MS-DRGs and 
relative weights to ensure that the overall payment impact is budget 
neutral.
    As discussed in section II.E. of the preamble of this final 
rule, the FY 2013 MS-DRG relative weights will be 100 percent cost-
based and 100 percent MS-DRGs. For FY 2013, the MS-DRGs are 
calculated using the FY 2011 MedPAR data grouped to the Version 30.0 
(FY 2013) MS-DRGs. The methods of calculating the relative weights 
and the reclassification changes to the GROUPER are described in 
more detail in section II.H. of the preamble of this final rule.
    The ``All Hospitals'' line in Column 3 indicates that changes 
due to the MS-DRGs and relative weights will result in a 0.0 percent 
change in payments with the application of the recalibration budget 
neutrality factor of 0.998431 on to the standardized amount. Due to 
the changes to the MS-DRG GROUPER in this final rule, there were 
some shifts in payments due to changes in the relative weights with 
rural hospitals experiencing a 0.1 percent decrease in payments.

c. Effects of the Wage Index Changes (Column 4)

    Column 4 shows the impact of updated wage data with the 
application of the 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 wage index for acute care 
hospitals for FY 2013 is based on data submitted for hospital cost 
reporting periods beginning on or after October 1, 2008 and before 
October 1, 2009. The estimated impact of the updated wage data and 
labor 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 percentage change in payments when going from a 
model using the FY 2012 wage index, based on FY 2008 wage data, the 
current labor-related share and having a 100-percent occupational 
mix adjustment applied, to a model using the FY 2013 pre-
reclassification wage index with the labor-related share, also 
having a 100-percent occupational mix adjustment applied, based on 
FY 2009 wage data (while holding other payment parameters such as 
use of the Version 30.0 MS-DRG GROUPER constant). The occupational 
mix adjustment is based on the 2010 occupational mix survey.
    In addition, the column shows the impact of the application of 
wage budget neutrality to the 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 2013, we are calculating the wage budget neutrality factor to 
ensure that payments under updated wage data and the labor-related 
share are budget neutral without regard to the lower labor-related 
share of 62 percent applied to hospitals with a wage index less than 
or equal to 1. In other words, the wage budget neutrality is 
calculated under the assumption that all hospitals receive the 
higher labor-related share of the standardized amount. The wage 
budget neutrality factor is 1.000331, and the overall payment change 
is 0 percent.
    Column 4 shows the impacts of updating the wage data using FY 
2009 cost reports. Overall, the new wage data will lead to a 0.0 
percent change for all hospitals before being combined with the wage 
budget neutrality adjustment shown in Column 4. Among the regions, 
the largest increase is in the urban New England region, which 
experiences a 0.9 percent increase. The largest decline from 
updating the wage data is seen in the rural East South Central 
region (-0.5 percent decrease).
    In looking at the wage data itself, the national average hourly 
wage increased 3.3 percent compared to FY 2012. Therefore, the only 
manner in which to maintain or exceed the previous year's wage index 
was to match or exceed the national 3.3 percent increase in average 
hourly wage. Of the 3,409 hospitals with wage data for both FYs 2012 
and 2013, 1,529, or 44.9 percent, experienced an average hourly wage 
increase of 3.3 percent or more.
    The following chart compares the shifts in wage index values for 
hospitals due to changes in the average hourly wage data for FY 2013 
relative to FY 2012. Among urban hospitals, none will experience an 
increase of more than 5 percent and less than 10 percent and none 
will experience an increase of more than 10 percent. Among rural 
hospitals, none will experience an increase of more than 5 percent 
and less than 10 percent, and none will experience an increase of 
more than 10 percent. However, 926 rural hospitals will experience 
increases or decreases of less than 5 percent, while 2,483 urban 
hospitals will experience increases or decreases of less than 5 
percent. No urban hospitals will experience decreases in their wage 
index values of more than 5 percent and less than 10 percent. No 
urban hospitals will experience decreases in their wage index values 
of more than 10 percent. No rural hospitals will experience a 
decrease of more than 10 percent. No rural hospitals will experience 
decreases in their wage index values of greater than 5 percent but 
less than 10 percent. These figures reflect changes in the ``pre-
reclassified, occupational mix-adjusted wage index,'' that is, the 
wage index before the application of geographic reclassification, 
the rural floor, the out-migration adjustment, and other wage index 
exceptions and adjustments. (We refer readers to sections III.G.2. 
through III.I. of the preamble of this final rule for a complete 
discussion of the exceptions and adjustments to the wage index.) We 
note that the ``post-reclassified wage index'' or ``payment wage 
index,'' the final wage index that includes all such exceptions and 
adjustments (as reflected in Tables 2, 4A, 4B, 4C, and 4F of the 
Addendum to this final rule, which are available via the Internet on 
the CMS Web site) is used to adjust the labor-related share of a 
hospital's standardized amount, either 68.8 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 pre-reclassified wage 
index figures in the chart below may illustrate a somewhat larger or 
smaller change than will 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.

[[Page 53728]]

------------------------------------------------------------------------
                                                   Number of hospitals
  Percentage change in area wage index values  -------------------------
                                                   Urban        Rural
------------------------------------------------------------------------
Increase more than 10 percent.................            0            0
Increase more than 5 percent and less than 10             0            0
 percent......................................
Increase or decrease less than 5 percent......        2,483          926
Decrease more than 5 percent and less than 10             0            0
 percent......................................
Decrease more than 10 percent.................            0            0
------------------------------------------------------------------------

d. Combined Effects of the MS-DRG and Wage Index Changes (Column 5)

    Section 1886(d)(4)(C)(iii) of the Act requires that changes to 
MS-DRG reclassifications and the relative weights cannot increase or 
decrease aggregate payments. In addition, section 1886(d)(3)(E) of 
the Act specifies that any updates or adjustments to the wage index 
are to be budget neutral. We computed a wage budget neutrality 
factor of 1.000331, and a recalibration budget neutrality factor of 
0.998431 (which is applied to the Puerto Rico-specific standardized 
amount and the hospital-specific rates). The product of the two 
budget neutrality factors is the cumulative wage and recalibration 
budget neutrality factor. The cumulative wage and recalibration 
budget neutrality adjustment is 0.998761, or approximately -0.1 
percent, which is applied to the national standardized amounts. 
Because the wage budget neutrality and the recalibration budget 
neutrality are calculated under different methodologies according to 
the statute, when the two budget neutralities are combined and 
applied to the standardized amount, the overall payment impact is 
not necessarily budget neutral. However, in this final rule, we are 
estimating that the changes in the MS-DRG relative weights and 
updated wage data with wage and budget neutrality applied will 
result in a 0.0 change in payments.
    We estimate that the combined impact of the changes to the 
relative weights and MS-DRGs and the updated wage data with budget 
neutrality applied will result in 0.1 percent increase in payments 
for urban hospitals and 0.3 percent decrease in payments for rural 
hospitals. Urban New England hospitals will experience a 0.9 percent 
increase in payments due to increases in their wages compared to the 
national average, while the urban East South Central area will 
experience a 0.8 decrease in payments and rural South Atlantic will 
experience a 0.6 decrease in payments because of below average 
increases in wages.

e. Effects of MGCRB Reclassifications (Column 6)

    Our impact analysis to this point has assumed acute care 
hospitals are paid on the basis of their actual geographic location 
(with the exception of ongoing policies that provide that certain 
hospitals receive payments on other bases than where they are 
geographically located). The changes in Column 6 reflect the per 
case payment impact of moving from this baseline to a simulation 
incorporating the MGCRB decisions for FY 2013 which affect 
hospitals' wage index area assignments.
    By spring of each year, the MGCRB makes reclassification 
determinations that will be effective for the next fiscal year, 
which begins on October 1. The MGCRB may approve a hospital's 
reclassification request for the purpose of using another area's 
wage index value. Hospitals may appeal denials of MGCRB decisions to 
the CMS Administrator. Further, hospitals have 45 days from 
publication of the IPPS rule in the Federal Register to decide 
whether to withdraw or terminate an approved geographic 
reclassification for the following year.
    The overall effect of geographic reclassification is required by 
section 1886(d)(8)(D) of the Act to be budget neutral. Therefore, we 
are applying an adjustment of 0.991276 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 final rule). 
Geographic reclassification generally benefits hospitals in rural 
areas. We estimate that the geographic reclassification will 
increase payments to rural hospitals by an average of 2.1 percent. 
By region, all the rural hospital categories, with the exception of 
one rural Puerto Rico hospital, will experience increases in 
payments due to MGCRB reclassification. Rural hospitals in the East 
South Central region will experience a 2.9 percent increase in 
payments and rural hospitals in the Mountain region will experience 
a 0.4 percent increase in payments. Urban hospitals in New England 
and the Middle Atlantic will experience an increase in payments of 
0.7 percent and 0.1 percent, respectively, largely due to 
reclassifications of hospitals in Connecticut and New Jersey.
    Table 9A listed in section VI. of the Addendum to this final 
rule and available via the Internet reflects the reclassifications 
for FY 2013.

f. Effects of the Rural and Imputed Floor, Including Application of 
National Budget Neutrality (Column 7)

    As discussed in section III.B. of the preamble of the FY 2009 
IPPS final rule, the FY 2010 IPPS/RY 2010 LTCH PPS final rule, the 
FY 2011 IPPS/LTCH PPS final rule and this final rule, section 4410 
of Public Law 105-33 established the rural floor by requiring that 
the wage index for a hospital in any urban area cannot be less than 
the wage index received by rural hospitals in the same State. We 
apply a uniform budget neutrality adjustment to the wage index. In 
addition, the imputed floor, which is budget neutral, 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 
earlier in this final rule, we are finalizing the proposal in the FY 
2013 IPPS/LTCH PPS proposed rule to establish an alternative 
temporary methodology for the imputed floor, which will result in an 
imputed floor for Rhode Island for FY 2013.
    The imputed floor for Rhode Island is also accounted for in the 
calculation of the rural floor and imputed rural floor budget 
neutrality factor. 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. The FY 2013 
rural floor budget neutrality factor applied to the wage index is 
0.991340, which will reduce wage indexes by -0.87 percent.
    Column 7 shows the projected impact of the rural floor and 
imputed floor with the national rural floor budget neutrality factor 
applied to the wage index. The column compares the post-
reclassification FY 2013 wage index of providers before the rural 
floor and imputed floor adjustment and the post-reclassification FY 
2013 wage index of providers with the rural floor and imputed floor 
adjustment. Only urban hospitals can benefit from the rural floor 
provision. Because the provision is budget neutral, all other 
hospitals (that is, all rural hospitals and those urban hospitals to 
which the adjustment is not made) experience a decrease in payments 
due to the budget neutrality adjustment applied nationally to their 
wage index.
    We project that, in aggregate, rural hospitals will experience a 
0.3 percent decrease in payments as a result of the application of 
rural floor budget neutrality because the rural hospitals do not 
benefit from the rural floor, but have their wage indexes downwardly 
adjusted to ensure that the application of the rural floor is budget 
neutral overall. We project hospitals located in other urban areas 
(populations of 1 million or fewer) will experience a 0.2 percent 
increase in payments because those providers benefit from the rural 
floor. Urban hospitals in the New England region can expect a 3.6 
percent increase in payments primarily due to the application of the 
rural floor in Massachusetts and the application of national rural 
floor budget neutrality as required by the Affordable Care Act. All 
60 urban providers in Massachusetts are expected to receive the 
rural floor wage index value, including rural floor budget 
neutrality, of 1.3047. 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

[[Page 53729]]

is established by the conversion of a CAH to an IPPS hospital that 
is geographically located in rural Massachusetts. We estimate that 
Massachusetts hospitals will receive approximately a 5.7 percent 
increase in IPPS payments due to the application of rural floor.
    Urban Mountain hospitals are estimated to receive a 0.6 percent 
increase in payments due to an increase in the rural floor for 
Arizona hospitals, as compared to our estimates published in the FY 
2013 IPPS/LTCH PPS proposed rule. The Arizona rural floor wage index 
increased significantly from 0.9243 to 1.0661, attributable to one 
urban hospital that reclassified to rural Arizona under Sec.  
412.103 of the Medicare regulations. As a result, 46 out of the 53 
urban hospitals in Arizona will benefit from the rural floor of 
1.0661. Urban Arizona hospitals will experience a 2.2 percent 
increase in payments (approximately $33 million) due to the increase 
in the rural floor.
    Urban Puerto Rico hospitals are expected to experience a 0.1 
percent increase in payments as a result of the application of a 
Puerto Rico rural floor. Urban Puerto Rico hospitals will receive a 
rural floor as a result of a one IPPS hospital located in rural 
Puerto Rico setting a rural floor. We are applying a rural floor 
budget neutrality factor to the Puerto Rico-specific wage index of 
0.987620 or -1.2 percent. The Puerto Rico-specific wage index 
adjusts the Puerto Rico-specific standardized amount, which 
represents 25 percent of payments to Puerto Rico hospitals.
    There are 29 hospitals in New Jersey that benefit from the 
extension of the imputed floor and will receive the imputed floor 
wage index value, including rural floor budget neutrality of 1.0994, 
which we estimate will increase their payments by approximately $29 
million. Urban Middle Atlantic hospitals will experience a 0.3 
percent decrease in payments, which reflects the increase in 
payments for New Jersey hospitals receiving the imputed floor and a 
decrease for all other urban hospitals in the in the Middle Atlantic 
region. Four Rhode Island hospitals benefit from the newly 
established imputed rural floor and will receive an additional $2.5 
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 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 will receive the rural floor 
or imputed floor wage index for FY 2013. Column 3 displays the 
percentage of total payments each State will receive or contribute 
to fund the rural floor and imputed floor with national budget 
neutrality. The column compares the post-reclassification FY 2013 
wage index of providers before the rural floor and imputed floor 
adjustment and the post-reclassification FY 2013 wage index of 
providers with the rural floor and imputed floor adjustment. Column 
4 displays the estimated payment amount that each State will gain or 
lose due to the application of the rural floor and imputed floor 
with national budget neutrality.

      FY 2013 IPPS Estimated Payments Due to Rural Floor and Imputed Floor With National Budget Neutrality
----------------------------------------------------------------------------------------------------------------
                                                                                  Percent change
                                                                                    in payments
                                                                     Number of        due to
                                                                     hospitals    application of
                      State                          Number of       receiving      rural floor   Difference (in
                                                     hospitals    rural floor or   and  imputed      millions)
                                                                   imputed floor    floor with
                                                                                      budget
                                                                                    neutrality
                                                             (1)             (2)             (3)             (4)
----------------------------------------------------------------------------------------------------------------
Alabama.........................................              96               3            -0.4           -$8.2
Alaska..........................................               6               4             1.5             2.3
Arizona.........................................              58              45             1.7            31.4
Arkansas........................................              45               0            -0.5            -5.2
California......................................             311             180             0.9            98.5
Colorado........................................              46               7             0.5             5.8
Connecticut.....................................              32              11               1            16.7
Delaware........................................               6               0            -0.5            -2.1
Florida.........................................             169               8            -0.4           -28.3
Georgia.........................................             108               0            -0.4           -12.7
Hawaii..........................................              14               0            -0.4            -1.1
Idaho...........................................              14               0            -0.3            -1.0
Illinois........................................             130               8            -0.5           -26.2
Indiana.........................................              89               0            -0.5           -11.7
Iowa............................................              34               0            -0.4            -4.4
Kansas..........................................              55               0            -0.4            -3.5
Kentucky........................................              65               0            -0.4            -8.4
Louisiana.......................................              98               7            -0.4            -7.1
Maine...........................................              20               0            -0.5            -2.4
Massachusetts...................................              61              60             5.7           188.0
Michigan........................................              96               0            -0.5           -21.2
Minnesota.......................................              51               0            -0.5            -8.6
Mississippi.....................................              66               0            -0.4            -5.5
Missouri........................................              76               2            -0.4           -10.9
Montana.........................................              12               1            -0.3            -0.7
Nebraska........................................              23               0            -0.4            -2.5
Nevada..........................................              24               4            -0.4            -3.2
New Hampshire...................................              13               9             2.1            10.0
New Jersey......................................              65              29             0.4            14.4
New Mexico......................................              27               0            -0.3            -1.5
New York........................................             168               0            -0.5           -46.8
North Carolina..................................              88               0            -0.4           -16.4
North Dakota....................................               6               4            -0.2            -0.6
Ohio............................................             139               8            -0.4           -15.0
Oklahoma........................................              85               0            -0.4            -5.7

[[Page 53730]]

 
Oregon..........................................              33               0            -0.5            -4.1
Pennsylvania....................................             154              14            -0.4           -17.5
Puerto Rico.....................................              52              13             0.1             0.1
Rhode Island....................................              11               4             0.5             2.1
South Carolina..................................              56               5            -0.3            -5.9
South Dakota....................................              18               0            -0.3            -0.8
Tennessee.......................................              97              10            -0.3            -7.4
Texas...........................................             325               2            -0.4           -33.0
Utah............................................              32               0            -0.4            -1.8
Vermont.........................................               6               0            -0.3            -0.7
Virginia........................................              79               1            -0.4           -10.1
Washington......................................              48               5            -0.3            -6.3
Washington, D.C.................................               7               0            -0.5            -2.5
West Virginia...................................              33               2            -0.3            -2.9
Wisconsin.......................................              65               8            -0.3            -5.0
Wyoming.........................................              11               0            -0.1            -0.2
----------------------------------------------------------------------------------------------------------------

g. Effects of the 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 45 hospitals located in those States will receive a 
frontier wage index of 1.0. 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 is greater and, 
therefore, is the State's minimum wage index for FY 2013. As a 
result, hospitals located in Nevada will 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 $69 million.
    Urban hospitals located in the West North Central region and 
urban hospitals located in the Mountain region will 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 will experience 
an increase in payments by 0.8 percent and 0.2 percent, 
respectively.

h. Effects of the Wage Index Adjustment for Out-Migration (Column 9)

    Section 1886(d)(13) of the Act, as added by section 505 of 
Public Law 108-173, provides for an increase in the wage index for 
hospitals located in certain counties that have a relatively high 
percentage of hospital employees who reside in the county, but work 
in a different area with a higher wage index. Hospitals located in 
counties that qualify for the payment adjustment are to receive an 
increase in the wage index that is equal to a weighted average of 
the difference between the wage index of the resident county, post-
reclassification and the higher wage index work area(s), weighted by 
the overall percentage of workers who are employed in an area with a 
higher wage index. Overall, rural hospitals will experience a 0.1 
percent increase in payments as a result of the out-migration wage 
adjustment. Rural DSH providers with less than 100 beds will 
experience a 0.4 percent increase in payments. Urban New England 
hospitals will experience a 0.3 percent increase in payments due to 
increases in their out-migration wage adjustment attributable to the 
hospitals located in counties neighboring Massachusetts that has a 
higher wage index due to the Massachusetts rural floor. There are 
287 providers that will receive the out-migration wage adjustment in 
FY 2013. This out-migration wage adjustment is not budget neutral, 
and we estimate the impact of these providers receiving the out-
migration increase to be approximately $53 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, 
under section 3124 of the Affordable Care Act. Hospitals that 
qualified to be MDHs receive the higher of payments made under the 
Federal standardized amount or the payments made under the Federal 
standardized amount plus 75 percent of the difference between the 
Federal standardized amount and the hospital-specific rate (a 
hospital-specific cost-based rate). Because this provision was not 
budget neutral, the expiration of this payment provision results in 
a 0.2 percent decrease in payments overall. There are currently 213 
MDHs, of which 98 were estimated to be paid under the blended 
payment of the federal standardized amount and hospital-specific 
rate. Because those 98 MDHs will no longer receive the blended 
payment and will be paid only under the Federal standardized amount 
in FY 2013, it is estimated that those hospitals will experience an 
overall decrease in payments of approximately $183 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 1.4 percent. Rural New England hospitals can expect a 
decrease in payments of 3.4 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 2012. 
MDHs can expect a decrease in payments of 7.8 percent.

[[Page 53731]]

j. Effects of the Hospital Readmissions Reduction Program (Column 11)

    Column 11 shows our estimates of effects of the policies for 
implementation of 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 0.99 (or a 1-percent reduction) for FY 2013. A hospital's 
base operating DRG payment (that is, wage-adjusted DRG payment 
amount, as discussed in section IV.A. of the preamble of this final 
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 
final rule, we estimate that 2,206 hospitals will have their base 
operating DRG payments reduced by the readmissions adjustment, 
resulting in a 0.3 percent decrease in payments to hospitals 
overall.
    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 
will experience the highest decreases of 0.4 percent among the 
different hospital categories. Urban hospitals in the West South 
Central region, Mountain region and Pacific region will experience 
the smallest decreases of 0.1 percent in payments. Puerto Rico 
hospitals show a 0 percent change in payments because they are 
exempt from the provision.

k. Effects of All FY 2013 Changes (Column 12)

    Column 12 shows our estimate of the changes in payments per 
discharge from FY 2012 and FY 2013, resulting from all changes 
reflected in this final rule for FY 2013. It includes combined 
effects of the previous columns in the table.
    The average increase in payments under the IPPS for all 
hospitals is approximately 2.3 percent for FY 2013 relative to FY 
2012. As discussed in section II.D. of the preamble of this final 
rule, this column includes the FY 2013 documentation and coding 
adjustment of 1.0 percent on the national standardized amount (the -
1.9 percent documentation and coding adjustment and the 2.9 percent 
adjustment to restore the one-time recoupment adjustment made to 
national standardized amount) and the -0.5 percent documentation and 
coding adjustment on the hospital-specific rates. In addition, this 
column includes the annual hospital update of 1.8 percent to the 
national standardized amount. This annual hospital update includes 
the 2.6 percent market basket update, the reduction of 0.7 
percentage point for the multifactor productivity adjustment, and 
the 0.1 percentage point reduction under section 3401 of the 
Affordable Care Act. As described in Column 2, the annual hospital 
update, combined with the documentation and coding adjustment, 
results in a 2.7 percent increase in payments in FY 2013 relative to 
FY 2012. In addition, Column 8 describes an estimated 0.1 percent 
increase in payments due to the frontier State wage index. Column 10 
describes the estimated 0.2 percent decrease in payments due to the 
expiration of the MDH status under section 3124 of the Affordable 
Care Act. Column 11 shows the estimated 0.3 percent decrease in 
payments due to the establishment of the Hospital Readmissions 
Reduction Program, which reduces a hospital's base operating DRG 
payments by a readmission adjustment factor based on a hospital's 
performance on readmissions for specified conditions. In addition, 
although not shown in the impacts table, payments are estimated to 
decrease by 0.1 due to the expiration of section 508 
reclassifications that had been extended for 6 months of FY 2012 
under section 302 of the Temporary Payroll Tax Cut Continuation Act 
of 2011 (Pub. L. 112-78), as amended by section 3001 of the Middle 
Class Tax Relief and Job Creation Act of 2012 (Pub. L. 112-96). 
Section 508 was not a budget-neutral provision. The impact of moving 
from our estimate of FY 2012 outlier payments, 5.0 percent, to the 
estimate of FY 2013 outlier payments, 5.1 percent, results in an 
increase of 0.1 percent in FY 2013 payments relative to FY 2012. 
There might also be interactive effects among the various factors 
comprising the payment system that we are not able to isolate. For 
these reasons, the values in Column 12 may not equal the sum of the 
percentage changes described above.
    The overall change in payments per discharge for hospitals paid 
under the IPPS in FY 2013 is estimated to increase by 2.3 percent. 
The payment increase among the hospital categories is largely 
attributed to the updates to the rate including the hospital update. 
Hospitals in urban areas will experience an estimated 2.5 percent 
increase in payments per discharge in FY 2013 compared to FY 2012. 
Hospital payments per discharge in rural areas are estimated to 
increase by 0.3 percent in FY 2013 as compared to FY 2012 due to the 
expiration of MDH status.
    Among urban census divisions, the Urban New England hospitals 
will experience an estimated 1.5 percent increase in payments, less 
than the national average, because many of the urban providers in 
this region had benefited from section 508 reclassifications in FY 
2012 that will expire for FY 2013. Urban hospitals in the Pacific 
will see the largest payment increases (4.0 percent) because the 
hospitals are benefitting from the rural floors in their States.
    Among the rural regions, the hospitals in the New England Region 
will experience the estimated decreases in payments of 0.8 percent, 
due to the expiration of MDH status. Rural hospitals in the Mountain 
Region are estimated to experience a 1.1 percent increase because 
the rural providers in this region benefit from MGCRB 
reclassification and the application of the Frontier wage index, 
which offsets decreases due to the rural floor and the expiration of 
MDH status.
    Among special categories of hospitals, former MDHs will receive 
an estimated payment decrease of 6.4 percent due to the expiration 
of the MDH status. SCHs are paid the higher of their Federal rate 
and the hospital-specific rate. Overall, SCHs are estimated to 
experience a payment increase of 0.1 percent due to the application 
of the rural floor budget neutrality and the implementation of the 
Hospital Readmissions Reduction Program.
    Rural hospitals reclassified for FY 2013 will receive an 
estimated 1.1 percent payment increase. Rural hospitals that are not 
reclassifying are estimated to receive a payment decrease of 1.1 
percent due to lower wage data, the application of rural floor 
budget neutrality and expiration of MDH status. Urban reclassified 
hospitals will experience an estimated payment increase at 2.6 
percent due to the benefits under MGCRB reclassification and the 
rural floor. Urban nonreclassified hospitals will experience an 
estimated payment increase of 2.5 percent.
    Cardiac hospitals are expected to experience a payment increase 
3.9 percent in FY 2013 relative to FY 2012 primarily due to benefits 
to the changes in the relative weights and the application of the 
Frontier wage index.

3. Impact Analysis of Table II

    Table II presents the projected impact of the changes for FY 
2013 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 2012 with the average payments per 
discharge for FY 2013, as calculated under our models. Thus, this 
table presents, in terms of the average dollar amounts paid per 
discharge, the combined effects of the changes presented in Table I. 
The estimated percentage changes shown in the last column of Table 
II equal the estimated percentage changes in average payments per 
discharge from Column 12 of Table I.

[[Page 53732]]

    Table II--Impact Analysis of Changes for FY 2013 Acute Care Hospital Operating Prospective Payment System
                                            [Payments per discharge]
----------------------------------------------------------------------------------------------------------------
                                                                            Average FY   Average FY
                                                               Number of       2012         2013     All FY 2013
                                                               hospitals   payment per  payment per    changes
                                                                            discharge    discharge
                                                                      (1)          (2)          (3)          (4)
----------------------------------------------------------------------------------------------------------------
All hospitals...............................................        3,423       10,477       10,716          2.3
By Geographic Location:
    Urban hospitals.........................................        2,497       10,881       11,153          2.5
    Large urban areas (populations over 1 million)..........        1,373       11,503       11,803          2.6
    Other urban areas (populations of 1 million or fewer)...        1,124       10,117       10,355          2.4
    Rural hospitals.........................................          926        7,845        7,868          0.3
Bed Size (Urban):
    0-99 beds...............................................          633        8,343        8,550          2.5
    100-199 beds............................................          780        9,192        9,423          2.5
    200-299 beds............................................          448        9,955       10,212          2.6
    300-499 beds............................................          430       11,133       11,428          2.6
    500 or more beds........................................          206       13,424       13,733          2.3
Bed Size (Rural):
    0-49 beds...............................................          321        6,307        6,241         -1.1
    50-99 beds..............................................          347        7,335        7,214         -1.7
    100-149 beds............................................          153        7,605        7,681            1
    150-199 beds............................................           58        8,544        8,673          1.5
    200 or more beds........................................           47        9,656        9,847            2
Urban by Region:
    New England.............................................          120       11,852       12,025          1.5
    Middle Atlantic.........................................          318       11,929       12,136          1.7
    South Atlantic..........................................          380        9,958       10,183          2.3
    East North Central......................................          399       10,128       10,392          2.6
    East South Central......................................          151        9,590        9,765          1.8
    West North Central......................................          165       10,519       10,839            3
    West South Central......................................          372       10,152       10,391          2.4
    Mountain................................................          159       11,045       11,394          3.2
    Pacific.................................................          382       13,625       14,174            4
    Puerto Rico.............................................           51        5,384        5,526          2.6
Rural by Region:
    New England.............................................           23       10,465       10,376         -0.8
    Middle Atlantic.........................................           69        8,345        8,334         -0.1
    South Atlantic..........................................          166        7,518        7,560          0.6
    East North Central......................................          120        8,083        8,079         -0.1
    East South Central......................................          173        7,186        7,233          0.7
    West North Central......................................           98        8,344        8,358          0.2
    West South Central......................................          181        6,882        6,889          0.1
    Mountain................................................           65        8,690        8,787          1.1
    Pacific.................................................           30       10,613       10,709          0.9
    Puerto Rico.............................................            1        2,151        2,213          2.9
By Payment Classification:
    Urban hospitals.........................................        2,512       10,860       11,133          2.5
    Large urban areas (populations over 1 million)..........        1,383       11,483       11,778          2.6
    Other urban areas (populations of 1 million or fewer)...        1,129       10,088       10,332          2.4
    Rural areas.............................................          911        8,046        8,077          0.4
Teaching Status:
    Non-teaching............................................        2,392        8,783        8,963            2
    Fewer than 100 Residents................................          789       10,309       10,571          2.5
    100 or more Residents...................................          242       15,381       15,737          2.3
Urban DSH:
    Non-DSH.................................................          700        9,142        9,335          2.1
    100 or more beds........................................        1,558       11,334       11,621          2.5
    Less than 100 beds......................................          345        7,706        7,899          2.5
Rural DSH:
    SCH.....................................................          258        7,801        7,761         -0.5
    RRC.....................................................          232        8,946        9,088          1.6
    100 or more beds........................................           34        7,042        7,093          0.7
    Less than 100 beds......................................          296        6,214        6,093         -1.9
Urban teaching and DSH:
    Both teaching and DSH...................................          825       12,413       12,720          2.5
    Teaching and no DSH.....................................          139       10,146       10,375          2.3
    No teaching and DSH.....................................        1,078        9,300        9,547          2.6
    No teaching and no DSH..................................          470        8,659        8,870          2.4
Rural Hospital Types:

[[Page 53733]]

 
    RRC.....................................................          203        8,917        9,105          2.1
    SCH.....................................................          326        8,428        8,437          0.1
    Former MDH..............................................          195        6,519        6,101         -6.4
    SCH and RRC.............................................          118        9,737        9,868          1.4
    Former MDH and RRC......................................           18        8,576        7,505        -12.5
Type of Ownership:
    Voluntary...............................................        1,971       10,618       10,857          2.3
    Proprietary.............................................          868        9,318        9,539          2.4
    Government..............................................          563       11,148       11,406          2.3
Medicare Utilization as a Percent of Inpatient Days:
    0-25....................................................          376       14,621       15,111          3.4
    25-50...................................................        1,834       10,970       11,239          2.4
    50-65...................................................          974        8,581        8,711          1.5
    Over 65.................................................          166        7,914        7,943          0.4
Hospitals Reclassified by the Medicare Geographic
 Classification Review Board: FY 2013 Reclassifications:
    All Reclassified Hospitals FY 2013......................          654        9,828       10,037          2.1
    All Non-Reclassified Hospitals FY 2013..................        2,769       10,644       10,891          2.3
    Urban Reclassified Hospitals FY 2013....................          320       10,707       10,984          2.6
    Urban Non-reclassified Hospitals FY 2013................        2,137       10,921       11,195          2.5
    Rural Reclassified Hospitals FY 2013....................          334        8,383        8,477          1.1
    Rural Nonreclassified Hospitals FY 2013.................          531        7,044        6,968         -1.1
    All Section 401 Reclassified Hospitals..................           46       10,030       10,083          0.5
    Other Reclassified Hospitals (Section 1886(d)(8)(B))....           62        7,497        7,349           -2
Specialty Hospitals:
    Cardiac Hospitals.......................................           19       10,925       11,350          3.9
----------------------------------------------------------------------------------------------------------------

H. Effects of Other Policy Changes

    In addition to those policy changes discussed above that we are 
able to model using our IPPS payment simulation model, we are making 
various other changes in this final rule. Generally, we have limited 
or no specific data available with which to estimate the impacts of 
these changes. Our estimates of the likely impacts associated with 
these other changes are discussed below.

1. Effects of Policy on HACs, Including Infections

    In section II.F. of the preamble of this final rule, we discuss 
our implementation of section 1886(d)(4)(D) of the Act, which 
requires the Secretary to identify conditions that are: (1) High 
cost, high volume, or both; (2) result in the assignment of a case 
to an MS-DRG that has a higher payment when present as a secondary 
diagnosis; and (3) could reasonably have been prevented through 
application of evidence-based guidelines. For discharges occurring 
on or after October 1, 2008, hospitals will not receive additional 
payment for cases in which one of the selected conditions was not 
present on admission, unless, based on data and clinical judgment, 
it cannot be determined at the time of admission whether a condition 
is present. That is, the case will be paid as though the secondary 
diagnosis were not present. However, the statute also requires the 
Secretary to continue counting the condition as a secondary 
diagnosis that results in a higher IPPS payment when doing the 
budget neutrality calculations for MS-DRG reclassifications and 
recalibration. Therefore, we will perform our budget neutrality 
calculations as though the payment provision did not apply, but 
Medicare will make a lower payment to the hospital for the specific 
case that includes the secondary diagnosis. Thus, the provision 
results in cost savings to the Medicare program.
    We note that the provision will only apply when one or more of 
the selected conditions are the only secondary diagnosis or 
diagnoses present on the claim that will lead to higher payment. 
Medicare beneficiaries will generally have multiple secondary 
diagnoses during a hospital stay, such that beneficiaries having one 
MCC or CC will frequently have additional conditions that also will 
generate higher payment. Only a small percentage of the cases will 
have only one secondary diagnosis that would lead to a higher 
payment. Therefore, if at least one nonselected secondary diagnosis 
that leads to higher payment is on the claim, the case will continue 
to be assigned to the higher paying MS-DRG and there will be no 
Medicare savings from that case. In addition, as discussed in 
section II.F.3. of the preamble of this final rule, it is possible 
to have two severity levels where the HAC does not affect the MS-DRG 
assignment or for an MS-DRG not to have severity levels. In either 
of these circumstances, the case will continue to be assigned to the 
higher paying MS-DRG and there will be no Medicare savings from that 
case.
    In section II.F. of the preamble of this final rule, we are 
adding two HACs for FY 2013: Surgical Site Infection (SSI) Following 
Cardiac Implantable Electronic Device (CIED) Procedures and 
Iatrogenic Pneumothorax with Venous Catheterization. Similar to the 
current HACs, only a very small number of discharges would have only 
one secondary diagnosis that would lead to a higher payment. 
Therefore, there will likely be very few discharges where the MS-DRG 
is reassigned for these proposed conditions and this would result in 
a minimal payment impact.
    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 2013.................................................             $24
FY 2014.................................................              26
FY 2015.................................................              28
FY 2016.................................................              30
FY 2017.................................................              33
------------------------------------------------------------------------

2. Effects of Policy Relating to New Medical Service and Technology 
Add-On Payments

    In section II.I. of the preamble to this final rule, we discuss 
four applications for add-on

[[Page 53734]]

payments for new medical services and technologies for FY 2013, as 
well as the status of the new technology that was approved to 
receive new technology add-on payments in FY 2012. 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 final rule, we 
are approving three of the four applications for new technology add-
on payments for FY 2013. In this final rule, we also are continuing 
to make new technology add-on payments in FY 2013 for the 
AutoLITTTM (because the technology is still within the 3-
year anniversary of the product's entry onto the market). 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 
2013 as if every claim that would qualify for a new technology add-
on payment would receive the maximum add-on payment. For the 
AutoLITTTM, for FY 2011, the applicant estimated that 
approximately 170 Medicare beneficiaries would be eligible for the 
AutoLITTTM. Therefore, based on the applicant's estimate 
from FY 2011, we currently estimate that new technology add-on 
payments for the AutoLITTTM will increase overall FY 2013 
payments by $900,000. For Voraxaze[supreg], for FY 2013, the 
applicant estimates that approximately 140 Medicare beneficiaries 
will be eligible for the technology. Therefore, we currently 
estimate that new technology add-on payments for Voraxaze[supreg] 
will increase overall FY 2013 payments by $6,300,000. For 
DificidTM, for FY 2013, the applicant estimates that 
approximately 40,138 Medicare beneficiaries will be eligible for the 
technology. Therefore, we currently estimate that new technology 
add-on payments for DificidTM will increase overall FY 
2013 payments by $34,839,784. For the Zenith[supreg] F. Graft, for 
FY 2013, the applicant estimates that approximately 500 Medicare 
beneficiaries will be eligible for the technology. Therefore, we 
currently estimate that new technology add-on payments for the 
Zenith[supreg] F. Graft will increase overall FY 2013 payments by 
$4,085,750. The total increase in overall FY 2013 payments due to 
new technology add-on payment is estimated to be $46,125,534.

3. Effects of Policy Changes Relating to SCHs

    In section IV.B.2. of the preamble of this final rule, we 
discuss our clarification of the regulations related to the 
termination of a hospital's status as an SCH. We are adding a 
provision to the regulations to clarify that if CMS determines that 
the hospital was incorrectly designated as an SCH, SCH status may be 
cancelled retroactively, consistent with the provisions at 42 CFR 
405.1885. We also are specifying that if a hospital that was 
incorrectly designated as an SCH notifies CMS of that error, the SCH 
classification status may be terminated effective 30 days from CMS' 
date of determination. We believe it is difficult to quantify the 
payment impact of these clarifications because we cannot estimate 
the number of SCHs that will be affected by these policies. However, 
we believe any impact will be insignificant because the policies 
only affect hospitals that were incorrectly classified as SCHs. In 
the proposed rule, we solicited public comments on these issues. Any 
public comments that we received are addressed in section IV.B.2. of 
the preamble of this final rule.
    In section IV.B.3. of the preamble of this final rule, we 
discuss our addition of a provision to the regulations to allow 
hospitals that are currently classified as MDHs to apply for 
classification as SCHs upon the expiration of the MDH program on 
September 30, 2012. We are providing that, for any MDH that applies 
for SCH classification at least 30 days prior to the expiration of 
the MDH program and requests that SCH classification status be 
effective with the expiration of the MDH program, and the hospital 
is approved for SCH status, the effective for SCH status will be the 
day following the expiration of the MDH program. We believe it is 
difficult to quantify the payment impact of this policy because we 
cannot estimate the number of MDHs that will be applying for SCH 
status.

4. Effects of the Payment Adjustment for Low-Volume Hospitals for FY 
2013

    In section IV.D. of the preamble to this final rule, we discuss 
the provisions of the Affordable Care Act that expanded the 
definition of low-volume hospital and modified the methodology for 
determining the payment adjustment for hospitals meeting that 
definition for FYs 2011 and 2012. In accordance with section 
1886(d)(12) of the Act, beginning with FY 2013, 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. Therefore, effective for 
FY 2013 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 2011 claims data (March 2012 update of the MedPAR 
file), we estimate that approximately 600 hospitals in our database 
qualified as a low-volume hospital for FY 2012, but will no longer 
meet the mileage and discharges criteria to qualify as a low-volume 
hospital under section 1886(d)(12) of the Act for FY 2013. Because 
we estimate that these hospitals will no longer qualify for the low-
volume hospital adjustment in FY 2013 (due to the statutory change 
in the qualifying criteria), we project that these hospitals will 
experience a decrease in payments of approximately $318 million in 
FY 2013 as compared to the payments that they would have otherwise 
received in FY 2013 in absence of the statutory change in the low-
volume hospital qualifying criteria.

5. Effects of Policy Changes Relating to Payment Adjustments for 
Medicare Disproportionate Share Hospitals (DSHs) and Indirect Medical 
Education (IME)

    In section IV.F. of the preamble of this final rule, we discuss 
our finalization of a proposal to include ancillary labor and 
delivery beds in the available bed count used to determine the DSH 
payment adjustment and the IME payment adjustment. The impact of the 
changes to the DSH payment adjustment should be negligible, as the 
DSH payment adjustment is determined mainly by the demographic 
composition of an individual hospital's patient population, and not 
its overall bed count. However, we note that some hospitals' bed 
counts do not meet the minimum threshold required to qualify for the 
DSH payment adjustment. For these hospitals that do not meet the 
minimum bed count required to qualify for the DSH payment 
adjustment, an increase in the number of available beds could now 
allow them to qualify for the DSH payment adjustment. For purposes 
of the IME payment adjustment, an increase in a hospital's number of 
available beds would result in a decrease in the resident-to-bed 
ratio. The inclusion of bed days associated with labor and delivery 
patients in the available bed count for IME will increase the 
available beds, decrease the resident-to-bed ratio, and, 
consequently, decrease IME payments to teaching hospitals, depending 
on the number of these hospitals' labor and delivery beds. Based on 
labor and delivery patient days currently reported in the Medicare 
hospital cost report database, we estimate that the inclusion of 
labor and delivery beds in the available bed day count will decrease 
IME payments by $40 million in FY 2013.
    Comment: One commenter was unable to replicate our proposed 
estimate of $170 in savings due to the inclusion of labor and 
delivery days in the available bed day count for IME. The commenter 
sought additional information on how the estimate was made.
    Response: We thank the commenter for the comment. In the 
proposed rule, we determined our estimate based on Medicare hospital 
cost report data from 2010, which is the most recently available 
data for when hospitals began reporting their labor and delivery 
patient days. We used these data to estimate the number of available 
bed days with the inclusion of the labor and delivery patient days 
for teaching hospitals. We then calculated the change in IME 
payments with the revised bed count. Because only a subset of 
providers had submitted their 2010 Medicare hospital cost report 
data at the time of our estimate, we had to extrapolate our estimate 
to apply to all teaching hospitals. In the proposed rule, we 
inadvertently added our estimate of labor and delivery bed days to 
hospitals' total bed day count, not their bed day count used to 
determine IME payments, resulting in a greater estimate of savings. 
We have corrected our estimate of savings to $40 million, as stated 
above in this final rule.

[[Page 53735]]

6. Effects of the Policy Changes Relating to GME and IME

a. Effects of Clarification and Policy Regarding Timely Filing 
Requirements Under Fee-for-Service Medicare

    In section IV.E.2. of the preamble of this final rule, we 
discuss a clarification related to the time limits for filing claims 
for IME, direct GME, and nursing and allied health education 
payments for services furnished to MA enrollees. This clarification 
is intended to make clear to hospitals that they must follow the 
regulations governing the time limits for filing claims at Sec.  
424.44 in order to receive IME, and/or direct GME, and/or nursing or 
allied health education program payments associated with Medicare 
Advantage enrollees. Because we are not making any policy changes 
(but rather clarifying the existing timely filing requirements), 
there is no financial impact for this clarification.
    In section IV.E.2. of the preamble of this final rule, we also 
are adopting a policy under which hospitals that are required to 
submit no pay bills for services furnished on a prepaid capitation 
basis by an MA organization, or through cost settlement with either 
a health maintenance organization, a competitive medical plan, a 
health care prepayment plan, or a demonstration, for the purpose of 
calculating the DPP that is used in determining the DSH payment 
adjustment must do so within the time limits for filing claims at 
Sec.  424.44. We do not anticipate that this policy will have any 
impact, as providers are already submitting no pay bills for 
purposes of the DPP.

b. Effects of Policy Changes Relating to New Teaching Hospitals: New 
Program Growth From 3 Years to 5 Years

    In section IV.I.2. of the preamble of this final rule, we 
discuss our finalization of a proposal to extend the period a new 
teaching hospital has to establish its caps for direct GME and IME 
payment purposes from 3 years to 5 years. We are revising the 
regulations to state that if a new teaching hospital participates in 
training residents in a new program for the first time on or after 
October 1, 2012, that new teaching hospital's caps will be based on 
the products of the highest number of FTE residents training in any 
program year during the fifth year of each new program's existence 
for all new residency training programs and the number of years in 
which residents are expected to complete the program based on the 
minimum accredited length for each type of program. The cap will be 
applied beginning with the sixth academic year of the first new 
program. We note that, in the preamble, we have also provided a 
formula for calculating the FTE resident cap when residents in the 
new program rotate to more than one hospital during the 5 years. We 
believe the expansion of the cap-building period from 3 years to 5 
years would make our policies for the establishment of a hospital's 
cap more compatible with current accreditation requirements that 
hospitals must meet to establish new residency training programs. We 
estimate that these policies will cost approximately $175 million 
over the next 10 years. However, because these changes to the cap 
growth period from 3 years to 5 years will only affect new programs 
beginning on or after October 1, 2012, we estimate that no cost will 
be incurred until FY 2016. This estimate assumes that there could be 
20 new teaching hospitals each year.

c. Effects of Changes Relating to 5-Year Period Following 
Implementation of Reductions and Increases to Hospitals' FTE Resident 
Caps for GME Payment Purposes Under Section 5503 of the Affordable Care 
Act

    In section IV.I.3. of the preamble of this final rule, we 
discuss our final policies related to the 5-year period following 
implementation of reductions and increases to hospitals' FTE 
resident caps for GME payment purposes under section 5503 of the 
Affordable Care Act. Section 5503 of the Affordable Care Act amended 
the Medicare statute by adding a new section 1886(h)(8) of the Act, 
which provides for reductions in the statutory FTE resident caps for 
direct GME and IME under Medicare for certain hospitals, and 
authorizes a ``redistribution'' to certain hospitals of the 
estimated number of FTE resident slots resulting from the 
reductions. The amendments made by section 5503 also specify that a 
hospital that receives an increase in its cap shall ensure, during 
the 5-year period beginning on the date of such increase (July 1, 
2011), that certain requirements, referred to as the primary care 
average and 75-percent threshold, are met in order to retain those 
slots. Otherwise, the Medicare statute authorizes the Secretary to 
reduce the FTE caps of the hospital if the hospital fails to meet 
either of those requirements.
    Because the statutorily directed criteria for consideration in 
awarding slots under section 5503 included the requirement that 
hospitals applying for slots demonstrate the likelihood of filling 
the slots within the first three cost reporting periods beginning on 
or after July 1, 2011, and we relied on that information in awarding 
slots, we proposed that a hospital that received section 5503 slots 
must fill at least half of its section 5503 slots, IME and direct 
GME respectively, in at least one of the following timeframes: The 
first 12-month cost reporting period of the 5-year period, and/or in 
its second 12-month cost reporting period and/or in its third 12-
month cost reporting period of the 5-year period, or lose its 
section 5503 slots. We also proposed that the hospital must fill all 
of the slots it received by its final cost reporting period 
beginning during the timeframe of July 1, 2011, through June 30, 
2016, or lose all of its section 5503 slots after June 30, 2016. 
However, based on public comments received, we are instead 
finalizing a policy under which, regardless of whether slots are 
used for new programs or expansions of existing programs, the 
Medicare contractors will remove the applicable unused section 5503 
slots for portions of cost reporting periods on or after July 1, 
2016. The slots that are removed will be distributed to other 
hospitals. We also are finalizing an additional policy regarding 
slots used specifically for program expansions under which in 
determining the applicable unused slots for purposes of reductions 
for cost reporting periods on or after July 1, 2016, the slots used 
are equal to the lesser of the number of slots used in the fourth 
12-month cost report or the final cost report.
    We believe the impact of these policies regarding the timing of 
the use of these section 5503 slots is budget neutral. We believe 
that hospitals will take the steps necessary to comply with the 
section 5503 requirements to ensure, to the best of their ability, 
that they will not lose their section 5503 slots. We also believe 
that section 5503 slots are valuable enough to hospitals that it is 
worthwhile for hospitals to fill as many of their section 5503 slots 
as possible in accordance with the policy in this final rule, 
because not doing so would mean the loss of unused section 5503 
slots after Year 5 ends. Furthermore, section 1886(h)(8)(B)(iii) of 
the Act instructs the Secretary to redistribute positions that are 
removed from hospitals that fail to meet the requirements at section 
1886(h)(8)(B)(ii) of the Act; therefore, the section 5503 slots 
would ultimately be filled and paid for by Medicare regardless. 
Thus, there will be neither an additional cost due to these policies 
nor savings related to these policies.

d. Preservation of Resident Cap Positions From Closed Hospitals 
(Section 5506 of the Affordable Care Act)

    In section IV.I.4. of the preamble of this final rule, we 
discuss our clarifications of existing policy related to section 
5506 of the Affordable Care Act. Section 5506 amended the Medicare 
statute to add a provision 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 total number of FTE resident cap slots 
distributed is not to exceed the amount of slots in the closed 
hospital's direct GME and IME FTE resident caps, respectively. The 
regulations and application process regarding section 5506 were 
implemented in the November 24, 2010 final rule with comment period 
(75 FR 72212). The provisions included in the preamble of this final 
rule are generally administrative in nature, related to the rules 
regarding the application of section 5506, minor changes or 
clarifications to the ranking criteria on the applications, changes 
or clarifications regarding the effective dates of slots awarded 
under section 5506, and reiteration that the regulations at Sec.  
413.79(h) regarding temporary FTE resident caps for displaced 
residents, and the attending exemption from the 3-year rolling 
average and resident-to-bed ratio cap are being preserved. 
Therefore, there is no financial impact for these section 5506 
provisions.

7. Effects of Changes Relating to the Reporting Requirements for 
Pension Costs for Medicare Cost-Finding Purposes

    In section IV.J. of the preamble of this final rule, we discuss 
finalizing our proposal to amend two existing regulations to conform 
these regulations to the final policy we adopted in the FY 2012 
IPPS/LTCH PPS final rule (76 FR 51693 through 51597) with regard to 
pension costs for Medicare cost-finding

[[Page 53736]]

purposes. Because we are making only conforming changes to the 
regulations and not further modifying the policy we finalized, there 
is no impact on hospitals for these changes for FY 2013.

8. Effects of Implementation of Rural Community Hospital Demonstration 
Program

    In section IV.K. of the preamble of this final rule, we discuss 
our implementation of section 410A of Public Law 108-173, 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 IV.K. of the preamble of this 
final rule, in the IPPS final rules for each of the previous 8 
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 
adjusting the national IPPS rates by an amount sufficient to account 
for the added costs of this demonstration. In other words, we are 
applying budget neutrality across the payment system as a whole 
rather than merely across the participants of this demonstration. We 
believe that the language of the statutory budget neutrality 
requirement permits the agency to implement the budget neutrality 
provision in this manner. The statutory language requires that 
``aggregate payments made by the Secretary do not exceed the amount 
which the Secretary would have paid if the demonstration * * * was 
not implemented'' but does not identify the range across which 
aggregate payments must be held equal.
    We are adjusting the national IPPS rates according to the 
methodology set forth elsewhere in this final rule. The adjustment 
to the national IPPS rates to account for estimated demonstration 
cost for FY 2013 for the 7 ``pre-expansion'' participating hospitals 
that are currently participating in the demonstration and the 16 
additional hospitals participating as a result of the expansion of 
the demonstration under the Affordable Care Act is $34,288,129. We 
note that we proposed that if settled cost reports for all of the 
demonstration hospitals that participated in the applicable fiscal 
year (2007, 2008, 2009, or 2010) were made available prior to this 
FY 2013 IPPS/LTCH PPS final rule, we would incorporate into the FY 
2013 budget neutrality offset amount the difference between the 
final cost of the demonstration in any of these years and the budget 
neutrality offset amount applicable to such year as finalized in the 
respective year's IPPS final rule. The estimated amount of 
$34,288,129 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 Change in Effective Date for Policies Relating to 
Hospital Services Furnished Under Arrangements

    In section IV.L. of the preamble of this final rule, we discuss 
that, in the FY 2012 IPPS/LTCH PPS final rule (76 FR 51711 through 
51714), we limited the circumstances under which a hospital may 
furnish services to Medicare beneficiaries ``under arrangements.'' 
Under the revised policy, ``routine services'' (that is, bed, board, 
and nursing and other related services) must be provided in the 
hospital in which the patient is a registered inpatient in order for 
the services to be considered as being provided by the hospital. 
Routine services furnished to Medicare beneficiaries as inpatients 
of the hospital are considered services furnished by the hospital. 
Only diagnostic and therapeutic services (that is, ancillary 
services) may be provided under arrangements outside the hospital. 
We have become aware that a number of affected hospitals need 
additional time to restructure existing arrangements and establish 
necessary operational protocols to comply with this requirement. 
Therefore, as we proposed, we are postponing the effective date of 
the revised policy change from services provided on or after October 
1, 2011, to cost reporting periods beginning in FY 2014. We have 
determined that the impact of this effective date change is 
negligible.

I. Effects of Changes in the Capital IPPS

1. General Considerations

    For the impact analysis presented below, we used data from the 
March 2012 update of the FY 2011 MedPAR file and the March 2012 
update of the Provider-Specific File (PSF) that is used for payment 
purposes. Although the analyses of the changes to the capital 
prospective payment system do not incorporate cost data, we used the 
March 2012 update of the most recently available hospital cost 
report data (FYs 2009 and 2010) 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. (As discussed in greater detail in section V.E. of 
the preamble of this final rule, at this time, we are not adopting 
our proposal to make an additional -0.8 percent adjustment to the 
national capital Federal rate in FY 2013 to account for the effect 
of changes in case-mix resulting from documentation and coding 
changes that do not reflect real changes in the case-mix in light of 
the adoption of MS-DRGs. However, the cumulative documentation and 
coding adjustment factor of 0.9479 applied in determining the FY 
2012 capital Federal rate remains applied to that rate. We also 
note, as we proposed, we are not making any further adjustments to 
the Puerto Rico-specific capital rate in FY 2013 to account for 
changes in documentation and coding.)
    Due to the interdependent nature of the IPPS, it is very 
difficult to precisely quantify the impact associated with each 
change. In addition, we draw upon various sources for the data used 
to categorize hospitals in the tables. In some cases (for instance, 
the number of beds), there is a fair degree of variation in the data 
from different sources. We have attempted to construct these 
variables with the best available sources overall. However, it is 
possible that some individual hospitals are placed in the wrong 
category.
    Using cases from the March 2012 update of the FY 2011 MedPAR 
file, we simulated payments under the capital IPPS for FY 2012 and 
FY 2013 for a comparison of total payments per case. Any short-term, 
acute care hospitals not paid under the general IPPS (Indian Health 
Service hospitals and hospitals in Maryland) are excluded from the 
simulations.
    The methodology for determining a capital IPPS payment is set 
forth at Sec.  412.312. The basic methodology for calculating 
capital IPPS payments in FY 2013 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 will 
increase by 0.5 percent in both FYs 2012 and 2013.
     We estimate that the Medicare discharges will be 
approximately 12.5 million in FY 2012 and 12.9 million in FY 2013.
     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 final rule, the update is 1.2 percent for FY 
2013.
     In addition to the FY 2013 update factor, the FY 2013 
capital Federal rate was calculated based on a GAF/DRG budget 
neutrality adjustment factor of 0.9998, and an outlier adjustment 
factor of 0.9362.

2. Results

    We used the actuarial model described above to estimate the 
potential impact of our changes for FY 2013 on total capital 
payments per case, using a universe of 3,423 hospitals. As described 
above, the individual hospital payment parameters are taken from the 
best available data, including the March 2012 update of the FY 2011 
MedPAR file, the March 2012 update to the PSF, and the most recent 
cost report data from the March 2012

[[Page 53737]]

update of HCRIS. In Table III, we present a comparison of estimated 
total payments per case for FY 2012 and estimated total payments per 
case for FY 2013 based on the FY 2013 payment policies. Column 2 
shows estimates of payments per case under our model for FY 2012. 
Column 3 shows estimates of payments per case under our model for FY 
2013. Column 4 shows the total percentage change in payments from FY 
2012 to FY 2013. The change represented in Column 4 includes the 1.2 
percent update to the capital Federal rate and other changes in the 
adjustments to the capital Federal rate. The comparisons are 
provided by: (1) Geographic location; (2) region; and (3) payment 
classification.
    The simulation results show that, on average, capital payments 
per case in FY 2013 are expected to increase as compared to capital 
payments per case in FY 2012. However, the capital Federal rate for 
FY 2013 will increase approximately 1.0 percent as compared to the 
FY 2012 capital Federal rate. The changes to the GAFs are expected 
to result, on average, in a slight decrease in capital payments for 
most regions with certain exceptions. The regional variations in the 
estimated change in capital payments are consistent with the changes 
in payments due to changes in the wage index (and policies affecting 
the wage index) shown in Table I in section I. of this Appendix.
    We also are estimating a slight increase in outlier payments in 
FY 2013 as compared to FY 2012. This is primarily because of the 
decrease to the outlier fixed-loss amount (discussed in section 
II.A.4.f. of the Addendum to this final rule). In addition, this 
estimated increase in outlier payments is based on the FY 2011 
claims from the March 2012 update of the MedPAR file, and we are 
currently estimating that FY 2013 capital outlier payments will be 
slightly more than the projected 6.18 percent used to determine the 
outlier offset that we applied in determining the FY 2012 capital 
Federal rate.
    The net impact of these changes, as discussed above, is an 
estimated 1.8 percent change in capital payments per discharge from 
FY 2012 to FY 2013 for all hospitals (as shown below in Table III).
    The geographic comparison shows that, on average, all hospitals 
are expected to experience an increase in capital IPPS payments per 
case in FY 2013 as compared to FY 2012. These increases are 
primarily due to the estimated increase in capital outlier payments. 
Capital IPPS payments per case for large urban hospitals are 
estimated to increase 2.0 percent, while other urban hospitals are 
expected to experience a 1.7 percent increase. Rural hospitals, on 
average, are expected to experience a 1.5 percent increase in 
capital payments per discharge from FY 2012 to FY 2013.
    The comparisons by region show that the estimated increases in 
capital payments per discharge from FY 2012 to FY 2013 in urban 
areas ranges from a 0.8 percent increase for the New England urban 
region to a 3.2 percent increase for the Pacific urban region. For 
urban regions, the changes to the GAFs are expected to have a 
slightly negative effect on capital IPPS payments per discharge. 
However, for the Pacific urban region, as well as the Mountain urban 
region and the Puerto Rico urban region, a large part of the 
expected increase in capital IPPS payments per discharge is due to 
the GAFs. This is primarily due to changes in the wage index for 
hospitals located in that area as discussed in section I. of this 
Appendix.
    Whereas the Pacific urban region is estimated to experience the 
largest increase in capital IPPS payment per discharge, the 
estimated increase for the Pacific rural region is the lowest at 0.4 
percent. The largest percentage increase in capital payments per 
discharge from FY 2012 to FY 2013 for rural regions is estimated for 
the Mountain rural region to be 2.9 percent. The Puerto Rico rural 
region is estimated to experience a 2.5 percent increase in capital 
payments per discharge in FY 2013 compared to FY 2012.
    Hospitals of all type of ownership (that is, voluntary 
hospitals, government hospitals, and proprietary hospitals) are 
estimated to experience an increase in capital payments per case 
from FY 2012 to FY 2013. The increase in capital payments for both 
voluntary and proprietary hospitals is estimated at 1.8 percent, and 
government hospitals are estimated to experience a 2.0 percent 
increase in capital payments per case from FY 2012 to FY 2013.
    Section 1886(d)(10) of the Act established the MGCRB. Hospitals 
may apply for reclassification for purposes of the wage index for FY 
2013. Reclassification for wage index purposes also affects the GAFs 
because that factor is constructed from the hospital wage index. To 
present the effects of the hospitals being reclassified for FY 2013, 
we show the average capital payments per case for reclassified 
hospitals for FY 2013. As with all other categories, reclassified 
hospitals are expected to experience an increase in capital 
payments. The estimated percentage increase for urban reclassified 
hospitals is 2.0 percent, and 1.9 percent for urban nonreclassified 
hospitals. Rural reclassified hospitals are estimated to experience 
a 1.6 percent increase in capital payments per discharge from FY 
2012 to FY 2013, while rural nonreclassified hospitals are estimated 
to experience a 1.3 percent increase 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 1.0 
percent increase in capital payments from FY 2012 to FY 2013.

                                Table III--Comparison of Total Payments per Case
                                 [FY 2012 payments compared to FY 2013 payments]
----------------------------------------------------------------------------------------------------------------
                                                                            Average FY   Average FY
                                                               Number of       2012         2013      Percentage
                                                               hospitals    payments/    payments/      change
                                                                               case         case
----------------------------------------------------------------------------------------------------------------
By Geographic Location:
    All hospitals...........................................        3,423          794          809          1.8
    Large urban areas (populations over 1 million)..........        1,373          876          894          2.0
    Other urban areas (populations of 1 million of fewer)...        1,124          777          790          1.7
    Rural areas.............................................          926          550          558          1.5
    Urban hospitals.........................................        2,497          832          847          1.9
        0-99 beds...........................................          633          678          692          1.9
        100-199 beds........................................          780          717          730          1.8
        200-299 beds........................................          448          769          783          1.8
        300-499 beds........................................          430          846          863          1.9
        500 or more beds....................................          206        1,002        1,020          1.8
    Rural hospitals.........................................          926          550          558          1.5
        0-49 beds...........................................          321          439          445          1.2
        50-99 beds..........................................          347          505          513          1.6
        100-149 beds........................................          153          545          551          1.1
        150-199 beds........................................           58          613          622          1.6
        200 or more beds....................................           47          669          681          1.7
By Region:
    Urban by Region.........................................        2,497          832          847          1.9
        New England.........................................          120          901          908          0.8
        Middle Atlantic.....................................          318          884          895          1.3
        South Atlantic......................................          380          772          784          1.5

[[Page 53738]]

 
        East North Central..................................          399          797          813          2.1
        East South Central..................................          151          726          734          1.1
        West North Central..................................          165          822          842          2.4
        West South Central..................................          372          784          797          1.7
        Mountain............................................          159          856          877          2.5
        Pacific.............................................          382        1,008        1,040          3.2
        Puerto Rico.........................................           51          377          386          2.4
    Rural by Region.........................................          926          550          558          1.5
        New England.........................................           23          743          759          2.1
        Middle Atlantic.....................................           69          573          582          1.5
        South Atlantic......................................          166          537          544          1.3
        East North Central..................................          120          570          581          2.0
        East South Central..................................          173          503          509          1.2
        West North Central..................................           98          581          588          1.2
        West South Central..................................          181          490          496          1.2
        Mountain............................................           65          575          592          2.9
        Pacific.............................................           30          711          714          0.4
        Puerto Rico.........................................            1          153          157          2.5
By Payment Classification:
    All hospitals...........................................        3,423          794          809          1.8
    Large urban areas (populations over 1 million)..........        1,383          875          893          2.0
    Other urban areas (populations of 1 million of fewer)...        1,129          776          789          1.7
    Rural areas.............................................          911          560          568          1.3
    Teaching Status:
        Non-teaching........................................        2,392          677          690          1.8
        Fewer than 100 Residents............................          789          786          801          1.8
        100 or more Residents...............................          242        1,125        1,147          1.9
        Urban DSH:
            100 or more beds................................        1,558          853          870          1.9
            Less than 100 beds..............................          345          596          609          2.1
        Rural DSH:
            Sole Community (SCH/EACH).......................          258          503          511          1.6
            Referral Center (RRC/EACH)......................          232          624          632          1.2
            Other Rural:
                100 or more beds............................           34          521          526          0.8
                Less than 100 beds..........................          296          449          454          1.2
    Urban teaching and DSH:
        Both teaching and DSH...............................          825          924          942          1.9
        Teaching and no DSH.................................          139          824          836          1.5
        No teaching and DSH.................................        1,078          718          732          2.0
        No teaching and no DSH..............................          470          737          750          1.7
    Rural Hospital Types:
        Non special status hospitals........................        2,395          836          851          1.9
        RRC/EACH............................................           64          732          749          2.3
        SCH/EACH............................................           38          736          746          1.4
        SCH, RRC and EACH...................................           17          784          800          2.1
Hospitals Reclassified by the Medicare Geographic
 Classification Review Board:
    FY 2013 Reclassifications:
        All Urban Reclassified..............................          320          816          832          2.0
        All Urban Non-Reclassified..........................        2,137          836          852          1.9
        All Rural Reclassified..............................          334          592          602          1.6
        All Rural Non-Reclassified..........................          531          484          490          1.3
        Other Reclassified Hospitals (Section 1886(d)(8)(B))           55          548          553          1.0
    Type of Ownership:
        Voluntary...........................................        1,971          808          822          1.8
        Proprietary.........................................          868          714          727          1.8
        Government..........................................          563          819          835          2.0
    Medicare Utilization as a Percent of Inpatient Days:
        0-25................................................          376        1,036        1,064          2.8
        25-50...............................................        1,834          833          848          1.8
        50-65...............................................          974          664          674          1.5
        Over 65.............................................          166          606          614          1.3
----------------------------------------------------------------------------------------------------------------

[[Page 53739]]

J. Effects of Payment Rate Changes and Policy Changes Under the 
LTCH PPS

1. Introduction and General Considerations

    In section VII. of the preamble and section V. of the Addendum 
to this final rule, we set forth the annual update to the payment 
rates for the LTCH PPS for FY 2013. In the preamble, we specify the 
statutory authority for the provisions that are presented, identify 
those policies, and present rationales for our decisions as well as 
alternatives that were considered. In this section of Appendix A to 
this final rule, we discuss the impact of the changes to the payment 
rate, factors, and other payment rate policies related to the LTCH 
PPS that are presented in the preamble of this final rule in terms 
of their estimated fiscal impact on the Medicare budget and on 
LTCHs.
    Currently, there are 428 LTCHs included in this impacts analysis 
which includes data for 82 nonprofit (voluntary ownership control) 
LTCHs and 323 proprietary LTCHs. Of the remaining 23 LTCHs, 14 LTCHs 
are government-owned and operated and the ownership type of the 
other 9 LTCHs is unknown. In the impact analysis, we used the 
payment rate, factors, and policies presented in this final rule, 
including the 1.8 percent annual update, which is based on the full 
increase of the LTCH PPS market basket and the reductions required 
by sections 1886(m)(3) and (m)(4) of the Act, a one-time prospective 
adjustment factor of 0.98734 (approximately -1.3 percent), which 
will not apply to payments for discharges occurring on or before 
December 28, 2012 (consistent with the statute), the update to the 
MS-LTC-DRG classifications and relative weights, the update to the 
wage index values and labor-related share, the expiration of the 
statutory delay in the application of very short-stay outlier policy 
under Sec.  412.529(c)(3), effective for discharges occurring on or 
after December 29, 2012 (that is, the option for certain short-stay 
outlier cases to be paid under the ``blended payment'' will be 
replaced with the ``IPPS comparable per diem amount'' as discussed 
in section VII.E.3. of the preamble of this final rule), and the 
best available claims and CCR data to estimate the change in 
payments for FY 2013.
    The standard Federal rate for FY 2012 was $40,222.05. For FY 
2013, we are establishing a standard Federal rate of $40,397.96 that 
reflects the 1.8 percent annual update to the standard Federal rate, 
and the area wage budget neutrality factor of 0.999265, which 
ensures that the changes in the wage indexes and labor-related share 
do not influence aggregate payments. Furthermore, consistent with 
section 114(c)(4) of the MMSEA, as amended by sections 3106(a) and 
10312 of the Affordable Care Act, the one-time prospective 
adjustment to the standard Federal rate for FY 2013 of 0.98734 
(approximately -1.3 percent) will not apply to payments for 
discharges occurring before December 29, 2012. Therefore, payment 
for discharges occurring on or after October 1, 2012, and on or 
before December 28, 2012, will not reflect that adjustment and, 
instead, will be paid based on a standard Federal rate of 
$40,915.95.
    Based on the best available data for the 428 LTCHs in our 
database, we estimate that the annual update to the standard Federal 
rate for FY 2013 (discussed in section V.A.2. of the Addendum to 
this final rule) and the changes to the area wage adjustment for FY 
2013 (discussed in section V.B. of the Addendum to this final rule), 
in addition to an estimated increase in HCO payments and an 
estimated decrease in SSO payments, will result in an increase in 
estimated payments from FY 2012 of approximately $92 million. Based 
on the 428 LTCHs in our database, we estimate that the FY 2013 LTCH 
PPS payments will be approximately $5.52 billion, as compared to 
estimated FY 2012 LTCH PPS payments of approximately $5.43 billion. 
Because the combined distributional effects and estimated changes to 
the Medicare program payments are over approximately $100 million, 
this final rule is considered a major economic rule, as defined in 
this section. We note that the approximately $92 million for the 
projected increase in estimated aggregate LTCH PPS payments from FY 
2012 to FY 2013 does not reflect changes in LTCH admissions or case-
mix intensity in estimated LTCH PPS payments, which also will affect 
overall payment changes. It also does not include the estimated 
effect of the 1-year extension of the moratorium on the application 
of the ``25-percent threshold'' payment adjustment policy on LTCH 
PPS payments, which is discussed below in section I.J.b.3. of this 
Appendix.
    The projected 1.7 percent increase in estimated payments per 
discharge from FY 2012 to FY 2013 is attributable to several 
factors, including the 1.8 percent annual update to the standard 
Federal rate, the one-time prospective adjustment factor for FY 2013 
of 0.98734 (approximately -1.3 percent) to the standard Federal 
rate, which is not applicable to payments for discharges occurring 
on or before December 28, 2012, consistent with the statute, and 
projected increases in estimated HCO payments and decreases in SSO 
payments due to a change in the SSO payment methodology effective 
for discharges occurring on or after December 29, 2012 (as described 
in section VII.E.3. of the preamble of this final rule). As Table IV 
shows, the change attributable solely to the annual update to the 
standard Federal rate (1.8 percent), including the one-time 
prospective adjustment factor for FY 2013 (approximately -1.3 
percent), which is not applicable to payments for discharges 
occurring before December 29, 2012, is projected to result in an 
increase of 0.7 percent in payments per discharge from FY 2012 to FY 
2013, on average, for all LTCHs. This estimated increase of 0.7 
percent reflects the 1.8 percent annual update for payments in FY 
2013, and the -1.3 percent one-time prospective adjustment factor 
for FY 2013, which will not apply in determining payments for 
discharges occurring on or before December 28, 2012, and 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, the projected increase in 
payments based on the standard Federal rate is less than the 1.8 
percent annual update for FY 2013. Because we are applying an area 
wage level budget neutrality factor to the standard Federal rate, 
the annual update to the wage data and labor-related share does not 
impact the increase in payments.
    As discussed in section V.B. of the Addendum to this final rule, 
we are updating the wage index values for FY 2013 based on the most 
recent available data. In addition, we are decreasing the labor-
related share from 70.199 percent to 63.096 percent under the LTCH 
PPS for FY 2013, 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 applying an area wage level budget neutrality 
factor of 0.999265, which reduces the standard Federal rate by less 
than 0.1 percent. Therefore, the changes to the wage data and labor-
related share do not result in a change in estimated aggregate LTCH 
PPS payments.
    We project that LTCHs will experience a decrease in aggregate 
payments of 0.5 percent in FY 2013 as a result of the expiration of 
the statutory delay in the application of the very short-stay 
outlier policy under Sec.  412.529(c)(3), effective for discharges 
occurring on or after December 29, 2012. Generally, very short-stay 
outliers are cases that have a length of stay that is less than or 
equal to one standard deviation from the geometric mean average 
length of stay of the same DRG under the IPPS. Under the moratorium, 
very short-stay outliers are paid the lowest of: (1) The LTC-DRG 
payment; (2) 100 percent of cost; (3) 120 percent of the LTCH per 
diem payment; or (4) a blend of 120 percent of the LTCH per diem 
amount and the ``IPPS comparable per diem amount'' (the ``blended 
payment''). With the expiration of the moratorium, in the case of 
very short-stay outliers, effective for discharges on or after 
December 29, 2012, the ``blended payment'' will be replaced with 
only the ``IPPS comparable per diem amount,'' which results in a 
decrease in payments for many of these cases.
    Table IV below shows the impact of the payment rate and the 
policy changes on LTCH PPS payments for FY 2013 presented in this 
final rule by comparing estimated FY 2012 payments to estimated FY 
2013 payments. The projected increase in payments per discharge from 
FY 2012 to FY 2013 is 1.7 percent (shown in Column 9). This 
projected increase in payments is attributable to the impacts of the 
change to the standard Federal rate (0.7 percent in Column 6), the 
end of the moratorium on delaying the implementation of the very 
short-stay outlier policy (-0.5 percent in Column 8), as well as the 
effect of the estimated increase in payments for HCO cases and SSO 
cases (1.1 percent and 0.2 percent, respectively). That is, 
estimated total HCO payments are projected to increase from FY 2012 
to FY 2013 in order to ensure that the estimated HCO payments would 
be 8 percent of the total estimated LTCH PPS payments in FY 2013. An 
analysis of the most recent available LTCH PPS claims data (that is, 
FY 2011 claims data from the March 2012 update of the MedPAR file) 
indicates

[[Page 53740]]

that the FY 2012 HCO threshold of $17,931 (as established in the FY 
2012 IPPS/LTCH PPS final rule) may-result in HCO payments in FY 2012 
that fall below the estimated 8 percent. Specifically, we currently 
estimate that HCO payments will be approximately 6.9 percent of the 
estimated total LTCH PPS payments in FY 2012. We estimate that the 
impact of the increase in HCO payments will result in approximately 
a 1.1 percent increase in estimated payments from FY 2012 to FY 
2013, on average, for all LTCHs. Furthermore, in calculating the 
estimated increase in payments from FY 2012 to FY 2013 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 0.2 
percent relative to last year. However, the expiration of the 
statutory moratorium on the application of the very short-stay 
outlier policy, effective December 29, 2012, which replaces the 
``blended payment'' option with the ``IPPS comparable per diem 
amount'' option for certain SSO cases (as described in section 
VII.E.3. of the preamble of this final rule) is expected to result 
in a -0.5 percent change in aggregate payments. The net result of 
these projected changes in SSO payments in FY 2013 is an estimated 
change in aggregate payments of -0.3 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 
2013 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 59 
percent) are based on the estimated cost of the case.
    As we discuss in detail throughout this final rule, based on the 
most recent available data, we believe that the provisions of this 
final rule relating to the LTCH PPS will result in an increase in 
estimated aggregate LTCH PPS payments and that the resulting LTCH 
PPS payment amounts will 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 3.3 percent increase in estimated payments per 
discharge for FY 2013 as compared to FY 2012 for rural LTCHs that 
will result from the changes presented in this final rule, as well 
as the effect of estimated changes to HCO and SSO payments. This 
estimated impact is based on the data for the 27 rural LTCHs in our 
database (out of 428 LTCHs) for which complete data were available.
    The estimated increase in LTCH PPS payments from FY 2012 to FY 
2013 for rural LTCHs is primarily due to the higher than average 
impacts from the changes to the area wage level adjustment, 
specifically, the decrease in the labor-related share from 70.199 to 
63.096. Although we applied an area wage level budget neutrality 
factor for changes to the wage indexes and labor-related share to 
ensure that there is no change in aggregate LTCH PPS payments due to 
those changes, we estimate rural hospitals will experience a 1.1 
percent increase in payments due to the changes to the area wage 
level adjustment, as shown in Column 7 below. Rural hospitals 
generally have a wage index of less than 1; therefore, a decrease to 
the labor-related share results in their wage index reducing a 
smaller portion of the standard Federal rate, resulting in an 
estimated increase in payments in FY 2013 as compared to FY 2012.

3. Anticipated Effects of 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.J.1. of this Appendix, we 
project an increase in aggregate LTCH PPS payments in FY 2013 
relative to FY 2012 of approximately $92 million based on the 428 
LTCHs in our database.

b. Expiration of Statutory Delay on Full Implementation of the ``25 
Percent Threshold'' Payment Adjustment and 1-Year Extension

    As discussed in section VII.E.2. of the preamble of this final 
rule, the statutory delay in the full application of the ``25 
percent threshold'' payment adjustment for LTCHs under Sec.  412.534 
and Sec.  412.536 will expire for cost reporting periods beginning 
on or after July 1, 2012, or October 1, 2012, as applicable. We are 
establishing 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 VII.E.2. of the preamble of this final 
rule). We estimate that this policy will result in a payment impact 
of approximately $170 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 Alaska and Hawaii, 
and SSOs. Furthermore, LTCHs may also receive HCO payments for those 
cases that qualify based on the threshold established each year.
    To understand the impact of the changes to the LTCH PPS payments 
presented in this final rule on different categories of LTCHs for FY 
2013, it is necessary to estimate payments per discharge for FY 2012 
using the rates, factors (including the FY 2012 GROUPER (Version 
29.0), and relative weights and the policies established in the FY 
2012 IPPS/LTCH PPS final rule (76 FR 51733 through 51781 and 51838 
through 51844). It is also necessary to estimate the payments per 
discharge that will be made under the LTCH PPS rates, factors, 
policies, and GROUPER (Version 30.0) for FY 2013 (as discussed in 
section VII. of the preamble and section V. of the Addendum to this 
final rule). These estimates of FY 2012 and FY 2013 LTCH PPS 
payments are based on the best available LTCH claims data and other 
factors, such as the application of inflation factors to estimate 
costs for SSO and HCO cases in each year. We also evaluated the 
change in estimated FY 2012 payments to estimated FY 2013 payments 
(on a per discharge basis) for each category of LTCHs. We are 
establishing a standard Federal rate for FY 2013 of $40,397.96 that 
includes the 1.8 percent annual update, the area wage budget 
neutrality factor, and the one-time prospective adjustment to the 
standard Federal rate for FY 2013 of 0.98734 (approximately -1.3 
percent) that will not apply to payments for discharges occurring on 
or before December 29, 2012, consistent with statute. Payment for 
discharges occurring on or after October 1, 2012, and on or before 
December 28, 2012, will not reflect that one-time prospective 
adjustment and instead will be paid based on a standard Federal rate 
of $40,915.95.
    Therefore, we modeled payments so that claims with discharge 
dates prior to January will be paid on the basis of a rate that does 
not reflect the one-time prospective adjustment, and claims with 
discharges in January or after will reflect the standard Federal 
rate for FY 2013 that reflects the one-time prospective adjustment. 
Furthermore, because the statutory moratorium on the application of 
the very short-stay outlier policy will expire effective for 
discharges occurring on or after December 29, 2012, we modeled 
payments so that claims that will qualify for a payment under the 
very short-stay outlier policy with discharge dates in October, 
November, and December are paid based on the ``blended payment'' 
option, if applicable, and claims that will qualify for a payment 
under the very short-stay outlier policy with discharges in January 
through September are paid based on the ``IPPS comparable per diem 
amount,'' if applicable (as described in section VII.E.3. of the 
preamble of this final rule).
    Hospital groups were based on characteristics provided in the 
OSCAR data, FY 2008 through FY 2009 cost report data in HCRIS, and 
PSF data. Hospitals with incomplete characteristics were grouped 
into the ``unknown'' category. Hospital groups included the 
following:
     Location: Large urban/other urban/rural.
     Participation date.
     Ownership control.

[[Page 53741]]

     Census region.
     Bed size.
    To estimate the impacts of the payment rates and policy changes 
among the various categories of existing providers, we used LTCH 
cases from the FY 2011 MedPAR file to estimate payments for FY 2012 
and to estimate payments for FY 2013 for 428 LTCHs. We believe that 
the discharges based on the FY 2011 MedPAR data for the 428 LTCHs in 
our database, which includes 323 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 2011 MedPAR files. For modeling 
estimated LTCH PPS payments for FY 2012, we used the FY 2012 
standard Federal rate (that is, $40,222.05 effective for LTCH 
discharges occurring on or after October 1, 2011, through September 
30, 2012).
    For modeling estimated LTCH PPS payments for FY 2013, we used 
the FY 2013 standard Federal rate of $40,397.96, which includes the 
one-time prospective adjustment of 0.98734 for FY 2013 for payments 
for discharges occurring on or after December 29, 2012, and through 
September 30, 2013. As noted above, consistent with section 
114(c)(4) of the MMSEA, as amended by sections 3106(a) and 10312 of 
the Affordable Care Act, the one-time prospective adjustment to the 
standard Federal rate for FY 2013 of 0.98734 (approximately -1.3 
percent) will not apply to payments for discharges occurring before 
December 29, 2012. Therefore, payment for discharges occurring on or 
after October 1, 2012, and on or before December 28, 2012, will not 
reflect that adjustment and instead will be paid based on a standard 
Federal rate of $40,915.95; therefore, for the purpose of payment 
modeling, claims with discharges occurring during October through 
December were modeled using this payment rate.
    The FY 2013 standard Federal rate of $40,397.96 includes the 
application of an area wage level budget neutrality factor of 
0.999265 (as discussed in section V.B.5. of the Addendum to this 
final rule). As noted above, consistent with section 114(c)(4) of 
the MMSEA, as amended by sections 3106(a) and 10312 of the 
Affordable Care Act, this payment rate will not apply to payments 
for discharges occurring before December 29, 2012. Therefore, 
payment for discharges occurring on or after October 1, 2012, and on 
or before December 28, 2012, will be paid based on a standard 
Federal rate of $40,915.95, which also includes the area wage level 
budget neutrality factor of 0.999265.
    Furthermore, in modeling estimated LTCH PPS payments for both FY 
2012 and FY 2013 in this impact analysis, we applied the FY 2012 and 
the FY 2013 adjustments for area wage levels and the COLA for Alaska 
and Hawaii. Specifically, we adjusted for differences in area wage 
levels in determining estimated FY 2012 payments using the current 
LTCH PPS labor-related share of 70.199 percent (76 FR 51766) and the 
wage index values established in the Tables 12A and 12B listed in 
the Addendum to the FY 2012 IPPS/LTCH PPS final rule (and available 
via the Internet (76 FR 51813)). We also applied the FY 2012 COLA 
factors shown in the table in section V.C. of the Addendum to that 
final rule (76 FR 51810) to the FY 2012 nonlabor-related share 
(29.801 percent) for LTCHs located in Alaska and Hawaii. Similarly, 
we adjusted for differences in area wage levels in determining the 
estimated FY 2013 payments using the FY 2013 LTCH PPS labor-related 
share of 63.096 percent and the FY 2013 wage index values presented 
in Tables 12A and 12B listed in section VI. of the Addendum to this 
final rule (and available via the Internet). We also applied the FY 
2013 COLA factors shown in the table in section V.C. of the Addendum 
to this final rule to the FY 2013 nonlabor-related share (36.904 
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 final rule). In modeling payments for SSO and HCO 
cases in FY 2013, we applied an inflation factor of 1.050 
(determined by OACT) to estimate the costs of each case using the 
charges reported on the claims in the FY 2011 MedPAR files and the 
best available CCRs from the March 2012 update of the PSF. 
Furthermore, in modeling estimated LTCH PPS payments for FY 2013 in 
this impact analysis, we used the FY 2013 fixed-loss amount of 
$15,408 (as discussed in section V.D. of the Addendum to this final 
rule). Finally, in modeling payments for SSO cases, we included the 
expiration of the statutory moratorium on application of the very 
short-stay outlier, effective for discharges occurring on or after 
December 29, 2012, under which the ``blended payment'' option of the 
SSO payment formula will be replaced with the ``IPPS comparable per 
diem amount'' for very short-stay outlier cases as discussed in 
section VII.E.3. of the preamble of this final rule.
    These impacts reflect the estimated ``losses'' or ``gains'' 
among the various classifications of LTCHs from FY 2012 to FY 2013 
based on the payment rates and policy changes presented in this 
final rule. Table IV illustrates the estimated aggregate impact of 
the LTCH PPS among various classifications of LTCHs.
     The first column, LTCH Classification, identifies the 
type of LTCH.
     The second column lists the number of LTCHs of each 
classification type.
     The third column identifies the number of LTCH cases.
     The fourth column shows the estimated payment per 
discharge for FY 2012 (as described above).
     The fifth column shows the estimated payment per 
discharge for FY 2013 (as described above).
     The sixth column shows the percentage change in 
estimated payments per discharge from FY 2012 to FY 2013 due to the 
annual update to the standard Federal rate (as discussed in section 
V.A.2. of the Addendum to this final rule) and the one-time 
prospective adjustment factor for FY 2013 (which is not applicable 
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 2012 to FY 2013 for changes 
to the area wage level adjustment (that is, the wage indexes and 
labor-related share), including the application of an area wage 
level budget neutrality factor (as discussed in section V.B.5. of 
the Addendum to this final rule).
     The eighth column shows the percentage change in 
estimated payments per discharge from FY 2012 to FY 2013 due to the 
expiration of the delay in the application of the ``very short-
stay'' SSO policy that allowed for certain SSO cases to be paid 
under a ``blended payment amount'' based on the LTCH per diem rate 
and IPPS comparable per diem rate during the moratorium.
     The ninth column shows the percentage change in 
estimated payments per discharge from FY 2012 (Column 4) to FY 2013 
(Column 5) for all changes (and includes the effect of estimated 
changes to HCO and SSO payments).

[[Page 53742]]

                                                      Table IV--Impact of Payment Rate and Policy Changes to LTCH PPS Payments for FY 2013
                                                              [Estimated FY 2012 payments compared to estimated FY 2013 payments*]
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                                                                  Percent change
                                                                                                                                                  Percent change   in estimated
                                                                                                                                  Percent change   in estimated    payments per
                                                                                                                                   in estimated    payments per   discharges due  Percent change
                                                                                                                                   payments per   discharge from   to expiration    in payments
                                                                                                    Average FY      Average FY    discharge from   FY 2012 to FY   of statutory    per discharge
                       LTCH classification                           Number of    Number of LTCH   2012 LTCH PPS   2013 LTCH PPS   FY 2012 to FY     2013 for      moratorium on   from FY 2012
                                                                       LTCHs         PPS cases      payment per     payment per    2013 for the   changes to the  application of  to FY 2013 for
                                                                                                       case          case \1\      annual update     area wage      the `very'      all changes
                                                                                                                                  to the Federal       level      short-stay SSO        \5\
                                                                                                                                     rate \2\       adjustment        Payment
                                                                                                                                                    with budget     methodology
                                                                                                                                                  neutrality \3\        \4\
(1)                                                                          (2)             (3)             (4)             (5)             (6)             (7)             (8)             (9)
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
ALL PROVIDERS...................................................             428         140,159          38,742          39,399             0.7               0            -0.5             1.7
BY LOCATION:
    RURAL.......................................................              27           6,396          34,526          35,659             0.7             1.1            -0.4             3.3
    URBAN.......................................................             401         133,763          38,944          39,578             0.7               0            -0.5             1.6
        LARGE...................................................             202          77,764          40,984          41,594             0.7            -0.2            -0.5             1.5
        OTHER...................................................             199          55,999          36,111          36,778             0.7             0.2            -0.5             1.8
BY PARTICIPATION DATE:
    BEFORE OCT. 1983............................................              17           5,929          34,169          34,984             0.7            -0.2            -0.3             2.4
    OCT. 1983-SEPT. 1993........................................              44          16,804          41,914          42,623             0.7            -0.1            -0.6             1.7
    OCT. 1993-SEPT. 2002........................................             185          65,360          37,993          38,623             0.7               0            -0.5             1.7
    AFTER OCTOBER 2002..........................................             173          50,870          39,150          39,812             0.7               0            -0.5             1.7
    UNKNOWN PARTICIPATION DATE..................................               9           1,196          40,450          40,888             0.6            -0.3            -0.8             1.1
BY OWNERSHIP TYPE:
    VOLUNTARY...................................................              82          20,035          38,941          39,835             0.7             0.2            -0.6             2.3
    PROPRIETARY.................................................             323         117,083          38,626          39,238             0.7               0            -0.5             1.6
    GOVERNMENT..................................................              14           1,773          43,976          44,744             0.7            -0.3            -0.7             1.7
    UNKNOWN OWNERSHIP TYPE......................................               9           1,268          38,982          39,964             0.7             0.7            -0.7             2.5
BY REGION:
    NEW ENGLAND.................................................              15           7,408          33,812          34,518             0.7            -0.3            -0.3             2.1
    MIDDLE ATLANTIC.............................................              31           8,034          41,519          41,977             0.7            -0.1            -0.5             1.1
    SOUTH ATLANTIC..............................................              60          16,835          41,536          42,072             0.7               0            -0.6             1.3
    EAST NORTH CENTRAL..........................................              70          20,888          39,944          40,672             0.7             0.4            -0.6             1.8
    EAST SOUTH CENTRAL..........................................              30           8,563          39,072          39,949             0.7             0.6            -0.5             2.2
    WEST NORTH CENTRAL..........................................              26           6,076          40,080          40,829             0.7             0.5            -0.6             1.9
    WEST SOUTH CENTRAL..........................................             139          51,703          34,421          35,198             0.8             0.2            -0.5             2.3
    MOUNTAIN....................................................              32           7,002          42,021          42,400             0.7            -0.8            -0.5             0.9
    PACIFIC.....................................................              25          13,650          48,383          48,680             0.7            -1.1            -0.4             0.6
BY BED SIZE:
    BEDS: 0-24..................................................              29           3,335          34,101          34,837             0.8             0.7            -0.5             2.2
    BEDS: 25-49.................................................             200          46,342          38,118          38,834             0.7             0.3            -0.5             1.9
    BEDS: 50-74.................................................             116          38,300          38,722          39,346             0.7            -0.1            -0.5             1.6
    BEDS: 75-124................................................              46          21,448          42,047          42,606             0.7            -0.3            -0.5             1.3
    BEDS: 125-199...............................................              23          16,534          37,343          38,005             0.7            -0.1            -0.5             1.8
    BEDS: 200+..................................................              14          14,200          38,563          39,240             0.7            -0.4            -0.4             1.8
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
\1\ Estimated FY 2013 LTCH PPS payments based on the payment rate and policy changes presented in the preamble and the Addendum to this final rule.
\2\ Percent change in estimated payments per discharge from FY 2012 to FY 2013 for the annual update to the standard Federal rate and the one-time prospective adjustment factor for FY 2013
  (which will not apply to payments for discharges occurring before December 29, 2012, consistent with the statute), as discussed in section V.A.2. of the Addendum to this final rule.
\3\ Percent change in estimated payments per discharge from FY 2012 to FY 2013 for changes to the area wage level adjustment under Sec.   412.525(c) (as discussed in section V.B. of the
  Addendum to this final rule).

[[Page 53743]]

 
\4\ Percent change in estimated payments per discharges due to the expiration of the statutory moratorium on application of the ``very short-stay'' SSO payment option, effective for discharges
  occurring on or after December 29, 2012, under which the ``blended payment'' option of the SSO payment formula will be replaced with the ``IPPS comparable per diem amount'' for very short-
  stay outlier cases as discussed in section VII.E.3. of the preamble of this final rule.
\5\ Percent change in estimated payments per discharge from FY 2012 LTCH PPS (shown in Column 4) to FY 2013 LTCH PPS (shown in Column 5), including all of the changes presented in the preamble
  and the Addendum to this final rule. Note, this column, which shows the percent change in estimated payments per discharge for all changes, does not equal the sum of the percent changes in
  estimated payments per discharge for the annual update to the standard Federal rate (column 6) and the 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.

[[Page 53744]]

e. Results

    Based on the most recent available data for 428 LTCHs, we have 
prepared the following summary of the impact (as shown above in 
Table IV) of the LTCH PPS payment rate and policy changes presented 
in this final rule. The impact analysis in Table IV shows that 
estimated payments per discharge are expected to increase 
approximately 1.7 percent, on average, for all LTCHs from FY 2012 to 
FY 2013 as a result of the payment rate and policy changes presented 
in this final rule, including the expiration of the statutory 
moratorium on application of the ``very short-stay'' SSO policy 
which utilizes the ``IPPS comparable per diem amount'' payment 
option, effective for discharges occurring on or after December 29, 
2012 (discussed in section VII.E.3. of the preamble of this final 
rule) and an estimated increase in HCO payments. This estimated 1.7 
percent increase in LTCH PPS payments per discharge from the FY 2012 
to FY 2013 for all LTCHs (as shown in Table IV) was determined by 
comparing estimated FY 2013 LTCH PPS payments (using the payment 
rate and policies discussed in this final rule) to estimated FY 2012 
LTCH PPS payments (as described above in section I.J.1. of this 
Appendix).
    We are establishing a standard Federal rate of $40,397.96 for FY 
2013. Specifically, we are updating the standard Federal rate for FY 
2013 by 1.8 percent, which is based on the latest estimate of the 
LTCH PPS market basket increase (2.6 percent), the reduction of 0.7 
percentage point for the MFP adjustment, and the 0.1 percentage 
point reduction consistent with sections 1886(m)(3) and (m)(4) of 
the Act. In addition, we are applying a one-time prospective 
adjustment factor for FY 2013 of 0.98734 (approximately -1.3 
percent) to the standard Federal rate. However, this reduction will 
not apply to payments for discharges occurring before December 29, 
2012, consistent with section 114(c)(4) of the MMSEA, as amended by 
sections 3106(a) and 10312 of the Affordable Care Act. Therefore, 
payments for discharges occurring on or after October 1, 2012, and 
on or before December 28, 2012, will not reflect that adjustment and 
instead will be paid based on a standard Federal rate of $40,915.95. 
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 1.8 
percent in the annual update to the standard Federal rate and the 
application of the one-time prospective adjustment for FY 2013 of 
approximately -1.3 percent, which will not apply to payments for 
discharges occurring before December 29, 2012, consistent with the 
statute, is projected to result in approximately a 0.7 percent 
increase in estimated payments per discharge for all LTCHs from FY 
2012 to FY 2013. That is, for approximately the first 3 months of FY 
2013, payments will not reflect the one-time prospective adjustment 
factor for FY 2013 such that payments will be based on the annual 
update to the standard Federal rate of 1.8 percent, and for the 
remaining 9 months of FY 2013, payments will be based on a standard 
Federal rate that reflects the FY 2013 annual update of 1.8 percent 
and the one-time prospective adjustment for FY 2013 of approximately 
-1.3 percent. In addition, our estimate of the changes in payments 
due to the 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 will 
increase by 0.7 percent due to the annual update to the standard 
Federal rate and the application of the one-time prospective 
adjustment for FY 2013 (which is not applicable to payments for 
discharges occurring before December 29, 201, consistent with the 
statute).

(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 
2012 to FY 2013 for all hospitals is 1.7 percent for all changes. 
For rural LTCHs, the percent change for all changes is estimated to 
be 3.3 percent, while for urban LTCHs, we estimate the increase will 
be 1.6 percent. Large urban LTCHs are projected to experience an 
increase of 1.5 percent in estimated payments per discharge from FY 
2012 to FY 2013, while other urban LTCHs are projected to experience 
an increase of 1.8 percent in estimated payments per discharge from 
FY 2012 to FY 2013, 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 category 
of LTCHs with the largest percentage of the LTCH cases 
(approximately 47 percent) are in hospitals that began participating 
in the Medicare program between October 1993 and September 2002, and 
are projected to experience nearly the average increase (1.7 
percent) in estimated payments per discharge from FY 2012 to FY 
2013, as shown in Table IV.
    In the participation category where LTCHs began participating in 
the Medicare program before October 1983, LTCHs are projected to 
experience a higher than average percent increase (2.4 percent) in 
estimated payments per discharge from FY 2012 to FY 2013, as shown 
in Table IV. Approximately 4 percent of LTCHs began participating in 
the Medicare program before October 1983. Approximately 10 percent 
of LTCHs began participating in the Medicare program between October 
1983 and September 1993. These LTCHs are projected to experience a 
1.7 percent increase in estimated payments from FY 2012 to FY 2013. 
LTCHs that began participating in the Medicare program after October 
2002 currently represent approximately 40 percent of all LTCHs, and 
are projected to experience an average increase (1.7 percent) in 
estimated payments from FY 2012 to FY 2013.

(3) Ownership Control

    Other than LTCHs whose ownership control type is unknown, LTCHs 
are grouped into three categories based on ownership control type: 
Voluntary, proprietary, and government. Based on the most recent 
available data, approximately 19 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 (2.3 percent) in 
estimated FY 2013 LTCH PPS payments per discharge as compared to 
estimated payments in FY 2012 primarily because we project the 
estimated increase in HCO payments to be higher than the average 
increase for these LTCHs. The majority (75 percent) of LTCHs is 
identified as proprietary and these LTCHs are projected to 
experience a nearly average increase (1.6 percent) in estimated 
payments per discharge from FY 2012 to FY 2013. Finally, government-
owned and operated LTCHs are also expected to experience the average 
increase in payments of 1.7 percent in estimated payments per 
discharge from FY 2012 to FY 2013.

(4) Census Region

    Estimated payments per discharge for FY 2013 are projected to 
increase for LTCHs located in all regions in comparison to FY 2012. 
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 West South Central, East South Central, and New England 
regions (2.3 percent, 2.2 percent, and 2.1 percent respectively as 
shown in Table IV). The estimated percent increase in payments per 
discharge from FY 2012 to FY 2013 for those regions is largely 
attributable to the changes in the area wage level adjustment or 
updates to the MS-LTC-DRGs classifications and relative weights.
    In contrast, LTCHs located in the Pacific region are projected 
to experience the smallest increase in estimated payments per 
discharge from FY 2012 to FY 2013. The average estimated increase in 
payments of 0.6 percent for LTCHs in the Pacific region is primarily 
due to estimated decreases in payments associated with the 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.
    We project that small LTCHs (0-24 beds) will experience a 2.2 
percent increase in payments due to increases in the area wage level 
adjustment while large LTCHs (200+ beds) will experience a 1.8 
percent increase in payments. LTCHs with between 75 and 124 beds are 
expected to experience a below average increase in payments per 
discharge from FY 2012 to FY 2013 (1.3 percent) primarily due to an 
estimated decrease in their payments from FY 2012 to FY 2013 due to 
the area wage level adjustment.

4. Effect on the Medicare Program

    As noted previously, we project that the provisions of this 
final rule will result in an increase in estimated aggregate LTCH 
PPS payments in FY 2013 relative to FY 2012 of

[[Page 53745]]

approximately $92 million (or approximately 1.7 percent) for the 428 
LTCHs in our database. In addition, the effects of the 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 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 VII.E.2. of the preamble 
of this final rule), will result in a payment impact of 
approximately $170 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.

K. Effects of Requirements for Hospital Inpatient Quality Reporting 
(IQR) Program

    In section VIII.A. of this final rule, we discuss our 
requirements for hospitals to report quality data under the Hospital 
IQR Program in order to receive the full annual percentage increase 
for FY 2015. We now estimate that approximately 95 hospitals may not 
receive the full annual percentage increase in any fiscal year. At 
the time that the analysis was prepared, 70 hospitals did not 
receive the full annual percentage increase in FY 2012.
    For the FY 2015 payment determination, we will remove one chart-
abstracted measure, and 16 claims based measures, beginning with 
January 1, 2012 discharges. We believe that these changes will not 
have a significant effect on our estimate. We believe that most of 
these hospitals will be either small rural or small urban hospitals. 
However, at this time, information is not available to determine the 
precise number of hospitals that will not meet the requirements to 
receive the full annual percentage increase for FY 2015.
    In section VIII.A.6. of this final rule, we are finalizing for 
the FY 2015 payment determination, supplements to the chart 
validation process for the Hospital IQR Program. As a part of these 
supplements, we are finalizing, for FY 2015 payment determinations 
and subsequent years, to separate validation for chart-abstracted 
and HAI measures and to also validate two additional HAI measures, 
CAUTI and SSI. Starting with the FY 2015 payment determination, we 
are finalizing a modest increase to the current Hospital IQR Program 
validation sample of 18 cases per quarter (currently three each for 
SCIP, AMI, HF, PN, ED/IMM, and candidate CLABSI) to 27 cases per 
quarter (3 each for SCIP, AMI, HF, PN, ED/IMM, and up to 12 records 
combined for CLABSI, CAUTI, and SSI). However, in order not to 
increase the Hospital IQR validation program's overall burden to 
hospitals, while expanding some of the requirements, and targeting 
hospitals with higher levels of concern for data quality, we are 
reducing the total sample size of hospitals included in the annual 
validation random sample from 800 eligible hospitals to up to 600 
eligible hospitals. This includes 400 hospitals in the base random 
sample and up to 200 hospitals in the target sample. The requirement 
of an additional 9 charts per hospital submitted for validation, 
combined with the decreased sample size, will result in 
approximately 1,800 additional charts per quarter being submitted to 
CMS by all selected hospitals. We provide payment to hospitals for 
the cost of sending charts to the CDAC contractor at the rate of 12 
cents per page for copying and approximately $4.00 per chart for 
postage. Our experience shows that the average chart received by the 
CDAC contractor is approximately 275 pages. Thus, we estimate that 
we would expend approximately $66,600 per quarter to collect the 
additional charts we need to validate all measures.
    The total requirement of 27 charts per hospital would result in 
approximately 16,200 charts per quarter being submitted to CMS. 
Using the assumptions discussed above, for the FY 2015 Hospital IQR 
Program, we estimate that we would have expenditures of 
approximately $599,400 per quarter related to the validation 
requirement. Given that we pay for the data collection effort, we 
believe that a requirement for 27 charts per hospital per quarter 
represents a minimal burden to participating hospitals selected for 
validation.

L. Effects of PPS-Exempt Cancer Hospital Quality Reporting (PCHQR) 
Program

    In section VIII.B. of the preamble of this final rule, we 
discuss our proposed and final policies to implement the quality 
data reporting program for PPS-exempt hospitals (PCHs), which we 
refer to as the PCHQR Program. The PCHQR Program is established 
under section 1866(k) of the Act, as added by section 3005 of the 
Affordable Care Act. These quality reporting requirements will 
affect all PCHs participating in Medicare. In this final rule, PCHs 
will be required to register with the CDC, the CMS contractor, and 
QualityNet Web sites and take the proper training in order to be 
adequately prepared to use the respective systems to submit the 
data. The anticipated burden to these PCHs consists of the 
following: (1) The initial registration of the facility with CDC, 
the CMS contractor, and CMS; (2) training of the appropriate staff 
members on how to use the CDC agency-based data collection mechanism 
(CDC/NHSN), the CMS contractor-based collection mechanism for the 
cancer-specific quality measure data, and CMS (QualityNet) program; 
(3) the time required for collection and aggregation of data; (4) 
the time required for entry of the data into the CDC's NHSN data 
warehouse, CMS contractor's quality measure data warehouse, and 
QualityNet databases by the PCH's representative.
    All PCHs that currently do not already report data to the NHSN 
will be required to register with the CDC, the CMS contractor, and 
the CMS/QualityNet and take the proper training in order to be 
adequately prepared to use the CDC's NHSN data warehouse, the CMS 
contractor's collection mechanism for data submission, and the CMS 
QualityNet Web site.
    Those PCHs that already report the HAI measures to the NHSN will 
not be significantly affected because we intend to align our 
reporting infrastructure with that used by the NHSN. However, for 
PCHs that do not currently report the two HAI measures to the NHSN, 
at this time, we have no way to estimate how many PCHs will 
participate in the PCHQR program. Therefore, we are unable to 
estimate the burden for these PCHs.
    Aside from the statutory requirements, it is important to note 
that 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 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.
    Even more importantly, we intend to share the information 
obtained from 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 new PCHQR Program 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.
    We did not receive any public comments on the anticipated 
effects of the PCHQR Program.

M. Effects of Hospital Value-Based Purchasing (VBP) Program 
Requirements

    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 for discharges occurring on or after October 1, 2012. 
These incentive payments will be funded for FY 2013 through a 
reduction to the FY 2013 base operating MS-DRG payment for each 
discharge of 1 percent, as required by section 1886(o)(7)(B) of the 
Act. The applicable percentage for FY

[[Page 53746]]

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 previously published a detailed analysis of the FY 2013 
Hospital VBP Program's impact, based on scoring for two quality 
domains, in the Hospital Inpatient VBP Program final rule (76 FR 
26542 through 26545). As we indicated in the FY 2013 IPPS/LTCH PPS 
proposed rule, because we are not making any changes to the FY 2013 
Hospital VBP Program, we do not believe we must provide an 
additional regulatory impact analysis for the FY 2013 Hospital VBP 
Program. In this final rule, we are setting forth the operational 
details of the payment adjustment. We believe that these operational 
details do not have a regulatory impact or financial impact beyond 
policies already finalized. They specify how CMS intends to ensure 
that the value-based incentive payments made to all hospitals in a 
fiscal year are equal, in total, to the reduced base operating DRG 
payment amounts.
    In section VIII.C. of the preamble of this final rule, we 
discuss our proposal and final policy to add requirements for the 
Hospital VBP Program. In addition to certain operational and payment 
details for the FY 2013 Hospital VBP Program, we are making a number 
of additional changes related to the FY 2015 and the FY 2016 
Hospital VBP Program, including measures, performance periods, 
performance standards, domain weighting, and other topics.
    Specifically, with respect to the FY 2015 Hospital VBP Program, 
as we proposed, we are adding two additional measures in the Outcome 
domain, an AHRQ Patient Safety Indicators composite measure and 
CLABSI: Central Line-Associated Blood Stream Infection. We also are 
adding a measure of Medicare Spending per Beneficiary in the 
Efficiency domain.
    With respect to the FY 2016 Hospital VBP Program, as we 
proposed, we are adopting four measures: Three 30-day mortality 
measures adopted for FY 2014 and proposed for FY 2015--MORT-30-AMI, 
MORT-30-HF, and MORT-30-PN--and the AHRQ PSI composite measure in 
the Outcome domain. All of these 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.
    For future program years, we intend to consider the impacts of 
Hospital VBP Program policies in the applicable IPPS/LTCH PPS 
rulemaking vehicle. Because we are not altering the underlying 
scoring methodology finalized for the FY 2013 Hospital VBP Program 
in this final rule, we do not believe it appropriate to revise the 
regulatory impact analysis published in the Hospital Inpatient VBP 
Program final rule referenced above. We intend to provide an updated 
analysis of the Hospital VBP Program's impacts for the FY 2014 
program year in the FY 2014 IPPS/LTCH PPS rulemaking.

N. Effects of New Measures Added to the LTCH Quality Reporting 
(LTCHQR) Program

    In section VIII.D. of the preamble of this final 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, further provides that 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 the 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 2 percentage points. The 
initial requirements for this LTCH Quality Reporting (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 as a result of not submitting 
data under the LTCH quality reporting program. At this time, the 
LTCHQR Program has not been fully implemented, as data collection 
will not begin until October 1, 2012. However, we believe that 
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 believe that a majority of LTCHs 
will submit data because they will view the new quality reporting 
program as an important step in improving the quality of care 
patients receive in these facilities. We believe that most LTCHs 
will quickly and easily adapt to this new quality reporting program 
and find that the benefits of this program outweigh the burdens.
    In section VIII.D.3.d. of the preamble of this final rule, for 
FY 2015, as we proposed, we have retained the three quality measures 
that were finalized for use in the LTCHQR Program in the FY 2012 
IPPS/LTCH PPS final rule. These measures are: (1) Catheter-
Associated Urinary Tract Infections (CAUTI); (2) Central Line 
Catheter-Associated Blood Stream Infection Event (CLABSI); and (3) 
Pressure Ulcers that are New or Have Worsened. In the FY 2012 IPPS/
LTCH PPS final rule (76 FR 51780 through 51781), we estimated that 
the total yearly cost to all LTCH 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. In section XI.B.9. of the preamble of this final rule, we 
have adopted this same burden estimate.
    It is important to note that, 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 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. As proposed, 
in this final rule, we are specifying that the CAUTI and CLABSI 
measures will be adopted in their expanded form for the FY 2014 
payment determination and all subsequent fiscal year payment 
determinations.
    We do not believe that the total burden estimate, in the amount 
of $756,326, that was 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 
essentially 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 these data are to be collected and reported by LTCHs. 
Thus, 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 quality reporting program, subject to normal 
inflationary increases, such as increased labor wage rates.
    In section VIII.D.3.d. of the preamble of this final rule, for 
the FY 2016 LTCHQR Program, as proposed, we are adding two 
additional quality measures to the LTCHQR Program. These quality 
measures are: (1) Percent of Nursing Home Residents 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 NHSN. 
Data for the patient influenza vaccination measure will be collected 
using the LTCH CARE Data Set. While we are still in the process of 
identifying and developing the specific data items that will be 
necessary for these measures, we believe that the number of data 
items will be limited. Therefore, we anticipate little, if any, 
change in burden associated with these two measures.
    As we noted previously, the LTCHQR Program has not been fully 
implemented, as data collection will not begin until October 1, 
2012. At this time, we provide estimates of the costs associated 
with the collection and submission of data in section XI.B.9. of the 
preamble of this final rule.
    In the FY 2013 IPPS/LTCH PPS proposed rule, we invited public 
comment on the impact that the proposed measures would have on 
LTCHs. The public comments that we received addressed the burden 
estimates associated with the proposed measures. We are addressing 
these public comments in section XI.B.9. of the preamble of this 
final rule, where we discuss in detail the information collection 
requirements and the burden associated with those requirements.

O. Effects of Quality Reporting Requirements for Ambulatory 
Surgical Centers (ASCs)

    In section XIV.K. of the CY 2012 OPPS/ASC final rule with 
comment period (76 FR 74492 through 74517), we finalized quality 
reporting measures for the CYs 2014, 2015, and 2016 payment 
determinations and other requirements for the ASC Quality Reporting 
(ASCQR) Program. In section VIII.E. of the preamble of this final 
rule, we discuss proposed and final policies for ASCs to

[[Page 53747]]

report quality data under the ASCQR Program in order to be eligible 
to receive the full ASC annual payment update. We are unable at this 
time to estimate the number of ASCs that may not receive the full 
ASC annual payment update in CYs 2014, 2015, and 2016 because we do 
not have data that will allow us to make a reasonable estimate. ASCs 
have not yet submitted quality data to CMS; therefore, there are no 
data from previous program operations on which to base an estimate. 
Further, data from other quality programs do not allow us to make a 
reasonable estimate. Although we might be able to make a reasonable 
estimate based on data from other programs with respect to the 
structural and process of care measures, we are unable to estimate 
the number of ASCs that will not be eligible to receive the full ASC 
annual payment update with respect to the submission of QDCs for the 
claims-based measures. There are two other quality data reporting 
programs that utilize QDCs reported on claims similar to what we 
finalized in the ASCQR Program: the Physician Quality Reporting 
System (PQRS) and the E-Prescribing Incentive Program. However, 
these programs do not have comparable reporting incentives. The PQRS 
currently has no penalty for not meeting reporting requirements, and 
the E-Prescribing Incentive Program until CY 2012 was solely 
incentive-based, rather than penalty-based.
    We did not receive any public comments regarding the effects of 
the proposed requirements for the ASCQR Program.

P. Effects of Requirements for the Inpatient Psychiatric Facilities 
Quality Reporting (IPFQR) Program

    In section VIII.F. of the preamble of this final rule, we 
discuss our proposed and final policies to implement the Inpatient 
Psychiatric Facilities Quality Reporting (IPFQR) Program.

1. General Background and Intent for Implementation of the IPFQR 
Program

    We intend to achieve several goals as we develop and implement 
the proposed 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)(4) and 10322(a) of the Affordable 
Care Act. However, in addition, it is important to note that 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 CMS' objectives and goals. Health care 
organizations can use such 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.
    More importantly, as required by the Act, we intend to share the 
information obtained from the IPFQR Program with the public. These 
data will be displayed on the CMS Web site. The goals of making 
these data available to the public in a properly risk-adjusted, 
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 IPFs as a whole; (2) keeping the public 
informed of the quality of care being provided in specific IPFs; (3) 
allowing the public to compare and contrast the data about specific 
IPFs, thus enabling the public to make informed health care 
decisions regarding IPFs; and (4) providing information about 
current trends in health care. There are certainly many other public 
uses for these quality data concerning IPFs. However, giving the 
public access to information about the quality of care in specific 
facilities and keeping the public informed of trends in health care 
has always been of high priority to CMS.
    We also seek to align the new IPFQR Program 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.

2. Anticipated Effects

    This final rule will affect all IPFs participating in Medicare. 
The facilities will have to register with QualityNet and take the 
proper training in order to be adequately prepared to use the 
QualityNet system to submit the data. The anticipated burden to 
these providers consists of the following: (1) The initial 
registration of the facility with QualityNet; (2) training of the 
appropriate staff members on how to use the QualityNet reporting 
program; (3) the time required for collection and aggregation of 
data; and (4) the time required for entry of the data into the 
QualityNet database by the IPF's representative.
    We have estimated the burdens associated with IPFs reporting 
aggregated-level data on QualityNet. In our burden calculation, we 
have included the time used for chart abstraction and for training 
personnel on collection of chart-abstracted data, aggregation of the 
data, as well as training for submitting the 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 is approximately 821 hours in a 
year for each IPF. Thus, the average hourly burden to each IPF is 
approximately 68 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 financial impact.
    As we proposed in the FY 2013 IPPS/LTCH PPS proposed rule, we 
are adopting the quality measures, abstraction methods, population, 
sampling, and reporting approaches used by TJC. One reason we 
selected this approach was to minimize the burden on IPFs. There 
were 1,741 existing IPFs, of which 450 (approximately 26 percent) 
are currently reporting the proposed measures to TJC. For these 
IPFs, we estimate that the burden will be minimal.
    We did not receive any public comments on the anticipated 
effects of the proposals for the IPFQR Program.

Q. Effects of Requirements for Provider and Practitioner Medical 
Record Deadlines and Claims Denials

    In section X. of the preamble of this final rule, we discuss our 
proposed and finalized changes for practitioners to follow in 
responding to requests for medical records from Quality Improvement 
Organizations (QIOs). These changes require practitioners to adhere 
to the 21-day and 30-day timeframes in the regulations, which are 
currently only applicable to providers. In addition, the changes 
will give QIOs the authority to effectuate claim denials for 
practitioners who fail to submit the medical records within these 
timeframes. QIOs have authority to carry out claim denials for 
providers who fail to submit medical records, but similar provisions 
do not exist for practitioners. In fact, to this point, the QIOs' 
only option for practitioners who fail to submit medical records has 
been to refer the matter to the HHS Inspector General, and it seems 
appropriate to identify a step, short of recommending sanctions, for 
the QIOs to pursue.
    On average, QIOs request approximately 2,000 medical records 
from practitioners each year. In general, requests for medical 
records from both practitioners and providers are ultimately 
fulfilled, but the average response time is considerably longer for 
practitioners than for providers. Because we are working to improve 
the QIOs' response time in completing various review activities, the 
application of the timeframes to practitioners is an important step 
in our efforts. In addition, given that the QIOs have the need for 
and the statutory authority to request medical records within a 
reasonable period of time, they have relied on the same 21-day and 
30-day timeframes for practitioners. We believe that having the 
regulatory timeframe and authority to carry out claims denials for 
providers have generally resulted in providers complying with 
medical record requests within the required timeframes. In line with 
this, we believe that having this same regulatory authority for 
practitioners will result in practitioners complying with medical 
record requests within their required timeframes, which should, in 
turn, greatly reduce the potential for any claims denials. Moreover, 
because vendors are increasingly being used by providers and 
practitioners to respond to requests for medical records, the 
increasing effectiveness of this process could further diminish any 
impact of the regulatory changes. As we noted in the proposed rule, 
we believe the impact will be insignificant. However, at this time, 
we cannot determine the precise number of claim denials that could 
occur for practitioners as a result of these changes.
    We did not receive any public comments on our proposed statement 
of impact.

R. Alternatives Considered

    This final rule contains a range of policies. It also provides 
descriptions of the statutory provisions that are addressed, 
identifies the finalized policies, and presents rationales for our 
decisions and, where relevant, alternatives that were considered.

[[Page 53748]]

S. 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 MS-DRG and wage index changes, and for the wage 
index reclassifications under the MGCRB. Table I also shows an 
overall increase of 2.3 percent in operating payments. We estimate 
that operating payments will increase by approximately $2.45 billion 
in FY 2013 relative to FY 2012. In addition, we estimate a savings 
of $24 million associated with the HACs policies in FY 2013, which 
is an additional $2 million in savings than in FY 2012. In FY 2012, 
pursuant to section 1109 of the Affordable Care Act, we distributed 
an additional $250 million to qualifying hospitals resulting in a 
decrease of $250 million in payments to hospitals in FY 2013 
relative to FY 2012. Furthermore, we estimate that the expiration of 
the expansion of low-volume payments under sections 3125 and 10314 
of the Affordable Care Act in FY 2013 will result in a decrease in 
payments of approximately $318 million compared to low-volume 
payments made in FY 2012. We estimate that new technology add-on 
payments will increase payments by approximately $46.1 million. 
Finally, we estimate that our finalized policies to count labor and 
delivery bed days in the available bed day count for IME and DSH 
payments will reduce IME payments by approximately $40 million for 
FY 2013. These estimates, combined with our FY 2013 operating 
estimate of $2.45 billion, will result in an increase of 
approximately $1.87 billion for FY 2013. We estimate that capital 
payments will experience a 1.8 percent increase in payments per 
case, as shown in Table III of section I.I. of this Appendix. We 
project that there will be a $154 million increase in capital 
payments in FY 2013 compared to FY 2012. The cumulative operating 
and capital payments should result in a net increase of 
approximately $2.04 billion to IPPS providers. The discussions 
presented in the previous pages, in combination with the rest of 
this final rule, constitute a regulatory impact analysis.

2. LTCHs

    Overall, LTCHs are projected to experience an increase in 
estimated payments per discharge in FY 2013. In the impact analysis, 
we are using the rates, factors, and policies presented in this 
final rule, including updated wage index values and relative 
weights, and the best available claims and CCR data to estimate the 
change in payments under the LTCH PPS for FY 2013. Accordingly, 
based on the best available data for the 428 LTCHs in our database, 
we estimate that FY 2013 LTCH PPS payments will increase 
approximately $92 million relative to FY 2012. In addition, we 
estimate that 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, will result in a payment impact of 
approximately $170 million to LTCHs.

II. 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 final rule 
as they relate to acute care hospitals. This table provides our best 
estimate of the change in Medicare payments to providers as a result 
of the changes to the IPPS presented in this final rule. All 
expenditures are classified as transfers to Medicare providers.

 Table V--Accounting Statement: Classification of Estimated Expenditures
                 Under the IPPS From FY 2012 to FY 2013
------------------------------------------------------------------------
                 Category                             Transfers
------------------------------------------------------------------------
Annualized Monetized Transfers............  $2.04 billion.
From Whom to Whom.........................  Federal Government to IPPS
                                             Medicare Providers.
                                           -----------------------------
  Total...................................  $2.04 billion.
------------------------------------------------------------------------

B. LTCHs

    As discussed in section I.J. of this Appendix, the impact 
analysis for the changes we are making under the LTCH PPS for this 
final rule projects an increase in estimated aggregate payments in 
FY 2013 relative to FY 2012 of approximately $92 million for the 428 
LTCHs in our database that are subject to payment under the LTCH 
PPS. Therefore, as required by OMB Circular A-4 (available at http://www.whitehouse.gov/omb/circulars/a004/a-4.pdf), in Table VI below, 
we have prepared an accounting statement showing the classification 
of the expenditures associated with the provisions of this final 
rule as they relate to changes to the LTCH PPS. Table VI provides 
our best estimate of the estimated increase in Medicare payments 
under the LTCH PPS as a result of the provisions presented in this 
final rule based on the data for the 428 LTCHs in our database. All 
expenditures are classified as transfers to Medicare providers (that 
is, LTCHs).

Table VI--Accounting Statement: Classification of Estimated Expenditures
            From the FY 2012 LTCH PPS to the FY 2013 LTCH PPS
------------------------------------------------------------------------
                 Category                             Transfers
------------------------------------------------------------------------
Annualized Monetized Transfers............  Positive transfer--Estimated
                                             increase in expenditures:
                                             $92 million.
------------------------------------------------------------------------

III. 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 final rule relating to acute 
care hospitals will 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.J. of this Appendix. Medicare fiscal intermediaries and MACs are 
not considered to be small entities. Because we acknowledge that 
many of the affected entities are small entities, the analysis 
discussed throughout the preamble of this final rule constitutes our 
regulatory flexibility analysis. In the FY 2013 IPPS/LTCH PPS 
proposed rule, we solicited public comments on our estimates and 
analysis of the impact of our proposals on those small entities. Any 
public comments that we received and our responses are presented 
throughout this final rule.

IV. Impact on Small Rural Hospitals

    Section 1102(b) of the Social Security Act requires us to 
prepare a regulatory impact analysis for any proposed or final rule 
that may have a significant impact on the operations of a 
substantial number of small rural hospitals. This analysis must 
conform to the provisions of section 603 of the RFA. With the 
exception of hospitals located in certain New England counties, for 
purposes of section 1102(b) of the Act, we define a small rural 
hospital as a hospital that is located outside of an urban area and 
has fewer 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 
final policy changes under the IPPS for operating costs.)

[[Page 53749]]

V. 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 2012, that threshold level is approximately $136 
million. This final rule will not mandate any requirements for 
State, local, or tribal governments, nor will it affect private 
sector costs.

VI. Executive Order 12866

    In accordance with the provisions of Executive Order 12866, the 
Executive Office of Management and Budget reviewed this final rule.

Appendix B: Recommendation of Update Factors for Operating Cost Rates 
of Payment for Inpatient Hospital Services

I. Background

    Section 1886(e)(4)(A) of the Act requires that the Secretary, 
taking into consideration the recommendations of 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 2013, 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 2013

A. FY 2013 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 2013 as equal to the rate-
of-increase in the hospital market basket for IPPS hospitals in all 
areas (which is based on IHS Global Insight Inc.'s (IGI's) second 
quarter 2012 forecast of the FY 2006-based IPPS market basket), 
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 0.1 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 2012 adjustment of 0.1 percentage point may result in 
the applicable percentage increase being less than zero.
    In accordance with section 1886(b)(3)(B) of the Act, as amended 
by section 3401(a) of the Affordable Care Act, in section IV.H.1 of 
the preamble of the proposed rule, we proposed a multifactor 
productivity (MFP) adjustment (the 10-year moving average of MFP for 
the period ending FY 2012) of 0.8 percent (77 FR 27975 and 27976). 
Also, in the FY 2013 IPPS/LTCH PPS proposed rule (77 FR 27975 and 
27976), based on IGI's first quarter 2012 forecast of the FY 2013 
market basket increase, we proposed an applicable percentage 
increase to the FY 2012 operating standardized amount of 2.1 percent 
(that is, the proposed FY 2013 estimate of the market basket rate-
of-increase of 3.0 percent less an adjustment of 0.8 percentage 
points for economy-wide productivity and less 0.1 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 
proposed an applicable percentage increase to the operating 
standardized amount of 0.1 percent (that is, the proposed FY 2013 
estimate of the market basket rate-of-increase of 3.0 percent less 
2.0 percentage points for failure to submit quality data, less an 
adjustment of 0.8 percentage points for economy-wide productivity, 
and less an additional adjustment of 0.1 percentage point).
    For this final rule, in accordance with section 1886(b)(3)(B) of 
the Act, as amended by section 3401(a) of the Affordable Care Act, 
in section IV.H.1. of the preamble of this final rule, we are making 
an MFP adjustment of 0.7 percent. Based on IGI's second quarter 2012 
forecast of the FY 2013 market basket increase, we are providing for 
an applicable percentage increase to the FY 2012 operating 
standardized amount of 1.8 percent (that is, the FY 2013 estimate of 
the market basket rate-of-increase of 2.6 percent less an adjustment 
of 0.7 percentage point for economy-wide productivity and less 0.1 
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 providing for an applicable percentage increase to the 
operating standardized amount of -0.2 percent (that is, the FY 2013 
estimate of the market basket rate-of-increase of 2.6 percent less 
2.0 percentage points for failure to submit quality data, less an 
adjustment of 0.7 percentage point for economy-wide productivity, 
and less an additional adjustment of 0.1 percentage point).

B. Update for SCHs for FY 2013

    Section 1886(b)(3)(B)(iv) of the Act provides that the FY 2013 
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 providing 
for 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. FY 2013 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 providing for an applicable percentage 
increase to the Puerto Rico-specific standardized amount of 1.8 
percent.

D. Update for Hospitals Excluded From the IPPS

    Section 1886(b)(3)(B)(ii) of the Act is used for purposes of 
determining the percentage increase in the rate-of-increase limits 
for children's and cancer hospitals. Section 1886(b)(3)(B)(ii) of 
the Act sets the percentage increase in the rate-of-increase limits 
equal to the market basket percentage increase. In accordance with 
Sec.  403.752(a) of the regulations, RNHCIs are paid under Sec.  
413.40, which also uses section 1886(b)(3)(B)(ii) of the Act to 
update the percentage increase in the rate-of-increase limits.
    Currently, children's hospitals, cancer hospitals, and RNHCIs 
are the remaining three types of hospitals still reimbursed under 
the reasonable cost methodology. We are providing that the FY 2013 
rate-of-increase percentage applicable to the target amount for 
children's hospitals, cancer hospitals, and RNHCIs is the percentage 
increase in the IPPS operating market basket. For this final rule, 
the current estimate of the FY 2013 IPPS operating market basket 
percentage increase is 2.6 percent.

E. Update for LTCHs

    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 VII. of the preamble of this final rule, 
we are

[[Page 53750]]

establishing an update to the LTCH PPS standard Federal rate for FY 
2013 based on the full LTCH PPS market basket increase estimate (for 
this final rule, estimated to be 2.6 percent), subject to an 
adjustment based on changes in economy-wide productivity and an 
additional reduction of 0.1 percentage point. The productivity 
adjustment described in section 1886(b)(3)(B)(xi)(ii) of the Act is 
currently estimated to be 0.7 percent for FY 2013. In addition, 
section 1886(m)(3)(A)(ii) of the Act requires that any annual update 
for FY 2013 be reduced by the ``other adjustment'' at section 
1886(m)(4)(C) of the Act, which is 0.1 percentage point. Therefore, 
based on IGI's second quarter 2012 forecast of the FY 2013 market 
basket increase, we are providing for an annual update to the LTCH 
PPS standard Federal rate of 1.8 percent (that is, the current FY 
2013 estimate of the market basket rate-of-increase of 2.6 percent 
less an adjustment of 0.7 percentage point for economy-wide 
productivity and less 0.1 percentage point). Accordingly, we are 
applying an update factor of 1.018 in determining the LTCH PPS 
standard Federal rate for FY 2013. Furthermore, we are phasing in a 
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 2013, which will not be applicable 
to payments for LTCH PPS discharges occurring on or before December 
28, 2012 (consistent with current law).

III. Secretary's Recommendations

    MedPAC is recommending an inpatient hospital update equal to one 
percent for FY 2013. 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 2013 estimate of the market basket rate-of-
increase of 2.6 percent less an adjustment of 0.7 percentage point 
for MFP and less 0.1 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 2.6 percent.
    For FY 2013, consistent with policy set forth in section VII. of 
the preamble of this final rule, we are recommending an update of 
1.8 percent to the LTCH PPS standard Federal rate.

IV. MedPAC Recommendation for Assessing Payment Adequacy and Updating 
Payments in Traditional Medicare

    In its March 2012 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 one percent. MedPAC expects 
Medicare margins to remain low in 2012. 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 2013 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 one percent, for FY 2013, 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 2013 applicable percentage increase. 
Therefore, we have provided for an applicable percentage increase 
for FY 2013 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 2013 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 final rule for a 
complete discussion of the FY 2013 documentation and coding 
adjustments. In section II.D. of the preamble of this final rule, we 
are making a prospective adjustment of 1.9 percent to the FY 2013 
standardized amount to remove the remaining effect of documentation 
and coding that occurred in FY 2008 and FY 2009. We note that 
section 7(b)(1)(B) of Public Law 110-90 authorized recoupments of 
overpayments due to documentation and coding changes for FY 2008 and 
FY 2009, and under this authority, such recoupments had to be made 
no later than FY 2012. Accordingly, any recoupments of overpayments 
due to documentation and coding changes beyond the authority of 
section 7(b)(1)(B) of Public Law 110-90 would require changes to 
current law by Congress.
    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 update to the 
capital rate is discussed in section III. of the Addendum to this 
final rule.

[FR Doc. 2012-19079 Filed 8-1-12; 4:15 pm]
BILLING CODE 4120-01-P
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