43754 Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 

DEPARTMENT OF HEALTH AND 

HUMAN SERVICES 

Centers for Medicare & Medicaid 

Services 

42 CFR Parts 412, 413, 415, 485, and 

489 

[CMS–1406–F and IFC; CMS–1493–F; CMS– 

1337–F] 

RIN 0938–AP33; RIN 0938–AP39; RIN 0938– 

AP76 

Medicare Program; Changes to the 

Hospital Inpatient Prospective 

Payment Systems for Acute Care 

Hospitals and Fiscal Year 2010 Rates; 

and Changes to the Long-Term Care 

Hospital Prospective Payment System 

and Rate Years 2010 and 2009 Rates 

AGENCY: Centers for Medicare and 

Medicaid Services (CMS), HHS. 

ACTION: Final rules and interim final 

rule with comment period. 

SUMMARY: We are revising the Medicare 

hospital inpatient prospective payment 

systems (IPPS) for operating and capitalrelated costs of acute care hospitals to 

implement changes arising from our 

continuing experience with these 

systems, and to implement certain 

provisions made by the TMA, 

Abstinence Education, and QI Program 

Extension Act of 2007, the Medicare 

Improvements for Patients and 

Providers Act of 2008, and the 

American Recovery and Reinvestment 

Act of 2009. In addition, in the 

Addendum to this final rule, we 

describe the changes to the amounts and 

factors used to determine the rates for 

Medicare acute care hospital inpatient 

services for operating costs and capitalrelated costs. These changes are 

applicable to discharges occurring on or 

after October 1, 2009. We also are 

setting forth the update to the rate-ofincrease limits for certain hospitals 

excluded from the IPPS that are paid on 

a reasonable cost basis subject to these 

limits. The updated rate-of-increase 

limits are effective for cost reporting 

periods beginning on or after October 1, 

2009. 

Second, we are updating the payment 

policy and the annual payment rates for 

the Medicare prospective payment 

system (PPS) for inpatient hospital 

services provided by long-term care 

hospitals (LTCHs) for rate year (RY) 

2010, including responding to public 

comments received on a June 3, 2009 

supplemental proposed rule relating to 

the proposed RY 2010 Medicare 

Severity Long-Term Care DiagnosisRelated Groups (MS–LTC–DRG) relative 

weights and the proposed RY 2010 highcost outlier (HCO) fixed-loss amount. In 

the Addendum to this final rule, we also 

set forth the changes to the payment 

rates, factors, and other payment rate 

policies under the LTCH PPS for RY 

2010. These changes are applicable to 

discharges occurring on or after October 

1, 2009. In addition, we are responding 

to public comments received on and 

finalizing a June 3, 2009 interim final 

rule with comment period that revised 

the MS–LTC–DRG relative weights for 

payments under the LTCH PPS for the 

remainder of FY 2009 (that is, from June 

3, 2009, through September 30, 2009). 

Third, in this final rule, we are 

responding to public comments we 

received on, and finalizing, two May 

2008 interim final rules with comment 

period that implemented certain 

provisions of section 114 of the 

Medicare, Medicaid, and SCHIP 

Extension Act of 2007 (MMSEA, Pub. L. 

110–173) relating to payments to LTCHs 

and LTCH satellite facilities, the 

establishment of LTCHs and LTCH 

satellite facilities, and increases in beds 

in existing LTCHs and LTCH satellite 

facilities under the LTCH PPS. 

Fourth, through an interim final rule 

with comment period as part of this 

document, we are implementing those 

provisions of the ARRA that amended 

certain provisions of section 114 of the 

MMSEA relating to payments to LTCHs 

and LTCH satellite facilities and 

increases in beds in existing LTCHs and 

LTCH satellite facilities under the LTCH 

PPS. 

DATES: Effective Dates: These final rules 

are effective on October 1, 2009, with 

the following exceptions: 

The provisions of §§ 412.534(c) 

through (e) and (h) and 412.536(a)(2) are 

effective for cost reporting periods 

beginning on or after July 1, 2007, or 

October 1, 2007, as applicable. In 

accordance with sections 

1871(e)(1)(A)(i) and (ii) of the Social 

Security Act, the Secretary has 

determined that retroactive application 

of the provisions of §§ 412.534(c) 

through (e) and (h) and 412.5536(a)(2) is 

necessary to comply with the statute 

and that failure to apply the changes 

retroactively would be contrary to 

public interest. 

Comment Period: To be assured 

consideration, comments on the interim 

final rule with comment period (CMS– 

1406–IFC) that appears as section XI. of 

the preamble of this document must be 

received at one of the addresses 

provided below, no later than 5 p.m. 

E.S.T. on October 26, 2009. 

ADDRESSES: When commenting on 

issues presented in the interim final rule 

with comment period, please refer to 

file code CMS–1406–IFC. Because of 

staff and resource limitations, we cannot 

accept comments by facsimile (FAX) 

transmission. 

You may submit comments in one of 

four ways (please choose only one of the 

ways listed): 

1. Electronically. You may submit 

electronic comments on this regulation 

at http://www.regulations.gov. Follow 

the instructions for ‘‘Comment or 

Submission’’ and enter the file code 

CMS–1406–IFC to submit comments on 

this interim final rule. 

2. By regular mail. You may mail 

written comments (one original and two 

copies) to the following address only: 

Centers for Medicare & Medicaid 

Services, Department of Health and 

Human Services, Attention: CMS–1406– 

IFC, P.O. Box 8011, Baltimore, MD 

21244–1850. 

Please allow sufficient time for mailed 

comments to be received before the 

close of the comment period. 

3. By express or overnight mail. You 

may send written comments (one 

original and two copies) to the following 

address only: Centers for Medicare & 

Medicaid Services, Department of 

Health and Human Services, Attention: 

CMS–1406–IFC, Mail Stop C4–26–05, 

7500 Security Boulevard, Baltimore, MD 

21244–1850. 

4. By hand or courier. If you prefer, 

you may deliver (by hand or courier) 

your written comments (one original 

and two copies) before the close of the 

comment period to either of the 

following addresses: a. Room 445–G, 

Hubert H. Humphrey Building, 200 

Independence Avenue, SW., 

Washington, DC 20201. 

(Because access to the interior of the 

HHH Building is not readily available to 

persons without Federal Government 

identification, commenters are 

encouraged to leave their comments in 

the CMS drop slots located in the main 

lobby of the building. A stamp-in clock 

is available for persons wishing to retain 

a proof of filing by stamping in and 

retaining an extra copy of the comments 

being filed.) b. 7500 Security Boulevard, 

Baltimore, MD 21244–1850. 

If you intend to deliver your 

comments to the Baltimore address, 

please call telephone number (410) 786– 

7195 in advance to schedule your 

arrival with one of our staff members. 

Comments mailed to the addresses 

indicated as appropriate for hand or 

courier delivery may be delayed and 

received after the comment period. 

For information on viewing public 

comments, see the beginning of the 

SUPPLEMENTARY INFORMATION section. 


sroberts on DSKD5P82C1PROD with RULES
Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 43755 

FOR FURTHER INFORMATION, CONTACT: 

Tzvi Hefter, (410) 786–4487, and Ing-Jye 

Cheng, (410) 786–4548, Operating 

Prospective Payment, MS–DRGs, Wage 

Index, New Medical Service and 

Technology Add-On Payments, Hospital 

Geographic Reclassifications, Capital 

Prospective Payment, Excluded 

Hospitals, Direct and Indirect Graduate 

Medical Education Payments, 

Disproportionate Share Hospital (DSH), 

Critical Access Hospital (CAH), 

EMTALA Hospital Emergency Services, 

and Hospital-within-Hospital Issues. 

Michele Hudson, (410) 786–4487, and 

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

Payment System and MS–LTC–DRG 

Relative Weights for FYs 2009 and 2010 

Issues. 

Siddhartha Mazumdar, (410) 786– 

6673, Rural Community Hospital 

Demonstration Program Issues. 

James Poyer, (410) 786–2261, Quality 

Data for Annual Payment Update Issues. 

Lisa Grabert, (410) 786–6827, 

Hospital-Acquired Conditions. 

SUPPLEMENTARY INFORMATION: 

Inspection of Public Comments: All 

comments received before the close of 

the comment period are available for 

viewing by the public, including any 

personally identifiable or confidential 

business information that is included in 

a comment. We post all comments 

received before the close of the 

comment period on the following Web 

site as soon as possible after they have 

been received: http:// 

www.regulations.gov. Follow the search 

instructions at that Web site to view 

public comments. 

Comments received timely will also 

be available for public inspection, 

generally beginning approximately 3 

weeks after publication of a document, 

at the headquarters of the Centers for 

Medicare & Medicaid Services, 7500 

Security Boulevard, Baltimore, 

Maryland 21244, Monday through 

Friday of each week from 8:30 a.m. to 

4 p.m. To schedule an appointment to 

view public comments, phone 1–800– 

743–3951. 

Electronic Access 

This Federal Register document is 

also available from the Federal Register 

online database through GPO Access, a 

service of the U.S. Government Printing 

Office. Free public access is available on 

a Wide Area Information Server (WAIS) 

through the Internet and via 

asynchronous dial-in. Internet users can 

access the database by using the World 

Wide Web, (the Superintendent of 

Documents’ home Web page address is 

http://www.gpoaccess.gov/), by using 

local WAIS client software, or by telnet 

to swais.access.gpo.gov, then login as 

guest (no password required). Dial-in 

users should use communications 

software and modem to call (202) 512– 

1661; type swais, then login as guest (no 

password required). 

Acronyms 

3M 3M Health Information System 

AAHKS American Association of Hip and 

Knee Surgeons 

AAMC Association of American Medical 

Colleges 

ACGME Accreditation Council for Graduate 

Medical Education 

AHA American Hospital Association 

AHIC American Health Information 

Community 

AHIMA American Health Information 

Management Association 

AHRQ Agency for Healthcare Research and 

Quality 

ALOS Average length of stay 

ALTHA Acute Long Term Hospital 

Association 

AMA American Medical Association 

AMGA American Medical Group 

Association 

AOA American Osteopathic Association 

APR DRG All Patient Refined Diagnosis 

Related Group System 

ARRA American Recovery and 

Reinvestment Act of 2009, Public Law 

111–5 

ASC Ambulatory surgical center 

ASCA Administrative Simplification 

Compliance Act of 2002, Public Law 107– 

105 

ASITN American Society of Interventional 

and Therapeutic Neuroradiology 

BBA Balanced Budget Act of 1997, Public 

Law 105–33 

BBRA Medicare, Medicaid, and SCHIP 

[State Children’s Health Insurance 

Program] Balanced Budget Refinement 

Act of 1999, Public Law 106–113 

BIPA Medicare, Medicaid, and SCHIP [State 

Children’s Health Insurance Program]

Benefits Improvement and Protection Act 

of 2000, Public Law 106–554 

BLS Bureau of Labor Statistics 

CAH Critical access hospital 

CARE [Medicare] Continuity Assessment 

Record & Evaluation [Instrument] 

CART CMS Abstraction & Reporting Tool 

CBSAs Core-based statistical areas 

CC Complication or comorbidity 

CCR Cost-to-charge ratio 

CDAC [Medicare] Clinical Data Abstraction 

Center 

CDAD Clostridium difficile-associated 

disease 

CIPI Capital input price index 

CMI Case-mix index 

CMS Centers for Medicare & Medicaid 

Services 

CMSA Consolidated Metropolitan 

Statistical Area 

COBRA Consolidated Omnibus 

Reconciliation Act of 1985, Public Law 99– 

272 

COLA Cost-of-living adjustment 

CoP [Hospital] condition of participation 

CPI Consumer price index 

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 

EMR Electronic medical record 

EMTALA Emergency Medical Treatment 

and Labor Act of 1986, Public Law 99–272 

FAH Federation of Hospitals 

FDA Food and Drug Administration 

FFY Federal fiscal year 

FHA Federal Health Architecture 

FIPS Federal information processing 

standards 

FQHC Federally qualified health center 

FTE Full-time equivalent 

FY Fiscal year 

GAAP Generally Accepted Accounting 

Principles 

GAF Geographic Adjustment Factor 

GME Graduate medical education 

HACs Hospital-acquired conditions 

HCAHPS Hospital Consumer Assessment of 

Healthcare Providers and Systems 

HCFA Health Care Financing 

Administration 

HCO High-cost outlier 

HCRIS Hospital Cost Report Information 

System 

HHA Home health agency 

HHS Department of Health and Human 

Services 

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 

HwH Hospital-within-a-hospital 

ICD–9–CM International Classification of 

Diseases, Ninth Revision, Clinical 

Modification 

ICD–10–CM International Classification of 

Diseases, Tenth Revision, Clinical 

Modification 

ICD–10–PCS International Classification of 

Diseases, Tenth Revision, Procedure 

Coding System 

ICR Information collection requirement 

IHS Indian Health Service 

IME Indirect medical education 

I–O Input-Output 

IOM Institute of Medicine 

IPF Inpatient psychiatric facility 

IPPS [Acute care hospital] inpatient 

prospective payment system 

IRF Inpatient rehabilitation facility 

LAMCs Large area metropolitan counties 

LOS Length of stay 

LTC–DRG Long-term care diagnosis-related 

group 

LTCH Long-term care hospital 

MA Medicare Advantage 

MAC Medicare Administrative Contractor 


sroberts on DSKD5P82C1PROD with RULES
43756 Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 

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 

MMSEA Medicare, Medicaid, and SCHIP 

Extension Act of 2007, Public Law 110–173 

MPN Medicare provider number 

MRHFP Medicare Rural Hospital Flexibility 

Program 

MRSA Methicillin-resistant Staphylococcus 

aureus 

MSA Metropolitan Statistical Area 

MS–DRG Medicare severity diagnosisrelated group 

MS–LTC–DRG Medicare severity long-term 

care diagnosis-related group 

NAICS North American Industrial 

Classification System 

NALTH National Association of Long Term 

Hospitals 

NCD National coverage determination 

NCHS National Center for Health Statistics 

NCQA National Committee for Quality 

Assurance 

NCVHS National Committee on Vital and 

Health Statistics 

NECMA New England County Metropolitan 

Areas 

NQF National Quality Forum 

NTIS National Technical Information 

Service 

NTTAA National Technology Transfer and 

Advancement Act of 1991 (Pub. L. 104– 

113) 

NVHRI National Voluntary Hospital 

Reporting Initiative 

OACT [CMS’] Office of the Actuary 

OBRA 86 Omnibus Budget Reconciliation 

Act of 1996, 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] 

PIP Periodic interim payment 

PLI Professional liability insurance 

PMSAs Primary metropolitan statistical 

areas 

POA Present on admission 

PPI Producer price index 

PPS Prospective payment system 

PRM Provider Reimbursement Manual 

ProPAC Prospective Payment Assessment 

Commission 

PRRB Provider Reimbursement Review 

Board 

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 

TJA Total joint arthroplasty 

UHDDS Uniform hospital discharge data set 

Table of Contents 

I. Background 

A. Summary 

1. Acute Care Hospital Inpatient 

Prospective Payment System (IPPS) 

2. Hospitals and Hospital Units Excluded 

From the IPPS 

3. Long-Term Care Hospital Prospective 

Payment System (LTCH PPS) 

4. Critical Access Hospitals (CAHs) 

5. Payments for Graduate Medical 

Education (GME) 

B. Provisions of the Medicare 

Improvements for Patients and Providers 

Act of 2008 (MIPPA) 

C. Provisions of the American Recovery 

and Reinvestment Act of 2009 (ARRA) 

D. Issuance of a Notice of Proposed 

Rulemaking 

1. Proposed Changes to MS–DRG 

Classifications and Recalibrations of 

Relative Weights 

2. Proposed Changes to the Hospital Wage 

Index for Acute Care Hospitals 

3. Proposed Rebasing and Revision of the 

Hospital Market Baskets for Acute Care 

Hospitals 

4. Other Decisions and Proposed Changes 

to the IPPS for Operating Costs and GME 

Costs 

5. FY 2010 Policy Governing the IPPS for 

Capital-Related Costs 

6. Proposed Changes to the Payment Rates 

for Certain Excluded Hospitals: Rate-ofIncrease Percentages 

7. Proposed Changes to the LTCH PPS 

8. Determining Proposed Prospective 

Payment Operating and Capital Rates 

and Rate-of-Increase Limits for Acute 

Care Hospitals 

9. Determining Proposed Prospective 

Payments Rates for LTCHs 

10. Impact Analysis 

11. Recommendation of Update Factors for 

Operating Cost Rates of Payment for 

Hospital Inpatient Services 

12. Discussion of Medicare Payment 

Advisory Commission Recommendations 

E. Finalization of an Interim Final Rule 

With Comment Period That Revised the 

MS–LTC–DRG Relative Weights for FY 

2009 (for June 3, 2009 Through 

September 30, 2009) 

F. Finalization of Two LTCH PPS Interim 

Final Rules With Comment Period Issued 

in May 2008 

G. Interim Final Rule With Comment 

Period That Implements Certain 

Provisions of the ARRA Relating to 

Payments to LTCHs and LTCH Satellite 

Facilities 

II. Changes to Medicare Severity DiagnosisRelated Group (MS–DRG) Classifications 

and Relative Weights 

A. Background 

B. MS–DRG Reclassifications 

1. General 

2. Yearly Review for Making MS–DRG 

Changes 

C. Adoption of the MS–DRGs in FY 2008 

D. FY 2010 MS–DRG Documentation and 

Coding Adjustment, Including the 

Applicability to the Hospital-Specific 

Rates and the Puerto Rico-Specific 

Standardized Amount 

1. Background on the Prospective MS–DRG 

Documentation and Coding Adjustments 

for FY 2008 and FY 2009 Authorized by 

Public Law 110–90 

2. Prospective Adjustment to the Average 

Standardized Amounts Required by 

Section 7(b)(1)(A) of Public Law 110–90 

3. Recoupment or Repayment Adjustments 

in FYs 2010 Through 2012 Required by 

Public Law 110–90 

4. Retrospective Evaluation of FY 2008 

Claims Data 

5. Adjustments for FY 2010 and 

Subsequent Years Authorized by Section 

7(b)(1)(A) of Public Law 110–90 and 

Section 1886(d)(3)(vi) of the Act 

6. Additional Adjustment for FY 2010 

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 

2010 and Subsequent Years 

9. Background on the Application of the 

Documentation and Coding Adjustment 

to the Puerto Rico-Specific Standardized 

Amount 

10. Documentation and Coding Adjustment 

to the Puerto Rico-Specific Standardized 

Amount 

E. Refinement of the MS–DRG Relative 

Weight Calculation 

1. Background 

a. Summary of the RTI Study of Charge 

Compression and CCR Refinement 

b. Summary of the Rand Corporation Study 

of Alternative Relative Weight 

Methodologies 


sroberts on DSKD5P82C1PROD with RULES
Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 43757 

2. Summary of FY 2009 Changes and 

Discussion for FY 2010 

3. Timeline for Revising the Medicare Cost 

Report 

F. Preventable Hospital-Acquired 

Conditions (HACs), Including Infections 

1. Statutory Authority 

2. HAC Selection Process 

3. Collaborative Process 

4. Selected HAC Categories 

5. Public Input Regarding Selected and 

Potential Candidate HACs 

6. POA Indicator Reporting 

7. Additional Considerations Addressing 

the HAC and POA Payment Provision 

G. Changes to Specific MS–DRG 

Classifications 

1. MDC 5 (Diseases and Disorders of the 

Circulatory System): Intraoperative 

Fluorescence Vascular Angiography 

(IFVA) 

2. MDC 8 (Diseases and Disorders of the 

Musculoskeletal System and Connective 

Tissue): Infected Hip and Knee 

Replacements 

3. Medicare Code Editor (MCE) Changes 

a. Diagnoses Allowed for Males Only Edit 

b. Manifestation Codes as Principal 

Diagnosis Edit 

c. Invalid Diagnosis or Procedure Code 

d. Unacceptable Principal Diagnosis 

e. Creation of New Edit Titled ‘‘Wrong 

Procedure Performed’’ 

f. Procedures Allowed for Females Only 

Edit 

4. Surgical Hierarchies 

5. Complication or Comorbidity (CC) 

Exclusions List 

a. Background 

b. CC Exclusions List for FY 2010 

6. Review of Procedure Codes in MS–DRGs 

981 Through 983, 984 Through 986, and 

987 Through 989 

a. Moving Procedure Codes From MS– 

DRGs 981 Through 983 or MS–DRGs 987 

Through 989 to MDCs 

b. Reassignment of Procedures Among MS– 

DRGs 981 Through 983, 984 Through 

986, and 987 Through 989 

c. Adding Diagnosis or Procedure Codes to 

MDCs 

7. Changes to the ICD–9–CM Coding 

System 

8. Other Issues Not Addressed in the 

Proposed Rule 

a. Administration of Tissue Plasminogen 

Activator (tPA) (rtPA) 

b. Coronary Artery Bypass Graft (CABG) 

With Intraoperative Angiography 

c. Insertion of Gastrointestinal Stent 

H. Recalibration of MS–DRG Weights 

I. Add-On Payments for New Services and 

Technologies 

1. Background 

2. Public Input Before Publication of a 

Notice of Proposed Rulemaking on AddOn Payments 

3. FY 2010 Status of Technologies 

Approved for FY 2009 Add-On Payments 

4. FY 2010 Applications for New 

Technology Add-On Payments 

a. The AutoLITTTM System 

b. CLOLAR® (clofarabine) Injection 

c. LipiScanTM Coronary Imaging System 

d. Spiration® IBV® Valve System 

e. TherOx Downstream® System 

5. Technical Correction 

III. Changes to the Hospital Wage Index for 

Acute Care Hospitals 

A. Background 

B. Requirements of Section 106 of the 

MIEA–TRHCA 

1. Wage Index Study Required Under the 

MIEA–TRHCA 

a. Legislative Requirement 

b. Interim and Final Reports on Results of 

Acumen’s Study 

2. FY 2009 Policy Changes in Response to 

Requirements Under Section 106(b) of 

the MIEA–TRHCA 

a. Reclassification Average Hourly Wage 

Comparison Criteria 

b. Within-State Budget Neutrality 

Adjustment for the Rural and Imputed 

Floors 

C. Core-Based Statistical Areas for the 

Hospital Wage Index 

D. Occupational Mix Adjustment to the FY 

2010 Wage Index 

1. Development of Data for the FY 2010 

Occupational Mix Adjustment Based on 

the 2007–2008 Occupational Mix Survey 

2. Calculation of the Occupational Mix 

Adjustment for FY 2010 

E. Worksheet S–3 Wage Data for the FY 

2010 Wage Index 

1. Included Categories of Costs 

2. Excluded Categories of Costs 

3. Use of Wage Index Data by Providers 

Other Than Acute Care Hospitals Under 

the IPPS 

F. Verification of Worksheet S–3 Wage 

Data 

G. Method for Computing the FY 2010 

Unadjusted Wage Index 

H. Analysis and Implementation of the 

Occupational Mix Adjustment and the 

FY 2010 Occupational Mix Adjusted 

Wage Index 

I. Revisions to the Wage Index Based on 

Hospital Redesignations 

1. General 

2. Effects of Reclassification/Redesignation 

3. FY 2010 MGCRB Reclassifications 

4. Redesignations of Hospitals Under 

Section 1886(d)(8)(B) of the Act 

5. Reclassifications Under Section 

1886(d)(8)(B) of the Act 

6. Reclassifications Under Section 508 of 

Public Law 108–173 

J. FY 2010 Wage Index Adjustment Based 

on Commuting Patterns of Hospital 

Employees 

K. Process for Requests for Wage Index 

Data Corrections 

IV. Rebasing and Revision of the Hospital 

Market Baskets for Acute Care Hospitals 

A. Background 

B. Rebasing and Revising the IPPS Market 

Basket 

1. Development of Cost Categories and 

Weights 

a. Medicare Cost Reports 

b. Other Data Sources 

2. Final Cost Category Computation 

3. Selection of Price Proxies 

a. Wages and Salaries 

b. Employment Benefits 

c. Fuel, Oil, and Gasoline 

d. Electricity 

e. Water and Sewage 

f. Professional Liability Insurance 

g. Pharmaceuticals 

h. Food: Direct Purchase 

i. Food: Contract Services 

j. Chemicals 

k. Blood and Blood Products 

l. Medical Instruments 

m. Photographic Supplies 

n. Rubber and Plastics 

o. Paper and Printing Products 

p. Apparel 

q. Machinery and Equipment 

r. Miscellaneous Products 

s. Professional Fees: Labor-Related 

t. Administrative and Business Support 

Services 

u. All Other: Labor-Related Services 

v. Professional Fees: Nonlabor-Related 

w. Financial Services 

x. Telephone Services 

y. Postage 

z. All Other: Nonlabor-Related Services 

4. Labor-Related Share 

C. Separate Market Basket for Certain 

Hospitals Presently Excluded From the 

IPPS 

D. Rebasing and Revising the Capital Input 

Price Index (CIPI) 

V. Other Decisions and Changes to the IPPS 

for Operating Costs and GME Costs 

A. Reporting of Hospital Quality Data for 

Annual Hospital Payment Update 

1. Background 

a. Overview 

b. Hospital Quality Data Reporting Under 

Section 501(b) of Public Law 108–173 

c. Hospital Quality Data Reporting Under 

Section 5001(a) of Public Law 109–171 

2. Retirement of RHQDAPU Program 

Measures 

3. Quality Measures for the FY 2011 

Payment Determination and Subsequent 

Years 

a. Considerations in Expanding and 

Updating Quality Measures Under the 

RHQDAPU Program 

b. RHQDAPU Program Quality Measures 

for the FY 2011 Payment Determination 

4. Possible New Quality Measures for the 

FY 2012 Payment Determination and 

Subsequent Years 

5. Form, Manner, and Timing of Quality 

Data Submission 

a. RHQDAPU Program Procedures for the 

FY 2011 Payment Determination 

b. RHQDAPU Program Disaster Extensions 

and Waivers 

c. HACHPS Requirements for the FY 2011 

Payment Determination 

6. Chart Validation Requirements 

a. Chart Validation Requirements and 

Methods for the FY 2011 Payment 

Determination 

b. Chart Validation Requirements and 

Methods for the FY 2012 Payment 

Determination and Subsequent Years 

c. Possible Supplements to the Chart 

Validation Process for the FY 2013 

Payment Determination and Subsequent 

Years 

7. Data Accuracy and Completeness 

Acknowledgement Requirements for the 

FY 2011 Payment Determination and 

Subsequent Years 

8. Public Display Requirements for the FY 

2011 Payment Determination and 

Subsequent Years 


sroberts on DSKD5P82C1PROD with RULES
43758 Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 

9. Reconsideration and Appeal Procedures 

for the FY 2010 Payment Determination 

10. RHQDAPU Program Withdrawal 

Deadlines 

11. Electronic Health Records 

a. Background 

b. EHR Testing of Quality Measures 

Submission 

c. HITECH Act EHR Provisions 

B. Medicare-Dependent, Small Rural 

Hospitals (MDHs): Budget Neutrality 

Adjustment Factors for FY 2002-Based 

Hospital-Specific Rate 

1. Background 

2. FY 2002-Based Hospital-Specific Rate 

C. Rural Referral Centers (RRCs) 

1. Case-Mix Index 

2. Discharges 

D. Indirect Medical Education (IME) 

Adjustment 

1. Background 

2. IME Adjustment Factor for FY 2010 

3. IME-Related Changes in Other Sections 

of this Final Rule 

E. Payment Adjustment for Medicare 

Disproportionate Share Hospitals (DSHs) 

1. Background 

2. Policy Change Relating to the Inclusion 

of Labor and Delivery Patient Days in the 

Medicare DSH Calculation 

a. Background 

b. Proposed and Final Policy Change 

3. Policy Change Relating to Calculation of 

Inpatient Days in the Medicaid Fraction 

in the Medicare DSH Calculation 

a. Background 

b. Proposed and Final Policy Change 

4. Policy Change Relating to the Exclusion 

of Observation Beds and Patient Days 

from the Medicare DSH Calculation 

a. Background 

b. Proposed and Final Policy Change 

5. Public Comments Received Out of the 

Scope of the Proposed Rule 

F. Technical Correction to Regulations on 

Payments for Anesthesia Services 

Furnished by Hospital or CAH Employed 

Nonphysician Anesthetists or Obtained 

Under Arrangements 

G. Payments for Direct Graduate Medical 

Education (GME) Costs 

1. Background 

2. Clarification of Definition of New 

Medical Residency Training Program 

3. Participation of New Teaching Hospitals 

in Medicare GME Affiliated Groups 

4. Technical Corrections to Regulations 

H. Hospital Emergency Services Under 

EMTALA 

1. Background 

2. Changes Relating to Applicability of 

Sanctions Under EMTALA 

I. Rural Community Hospital 

Demonstration Program 

J. Technical Correction to Regulations 

Relating to Calculation of the Federal 

Rate Under the IPPS 

VI. Changes to the IPPS for Capital-Related 

Costs 

A. Overview 

B. Exception Payments 

C. New Hospitals 

D. Hospitals Located in Puerto Rico 

E. Proposed and Final Changes 

1. FY 2010 MS–DRG Documentation and 

Coding Adjustment 

a. Background on the Prospective MS–DRG 

Documentation and Coding Adjustments 

for FY 2008 and FY 2009 

b. Prospective MS–DRG Documentation 

and Coding Adjustment to the National 

Capital Federal Rate for FY 2010 and 

Subsequent Years 

c. Documentation and Coding Adjustment 

to the Puerto Rico-Specific Capital Rate 

2. Revision to the FY 2009 IME Adjustment 

Factor 

3. Other Changes for FY 2010 

VII. Changes for Hospitals Excluded From the 

IPPS 

A. Excluded Hospitals 

B. Criteria for Satellite Facilities of 

Hospitals 

C. Critical Access Hospitals (CAHs) 

1. Background 

2. Payment for Clinical Diagnostic 

Laboratory Tests Furnished by CAHs 

3. CAH Optional Method of Payment for 

Outpatient Services 

4. Continued Participation by CAHs in 

Counties Redesignated as Urban 

D. Provider-Based Status of Facilities and 

Organizations: Policy Changes 

1. Background 

2. Changes to the Scope of the ProviderBased Status Regulations for CAHs 

a. CAH-Based Clinical Diagnostic 

Laboratory Facilities 

b. CAH-Based Ambulance Services 

3. Technical Correction to Regulations 

E. Report of Adjustment (Exceptions) 

Payments 

VIII. Changes to the Long-Term Care Hospital 

Prospective Payment System (LTCH PPS) 

for RY 2010 

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 

1. Background 

2. Patient Classifications Into MS–LTC– 

DRGs 

a. Background 

b. Changes to the MS–LTC–DRGs for RY 

2010 

3. Development of the RY 2010 MS–LTC– 

DRG Relative Weights 

a. General Overview of the Development of 

the MS–LTC–DRG Relative Weights 

b. Data 

c. Hospital-Specific Relative Value (HSRV) 

Methodology 

d. Treatment of Severity Levels in 

Developing the MS–LTC–DRG Relative 

Weights 

e. Low-Volume MS–LTC–DRGs 

f. Steps for Determining the RY 2010 MS– 

LTC–DRG Relative Weights 

C. Changes to the LTCH Payment Rates and 

Other Changes to the RY 2010 LTCH PPS 

1. Overview of Development of the LTCH 

Payment Rates 

2. Market Basket for LTCHs Reimbursed 

Under the LTCH PPS 

a. Overview 

b. Market Basket Under the LTCH PPS for 

RY 2010 

c. Market Basket Update for LTCHs for RY 

2010 

d. Labor-Related Share Under the LTCH 

PPS for RY 2010 

3. Adjustment for Changes in LTCHs’ CaseMix Due to Changes in Documentation 

and Coding Practices That Occurred in a 

Prior Period 

a. Background 

b. Evaluation of FY 2007 Claims Data 

c. Evaluation of FY 2008 Claims Data 

d. RY 2010 Documentation and Coding 

Adjustment 

D. Technical Corrections of LTCH PPS 

Regulations 

IX. Revisions to the FY 2009 Medicare 

Severity Long-Term Care DiagnosisRelated Group (MS–LTC–DRG) Relative 

Weights: Finalization of an Interim Final 

Rule With Comment Period 

A. Overview 

B. Changes to the FY 2009 MS–LTC–DRG 

Relative Weights 

C. Summary of Public Comments Received 

on the June 3, 2009 Interim Final Rule 

With Comment Period and Our 

Responses 

D. Finalization of the June 3, 2009 Interim 

Final Rule With Comment Period 

E. Regulatory Impact Analysis for the June 

3, 2009 Interim Final Rule With 

Comment Period 

X. Finalization of Two Interim Final Rules 

With Comment Period That 

Implemented Certain Provisions of 

Section 114 of the Medicare, Medicaid, 

and SCHIP Extension Act of 2007 (Pub. 

L. 110–173) Relating to Payments to 

LTCHs and LTCH Satellite Facilities 

A. Background 

B. May 6, 2008 Interim Final Rule With 

Comment Period Provisions 

Implementing Section 114(c)(3) of the 

MMSEA Regarding Certain Short-Stay 

Outlier Cases 

1. Background 

2. Public Comments Received on the May 

6, 2008 Interim Final Rule With 

Comment Period Provisions 

Implementing Section 114(c)(3) of the 

MMSEA 

C. May 6, 2008 Interim Final Rule With 

Comment Period Provisions 

Implementing Sections 114(e)(1) and 

(e)(2) of the MMSEA Regarding the 

Standard Federal Rate for the 2008 LTCH 

PPS Rate Year 

1. Background 

2. Public Comments Received on the May 

6, 2008 Interim Final Rule With 

Comment Period Provisions 

Implementing Sections 114(e)(1) and 

(e)(2) of the MMSEA 

D. May 22, 2008 Interim Final Rule With 

Comment Period Provision 

Implementing Sections 114(c)(1) and 

(c)(2) of the MMSEA Regarding Payment 

Adjustment to LTCHs and LTCH 

Satellite Facilities 

1. Background 


sroberts on DSKD5P82C1PROD with RULES
Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 43759 

2. Payment Adjustment to LTCHs and 

LTCH Satellite Facilities Specified by 

Section 114(c) of the MMSEA 

3. Public Comments Received on the May 

22, 2008 Interim Final Rule With 

Comment Period Implementing Section 

114(c)(1) and (c)(2) of the MMSEA 

Regarding Payment Adjustment to 

LTCHs and LTCH Satellite Facilities 

E. May 22, 2008 Interim Final Rule With 

Comment Period Provisions 

Implementing Section 114(b) of the 

MMSEA Regarding Moratorium on the 

Establishment of LTCHs, LTCH Satellite 

Facilities and on the Increase in Number 

of Beds in Existing LTCHs or LTCH 

Satellite Facilities 

1. Background 

2. Provisions of the May 22, 2008 Interim 

Final Rule With Comment Period 

Implementing Section 114(d) of the 

MMSEA That Established Moratoria on 

New LTCHs and LTCH Satellite 

Facilities and on Bed Increases in 

Existing LTCHs and LTCH Satellite 

Facilities 

3. Public Comments Received on the on the 

May 22, 2008 Interim Final Rule With 

Comment Period Provisions 

Implementing the Exception to the 

Moratorium on the Increase in Number 

of LTCHs Beds in Existing LTCHs and 

LTCH Satellite Facilities 

XI. Interim Final Rule with Comment Period 

Implementing Section 4302 of the 

American Recovery and Reinvestment 

Act of 2009 (Pub. L. 111–5) Relating to 

Payments to LTCHs and LTCH Satellite 

Facilities 

A. Background 

B. Amendments Relating to Payment 

Adjustment to LTCHs and LTCH 

Satellite Facilities Made by Section 4302 

of the ARRA 

C. Amendments to the Moratorium on the 

Increase in Number of Beds in Existing 

LTCHs or LTCH Satellite Facilities Made 

by Section 4302 of the ARRA 

D. Response to Comments 

E. Waiver of Proposed Rulemaking 

F. Collection of Information Requirements 

G. Regulatory Impact Analysis 

XII. MedPAC Recommendations 

XIII. Other Required Information 

A. Requests for Data From the Public 

B. Collection of Information Requirements 

C. Additional Information Collection 

Requirements 

1. Present on Admission (POA) Indicator 

Reporting 

2. Add-On Payments for New Services and 

Technologies 

3. Reporting of Hospital Quality Data for 

Annual Hospital Payment Update 

4. Occupational Mix Adjustment to the FY 

2010 Index (Hospital Wage Index 

Occupational Mix Survey) 

5. Hospital Applications for Geographic 

Reclassifications by the MGCRB 

Regulation Text 

Addendum—Schedule of Standardized 

Amounts, Update Factors, and Rate-ofIncrease Percentages Effective With Cost 

Reporting Periods Beginning on or after 

October 1, 2009 

I. Summary and Background 

II. Changes to the Prospective Payment Rates 

for Hospital Inpatient Operating Costs for 

Acute Care Hospitals for FY 2010 

A. Calculation of the Adjusted 

Standardized Amount 

B. Adjustments for Area Wage Levels and 

Cost-of-Living 

C. MS–DRG Relative Weights 

D. Calculation of the Prospective Payment 

Rates 

III. Changes to Payment Rates for Acute Care 

Hospital Inpatient Capital-Related Costs 

for FY 2010 

A. Determination of Federal Hospital 

Inpatient Capital-Related Prospective 

Payment Rate Update 

B. Calculation of the Inpatient CapitalRelated Prospective Payments for FY 

2010 

C. Capital Input Price Index 

IV. Changes to Payment Rates for Certain 

Excluded Hospitals: Rate-of-Increase 

Percentages 

V. Changes to the Payment Rates for the 

LTCH PPS for RY 2010 

A. LTCH PPS Standard Federal Rate for RY 

2010 

B. Adjustment for Area Wage Levels Under 

the LTCH PPS for RY 2010 

C. Adjustment for LTCH PPS High-Cost 

Outlier (HCO) Cases 

D. Computing the Adjusted LTCH PPS 

Federal Prospective Payments for RY 

2010 

VI. Tables 

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) 

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) 

Table 1C.—Adjusted Operating 

Standardized Amounts for Puerto Rico, 

Labor/Nonlabor 

Table 1D.—Capital Standard Federal 

Payment Rate 

Table 1E.—LTCH Standard Federal 

Prospective Payment Rate 

Table 2.—Acute Care Hospitals Case-Mix 

Indexes for Discharges Occurring in 

Federal Fiscal Year 2008; Hospital Wage 

Indexes for Federal Fiscal Year 2010; 

Hospital Average Hourly Wages for 

Federal Fiscal Years 2008 (2004 Wage 

Data), 2009 (2005 Wage Data), and 2010 

(2006 Wage Data); and 3-Year Average of 

Hospital Average Hourly Wages 

Table 3A.—FY 2010 and 3-Year Average 

Hourly Wage for Acute Care Hospitals in 

Urban Areas by CBSA 

Table 3B.—FY 2010 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 2010 

Table 4B.—Wage Index and Capital 

Geographic Adjustment Factor (GAF) for 

Acute Care Hospitals in Rural Areas by 

CBSA and by State—FY 2010 

Table 4C.—Wage Index and Capital 

Geographic Adjustment Factor (GAF) for 

Acute Care Hospitals That Are 

Reclassified by CBSA and by State—FY 

2010 

Table 4D–1.—Rural Floor Budget 

Neutrality Factors for Acute Care 

Hospitals—FY 2010 

Table 4D–2.—Urban Areas With Acute 

Care Hospitals Receiving the Statewide 

Rural Floor or Imputed Floor Wage 

Index—FY 2010 

Table 4E.—Urban CBSAs and Constituent 

Counties for Acute Care Hospitals—FY 

2010 

Table 4F.—Puerto Rico Wage Index and 

Capital Geographic Adjustment Factor 

(GAF) for Acute Care Hospitals by 

CBSA—FY 2010 

Table 4J.—Out-Migration Adjustment for 

Acute Care Hospitals—FY 2010 

Table 5.—List of Medicare Severity 

Diagnosis-Related Groups (MS–DRGs), 

Relative Weighting Factors, and 

Geometric and Arithmetic Mean Length 

of Stay—FY 2010 

Table 6A.—New Diagnosis Codes 

Table 6B.—New Procedure Codes 

Table 6C.—Invalid Diagnosis Codes 

Table 6D.—Invalid Procedure Codes 

Table 6E.—Revised Diagnosis Code Titles 

Table 6F.—Revised Procedure Code Titles 

Table 6G.—Additions to the CC Exclusions 

List (Available Through the Internet on 

the CMS Web site at: http:// 

www.cms.hhs.gov/AcuteInpatientPPS/) 

Table 6H.—Deletions from the CC 

Exclusions List (Available through the 

Internet on the CMS Web site at: 

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

AcuteInpatientPPS/) 

Table 6I.—Complete List of Complication 

and Comorbidity (CC) Exclusions 

(Available only through the Internet on 

the CMS Web site at: 

http:/www.cms.hhs.gov/ 

AcuteInpatientPPS/) 

Table 6J.—Major Complication and 

Comorbidity (MCC) List (Available 

through the Internet on the CMS Web 

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

AcuteInpatientPPS/) 

Table 6K.—Complication and Comorbidity 

(CC) List (Available through the Internet 

on the CMS Web site at: http://

www.cms.hhs.gov/AcuteInpatientPPS/) 

Table 7A.—Medicare Prospective Payment 

System Selected Percentile Lengths of 

Stay: FY 2008 MedPAR Update—March 

2009 GROUPER V26.0 MS–DRGs 

Table 7B.—Medicare Prospective Payment 

System Selected Percentile Lengths of 

Stay: FY 2008 MedPAR Update—March 

2009 GROUPER V27.0 MS–DRGs 

Table 8A.—Statewide Average Operating 

Cost-to-Charge Ratios (CCRs) for Acute 

Care Hospitals—July 2009 

Table 8B.—Statewide Average Capital 

Cost-to-Charge Ratios (CCRs) for Acute 

Care Hospitals—July 2009 


sroberts on DSKD5P82C1PROD with RULES
43760 Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 

Table 8C.—Statewide Average Total Costto-Charge Ratios (CCRs) for LTCHs—July 

2009 

Table 9A.—Hospital Reclassifications and 

Redesignations—FY 2010 

Table 9C.—Hospitals Redesignated as 

Rural Under Section 1886(d)(8)(E) of the 

Act—FY 2010 

Table 10.—Geometric Mean Plus the Lesser 

of .75 of the National Adjusted Operating 

Standardized Payment Amount 

(Increased to Reflect the Difference 

Between Costs and Charges) or .75 of 

One Standard Deviation of Mean Charges 

by Medicare Severity Diagnosis-Related 

Groups (MS–DRGs)—July 2009 

Table 11.—MS–LTC–DRGs, Relative 

Weights, Geometric Average Length of 

Stay, and Short-Stay Outlier Threshold 

for Discharges Occurring From October 

1, 2009 Through September 30, 2010 

under the LTCH PPS 

Table 12A.—LTCH PPS Wage Index for 

Urban Areas for Discharges Occurring 

From October 1, 2009 Through 

September 30, 2010 

Table 12B.—LTCH PPS Wage Index for 

Rural Ares for Discharges Occurring 

From October 1, 2009 Through 

September 30, 2010 

Appendix A—Regulatory Impact Analysis 

I. Overall Impact 

II. Objectives of the IPPS 

III. Limitations of Our Analysis 

IV. Hospitals Included in and Excluded From 

the IPPS 

V. Effects on Hospitals Excluded From the 

IPPS 

VI. Quantitative Effects of the Policy Changes 

Under the IPPS for Operating Costs 

A. Basis and Methodology of Estimates 

B. Analysis of Table I 

C. Effects of the Changes to the MS–DRG 

Reclassifications and Relative Cost-Based 

Weights (Column 1) 

D. Effects of the Application of 

Recalibration Budget Neutrality (Column 

2) 

E. Effects of Wage Index Changes (Column 

3) 

F. Application of the Wage Budget 

Neutrality Factor (Column 4) 

G. Combined Effects of MS–DRG and Wage 

Index Changes (Column 5) 

H. Effects of MGCRB Reclassifications 

(Column 6) 

I. Effects of the Rural Floor and Imputed 

Floor, Including the Transition to Apply 

Budget Neutrality at the State Level 

(Column 7) 

J. Effects of the Wage Index Adjustment for 

Out-Migration (Column 8) 

K. Effects of All Changes (Column 9) 

L. Effects of Policy on Payment 

Adjustments for Low-Volume Hospitals 

M. Impact Analysis of Table II 

VII. Effects of Other Policy Changes 

A. Effects of Policy on HACs, Including 

Infections 

B. Effects of Policy Changes Relating to 

New Medical Service and Technology 

Add-On Payments 

C. Effects of Requirements for Hospital 

Reporting of Quality Data for Annual 

Hospital Payment Update 

D. Effects of Correcting the FY 2002-Based 

Hospital-Specific Rates for MDHs 

E. Effects of Policy Changes Relating to the 

Payment Adjustment to Disproportionate 

Share Hospitals 

F. Effects of Policy Revisions Related to 

Payments to Hospitals for Direct GME 

G. Effects of Policy Changes Relating to 

Hospital Emergency Services under 

EMTALA 

H. Effects of Implementation of Rural 

Community Hospital Demonstration 

Program 

I. Effects of Policy Changes Relating to 

Payments to Satellite Facilities 

J. Effects of Policy Changes Relating to 

Payments to CAHs 

K. Effects of Policy Changes Relating to 

Provider-Based Status of Facilities and 

Organizations 

VIII. Effects of Changes in the Capital IPPS 

A. General Considerations 

B. Results 

IX. Effects of Payment Rate Changes and 

Policy Changes Under the LTCH PPS 

A. Introduction and General 

Considerations 

B. Impact on Rural Hospitals 

C. Anticipated Effects of LTCH PPS 

Payment Rate Change and Policy 

Changes 

D. Effect on the Medicare Program 

E. Effect on Medicare Beneficiaries 

X. Alternatives Considered 

XI. Overall Conclusion 

A. Acute Care Hospitals 

B. LTCHs 

XII. Accounting Statements 

A. Acute Care Hospitals 

B. LTCHs 

XIII. 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 2010 

III. Secretary’s Final Recommendation 

IV. MedPAC Recommendation for Assessing 

Payment Adequacy and Updating 

Payments in Traditional Medicare 

I. Background 

A. Summary 

1. Acute Care Hospital Inpatient 

Prospective Payment System (IPPS) 

Section 1886(d) of the Social Security 

Act (the Act) sets forth a system of 

payment for the operating costs of acute 

care hospital inpatient stays under 

Medicare Part A (Hospital Insurance) 

based on prospectively set rates. Section 

1886(g) of the Act requires the Secretary 

to pay for the capital-related costs of 

hospital inpatient stays under a 

prospective payment system (PPS). 

Under these PPSs, Medicare payment 

for hospital inpatient operating and 

capital-related costs is made at 

predetermined, specific rates for each 

hospital discharge. Discharges are 

classified according to a list of 

diagnosis-related groups (DRGs). 

The base payment rate is comprised of 

a standardized amount that is divided 

into a labor-related share and a 

nonlabor-related share. The laborrelated share is adjusted by the wage 

index applicable to the area where the 

hospital is located. If the hospital is 

located in Alaska or Hawaii, the 

nonlabor-related share is adjusted by a 

cost-of-living adjustment factor. This 

base payment rate is multiplied by the 

DRG relative weight. 

If the hospital treats a high percentage 

of low-income patients, it receives a 

percentage add-on payment applied to 

the DRG-adjusted base payment rate. 

This add-on payment, known as the 

disproportionate share hospital (DSH) 

adjustment, provides for a percentage 

increase in Medicare payments to 

hospitals that qualify under either of 

two statutory formulas designed to 

identify hospitals that serve a 

disproportionate share of low-income 

patients. For qualifying hospitals, the 

amount of this adjustment may vary 

based on the outcome of the statutory 

calculations. 

If the hospital is an approved teaching 

hospital, it receives a percentage add-on 

payment for each case paid under the 

IPPS, known as the indirect medical 

education (IME) adjustment. This 

percentage varies, depending on the 

ratio of residents to beds. 

Additional payments may be made for 

cases that involve new technologies or 

medical services that have been 

approved for special add-on payments. 

To qualify, a new technology or medical 

service must demonstrate that it is a 

substantial clinical improvement over 

technologies or services otherwise 

available, and that, absent an add-on 

payment, it would be inadequately paid 

under the regular DRG payment. 

The costs incurred by the hospital for 

a case are evaluated to determine 

whether the hospital is eligible for an 

additional payment as an outlier case. 

This additional payment is designed to 

protect the hospital from large financial 

losses due to unusually expensive cases. 

Any eligible outlier payment is added to 

the DRG-adjusted base payment rate, 

plus any DSH, IME, and new technology 

or medical service add-on adjustments. 

Although payments to most hospitals 

under the IPPS are made on the basis of 

the standardized amounts, some 

categories of hospitals are paid in whole 

or in part based on their hospitalspecific rate based on their costs in a 

base year. For example, sole community 

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 


sroberts on DSKD5P82C1PROD with RULES
Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 43761 

standardized amount. Through and 

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

received the higher of the Federal rate 

or the Federal rate plus 50 percent of the 

amount by which the Federal rate is 

exceeded by the higher of its FY 1982 

or FY 1987 hospital-specific rate. As 

discussed below, for discharges 

occurring on or after October 1, 2007, 

but before October 1, 2011, an MDH will 

receive the higher of the Federal rate or 

the Federal rate plus 75 percent of the 

amount by which the Federal rate is 

exceeded by the highest of its FY 1982, 

FY 1987, or FY 2002 hospital-specific 

rate. SCHs are the sole source of care in 

their areas, and MDHs are a major 

source of care for Medicare beneficiaries 

in their areas. Specifically, section 

1886(d)(5)(D)(iii) of the Act defines an 

SCH as a hospital that is located more 

than 35 road miles from another 

hospital or that, by reason of factors 

such as isolated location, weather 

conditions, travel conditions, or absence 

of other like hospitals (as determined by 

the Secretary), is the sole source of 

hospital inpatient services reasonably 

available to Medicare beneficiaries. In 

addition, certain rural hospitals 

previously designated by the Secretary 

as essential access community hospitals 

are considered SCHs. Section 

1886(d)(5)(G)(iv) of the Act defines an 

MDH as a hospital that is located in a 

rural area, has not more than 100 beds, 

is not an SCH, and has a high 

percentage of Medicare discharges (not 

less than 60 percent of its inpatient days 

or discharges in its cost reporting year 

beginning in FY 1987 or in two of its 

three most recently settled Medicare 

cost reporting years). Both of these 

categories of hospitals are afforded this 

special payment protection in order to 

maintain access to services for 

beneficiaries. 

Section 1886(g) of the Act requires the 

Secretary to pay for the capital-related 

costs of inpatient hospital services ‘‘in 

accordance with a prospective payment 

system established by the Secretary.’’ 

The basic methodology for determining 

capital prospective payments is set forth 

in our regulations at 42 CFR 412.308 

and 412.312. Under the capital IPPS, 

payments are adjusted by the same DRG 

for the case as they are under the 

operating IPPS. Capital IPPS payments 

are also adjusted for IME and DSH, 

similar to the adjustments made under 

the operating IPPS. In addition, 

hospitals may receive outlier payments 

for those cases that have unusually high 

costs. 

The existing regulations governing 

payments to hospitals under the IPPS 

are located in 42 CFR part 412, subparts 

A through M. 

2. Hospitals and Hospital Units 

Excluded From the IPPS 

Under section 1886(d)(1)(B) of the 

Act, as amended, certain hospitals and 

hospital units are excluded from the 

IPPS. These hospitals and units are: 

Rehabilitation hospitals and units; longterm care hospitals (LTCHs); psychiatric 

hospitals and units; children’s hospitals; 

and cancer hospitals. Religious 

nonmedical health care institutions 

(RNHCIs) are also excluded from the 

IPPS. Various sections of the Balanced 

Budget Act of 1997 (BBA, Pub. L. 105– 

33), the Medicare, Medicaid and SCHIP 

[State Children’s Health Insurance 

Program] Balanced Budget Refinement 

Act of 1999 (BBRA, Pub. L. 106–113), 

and the Medicare, Medicaid, and SCHIP 

Benefits Improvement and Protection 

Act of 2000 (BIPA, Pub. L. 106–554) 

provide for the implementation of PPSs 

for rehabilitation hospitals and units 

(referred to as inpatient rehabilitation 

facilities (IRFs)), LTCHs, and psychiatric 

hospitals and units (referred to as 

inpatient psychiatric facilities (IPFs)). 

(We note that the annual updates to the 

LTCH PPS are now included as part of 

the IPPS annual update document (for 

RY 2010, in this final rule). Updates to 

the IRF PPS and IPF PPS are issued as 

separate documents.) Children’s 

hospitals, cancer hospitals, and RNHCIs 

continue to be paid solely under a 

reasonable cost-based system subject to 

a rate-of-increase ceiling on inpatient 

operating costs per discharge. 

The existing regulations governing 

payments to excluded hospitals and 

hospital units are located in 42 CFR 

parts 412 and 413. 

3. Long-Term Care Hospital Prospective 

Payment System (LTCH PPS) 

The Medicare prospective payment 

system (PPS) for LTCHs applies to 

hospitals described in section 

1886(d)(1)(B)(iv) effective for cost 

reporting periods beginning on or after 

October 1, 2002. The LTCH PPS was 

established under the authority of 

sections 123(a) and (c) of Public Law 

106–113 and section 307(b)(1) of Public 

Law 106–554. 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 with 

RY 2010, we are issuing the annual 

updates to the LTCH PPS in the same 

documents that update the IPPS (73 FR 

26797 through 26798). 

4. Critical Access Hospitals (CAHs) 

Under sections 1814(l), 1820, and 

1834(g) of the Act, payments are made 

to critical access hospitals (CAHs) (that 

is, rural hospitals or facilities that meet 

certain statutory requirements) for 

inpatient and outpatient services are 

generally based on 101 percent of 

reasonable cost. Reasonable cost is 

determined under the provisions of 

section 1861(v)(1)(A) of the Act and 

existing regulations under 42 CFR parts 

413 and 415. 

5. Payments for Graduate Medical 

Education (GME) 

Under section 1886(a)(4) of the Act, 

costs of approved educational activities 

are excluded from the operating costs of 

inpatient hospital services. Hospitals 

with approved graduate medical 

education (GME) programs are paid for 

the direct costs of GME in accordance 

with section 1886(h) of the Act. The 

amount of payment for direct GME costs 

for a cost reporting period is based on 

the hospital’s number of residents in 

that period and the hospital’s costs per 

resident in a base year. The existing 

regulations governing payments to the 

various types of hospitals are located in 

42 CFR part 413. 

B. Provisions of the Medicare 

Improvements for Patients and 

Providers Act of 2008 (MIPPA) 

Section 148 of the MIPPA (Pub. L. 

110–275) changes the payment rules 

regarding outpatient clinical diagnostic 

laboratory tests furnished by a CAH. 

The statutory change applies to services 

furnished on or after July 1, 2009. In 

section VII.C.2. of the preamble of the 

proposed rule, we discussed our 

proposal to codify policies in the 

Medicare regulations to implement this 

provision. In section VII.C.2. of this 

final rule, we finalize our policies in the 

Medicare regulations to implement this 

provision. 

C. Provisions of the American Recovery 

and Reinvestment Act of 2009 (ARRA) 

Section 4301(b) of the American 

Recovery and Reinvestment Act of 2009 

(AARA), Pub. Law 111–5, enacted on 

February 17, 2009, requires that the 

phase-out of the capital IPPS teaching 

adjustment at § 412.322(c) (that is, the 

50-percent reduction for FY 2009) shall 

be applied, as if such paragraph had not 

been in effect. That is, discharges 

occurring on or after October 1, 2008, 


sroberts on DSKD5P82C1PROD with RULES
43762 Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 

through September 30, 2009, receive the 

full capital IPPS teaching adjustment as 

determined under § 412.322(b) of the 

regulations. We note that, in this final 

rule, in response to public comments on 

our proposed implementation of section 

4301(b) of the ARRA, we are deleting 

§ 412.322(d) of the existing regulations 

which currently eliminates the teaching 

adjustment beginning in FY 2010. We 

discuss the implementation of these 

provisions in sections VI.A. and E.2. of 

the preamble of this final rule. 

Section 4302 of the ARRA included 

several amendments to provisions of 

section 114 of the MMSEA relating to: 

(1) The 3-year delay in the application 

of certain provisions of the payment 

adjustments for short-stay outliers and 

revision to the RY 2008 standard 

Federal rate for LTCHs; and (2) the 3- 

year moratorium on the establishment of 

new LTCHs and LTCH satellite facilities 

and on increases in beds in existing 

LTCHs and LTCH satellite facilities. We 

discuss the final implementation of 

these provisions in sections I.E., VIII., 

and XI. of the preamble of this final 

rule. 

D. Issuance of a Notice of Proposed 

Rulemaking 

On May 22, 2009, we published in the 

Federal Register (74 FR 24080) 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 2010. 

We also set forth proposed changes 

relating to payments for IME costs and 

payments to certain hospitals and units 

that continue to be excluded from the 

IPPS and paid on a reasonable cost 

basis. In addition, we set forth proposed 

changes to the payment rates, factors, 

and other payment rate policies under 

the LTCH PPS for RY 2010. On June 3, 

2009, we published in the Federal 

Register (74 FR 26600) a supplemental 

proposed rule (hereafter referred to as 

the ‘‘RY 2010 LTCH PPS supplemental 

proposed rule’’) that presented both 

proposed RY 2010 MS–LTC–DRG 

relative weights and a proposed RY 

2010 high-cost outlier (HCO) fixed-loss 

amount based on the revised FY 2009 

MS–LTC–DRG relative weights 

presented in an interim final rule with 

comment period published also on June 

3, 2009 in the Federal Register (74 FR 

26546). 

Below is a summary of the major 

changes that we proposed to make: 

1. Proposed Changes to MS–DRG 

Classifications and Recalibrations of 

Relative Weights 

In section II. of the preamble of this 

final rule, we included— 

• Proposed changes to MS–DRG 

classifications based on our yearly 

review. 

• Proposed application of the 

documentation and coding adjustment 

to hospital-specific rates for FY 2010 

resulting from implementation of the 

MS–DRG system. 

• A discussion of the Research 

Triangle International, Inc. (RTI) and 

RAND Corporation reports and 

recommendations relating to charge 

compression, including a solicitation of 

public comments on the ‘‘over’’ 

standardization of hospital charges. 

• Proposed recalibrations of the MS– 

DRG relative weights. 

We also presented a listing and 

discussion of hospital-acquired 

conditions (HACs), including infections, 

that are subject to the statutorily 

required quality adjustment in MS–DRG 

payments for FY 2010. 

We presented our evaluation and 

analysis of the FY 2010 applicants for 

add-on payments for high-cost new 

medical services and technologies 

(including public input, as directed by 

Pub. L. 108–173, obtained in a town hall 

meeting). 

2. Proposed Changes to the Hospital 

Wage Index for Acute Care Hospitals 

In section III. of the preamble to the 

proposed rule, we proposed revisions to 

the wage index for acute care hospitals 

and the annual update of the wage data. 

Specific issues addressed include the 

following: 

• Second year of the 3-year transition 

from national to within-State budget 

neutrality for the rural floor and 

imputed floor. 

• Final year of the 2-year transition 

for changes in the average hourly wage 

criterion for geographic 

reclassifications. 

• Changes to the CBSA designations. 

• The proposed FY 2010 wage index 

update using wage data from cost 

reporting periods that began during FY 

2007. 

• Analysis and implementation of the 

proposed FY 2010 occupational mix 

adjustment to the wage index for acute 

care hospitals, including the use of data 

from the 2007–2008 occupational mix 

survey. 

• Proposed revisions to the wage 

index for acute care hospitals based on 

hospital redesignations and 

reclassifications. 

• The proposed adjustment to the 

wage index for acute care hospitals for 

FY 2010 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 2010 wage index for 

acute care hospitals. 

3. Proposed Rebasing and Revision of 

the Hospital Market Baskets for Acute 

Care Hospitals 

In section IV. of the preamble of the 

proposed rule, we proposed to rebase 

and revise the acute care hospital 

operating and capital market baskets to 

be used in developing the FY 2010 

update factor for the operating and 

capital prospective payment rates and 

the FY 2010 update factor for the 

excluded hospital rate-of-increase 

limits. We also set forth the data sources 

used to determine the proposed revised 

market basket relative weights. 

4. Other Decisions and Proposed 

Changes to the IPPS for Operating Costs 

and GME Costs 

In section V. of the preamble of the 

proposed rule, we discussed a number 

of the provisions of the regulations in 42 

CFR parts 412, 413, and 489, including 

the following: 

• The reporting of hospital quality 

data as a condition for receiving the full 

annual payment update increase. 

• Discussion of applying the correct 

budget neutrality adjustment for the FY 

2002-based hospital-specific rates for 

MDHs. 

• The proposed updated national and 

regional case-mix values and discharges 

for purposes of determining RRC status. 

• The statutorily-required IME 

adjustment factor for FY 2010. 

• Proposed changes to the policies 

governing payments to Medicare 

disproportionate share hospitals, 

including proposed policies relating to 

the inclusion of labor and delivery 

patient days in the calculation of the 

DSH payment adjustment, calculation of 

inpatient days in the Medicaid fraction 

for the Medicare DSH calculation, and 

exclusion of observation beds and 

patient days from the Medicare DSH 

calculation and from the bed count for 

the IME adjustment. 

• Proposed changes to the policies 

governing payment for direct GME. 

• Proposed changes to policies on 

hospital emergency services under 

EMTALA relating to the applicability of 

sanctions under EMTALA. 

• Discussion of the implementation of 

the Rural Community Hospital 

Demonstration Program in FY 2010. 

• Proposed technical correction to the 

regulations governing the calculation of 

the Federal rate under the IPPS. 


sroberts on DSKD5P82C1PROD with RULES
Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 43763 

5. FY 2010 Policy Governing the IPPS 

for Capital-Related Costs 

In section VI. of the preamble to the 

proposed rule, we discussed the 

payment policy requirements for 

capital-related costs and capital 

payments to hospitals for FY 2010. We 

also proposed to remove a section of the 

regulations relating to the phase-out of 

the capital IME adjustment for FY 2009 

to implement the provisions of section 

4301(b) of the ARRA. 

6. Proposed Changes to the Payment 

Rates for Certain Excluded Hospitals: 

Rate-of-Increase Percentages 

In section VII. of the preamble of the 

proposed rule, we discussed— 

• Proposed changes to payments to 

excluded hospitals. 

• Proposed changes to the regulations 

governing satellite facilities of hospitals. 

• Proposed changes relating to 

payments to CAHs, including payment 

for clinical laboratory tests furnished by 

CAHs and payment for outpatient 

facility services when a CAH elects the 

optional payment method. 

• Proposed changes to the rules 

governing provider-based status of 

facilities and a proposed technical 

correction to the regulations governing 

provider-based entities. 

7. Proposed Changes to the LTCH PPS 

In section VIII.A. through C. and F. 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 RY 2010, including the annual 

update of the MS–LTC–DRG 

classifications and relative weights for 

use under the LTCH PPS for RY 2010, 

the proposed use of the FY 2002-based 

RPL market basket for LTCHs, and 

proposed technical corrections to the 

LTCH PPS regulations. 

In section VIII.D. of the preamble of 

the proposed rule, we discussed our 

ongoing monitoring protocols under the 

LTCH PPS. In section VIII.E. of the 

preamble of the proposed rule, we 

discussed the Research Triangle 

Institute, International (RTI) Phase III 

Report on its evaluation of the 

feasibility of establishing facility and 

patient criteria for LTCHs, as 

recommended by MedPAC in its June 

2004 Report to Congress. 

We note that, because we did not 

propose any policy changes relating to 

our present activities in monitoring and 

updates on the RTI contract, we are not 

republishing these section discussions 

in this final rule. We did receive several 

public comments on specific aspects of 

the summary of RTI’s most recent work. 

These commenters urged CMS not to 

finalize any proposals based on RTI’s 

Phase III report until the public has had 

the opportunity to review the report and 

comment on its findings. We regret that 

RTI’s Phase III report was not posted on 

the CMS Web site, as we had indicated 

in our proposed rule. The report will be 

available in the near future at http://

www.cms.hhs.gov/LongTerm

CareHopitalPPS/02a_

RTIReports.asp#TopOfPage. Although 

we did not propose any policies based 

on that report, we can assure the readers 

that any policies that we believe are 

appropriate for implementation would 

be subject to the notice-and-comment 

rulemaking process. 

8. Determining Proposed 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 2010 prospective 

payment rates for operating costs and 

capital-related costs for acute care 

hospitals. We also established the 

proposed 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 2010 

for hospitals excluded from the IPPS. 

9. Determining Proposed 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 RY 2010 prospective 

standard Federal rate. We also 

established the proposed adjustments 

for wage levels, the labor-related share, 

the cost-of-living adjustment, and highcost outliers, including the fixed-loss 

amount, and the LTCH cost-to-charge 

ratios (CCRs) under the LTCH PPS. 

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 and 

LTCHs. 

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 2010 for the 

following: 

• A single average standardized 

amount for all areas for hospital 

inpatient services paid under the IPPS 

for operating costs of acute care 

hospitals (and hospital-specific rates 

applicable to SCHs and MDHs). 

• Target rate-of-increase limits to the 

allowable operating costs of hospital 

inpatient services furnished by certain 

hospitals excluded from the IPPS. 

• The standard Federal rate for 

hospital inpatient services furnished by 

LTCHs. 

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 1 of 

each year, in which MedPAC reviews 

and makes recommendations on 

Medicare payment policies. MedPAC’s 

March 2008 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, and for LTCHs. 

We addressed these recommendations 

in Appendix B of the proposed rule. For 

further information relating specifically 

to the MedPAC March 2008 report or to 

obtain a copy of the report, contact 

MedPAC at (202) 220–3700 or visit 

MedPAC’s Web site at: http:// 

www.medpac.gov. 

We received approximately 525 

timely pieces of correspondence from 

the public in response to the FY 2010 

IPPS/RY 2010 LTCH PPS proposed rule 

and the supplemental proposed rule. 

We summarize these public comments 

and present our responses under the 

specific subject areas of this final rule. 

E. Finalization of Interim Final Rule 

With Comment Period That Revised the 

FY 2009 MS–LTC–DRG Relative Weights 

On June 3, 2009, we issued in the 

Federal Register an interim final rule 

with comment period that revised the 

MS–LTC–DRG relative weights for 

payments under the LTCH PPS. We 

revised the MS–LTC–DRG relative 

weights for FY 2009 due to the 

misapplication of our established 

methodology in the calculation of the 

budget neutrality factor. The revised 

relative weights are effective for the 

remainder of FY 2009 (that is, from June 

3, 2009 through September 30, 2009). 

We received 11 timely pieces of 

correspondence from the public in 

response to this interim final rule with 

comment period. In section IX. of the 

preamble of this final rule, we 

summarize these public comments, 

present our responses, and finalize the 


sroberts on DSKD5P82C1PROD with RULES
43764 Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 

1Medicare Payment Advisory Commission: 

Report to the Congress, Physician-Owned Specialty 

Hospitals, March 2005, page viii. 

provisions of the interim final rule with 

comment period. 

F. Finalization of Two LTCH PPS 

Interim Final Rules With Comment 

Period Issued in May 2008 

On May 6, 2008 and May 22, 2008, we 

issued in the Federal Register two 

interim final rules with comment period 

relating to the LTCH PPS (73 FR 24871 

and 73 FR 29699, respectively), which 

implement section 114 of Public Law 

110–173 (MMSEA). The May 6, 2008 

interim final rule with comment period 

implemented provisions of section 114 

of Public Law 110–173 relating to a 3- 

year delay in the application of certain 

provisions of the payment adjustment 

for short-stay outliers and revisions to 

the RY 2008 standard Federal rate for 

LTCHs. The May 22, 2008 interim final 

rule with comment period implemented 

certain provisions of section 114 of 

Public Law 110–173 relating to a 3-year 

moratorium on the establishment of new 

LTCHs and LTCH satellite facilities and 

on increases in beds in existing LTCHs 

and LTCH satellite facilities. The May 

22, 2008 interim final rule with 

comment period also implemented a 3- 

year delay in the application of certain 

payment policies that apply to payment 

adjustments for discharges from LTCHs 

and LTCH satellite facilities that were 

admitted from certain referring hospitals 

in excess of various percentage 

thresholds. 

We received six timely pieces of 

correspondence from the public in 

response to the May 6, 2008 interim 

final rule with comment period. We 

received 30 timely pieces of 

correspondence from the public in 

response to the May 22, 2008 interim 

final rule with comment period. In 

section X. of the preamble of this final 

rule, we summarize these public 

comments, present our responses, and 

finalize the provisions of both interim 

final rules with comment period, as 

appropriate. 

G. Interim Final Rule With Comment 

Period That Implements Certain 

Provisions of the ARRA Relating to 

Payments to LTCHs and LTCH Satellite 

Facilities 

Section 4302 of the American 

Recovery and Reinvestment Act of 2009 

(ARRA, Pub. L. 111–5) included several 

amendments to section 114 of Public 

Law 110–173 (MMSEA) relating to 

payments to LTCHs and LTCH satellite 

facilities that are discussed under 

section X. of the preamble of this final 

rule. These amendments are effective as 

if they were enacted as part of section 

114 of Public Law 110–173 (MMSEA). 

We issued instructions to the fiscal 

intermediaries and Medicare 

administrative contractors (MACs) to 

interpret these amendments (Change 

Request 6444). In section XI. of this 

document, we implement the provisions 

of section 4302 of Public Law 111–5 

through an interim final rule with 

comment period. Comments on this 

interim final rule with comment period 

may be submitted as specified in the 

DATES and Comment Period sections of 

this document. 

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, we pay for inpatient hospital 

services on a rate per discharge basis 

that varies according to the DRG to 

which a beneficiary’s stay is assigned. 

The formula used to calculate payment 

for a specific case multiplies an 

individual hospital’s payment rate per 

case by the weight of the DRG to which 

the case is assigned. Each DRG weight 

represents the average resources 

required to care for cases in that 

particular DRG, relative to the average 

resources used to treat cases in all 

DRGs. 

Congress recognized that it would be 

necessary to recalculate the DRG 

relative weights periodically to account 

for changes in resource consumption. 

Accordingly, section 1886(d)(4)(C) of 

the Act requires that the Secretary 

adjust the DRG classifications and 

relative weights at least annually. These 

adjustments are made to reflect changes 

in treatment patterns, technology, and 

any other factors that may change the 

relative use of hospital resources. 

B. MS–DRG Reclassifications 

1. General 

As discussed in the preamble to the 

FY 2008 IPPS final rule with comment 

period (72 FR 47138), we focused our 

efforts in FY 2008 on making significant 

reforms to the IPPS consistent with the 

recommendations made by MedPAC in 

its ‘‘Report to the Congress, PhysicianOwned Specialty Hospitals’’ in March 

2005. MedPAC recommended that the 

Secretary refine the entire DRG system 

by taking severity of illness into account 

and applying hospital-specific relative 

value (HSRV) weights to DRGs.1 We 

began this reform process by adopting 

cost-based weights over a 3-year 

transition period beginning in FY 2007 

and making interim changes to the DRG 

system for FY 2007 by creating 20 new 

CMS DRGs and modifying 32 other 

DRGs across 13 different clinical areas 

involving nearly 1.7 million cases. As 

described in more detail below, these 

refinements were intermediate steps 

towards comprehensive reform of both 

the relative weights and the DRG system 

as we undertook further study. For FY 

2008, we adopted 745 new Medicare 

Severity DRGs (MS–DRGs) to replace 

the CMS DRGs. We refer readers to 

section II.D. of the FY 2008 IPPS final 

rule with comment period for a full 

detailed discussion of how the MS–DRG 

system, based on severity levels of 

illness, was established (72 FR 47141). 

Currently, cases are classified into 

MS–DRGs for payment under the IPPS 

based on the following information 

reported by the hospital: the principal 

diagnosis, up to eight additional 

diagnoses, and up to six procedures 

performed during the stay. In a small 

number of MS–DRGs, classification is 

also based on the age, sex, and discharge 

status of the patient. The diagnosis and 

procedure information is reported by 

the hospital using codes from the 

International Classification of Diseases, 

Ninth Revision, Clinical Modification 

(ICD–9–CM). 

The process of developing the MS– 

DRGs was begun by dividing all 

possible principal diagnoses into 

mutually exclusive principal diagnosis 

areas, referred to as Major Diagnostic 

Categories (MDCs). The MDCs were 

formulated by physician panels to 

ensure that the DRGs would be 

clinically coherent. The diagnoses in 

each MDC correspond to a single organ 

system or etiology and, in general, are 

associated with a particular medical 

specialty. Thus, in order to maintain the 

requirement of clinical coherence, no 

final MS–DRG could contain patients in 

different MDCs. For example, MDC 6 is 

Diseases and Disorders of the Digestive 

System. This approach is used because 

clinical care is generally organized in 

accordance with the organ system 

affected. However, some MDCs are not 

constructed on this basis because they 

involve multiple organ systems (for 

example, MDC 22 (Burns)). For FY 2009, 

cases are assigned to one of 746 MS– 

DRGs in 25 MDCs. The table below lists 

the 25 MDCs. 


sroberts on DSKD5P82C1PROD with RULES
Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 43765 

MAJOR DIAGNOSTIC CATEGORIES

(MDCS) 

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

2 ...... Diseases and Disorders of the Eye. 

3 ...... Diseases and Disorders of the Ear, 

Nose, Mouth, and Throat. 

4 ...... Diseases and Disorders of the Respiratory System. 

5 ...... Diseases and Disorders of the Circulatory System. 

6 ...... Diseases and Disorders of the Digestive System. 

7 ...... Diseases and Disorders of the 

Hepatobiliary System and Pancreas. 

8 ...... Diseases and Disorders of the Musculoskeletal System and Connective Tissue. 

9 ...... Diseases and Disorders of the Skin, 

Subcutaneous Tissue and Breast. 

10 ...... Endocrine, Nutritional and Metabolic 

Diseases and Disorders. 

11 ...... Diseases and Disorders of the Kidney and Urinary Tract. 

12 ...... Diseases and Disorders of the Male 

Reproductive System. 

MAJOR DIAGNOSTIC CATEGORIES

(MDCS)—Continued 

13 ...... Diseases and Disorders of the Female Reproductive System. 

14 ...... Pregnancy, Childbirth, and the Puerperium. 

15 ...... Newborns and Other Neonates with 

Conditions Originating in the 

Perinatal Period. 

16 ...... Diseases and Disorders of the Blood 

and Blood Forming Organs and 

Immunological Disorders. 

17 ...... Myeloproliferative Diseases and Disorders and Poorly Differentiated 

Neoplasms. 

18 ...... Infectious and Parasitic Diseases 

(Systemic or Unspecified Sites). 

19 ...... Mental Diseases and Disorders. 

20 ...... Alcohol/Drug Use and Alcohol/Drug 

Induced Organic Mental Disorders. 

21 ...... Injuries, Poisonings, and Toxic Effects of Drugs. 

22 ...... Burns. 

23 ...... Factors Influencing Health Status 

and Other Contacts with Health 

Services. 

MAJOR DIAGNOSTIC CATEGORIES

(MDCS)—Continued 

24 ...... Multiple Significant Trauma. 

25 ...... Human Immunodeficiency Virus Infections. 

In general, cases are assigned to an 

MDC based on the patient’s principal 

diagnosis before assignment to an MS– 

DRG. However, under the most recent 

version of the Medicare GROUPER 

(Version 26.0), there are 13 MS–DRGs to 

which cases are directly assigned on the 

basis of ICD–9–CM procedure codes. 

These MS–DRGs are for heart transplant 

or implant of heart assist systems; liver 

and/or intestinal transplants; bone 

marrow transplants; lung transplants; 

simultaneous pancreas/kidney 

transplants; pancreas transplants; and 

tracheostomies. Cases are assigned to 

these MS–DRGs before they are 

classified to an MDC. The table below 

lists the 13 current pre-MDCs. 

PRE-MAJOR DIAGNOSTIC CATEGORIES (PRE-MDCS) 

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

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

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

Neck Diagnosis with Major O.R. 

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

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

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

MS–DRG 007 ............ Lung Transplant. 

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

MS–DRG 009 ............ Bone Marrow Transplant. 

MS–DRG 010 ............ Pancreas Transplant. 

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

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

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

Once the MDCs were defined, each 

MDC was evaluated to identify those 

additional patient characteristics that 

would have a consistent effect on 

hospital resource consumption. Because 

the presence of a surgical procedure that 

required the use of the operating room 

would have a significant effect on the 

type of hospital resources used by a 

patient, most MDCs were initially 

divided into surgical DRGs and medical 

DRGs. Surgical DRGs are based on a 

hierarchy that orders operating room 

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

procedures by resource intensity. 

Medical DRGs generally are 

differentiated on the basis of diagnosis 

and age (0 to 17 years of age or greater 

than 17 years of age). Some surgical and 

medical DRGs are further differentiated 

based on the presence or absence of a 

complication or comorbidity (CC) or a 

major complication or comorbidity 

(MCC). 

Generally, nonsurgical procedures 

and minor surgical procedures that are 

not usually performed in an operating 

room are not treated as O.R. procedures. 

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

procedures that do affect MS–DRG 

assignment for certain principal 

diagnoses. An example is extracorporeal 

shock wave lithotripsy for patients with 

a principal diagnosis of urinary stones. 

Lithotripsy procedures are not routinely 

performed in an operating room. 

Therefore, lithotripsy codes are not 

classified as O.R. procedures. However, 

our clinical advisors believe that 

patients with urinary stones who 

undergo extracorporeal shock wave 

lithotripsy should be considered similar 

to other patients who undergo O.R. 

procedures. Therefore, we treat this 

group of patients similar to patients 

undergoing O.R. procedures. 

Once the medical and surgical classes 

for an MDC were formed, each diagnosis 

class was evaluated to determine if 

complications or comorbidities would 

consistently affect hospital resource 

consumption. Each diagnosis was 

categorized into one of three severity 

levels. These three levels include a 

major complication or comorbidity 

(MCC), a complication or comorbidity 

(CC), or a non-CC. Physician panels 

classified each diagnosis code based on 

a highly iterative process involving a 

combination of statistical results from 

test data as well as clinical judgment. As 

stated earlier, we refer readers to section 

II.D. of the FY 2008 IPPS final rule with 

comment period for a full detailed 

discussion of how the MS–DRG system 

was established based on severity levels 

of illness (72 FR 47141). 

A patient’s diagnosis, procedure, 

discharge status, and demographic 

information is entered into the Medicare 

claims processing systems and subjected 

to a series of automated screens called 


sroberts on DSKD5P82C1PROD with RULES
43766 Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 

the Medicare Code Editor (MCE). The 

MCE screens are designed to identify 

cases that require further review before 

classification into an MS–DRG. 

After patient information is screened 

through the MCE and any further 

development of the claim is conducted, 

the cases are classified into the 

appropriate MS–DRG by the Medicare 

GROUPER software program. The 

GROUPER program was developed as a 

means of classifying each case into an 

MS–DRG on the basis of the diagnosis 

and procedure codes and, for a limited 

number of MS–DRGs, demographic 

information (that is, sex, age, and 

discharge status). 

After cases are screened through the 

MCE and assigned to an MS–DRG by the 

GROUPER, the PRICER software 

calculates a base MS–DRG payment. 

The PRICER calculates the payment for 

each case covered by the IPPS based on 

the MS–DRG relative weight and 

additional factors associated with each 

hospital, such as IME and DSH payment 

adjustments. These additional factors 

increase the payment amount to 

hospitals above the base MS–DRG 

payment. 

The records for all Medicare hospital 

inpatient discharges are maintained in 

the Medicare Provider Analysis and 

Review (MedPAR) file. The data in this 

file are used to evaluate possible MS– 

DRG classification changes and to 

recalibrate the MS–DRG weights. 

However, in the FY 2000 IPPS final rule 

(64 FR 41500), we discussed a process 

for considering non-MedPAR data in the 

recalibration process. In order for us to 

consider using particular non-MedPAR 

data, we must have sufficient time to 

evaluate and test the data. The time 

necessary to do so depends upon the 

nature and quality of the non-MedPAR 

data submitted. Generally, however, a 

significant sample of the non-MedPAR 

data should be submitted by midOctober for consideration in 

conjunction with the next year’s 

proposed rule. This date allows us time 

to test the data and make a preliminary 

assessment as to the feasibility of using 

the data. Subsequently, a complete 

database should be submitted by early 

December for consideration in 

conjunction with the next year’s 

proposed rule. 

As we indicated above, for FY 2008, 

we made significant improvements in 

the DRG system to recognize severity of 

illness and resource usage by adopting 

MS–DRGs that were reflected in the FY 

2008 GROUPER, Version 25.0, and were 

effective for discharges occurring on or 

after October 1, 2007. Our MS–DRG 

analysis for the FY 2009 final rule was 

based on data from the March 2008 

update of the FY 2007 MedPAR file, 

which contained hospital bills received 

through March 31, 2008, for discharges 

occurring through September 30, 2007. 

For this final rule, for FY 2010, our MS– 

DRG analysis is based on data from the 

March 2009 update of the FY 2008 

MedPAR file, which contains hospital 

bills received through September 30, 

2008, for discharges occurring through 

September 30, 2008. 

2. Yearly Review for Making MS–DRG 

Changes 

Many of the changes to the MS–DRG 

classifications we make annually are the 

result of specific issues brought to our 

attention by interested parties. We 

encourage individuals with comments 

about MS–DRG classifications to submit 

these comments no later than early 

December of each year so they can be 

carefully considered for possible 

inclusion in the annual proposed rule 

and, if included, may be subjected to 

public review and comment. Therefore, 

similar to the timetable for interested 

parties to submit non-MedPAR data for 

consideration in the MS–DRG 

recalibration process, comments about 

MS–DRG classification issues should be 

submitted no later than early December 

in order to be considered and possibly 

included in the next annual proposed 

rule updating the IPPS. 

The actual process of forming the 

MS–DRGs was, and will likely continue 

to be, highly iterative, involving a 

combination of statistical results from 

test data combined with clinical 

judgment. In the FY 2008 IPPS final rule 

(72 FR 47140 through 47189), we 

described in detail the process we used 

to develop the MS–DRGs that we 

adopted for FY 2008. In addition, in 

deciding whether to make further 

modification to the MS–DRGs for 

particular circumstances brought to our 

attention, we considered whether the 

resource consumption and clinical 

characteristics of the patients with a 

given set of conditions are significantly 

different than the remaining patients in 

the MS–DRG. We evaluated patient care 

costs using average charges and lengths 

of stay as proxies for costs and relied on 

the judgment of our medical advisors to 

decide whether patients are clinically 

distinct or similar to other patients in 

the MS–DRG. In evaluating resource 

costs, we considered both the absolute 

and percentage differences in average 

charges between the cases we selected 

for review and the remainder of cases in 

the MS–DRG. We also considered 

variation in charges within these 

groups; that is, whether observed 

average differences were consistent 

across patients or attributable to cases 

that were extreme in terms of charges or 

length of stay, or both. Further, we 

considered the number of patients who 

will have a given set of characteristics 

and generally preferred not to create a 

new MS–DRG unless it would include 

a substantial number of cases. 

C. Adoption of the MS–DRGs in FY 2008 

In the FY 2006, FY 2007, and FY 2008 

IPPS final rules, we discussed a number 

of recommendations made by MedPAC 

regarding revisions to the DRG system 

used under the IPPS (70 FR 47473 

through 47482; 71 FR 47881 through 

47939; and 72 FR 47140 through 47189). 

As we noted in the FY 2006 IPPS final 

rule, we had insufficient time to 

complete a thorough evaluation of these 

recommendations for full 

implementation in FY 2006. However, 

we did adopt severity-weighted cardiac 

DRGs in FY 2006 to address public 

comments on this issue and the specific 

concerns of MedPAC regarding cardiac 

surgery DRGs. We also indicated that we 

planned to further consider all of 

MedPAC’s recommendations and 

thoroughly analyze options and their 

impacts on the various types of 

hospitals in the FY 2007 IPPS proposed 

rule. 

For FY 2007, we began this process. 

In the FY 2007 IPPS proposed rule, we 

proposed to adopt Consolidated 

Severity DRGs (CS DRGs) for FY 2008 (if 

not earlier). Based on public comments 

received on the FY 2007 IPPS proposed 

rule, we decided not to adopt the CS 

DRGs. In the FY 2007 IPPS final rule (71 

FR 47906 through 47912), we discussed 

several concerns raised by commenters 

regarding the proposal to adopt CS 

DRGs. We acknowledged the many 

comments suggesting the logic of 

Medicare’s DRG system should continue 

to remain in the public domain as it has 

since the inception of the PPS. We also 

acknowledged concerns about the 

impact on hospitals and software 

vendors of moving to a proprietary 

system. Several commenters suggested 

that CMS refine the existing DRG 

classification system to preserve the 

many policy decisions that were made 

over the last 20 years and were already 

incorporated into the DRG system, such 

as complexity of services and new 

device technologies. Consistent with the 

concerns expressed in the public 

comments, this option had the 

advantage of using the existing DRGs as 

a starting point (which was already 

familiar to the public) and retained the 

benefit of many DRG decisions that 

were made in recent years. We stated 

our belief that the suggested approach of 

incorporating severity measures into the 


sroberts on DSKD5P82C1PROD with RULES
Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 43767 

existing DRG system was a viable option 

that would be evaluated. 

Therefore, we decided to make 

interim changes to the existing DRGs for 

FY 2007 by creating 20 new DRGs 

involving 13 different clinical areas that 

would significantly improve the CMS 

DRG system’s recognition of severity of 

illness. We also modified 32 DRGs to 

better capture differences in severity. 

The new and revised DRGs were 

selected from 40 existing CMS DRGs 

that contained 1,666,476 cases and 

represented a number of body systems. 

In creating these 20 new DRGs, we 

deleted 8 existing DRGs and modified 

32 existing DRGs. We indicated that 

these interim steps for FY 2007 were 

being taken as a prelude to more 

comprehensive changes to better 

account for severity in the DRG system 

by FY 2008. 

In the FY 2007 IPPS final rule (71 FR 

47898), we indicated our intent to 

pursue further DRG reform through two 

initiatives. First, we announced that we 

were in the process of engaging a 

contractor to assist us with evaluating 

alternative DRG systems that were 

raised as potential alternatives to the 

CMS DRGs in the public comments. 

Second, we indicated our intent to 

review over 13,000 ICD–9–CM diagnosis 

codes as part of making further 

refinements to the current CMS DRGs to 

better recognize severity of illness based 

on the work that CMS (then HCFA) did 

in the mid-1990’s in connection with 

adopting severity DRGs. We describe 

below the progress we have made on 

these two initiatives and our actions for 

FYs 2008, 2009, and 2010 based on our 

continued analysis of reform of the DRG 

system. We note that the adoption of the 

MS–DRGs to better recognize severity of 

illness has implications for the outlier 

threshold, the application of the 

postacute care transfer policy, the 

measurement of real case-mix versus 

apparent case-mix, and the IME and 

DSH payment adjustments. We discuss 

these implications for FY 2010 in other 

sections of this preamble and in the 

Addendum to this final rule. 

In the FY 2007 IPPS proposed rule, 

we discussed MedPAC’s 

recommendations to move to a costbased HSRV weighting methodology 

using HSRVs beginning with the FY 

2007 IPPS proposed rule for 

determining the DRG relative weights. 

Although we proposed to adopt the 

HSRV weighting methodology for FY 

2007, we decided not to adopt the 

proposed methodology in the final rule 

after considering the public comments 

we received on the proposal. Instead, in 

the FY 2007 IPPS final rule, we adopted 

a cost-based weighting methodology 

without the HSRV portion of the 

proposed methodology. The cost-based 

weights were adopted over a 3-year 

transition period in 1⁄3 increments 

between FY 2007 and FY 2009. In 

addition, in the FY 2007 IPPS final rule, 

we indicated our intent to further study 

the HSRV-based methodology as well as 

other issues brought to our attention 

related to the cost-based weighting 

methodology adopted in the FY 2007 

final rule. There was significant concern 

in the public comments that our costbased weighting methodology does not 

adequately account for charge 

compression—the practice of applying a 

higher percentage charge markup over 

costs to lower cost items and services 

and a lower percentage charge markup 

over costs to higher cost items and 

services. Further, public commenters 

expressed concern about potential 

inconsistencies between how costs and 

charges are reported on the Medicare 

cost reports and charges on the 

Medicare claims. In the FY 2007 IPPS 

final rule, we used costs and charges 

from the cost report to determine 

departmental level cost-to-charge ratios 

(CCRs) which we then applied to 

charges on the Medicare claims to 

determine the cost-based weights. The 

commenters were concerned about 

potential distortions to the cost-based 

weights that would result from 

inconsistent reporting between the cost 

reports and the Medicare claims. After 

publication of the FY 2007 IPPS final 

rule, we entered into a contract with RTI 

International (RTI) to study both charge 

compression and to what extent our 

methodology for calculating DRG 

relative weights is affected by 

inconsistencies between how hospitals 

report costs and charges on the cost 

reports and how hospitals report 

charges on individual claims. Further, 

as part of its study of alternative DRG 

systems, the RAND Corporation 

analyzed the HSRV cost-weighting 

methodology. We refer readers to 

section II.E. of the preamble of this final 

rule for discussion of the issue of charge 

compression and the cost-weighting 

methodology for FY 2010. 

We believe that revisions to the DRG 

system to better recognize severity of 

illness and changes to the relative 

weights based on costs rather than 

charges are improving the accuracy of 

the payment rates in the IPPS. We agree 

with MedPAC that these refinements 

should be pursued. Although we 

continue to caution that any prospective 

payment system based on grouping 

cases will always present some 

opportunities for providers to specialize 

in cases they believe have higher 

margins, we believe that the changes we 

have adopted and the continuing 

reforms we are adoptimg in this final 

rule for FY 2010 will improve payment 

accuracy and reduce financial 

incentives to create specialty hospitals. 

We refer readers to section II.D. of the 

FY 2008 IPPS final rule with comment 

period for a full discussion of how the 

MS–DRG system was established based 

on severity levels of illness (72 FR 

47141). 

D. FY 2010 MS–DRG Documentation 

and Coding Adjustment, Including the 

Applicability to the Hospital-Specific 

Rates and the Puerto Rico-Specific 

Standardized Amount 

1. Background on the Prospective MS– 

DRG Documentation and Coding 

Adjustments for FY 2008 and FY 2009 

Authorized by Public Law 110–90 

As we discussed earlier in this 

preamble, we adopted the MS–DRG 

patient classification system for the 

IPPS, effective October 1, 2007, to better 

recognize severity of illness in Medicare 

payment rates for acute care hospitals. 

The adoption of the MS–DRG system 

resulted in the expansion of the number 

of DRGs from 538 in FY 2007 to 745 in 

FY 2008 (currently, 746 DRGs, which 

include 1 additional MS–DRG created in 

FY 2009). By increasing the number of 

DRGs and more fully taking into 

account patients’ severity of illness in 

Medicare payment rates for acute care 

hospitals, the use of 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 we 

believe the adoption of the MS–DRGs 

had the potential to lead to increases in 

aggregate payments without a 

corresponding increase in actual patient 

severity of illness due to the incentives 

for 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 

phased 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. 


sroberts on DSKD5P82C1PROD with RULES
43768 Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 

On September 29, 2007, Congress 

enacted the TMA [Transitional Medical 

Assistance], Abstinence Education, and 

QI [Qualifying Individuals] Programs 

Extension Act of 2007, Public Law 110– 

90. Section 7(a) of Public Law 110–90 

reduced the documentation and coding 

adjustment made as a result of the MS– 

DRG system that we adopted in the FY 

2008 IPPS final rule with comment 

period to ¥0.6 percent for FY 2008 and 

¥0.9 percent for FY 2009. Section 7(a) 

of Public Law 110–90 did not adjust the 

FY 2010 ¥1.8 percent documentation 

and coding adjustment promulgated in 

the FY 2008 IPPS final rule with 

comment period. To comply with 

section 7(a) of Public Law 110–90, we 

promulgated a final rule on November 

27, 2007 (72 FR 66886) that modified 

the IPPS documentation and coding 

adjustment for FY 2008 to ¥0.6 percent, 

and revised the FY 2008 payment rates, 

factors, and thresholds accordingly. 

These revisions were effective on 

October 1, 2007. 

For FY 2009, section 7(a) of Public 

Law 110–90 required a documentation 

and coding adjustment of ¥0.9 percent 

instead of the ¥1.8 percent adjustment 

established in the FY 2008 IPPS final 

rule with comment period. As discussed 

in the FY 2009 IPPS final rule (73 FR 

48447) and required by statute, we 

applied a documentation and coding 

adjustment of ¥0.9 percent to the FY 

2009 IPPS national standardized 

amount. The documentation and coding 

adjustments established in the FY 2008 

IPPS final rule with comment period, as 

amended by Public Law 110–90, are 

cumulative. As a result, the ¥0.9 

percent documentation and coding 

adjustment for FY 2009 was in addition 

to the ¥0.6 percent adjustment for FY 

2008, yielding a combined effect of 

¥1.5 percent. 

2. Prospective Adjustment to the 

Average Standardized Amounts 

Required by Section 7(b)(1)(A) of Public 

Law 110–90 

Section 7(b)(1)(A) of Public Law 110– 

90 requires that if the Secretary 

determines that implementation of the 

MS–DRG system resulted in changes in 

documentation and coding that did not 

reflect real changes in case-mix for 

discharges occurring during FY 2008 or 

FY 2009 that are different than the 

prospective documentation and coding 

adjustments applied under section 7(a) 

of Public Law 110–90, the Secretary 

shall make an appropriate adjustment 

under section 1886(d)(3)(A)(vi) of the 

Act. Section 1886(d)(3)(A)(vi) of the Act 

authorizes adjustments to the average 

standardized amounts for subsequent 

fiscal years in order to eliminate the 

effect of such coding or classification 

changes. These adjustments are 

intended to ensure that future annual 

aggregate IPPS payments are the same as 

the payments that otherwise would have 

been made had the prospective 

adjustments for documentation and 

coding applied in FY 2008 and FY 2009 

reflected the change that occurred in 

those years. 

3. Recoupment or Repayment 

Adjustments in FYs 2010 Through 2012 

Required by Public Law 110–90 

If, based on a retroactive evaluation of 

claims data, the Secretary determines 

that implementation of the MS–DRG 

system resulted in changes in 

documentation and coding that did not 

reflect real changes in case-mix for 

discharges occurring during FY 2008 or 

FY 2009 that are different from the 

prospective documentation and coding 

adjustments applied under section 7(a) 

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

of Public Law 110–90 requires the 

Secretary to make an additional 

adjustment to the standardized amounts 

under section 1886(d) of the Act. This 

adjustment must offset the estimated 

increase or decrease in aggregate 

payments for FYs 2008 and 2009 

(including interest) resulting from the 

difference between the estimated actual 

documentation and coding effect and 

the documentation and coding 

adjustment applied under section 7(a) of 

Public Law 110–90. This adjustment is 

in addition to making an appropriate 

adjustment to the standardized amounts 

under section 1886(d)(3)(A)(vi) of the 

Act as required by section 7(b)(1)(A) of 

Public Law 110–90. That is, these 

adjustments are intended to recoup (or 

repay) spending in excess of (or less 

than) spending that would have 

occurred had the prospective 

adjustments for changes in 

documentation and coding applied in 

FY 2008 and FY 2009 precisely matched 

the changes that occurred in those years. 

Public Law 110–90 requires that the 

Secretary make these recoupment or 

repayment adjustments for discharges 

occurring during FYs 2010, 2011, and 

2012. 

4. Retrospective Evaluation of FY 2008 

Claims Data 

In order to implement the 

requirements of section 7 of Public Law 

110–90, we indicated in the FY 2009 

IPPS final rule (73 FR 48450) that we 

planned a thorough retrospective 

evaluation of our claims data. We stated 

that the results of this evaluation would 

be used by our actuaries to determine 

any necessary payment adjustments to 

the standardized amounts under section 

1886(d) of the Act beginning in FY 2010 

to ensure the budget neutrality of the 

MS–DRGs implementation for FY 2008 

and FY 2009, as required by law. In the 

FY 2009 IPPS proposed rule (73 FR 

23541 through 23542), we described our 

preliminary plan for a retrospective 

analysis of inpatient hospital claims 

data and invited public input on our 

proposed methodology. 

In that proposed rule, we indicated 

that we intended to measure and 

corroborate the extent of the overall 

national average changes in case-mix for 

FY 2008 and FY 2009. We expected that 

the two largest parts of this overall 

national average change would be 

attributable to underlying changes in 

actual patient severity and to 

documentation and coding 

improvements under the MS–DRG 

system. In order to separate the two 

effects, we planned to isolate the effect 

of shifts in cases among base DRGs from 

the effect of shifts in the types of cases 

within base DRGs. 

The MS–DRGs divide the base DRGs 

into three severity levels (with MCC, 

with CC and without CC); the 

previously used CMS DRGs had only 

two severity levels (with CC and 

without CC). Under the CMS DRG 

system, the majority of hospital 

discharges had a secondary diagnosis 

which was on the CC list, which led to 

the higher severity level. The MS–DRGs 

significantly changed the code lists of 

what was classified as an MCC or a CC. 

Many codes that were previously 

classified as a CC are no longer included 

on the MS–DRG CC list because the data 

and clinical review showed these 

conditions did not lead to a significant 

increase in resource use. The addition of 

a new level of high severity conditions, 

the MCC list, also provided a new 

incentive to code more precisely in 

order to increase the severity level. We 

anticipated that hospitals would 

examine the MS–DRG MCC and CC 

code lists and then work with 

physicians and coders on 

documentation and coding practices so 

that coders could appropriately assign 

codes from the highest possible severity 

level. We note that there have been 

numerous seminars and training 

sessions on this particular coding issue. 

The topic of improving documentation 

practices in order to code conditions on 

the MCC list was also discussed 

extensively by participants at the March 

11–12, 2009 ICD–9–CM Coordination 

and Maintenance Committee meeting. 

Participants discussed their hospitals’ 

efforts to encourage physicians to 

provide more precise documentation so 

that coders could appropriately assign 

codes that would lead to a higher 


sroberts on DSKD5P82C1PROD with RULES
Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 43769 

severity level. Because we expected 

most of the documentation and coding 

changes under the MS–DRG system 

would occur in the secondary 

diagnoses, we believed that the shifts 

among base DRGs were less likely to be 

the result of the MS–DRG system and 

the shifts within base DRGs were more 

likely to be the result of the MS–DRG 

system. We also anticipated evaluating 

data to identify the specific MS–DRGs 

and diagnoses that contributed 

significantly to the documentation and 

coding payment effect and to quantify 

their impact. This step entailed analysis 

of the secondary diagnoses driving the 

shifts in severity within specific base 

DRGs. 

In that same proposed rule, we also 

stated that, while we believe that the 

data analysis plan described previously 

will produce an appropriate estimate of 

the extent of case-mix changes resulting 

from documentation and coding 

changes, we might decide, if feasible, to 

use historical data from our Hospital 

Payment Monitoring Program (HPMP) to 

corroborate the within-base DRG shift 

analysis. The HPMP is supported by the 

Medicare Clinical Data Abstraction 

Center (CDAC). 

In the FY 2009 IPPS proposed rule, 

we solicited public comments on the 

analysis plans described above, as well 

as suggestions on other possible 

approaches for performing a 

retrospective analysis to identify the 

amount of case-mix changes that 

occurred in FY 2008 and FY 2009 that 

did not reflect real increases in patients’ 

severity of illness. 

A few commenters, including 

MedPAC, expressed support for the 

analytic approach described in the FY 

2009 IPPS proposed rule. A number of 

other commenters expressed concerns 

about certain aspects of the approach 

and/or suggested alternate analyses or 

study designs. In addition, one 

commenter recommended that any 

determination or retrospective 

evaluation by the actuaries of the impact 

of the MS–DRGs on case-mix be open to 

public scrutiny prior to the 

implementation of the payment 

adjustments beginning in FY 2010. 

We took these comments into 

consideration as we developed our 

proposed analysis plan (described in 

greater detail below) and in the FY 2010 

IPPS/RY 2010 LTCH PPS proposed rule 

(74 FR 24092 through 24101) solicited 

public comment on our methodology 

and analysis. For the FY 2010 IPPS/RY 

2010 LTCH PPS proposed rule, we 

performed a retrospective evaluation of 

the FY 2008 data for claims paid 

through December 2008. Based on this 

evaluation, our actuaries determined 

that implementation of the MS–DRG 

system resulted in a 2.5 percent change 

due to documentation and coding that 

did not reflect real changes in case-mix 

for discharges occurring during FY 

2008. In the FY 2010 IPPS/RY 2010 

LTCH proposed rule, we also stated that 

we would update the results from the 

proposed analysis plan with data 

extracted from FY 2008 Medicare claims 

that were paid through March 2008 [sic] 

for the FY 2010 IPPS final rule. (We 

note that the March 2008 date for the 

updated data that appeared in the 

proposed rule should have been March 

2009.) 

In performing the analysis for the 

proposed rule, we first divided the casemix index (CMI) obtained by grouping 

the FY 2008 claims data through the FY 

2008 GROUPER (Version 25.0) by the 

CMI obtained by grouping these same 

FY 2008 claims through the FY 2007 

GROUPER (Version 24.0). This resulted 

in a value of 1.028. Because these cases 

are the same FY 2008 cases grouped 

using Versions 24.0 and 25.0 of the 

GROUPER, we attribute this increase 

primarily to two factors: (1) The effect 

of changes in documentation and coding 

under the MS–DRG system; and (2) the 

measurement effect from the calibration 

of the GROUPER. We estimated the 

measurement effect from the calibration 

of the GROUPER by dividing the CMI 

obtained by grouping cases in the FY 

2007 claims data through the FY 2008 

GROUPER by the CMI obtained by 

grouping cases in these same claims 

through the FY 2007 GROUPER. This 

resulted in a value of 1.003. In order to 

isolate the documentation and coding 

effect, we then divided the combined 

effect of the changes in documentation 

and coding and measurement (1.028) by 

the measurement effect (1.003) to yield 

1.025. Therefore, our estimate of the 

documentation and coding increase was 

2.5 percent. 

We then sought to corroborate this 2.5 

percent estimate by examining the 

increases in the within-base DRGs as 

compared to the increases in the across 

base DRGs as described earlier in our 

analysis plan. In other words, we looked 

for improvements in code selection that 

would lead to a secondary diagnosis 

increasing the severity level to either a 

CC or an MCC level. 

In the analysis of data for the 

proposed rule, we found that the 

within-base DRG increases were almost 

entirely responsible for the case-mix 

change, supporting our conclusion that 

the 2.5 percent estimate was an accurate 

reflection of the FY 2008 effect of 

changes in documentation and coding 

under the MS–DRG system. In fact, 

almost every base DRG that was split 

into different severity levels under the 

MS–DRG system experienced increases 

in the within-base DRGs. 

We then further analyzed the changes 

in the within-base DRGs to determine 

which MS–DRGs had the highest 

contributions to this increase. 

Consistent with the expectations of our 

medical coding experts concerning areas 

with potential for documentation and 

coding improvements, the top 

contributors were heart failure, chronic 

obstructive pulmonary disease, and 

simple pneumonia and pleurisy. In fact, 

the coding of heart failure was 

discussed extensively at the March 11– 

12, 2009 ICD–9–CM Coordination and 

Maintenance Committee meeting. Heart 

failure is a very common secondary 

diagnosis among Medicare hospital 

admissions. The heart failure codes are 

assigned to all three severity levels. 

Some codes are classified as non-CCs, 

while other codes are on the CC and 

MCC lists. By changing physician 

documentation to more precisely 

identify the type of heart failure, coders 

are able to appropriately change the 

severity level of cases from the lowest 

level (non-CC) to a higher severity level 

(CC or MCC). This point was stressed 

repeatedly at the March 11–12, 2009 

ICD–9–CM Coordination and 

Maintenance Committee meeting as 

coders discussed their work with 

physicians on this coding issue. Many 

of the participants indicated that 

additional work was still needed with 

their physicians in order to document 

conditions in the medical record more 

precisely. 

The results of the analysis for the 

proposed rule provided additional 

support for our conclusion that the 

proposed 2.5 percent estimate 

accurately reflected the FY 2008 

increases in documentation and coding 

under the MS–DRG system. 

While we attempted to use the CDAC 

data to distinguish real increase in casemix growth from documentation and 

coding in the overall case-mix number, 

we found aberrant data and significant 

variation across the FY 1999–FY 2007 

analysis period. It was not possible to 

distinguish changes in documentation 

and coding from changes in real casemix in the CDAC data. Therefore, we 

concluded that the CDAC data would 

not support analysis of real case-mix 

growth that could be used in our 

retrospective evaluation of the FY 2008 

claims data. 

Although we could not use the CDAC 

data, we did examine the overall growth 

in case-mix using the FY 2007 claims 

data in which we grouped cases using 

the FY 2007 GROUPER and the FY 2008 

data in which we grouped cases using 


sroberts on DSKD5P82C1PROD with RULES
43770 Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 

the FY 2008 GROUPER. We found the 

overall growth in case-mix was 1.9 

percent. The implication of overall FY 

2008 case-mix growth of 1.9 percent 

relative to our estimate of the FY 2008 

documentation and coding effect and 

the GROUPER measurement effect is 

that real case-mix declined between FY 

2007 and FY 2008. After additional data 

analysis, our actuaries determined that 

the 1.9 percent growth in overall casemix was consistent with our 2.5 percent 

estimate of the FY 2008 documentation 

and coding effect for reasons that 

included: (1) Our mathematical model 

for determining the 2.5 percent 

documentation and coding effect was 

corroborated by the amount of case-mix 

growth attributed to within-DRG 

improvements in secondary coding of 

MCCs and CCs; (2) our data analysis 

confirmed the substitution of specified 

diagnosis for unspecified diagnoses for 

such common conditions as heart 

failure and chronic obstructive 

pulmonary disease; and (3) there was a 

relative decline in above average cost 

short-stay surgical cases that can be 

performed on an outpatient basis, such 

as certain high volume pacemaker 

procedures. 

We also examined the differences in 

case-mix between the FY 2008 claims 

data in which cases were grouped 

through the FY 2008 GROUPER 

(Version 25.0) and the FY 2009 

GROUPER (Version 26.0). This was to 

help inform analysis of the potential for 

increase in the documentation and 

coding effect in FY 2009. In FY 2008, 

we were transitioning to the fully 

implemented MS–DRG relative weights 

and the fully implemented cost-based 

weights. We found that the use of the 

transition weights mitigated the FY 

2008 documentation and coding effect 

on expenditures. Using the FY 2009 

relative weights, the documentation and 

coding effect would have been an 

estimated 3.2 percent in FY 2008 

instead of our estimated 2.5 percent. 

Even assuming no continued 

improvement in documentation and 

coding in FY 2009, we estimated that 

the use of the FY 2009 relative weights 

would result in an additional 0.7 

percent documentation and coding 

effect in FY 2009. After taking into 

account the results of our FY 2008 

analysis and the expertise of our coding 

staff, our actuaries continue to estimate 

that the cumulative overall effect of 

documentation and coding 

improvements under the MS–DRG 

system will be 4.8 percent. However, 

our actuaries estimate that these 

improvements will be substantially 

complete by the end of FY 2009. 

Therefore, our estimate of the FY 2009 

MS–DRG documentation and coding 

effect for the proposed rule was 2.3 

percent. 

As in prior years, the FY 2008 

MedPAR files were available to the 

public to allow independent analysis of 

the FY 2008 documentation and coding 

effect. Interested individuals may still 

order these files by going to the Web site 

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

LimitedDataSets/ and 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. 

Comment: MedPAC commented that 

its analysis of 2008 claims confirmed 

the CMS finding that documentation 

and coding improvements increased 

case-mix by 2.5 percent in 2008, which 

resulted in overpayments of 1.9 percent. 

With regard to CMS’ projection that by 

the end of 2009, hospitals’ 

documentation and coding 

improvements will have increased casemix by a cumulative total of 4.8 percent, 

MedPAC stated that, while all 

documentation and coding 

improvement projections are subject to 

uncertainty, 4.8 percent appears to be a 

reasonable estimate, given MedPAC’s 

own examination of recent experience 

in Maryland. 

Response: We agree with MedPAC’s 

comment that changes in 

documentation and coding increased 

case-mix by 2.5 percent in FY 2008. 

Using more recent FY 2008 claims data 

updated through March 2009, our 

actuaries’ estimate of the effect of 

changes in documentation and coding 

continues to be 2.5 percent. Our 

actuaries also continue to estimate that 

by the end of FY 2009, changes in 

documentation and coding will have 

increased case-mix by 4.8 percent, 

consistent with MedPAC’s comment. 

Comment: Most commenters 

questioned CMS’ methodology for the 

retrospective evaluation of FY 2008 

claims data and CMS’ finding that real 

case-mix growth in FY 2008 was 

negative. These comments were 

generally similar to the comments from 

the AHA, which read: 

‘‘In its analysis of documentation and 

coding changes, CMS concludes that 

from FY 2007 to FY 2008, there was a 

decline in real case mix; in contrast, our 

analysis found that there is a historical 

pattern of steady annual increases of 1.2 

to 1.3 percent in real case mix and we 

are concerned that CMS’ conclusion is 

incorrect. Further, because CMS’ 

conclusion that real case-mix declined 

is an inference based on its analysis of 

documentation and coding-related 

increases, we are concerned that the 1.9 

percent proposed cut also is inaccurate 

and overstated.’’ 

The commenters also raised concerns 

that CMS’ estimate did not fully 

consider other potential causes of 

increased case-mix, such as patients 

requiring less complex services 

receiving care in other settings and 

‘‘healthier’’ patients enrolling in 

Medicare Advantage plans in increasing 

numbers. Other commenters indicated 

that factors such as the changes in the 

CC/MCC definitions, limitations on the 

number of codes used by CMS for 

payment and ratesetting, resequencing 

of secondary diagnoses, the transition to 

the cost-based weights, less use of ‘‘not 

otherwise specified’’ codes, and 

increases in real case-mix due to health 

reform efforts also resulted in an 

inaccurate documentation and coding 

analysis. One commenter indicated that, 

of the overall case-mix increase, 1.0 

percent to 1.5 percent is ‘‘real’’ case-mix 

increase, while 1.0 percent to 1.5 

percent is due to documentation and 

coding or other increases. 

Response: The assertion that there is 

a historical pattern of steady annual 

increases of 1.2 to 1.3 percent in real 

case-mix is predicated on the 

assumption that there was little 

documentation and coding effect in 

those historical years. In considering 

these comments concerning historical 

real case-mix, we calculated overall 

increases in case-mix for the period 

from FY 2000 to FY 2007 using the 

cases from each year and the GROUPER 

and relative weights applicable for each 

year. The results are shown in the 

following chart: 


sroberts on DSKD5P82C1PROD with RULES
Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 43771 

OVERALL CASE-MIX INCREASES FOR

FY 2000 TO FY 2007 

Year 

Overall casemix change 

from prior year 

(in percent) 

FY 2000 ................................ ¥0.7 

FY 2001 ................................ ¥0.4 

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

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

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

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

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

FY 2007 ................................ ¥0.2 

Overall case-mix growth is 

predominately comprised of three 

factors: real case-mix growth; a 

documentation and coding effect; and a 

measurement effect. Under the 

reasonable assumption that there has 

been a relatively small measurement 

effect in those years, the assertion that 

there is a historical pattern of steady 

annual increases of 1.2 to 1.3 percent in 

real case-mix implies that the 

documentation and coding effect in 

many of those years was negative. For 

example, as described earlier, we 

estimated a recent measurement effect 

of +0.3 percent. The overall case-mix 

growth of ¥0.2 percent in FY 2007 net 

of a measurement effect of +0.3 percent 

results in growth of +0.1 percent. A real 

case-mix growth of +1.2 percent in FY 

2007, therefore, implies a negative 

documentation and coding effect of 

approximately ¥1.1 percent. It is not 

obvious why documentation and coding 

would have had such a large negative 

effect in FY 2007, or in any other year 

where the overall case-mix change is 

significantly less than the commenter’s 

claimed average annual trend, calling 

into question the assertion that real 

case-mix growth is a steady 1.2 to 1.3 

percent per year. 

Our current estimate of the overall 

case-mix growth for FY 2008 based on 

more recent data than the data used in 

the proposed rule is 2.0 percent, still 

less than our actuaries’ estimate of a 2.5 

percent documentation and coding 

increase. With respect to the concerns 

raised by commenters about our finding 

of negative real case-mix growth in FY 

2008, a finding of negative real case-mix 

growth is consistent with the fact that, 

in some years, overall case-mix growth 

has been negative, as shown in the chart 

presented above in this response. Some 

commenters were particularly focused 

on our statement in the proposed rule 

regarding a relative decline in above 

average cost short-stay surgical cases. 

We did not state that the decline in real 

case-mix was entirely attributable to the 

relative decline in above average cost 

short-stay outliers. We stated that— 

‘‘After additional data analysis, our 

actuaries determined that the 1.9 

percent growth in overall case-mix was 

consistent with our 2.5 percent estimate 

of the FY 2008 documentation and 

coding effect for reasons that included: 

(1) Our mathematical model for 

determining the 2.5 percent 

documentation and coding effect was 

corroborated by the amount of case-mix 

growth attributed to within-DRG 

improvements in secondary coding of 

MCCs and CCs; (2) our data analysis 

confirmed the substitution of specified 

diagnosis for unspecified diagnoses for 

such common conditions as heart 

failure and chronic obstructive 

pulmonary disease; and (3) there was a 

relative decline in above average cost 

short-stay surgical cases that can be 

performed on an outpatient basis, such 

as certain high-volume pacemaker 

procedures.’’ 

The decline in above average cost 

short-stay surgical cases was one factor 

in our actuaries’ determination that the 

1.9 percent growth in overall case-mix 

was consistent with our 2.5 percent 

documentation and coding estimate. It 

was not the only factor. Our current 

estimate of the overall case-mix growth 

between FY 2007 and FY 2008 based on 

more recent data than the data used in 

the proposed rule is 2.0 percent. We 

observed numerous small changes for a 

number of base DRGs that drive the 

difference between this overall case mix 

growth estimate of 2.0 percent and our 

documentation and coding estimate of 

2.5 percent, including the relative 

decline in above average cost surgical 

stay cases that can be performed on an 

outpatient basis that we cited in the 

proposed rule. These other base DRGs 

include MS–DRGs 193, 194, and 195 

(Simple Pneumonia and Pleurisy with 

MCC, with CC, and without CC or MCC, 

respectively); MS–DRGs 246 and 247 

(Percutaneous Cardiovascular Procedure 

with Drug-Eluting Stent with MCC or 

Four or More (4+) Vessels/Stents and 

without MCC, respectively); MS–DRGs 

233 and 234 (Coronary Bypass with 

Cardiac Catheterization with MCC and 

without MCC, respectively); MS–DRGs 

235 and 236 (Coronary Bypass without 

Cardiac Catheterization with MCC and 

without MCC, respectively); MS–DRGs 

252, 253, and 254 (Other Vascular 

Procedures with MCC, with CC, and 

without CC or MCC, respectively); MS– 

DRGs 291, 292, and 293 (Heart Failure 

and Shock with MCC, with CC, and 

without CC or MCC, respectively); MS– 

DRG 313 (Chest Pain); and MS–DRGs 

391 and 392 (Esophagitis, 

Gastroenteritis and Miscellaneous 

Digestive Disorders with MCC and 

without MCC, respectively). It is 

reasonable that the cumulative impact 

of small changes across a number of 

base DRGs could result in a difference 

of 0.5 percentage points between the 

overall growth in case-mix and our 

documentation and coding estimate. 

With respect to the commenters who 

raised concerns that our estimate did 

not fully consider other potential causes 

of increased real case-mix, such as 

patients requiring less-complex services 

receiving care in other settings, 

‘‘healthier’’ patients enrolling in MA 

plans in increasing numbers, and health 

reform efforts, we note that our 

methodology for estimating 

documentation and coding does not, by 

definition, include real case-mix, 

regardless of the actual real case-mix 

level. As MedPAC stated in its 

comment: 

‘‘Our analysis of hospital claims for 

fiscal year 2008 confirms CMS’s 

findings. To see how much the aggregate 

CMI and payments increased in 2008 

due solely to hospitals’ DCI, we used 

fiscal year 2008 claims—from the 

December 2008 update of the 2008 

MedPAR file—to calculate the national 

aggregate CMI based on the 2008 MS– 

DRGs and weights. Using the same 

claims, we also calculated the aggregate 

CMI based on the 2007 DRGs and 

weights. The difference between the two 

CMIs is 2.8 percent. By definition, this 

change in reported case mix is not real 

because the cases are the same.’’ 

The question is how much of the 2.8 

percent increase is due to a 

documentation and coding effect and 

how much is due to a measurement 

effect. Both MedPAC and our actuaries, 

based on prior year data, estimate the 

measurement effect to be 0.3 percent, 

yielding our 2.5 percent FY 2008 

documentation and coding effect. 

With respect to the commenter who 

indicated that real case-mix growth was 

1.0 percent to 1.5 percent, the primary 

reason cited was the interaction of the 

resequencing of secondary diagnoses, 

changes in MS–DRG definitions, and 

limitations on the number of codes used 

by CMS for payment and ratesetting. 

There is a yearly review for making MS– 

DRG changes. As we note in section 

II.B.2. of this preamble, the actual 

process of forming MS–DRGs is highly 

iterative and involves statistical results 

from test data and clinical judgment. In 

addition, while hospitals may submit up 

to 25 diagnosis codes and 25 procedure 

codes on the claim, our payment system 

uses only the first 9 diagnosis code 

positions and the first 6 procedure code 

positions for payment purposes. The 

commenter observed that the 


sroberts on DSKD5P82C1PROD with RULES
43772 Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 

combination of this system limitation 

with the yearly review of MS–DRGs has 

a sequencing effect. The commenter did 

not believe that the resequencing of 

secondary diagnoses was a 

documentation and coding effect. We 

disagree. Resequencing is merely a 

change in the hospital’s ordering of the 

codes that will be used for payment 

purposes. It causes a payment change 

unrelated to any change in the 

underlying condition of a patient. As we 

have stated on numerous occasions, we 

do not believe that these types of 

documentation and coding changes are 

the result of inappropriate behavior on 

the part of hospitals. However, to the 

extent resequencing occurs, it is 

appropriately included in our 

documentation and coding increase. 

Comment: Multiple commenters were 

disappointed that CMS was unable to 

obtain relevant findings based on CDAC 

data to quantify real case-mix change. 

Response: As we stated in the 

proposed rule, when we attempted to 

use the CDAC data to distinguish 

increase in real case-mix growth from 

increases due to documentation and 

coding in the overall case-mix number, 

we found aberrant data and significant 

inconsistency across the FY 1999–FY 

2007 analysis period. It was not possible 

to distinguish changes in 

documentation and coding from 

changes in real case-mix in the CDAC 

data. Therefore, we concluded that the 

CDAC data would not support analysis 

of real case-mix growth that could be 

used in our retrospective evaluation of 

the FY 2008 claims data. While we 

acknowledge the disappointment of the 

commenters, we note that we did not 

receive any alternative analysis directly 

measuring real case-mix growth that did 

not rely on assumptions with respect to 

the other factors that influence overall 

case-mix growth. 

Comment: Some commenters 

suggested that rural providers are 

typically presented with less complex 

cases and have fewer opportunities to 

benefit from improved coding 

opportunities. 

Response: As MedPAC stated in its 

comment, ‘‘In addition, we estimated 

the 2008 DCI effect using the same 

methods for various subgroups of 

hospitals. Although the DCI estimates 

varied somewhat among the groups, the 

variation was generally small. Thus, the 

DCI response appears to be widely 

consistent among all types of hospitals.’’ 

Our own analyses confirm MedPAC’s 

finding that the documentation and 

coding response appears to be generally 

consistent among different types of 

hospitals, including urban and rural 

hospitals. Using the same methodology 

described earlier, the difference in the 

DCI response between urban and rural 

hospitals was not significant, similar to 

our findings discussed elsewhere that 

the differences for MDHs and SCHs 

were not significant. 

We also note that we discussed the 

issue of a uniform adjustment for DCI 

response in the FY 2008 IPPS final rule 

(72 FR 47184), published prior to the 

TMA, Abstinence Education, and QI 

Programs Extension Act of 2007. In that 

discussion, we noted that ‘‘While 

improvements in documentation and 

coding that increase case mix may be 

variable, section 1886(d)(3)(A)(vi) of the 

Act only allows us to apply the 

adjustments that are a result of changes 

in the coding or classification of 

discharges that do not reflect real 

changes in case mix to the standardized 

amounts.’’ 

Section 7 of the TMA, Abstinence 

Education, and QI Programs Extension 

Act of 2007 specifically references 

section 1886(d)(3)(A)(vi), stating that the 

Secretary shall ‘‘make an appropriate 

adjustment under paragraph (3)(A)(vi) of 

such section 1886(d).’’ Section 

1886(d)(3)(A)(iv)(II) of the Act directed 

CMS to eliminate separate standardized 

amounts for large urban areas and other 

areas beginning in FY 2004, creating the 

current uniform standardized amount 

that is applicable to all hospitals. 

Therefore, even if the data did indicate 

a different DCI response for urban and 

rural hospitals, the law continues to 

only allow us to apply the prospective 

adjustments that are a result of changes 

in the coding or classification of 

discharges that do not reflect real 

changes in case-mix to the standardized 

amount. 

5. Adjustments for FY 2010 and 

Subsequent Years Authorized by 

Section 7(b)(1)(A) of Public Law 110–90 

and Section 1886(d)(3)(vi) of the Act 

Based on our most current evaluation 

of FY 2008 Medicare claims data, the 

estimated 2.5 percent change in FY 2008 

case-mix due to changes in 

documentation and coding that did not 

reflect real changes in case-mix for 

discharges occurring during FY 2008 

exceeds the ¥0.6 percent prospective 

documentation and coding adjustment 

applied under section 7(a) of Public Law 

110–90 by 1.9 percentage points. Under 

section 7(b)(1)(A) of Public Law 119–90, 

the Secretary is required to make an 

appropriate adjustment under section 

1886(d)(3)(A)(vi) of the Act to the 

average standardized amounts for 

subsequent fiscal years in order to 

eliminate the full effect of the 

documentation and coding changes on 

future payments. In addition, we note 

that the Secretary has the authority to 

make this prospective adjustment in FY 

2010 under section 1886(d)(3)(A)(vi) of 

the Act. As we have consistently stated 

since the initial implementation of the 

MS–DRG system, we do not believe it is 

appropriate for expenditures to increase 

due to MS–DRG-related changes in 

documentation and coding that do not 

reflect real changes in case-mix. 

We also estimate that the additional 

change in case-mix due to changes in 

documentation and coding that do not 

reflect real changes in case-mix for 

discharges occurring during FY 2009 

will be 2.3 percent, which would exceed 

by 1.4 percentage points the ¥0.9 

percent prospective documentation and 

coding adjustment for FY 2009 applied 

under section 7(a) of Public Law 100– 

90. We have the statutory authority to 

adjust the FY 2010 rates for this 

estimated 1.4 percentage point increase. 

However, given that Public Law 100–90 

requires a retrospective claims 

evaluation for the additional 

adjustments described in section II.D.6. 

of this preamble, we stated in the 

proposed rule that we believed our 

evaluation of the extent of the overall 

national average changes in case-mix for 

FY 2009 should also be based on a 

retrospective evaluation of all FY 2009 

claims data. Because we do not receive 

all FY 2009 claims data prior to 

publication of this final rule, we 

indicated we would address any 

difference between the additional 

increase in FY 2009 case-mix due to 

changes in documentation and coding 

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

2009 and the ¥0.9 percent prospective 

documentation and coding adjustment 

applied under section 7(a) of Public Law 

110–90 in the FY 2011 rulemaking 

cycle. 

In the FY 2010 IPPS/RY 2010 LTCH 

PPS proposed rule (74 FR 24096), we 

solicited public comment on the 

proposed ¥1.9 percent prospective 

adjustment to the standardized amounts 

under section 1886(d) of the Act to 

address the effects of documentation 

and coding changes unrelated to 

changes in real case-mix in FY 2008. In 

addition, we solicited public comments 

on addressing in the FY 2011 

rulemaking cycle any differences 

between the increase in FY 2009 casemix due to changes in documentation 

and coding changes that do not reflect 

real changes in case-mix for discharges 

occurring during FY 2009 and the ¥0.9 

percent prospective documentation and 

coding adjustment applied under 

section 7(a) of Public Law 110–90. We 

present below a summation of the 


sroberts on DSKD5P82C1PROD with RULES
Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 43773 

public comments we received on these 

issues and our responses. 

Comment: MedPAC summarized its 

comments on when CMS should reduce 

payment rates to prevent further 

overpayments and to recover 

overpayments occurring in 2008 and 

2009 as follows: ‘‘We support CMS’s 

proposal to reduce IPPS payments in 

2010 by 1.9 percent to prevent further 

overpayments. While we and the CMS 

actuaries believe that a 1.9 percent 

reduction will not fully prevent 

overpayments from continuing in 2010, 

this is a reasonable first step toward 

reducing overpayments.’’ 

Response: While we agree with 

MedPAC’s comment that our proposed 

¥1.9 percent adjustment would be a 

reasonable first step with respect to the 

documentation and coding increases 

associated with the implementation of 

the MS–DRGs, nevertheless, as 

discussed below, we believe that it 

would be more prudent to delay 

implementation of the documentation 

and coding adjustment to allow for a 

more complete analysis of FY 2009 

claims data. If the estimated 

documentation and coding effect 

determined based on a full analysis of 

FY 2009 claims data is more or less than 

our current estimates, it would change, 

possibly lessen, the anticipated 

cumulative adjustments that we 

currently estimate we would have to 

make for FY 2008 and FY 2009 

combined adjustment. 

Comment: Most commenters opposed 

the proposed ¥1.9 percent prospective 

FY 2010 adjustment for FY 2008 

documentation and coding increases, 

but supported the proposal not to apply 

a FY 2010 prospective adjustment for 

estimated FY 2009 documentation and 

coding increases. The commenters 

expressed concern over the financial 

impact of the proposed ¥1.9 percent 

adjustment and the methodology for 

calculating the adjustment. The 

comments on the financial impact were 

generally similar to those contained in 

the comment from the AHA, which 

stated that ‘‘The proposed rule includes 

a 1.9 percent cut to both operating and 

capital payments in FY 2010 and 

beyond—$23 billion over 10 years—to 

correct the base rate for payments made 

in FY 2008 that CMS claims are the 

effect of documentation and coding 

changes that do not reflect real changes 

in case mix. In combination with other 

policy changes, this cut results in 

hospitals being paid $1 billion less in 

FY 2010 than in FY 2009 * * * We 

recognize that CMS could have taken 

action to reduce payments more than 

proposed in this rule. We appreciate 

that CMS did not propose cuts for 

documentation and coding changes in 

FY 2009 or cuts to recoup the estimated 

documentation and coding 

overpayments in FY 2008. However, 

given the severity of the 1.9 percent 

proposed cut, and in light of the fact 

that our analysis shows real increases in 

patient severity, we ask that the agency 

significantly mitigate its proposed 

documentation and coding cut.’’ 

Other commenters recommended that 

CMS seek to extend the timeframe 

beyond 2 years to phase in the estimated 

¥6.6 percent adjustment to the 

standardized amount. 

Response: Our actuaries have 

determined, and MedPAC has 

confirmed, that the 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. 

The impact of these changes exceeds the 

¥0.6 percent prospective 

documentation and coding adjustments 

applied under section 7(a) of Public Law 

110–90. As described earlier, analysis of 

more recent claims data confirms that 

the difference is ¥1.9 percent. We 

addressed the comments on our 

methodology in the section II.D.4. of 

this preamble. 

We fully understand that our 

proposed adjustment of ¥1.9 percent 

would reduce the increase in payments 

that affected hospitals would have 

received in FY 2009 in the absence of 

the adjustment. Although we are 

required to make a prospective 

adjustment to eliminate the full effect of 

coding or classification changes that did 

not reflect real changes in case-mix for 

discharges occurring during FY 2008, 

we believe we have some discretion 

regarding when to implement this 

adjustment. Section 7(b)(1)(A) of Public 

Law 110–90 requires that if the 

Secretary determines that 

implementation of the MS–DRG system 

resulted in changes in documentation 

and coding that did not reflect real 

changes in case-mix for discharges 

occurring during FY 2008 or FY 2009 

that are different than the prospective 

documentation and coding adjustments 

applied under section 7(a) of Public Law 

110–90, the Secretary shall make an 

‘‘appropriate’’ adjustment under section 

1886(d)(3)(A)(vi) of the Act. 

After consideration of the public 

comments we received on these issues, 

we have determined that it would be 

appropriate to postpone adopting 

documentation and coding adjustments 

as authorized under section 7(a) of 

Public Law 110–90 and section 

1886(d)(3)(A)(vi) of the Act until a full 

analysis of case-mix changes can be 

completed. While we have the statutory 

authority to make this 1.9 percent 

prospective adjustment entirely in FY 

2010, we believe it would be prudent to 

wait until we have complete data on the 

magnitude of the documentation and 

coding effect in FY 2009. If the 

documentation and coding effect were 

less in FY 2009 than our current 

estimates, it could lessen the anticipated 

adjustment that we currently estimate 

we would have to make for FY 2008 and 

FY 2009 combined. In future 

rulemaking, we will consider applying a 

prospective adjustment based upon a 

complete analysis of FY 2008 and FY 

2009 claims data over an extended time 

period, such as 5 years, beginning in FY 

2011. During this phase-in period, we 

intend to address any difference 

between the increase in FY 2009 casemix due to changes in documentation 

and coding that did not reflect real 

changes in case-mix for discharges 

occurring during FY 2009 and the ¥0.9 

percent prospective documentation and 

coding adjustment applied under 

section 7(a) of Public Law 110–90 in the 

FY 2011 rulemaking cycle. 

We appreciate the commenters’ 

support of our decision not to apply a 

FY 2010 prospective adjustment for 

estimated FY 2009 documentation and 

coding increases until we have 

performed a retrospective evaluation of 

the FY 2009 claims data. 

6. Additional Adjustment for FY 2010 

Authorized by Section 7(b)(1)(B) of 

Public Law 110–90 

As indicated above, the estimated 2.5 

percent change (estimated from analysis 

of more recent data than the data used 

for the proposed rule) due to 

documentation and coding that did not 

reflect real changes in case-mix for 

discharges occurring during FY 2008 

exceeds the ¥0.6 percent prospective 

documentation and coding adjustment 

applied under section 7(a) of Public Law 

110–90 by 1.9 percentage points. Our 

actuaries currently estimate that this 1.9 

percentage point increase resulted in an 

increase in aggregate payments of 

approximately $2.2 billion. As 

described earlier, section 7(b)(1)(B) of 

Public Law 110–90 requires an 

additional adjustment for discharges 

occurring in FYs 2010, 2011, and/or 

2012 to offset the estimated amount of 

this increase in aggregate payments 

(including interest). 

Although section 7(b)(1)(B) of Public 

Law 110–90 requires us to make this 

adjustment in FYs 2010, 2011, and/or 

2012, we have discretion as to when 

during this 3 year period we will apply 

the adjustment. For example, we could 

make adjustments to the standardized 

amounts under section 1886(d) of the 


sroberts on DSKD5P82C1PROD with RULES
43774 Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 

Act in FY 2010, 2011, and 2012. 

Alternatively, we could delay offsetting 

the increase in FY 2008 aggregate 

payments by applying the adjustment 

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

Public Law 110–90 only to FYs 2011 

and 2012. 

We did not propose to make an 

adjustment to the FY 2010 average 

standardized amounts to offset, in 

whole or in part, the estimated increase 

in aggregate payments for discharges 

occurring in FY 2008, but stated in the 

proposed rule that we intended to 

address this issue in future rulemaking 

for FYs 2011 and 2012. That is, we 

stated we would address recouping the 

additional expenditures that occurred in 

FY 2008 as a result of the 1.9 percentage 

point difference between the actual 

changes in documentation and coding 

that do not reflect real changes in casemix, or 2.5 percent, and the ¥0.6 

percent adjustment applied under 

Public Law 110–90 in FY 2011 and/or 

FY 2012, as required by law. We 

indicated that, while we have the 

statutory authority to make this ¥1.9 

percent recoupment adjustment entirely 

in FY 2010, we are delaying the 

adjustment until FY 2011 and FY 2012 

because we do not have any data yet on 

the magnitude of the documentation 

and coding effect in FY 2009. If the 

documentation and coding effect were 

less in FY 2009 than our current 

estimates, it could lessen the anticipated 

recoupment adjustment that we 

currently estimate we would have to 

make for FY 2008 and FY 2009 

combined. As we have the authority to 

recoup the aggregate effect of this 1.9 

percentage point difference in FY 2008 

IPPS payments in FY 2011 or FY 2012 

(with interest), delaying this adjustment 

would have no effect on Federal budget 

outlays. In the proposed rule, we 

indicated that we intended to wait until 

we have a complete year of data on the 

FY 2009 documentation and coding 

effect before applying a recoupment 

adjustment for IPPS spending that 

occurred in FY 2008 or we estimate will 

occur in FY 2009. 

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

of Public Law 110–90 requires the 

Secretary to make an additional 

adjustment to the standardized amounts 

under section 1886(d) of the Act to 

offset the estimated increase or decrease 

in aggregate payments for FY 2009 

(including interest) resulting from the 

difference between the estimated actual 

documentation and coding effect and 

the documentation and coding 

adjustments applied under section 7(a) 

of Public Law 110–90. This 

determination must be based on a 

retrospective evaluation of claims data. 

Because we will not receive all FY 2009 

claims data prior to publication of this 

final rule, as we indicate in the 

proposed rule, we intend to address any 

increase or decrease in FY 2009 

payments in future rulemaking for FY 

2011 and 2012 after we perform a 

retrospective evaluation of the FY 2009 

claims data. Our actuaries currently 

estimate that this adjustment will be 

approximately ¥3.3 percent. This 

reflects the difference between the 

estimated 4.8 percent cumulative actual 

documentation and coding changes for 

FY 2009 (2.5 percent for FY 2008 and 

an additional 2.3 percent for FY 2009) 

and the cumulative ¥1.5 percent 

documentation and coding adjustments 

applied under section 7(a) of Public Law 

110–90 (¥0.6 percent in FY 2008 and 

¥0.9 percent in FY 2009). We note that 

the actual adjustments are 

multiplicative and not additive. This 

more recent estimated 4.8 percent 

cumulative actual documentation and 

coding changes for FY 2009 includes the 

impact of the changes in documentation 

and coding first occurring in FY 2008 

because we believe hospitals will 

continue these changes in 

documentation and coding in 

subsequent fiscal years. Consequently, 

these documentation and coding 

changes will continue to impact 

payments under the IPPS absent a 

prospective adjustment to account for 

the effect of these changes. 

We note that, unlike the ¥1.9 

adjustment to the standardized amounts 

under section 7(b)(1)(A) of Public Law 

110–90 described earlier, any 

adjustment to the standardized amounts 

under section 7(b)(1)(B) of Public Law 

110–90 would not be cumulative, but 

would be removed for subsequent fiscal 

years once we have offset the increase 

in aggregate payments for discharges for 

FY 2008 expenditures and FY 2009 

expenditures, if any. 

In the FY 2010 IPPS/RY 2010 LTCH 

PPS proposed rule (74 FR 24096), we 

solicited public comment on our 

proposal not to offset the 1.9 percent 

increase in aggregate payments 

(including interest) for discharges 

occurring in FY 2008 resulting from the 

adoption of the MS–DRGs, but to 

instead address this issue in future 

rulemaking for FYs 2011 and 2012. 

Comment: MedPAC stated in its 

comments on the adjustment to the 

standardized amounts under section 

7(b)(1)(B) of Public Law 110–90: ‘‘In 

addition, it would be desirable for CMS 

to minimize year-to-year changes in 

payment adjustments it must make to 

recover overpayments that were made in 

2008 and 2009. To achieve this goal, 

CMS should consider spreading the 

recovery of 2008 overpayments over 3 

years, beginning in 2010.’’ 

Response: We appreciate MedPAC’s 

comment that it would be desirable to 

minimize year-to-year changes in 

payment adjustments due to the 

recoupment adjustments. However, as 

we stated in the proposed rule, we 

continue to believe it would be more 

appropriate to examine the FY 2009 

claims data fully before making a 

determination as to the appropriate 

timing of the FY 2008 recoupment 

adjustment. Postponing this adjustment 

until a retrospective evaluation of the 

claims data from both FY 2008 and FY 

2009 are available would allow us to 

make annual adjustments more 

appropriately in FY 2011 and FY 2012. 

Comment: As noted above, some 

commenters recommended that CMS 

seek to extend the timeframe beyond 2 

years to phase in the estimated ¥6.6 

percent adjustment to the standardized 

amount. The commenters asked CMS to 

seek necessary legislative action to 

accommodate such a policy. 

Response: As discussed in the 

proposed rule, we are required under 

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

to recapture the difference of actual 

documentation and coding effect in FY 

2008 and FY 2009 that is greater than 

the prior adjustments. This retrospective 

recoupment process must be completed 

by the end of FY 2012. The large 

majority of the remaining adjustment to 

the standardized amount reflects 

retrospective adjustment. At this time, 

we have no plans to seek legislative 

action to change the time period for this 

adjustment. 

Comment: Most commenters 

expressed concern with the significant 

negative financial impacts that would be 

incurred by providers if CMS adopted 

that proposed ¥1.9 percent 

documentation and coding adjustment 

in FY 2010. The commenters cited 

providers’ already small or negative 

margins for Medicare payments, and 

requested that CMS not further reduce 

payments during the current period of 

economic instability and reduced State 

funding. Other commenters indicated 

that it would be appropriate to delay 

any adjustment to the standardized 

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

Public Law 110–90 until after CMS has 

the opportunity to fully examine the FY 

2009 claims data. 

Response: We recognize that any 

adjustment to account for the 

documentation and coding effect 

observed in the FY 2008 and FY 2009 

claims data may result in significant 

future payment reduction for providers. 

However, as discussed in the proposed 

rule, we are required under section 


sroberts on DSKD5P82C1PROD with RULES
Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 43775 

7(b)(1)(B) of Public Law 110–90 to 

recapture the difference of actual 

documentation and coding effect in FY 

2008 and FY 2009 that is greater than 

the prior adjustments. We agree with the 

commenters who requested that CMS 

delay any adjustment and, for the 

reasons stated above, expect to address 

this issue through the FY 2011 

rulemaking. 

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. In the 

FY 2008 IPPS final rule with comment 

period (72 FR 47152 through 47188), we 

established a policy of applying the 

documentation and coding adjustment 

to the hospital-specific rates. In that 

final rule with comment period, we 

indicated that because SCHs and MDHs 

use the same DRG system as all other 

hospitals, we believe they should be 

equally subject to the budget neutrality 

adjustment that we are applying for 

adoption of the MS–DRGs to all other 

hospitals. In establishing this policy, we 

relied on section 1886(d)(3)(A)(vi) of the 

Act, which provides us with the 

authority to adjust ‘‘the standardized 

amount’’ to eliminate the effect of 

changes in coding or classification that 

do not reflect real change in case-mix. 

However, in the final rule that 

appeared in the Federal Register on 

November 27, 2007 (72 FR 66886), we 

rescinded the application of the 

documentation and coding adjustment 

to the hospital-specific rates retroactive 

to October 1, 2007. In that final rule, we 

indicated that, while we still believe it 

would be appropriate to apply the 

documentation and coding adjustment 

to the hospital-specific rates, upon 

further review, we decided that the 

application of the documentation and 

coding adjustment to the hospitalspecific rates is not consistent with the 

plain meaning of section 

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

mentions adjusting ‘‘the standardized 

amount’’ under section 1886(d) of the 

Act and does not mention adjusting the 

hospital-specific rates. 

In the FY 2009 IPPS proposed rule (73 

FR 23540), we indicated that we 

continued to have concerns about this 

issue. Because hospitals paid based on 

the hospital-specific rate use the same 

MS–DRG system as other hospitals, we 

believe they have the potential to realize 

increased payments from 

documentation and coding changes that 

do not reflect real increases in patients’ 

severity of illness. In section 

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

stipulated that hospitals paid based on 

the standardized amount should not 

receive additional payments based on 

the effect of documentation and coding 

changes that do not reflect real changes 

in case-mix. Similarly, we believe that 

hospitals paid based on the hospitalspecific rates should not have the 

potential to realize increased payments 

due to documentation and coding 

changes that do not reflect real increases 

in patients’ severity of illness. While we 

continue to believe that section 

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

provide explicit authority for 

application of the documentation and 

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

the authority to apply the 

documentation and coding adjustment 

to the hospital-specific rates using our 

special exceptions and adjustment 

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

of the Act. The special exceptions and 

adjustment provision authorizes us to 

provide ‘‘for such other exceptions and 

adjustments to [IPPS] payment amounts 

* * * as the Secretary deems 

appropriate.’’ In the FY 2009 IPPS final 

rule (73 FR 48448 through 48449), we 

indicated that, for the FY 2010 

rulemaking, we planned to examine our 

FY 2008 claims data for hospitals paid 

based on the hospital-specific rate. We 

further indicated that if we found 

evidence of significant increases in casemix for patients treated in these 

hospitals that do not reflect real changes 

in case-mix, we would consider 

proposing application of the 

documentation and coding adjustments 

to the FY 2010 hospital-specific rates 

under our authority in section 

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

In response to public comments 

received on the FY 2009 IPPS proposed 

rule, we stated in the FY 2009 IPPS final 

rule that we would consider whether 

such a proposal is warranted for FY 

2010. To gather information to evaluate 

these considerations, we indicated that 

we planned to perform analyses on FY 

2008 claims data to examine whether 

there has been a significant increase in 

case-mix for hospitals paid based on the 

hospital-specific rate. If we found that 

application of the documentation and 

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

we indicated that we would include a 

proposal to do so in the FY 2010 IPPS 

proposed rule. 

8. Documentation and Coding 

Adjustment to the Hospital-Specific 

Rates for FY 2010 and Subsequent 

Fiscal Years 

In the FY 2010 IPPS/RY 2010 LTCH 

proposed rule (74 FR 24098 through 

24100), we discussed our performance 

of a retrospective evaluation of the FY 

2008 claims data for SCHs and MDHs 

using the same methodology described 

earlier for other IPPS hospitals. We 

found that, independently for both 

SCHs and MDHs, the change due to 

documentation and coding that did not 

reflect real changes in case-mix for 

discharges occurring during FY 2008 

slightly exceeded the proposed 2.5 

percent result discussed earlier, but did 

not significantly differ from that result. 

Again, for the proposed rule, we 

found that the within-base DRG 

increases were almost entirely 

responsible for the case-mix change. In 

the proposed rule, we presented two 

Figures to display our results. 

Therefore, consistent with our 

statements in prior IPPS rules, we 

proposed to use our authority under 

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

prospectively adjust the hospitalspecific rates by the proposed ¥2.5 

percent in FY 2010 to account for our 

estimated documentation and coding 

effect in FY 2008 that does not reflect 

real changes in case-mix. We proposed 

to leave this adjustment in place for 

subsequent fiscal years in order to 

ensure that changes in documentation 

and coding resulting from the adoption 

of the MS–DRGs do not lead to an 

increase in aggregate payments for SCHs 

and MDHs not reflective of an increase 

in real case-mix. The proposed ¥2.5 

percent adjustment to the hospitalspecific rates exceeded the ¥1.9 percent 

adjustment to the national standardized 

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

Public Law 110–90 because, unlike the 

national standardized rates, the FY 2008 

hospital-specific rates were not 

previously reduced in order to account 

for anticipated changes in 

documentation and coding that do not 

reflect real changes in case-mix 

resulting from the adoption of the MS– 

DRGs. 

In the FY 2010 IPPS/RY 2010 LTCH 

PPS proposed rule (74 FR 24100), we 


sroberts on DSKD5P82C1PROD with RULES
43776 Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 

solicited public comment on the 

proposed ¥2.5 percent prospective 

adjustment to the hospital-specific rates 

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

and our proposal to address in the FY 

2011 rulemaking cycle any changes in 

FY 2009 case-mix due to changes in 

documentation and coding that do not 

reflect real changes in case-mix for 

discharges occurring during FY 2009. 

We also indicated that we intended to 

update our analysis with FY 2008 data 

on claims paid through March 2008 [sic] 

for the FY 2010 IPPS final rule. (We 

note that the March 2008 update claims 

paid data date in the proposed rule 

should have been March 2009.) 

Consistent with our approach for IPPS 

hospitals discussed earlier, we are also 

delaying adoption of a documentation 

and coding adjustment to the hospitalspecific rate until FY 2011. Similar to 

our approach for IPPS hospitals, we will 

consider, through future rulemaking, 

phasing in the documentation and 

coding adjustment over an appropriate 

period. As we indicated earlier, we also 

will address, through future rulemaking, 

any changes in documentation and 

coding that do not reflect real changes 

in case-mix for discharges occurring 

during FY 2009. We noted that, unlike 

the national standardized rates, the FY 

2009 hospital-specific rates were not 

previously reduced in order to account 

for anticipated changes in 

documentation and coding that do not 

reflect real changes in case-mix 

resulting from the adoption of the MS– 

DRGs. However, as we note earlier with 

regard to IPPS hospitals, if the estimated 

documentation and coding effect 

determined based on a full analysis of 

FY 2009 claims data is more or less than 

our current estimates, it would change, 

possibly lessen, the anticipated 

cumulative adjustments that we 

currently estimate we would have to 

make for the FY 2008 and FY 2009 

combined adjustment. Therefore, we 

believe that it would be more prudent 

to delay implementation of the 

documentation and coding adjustment 

to allow for a more complete analysis of 

FY 2009 claims data for hospitals 

receiving hospital-specific rates. 

Comment: One commenter request 

that CMS rescind the documentation 

and coding adjustment for SCHs and 

MDHs. The commenter contended that, 

due to the special recognition and 

protection afforded to these provider 

types by the Medicare program, CMS 

should more closely reexamine any 

negative payment adjustment that may 

threaten the viability of these providers. 

Commenters also questioned the 

statutory authority to apply this 

adjustment to SCHs and MDHs. The 

commenters argued that because 

Congress included specific statutory 

authority to adjust the standardized 

amount in section 1886(d)(3)(A)(vi) of 

the Act, CMS is precluded from using 

the broader ‘‘adjustments’’ language in 

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

apply those same adjustments to the 

hospital-specific rate. 

Response: We disagree with the 

commenter that the Secretary’s broad 

authority to make exceptions and 

adjustment to payment amounts under 

section 1886(d)(3)(A)(vi) of the Act 

cannot be applied in this instance. We 

have discussed the basis for applying 

such an adjustment in prior rules (in the 

FY 2009 proposed rule (73 FR 23540), 

the FY 2009 final rule (73 FR 48448), 

and the FY 2010 proposed rule (74 FR 

24098)) and do not agree that the 

language in section 1886(d)(3)(A)(vi) of 

the Act limits our authority under 

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

make such an adjustment. We recognize 

that SCHs and MDHs are entitled 

through legislation to receive the 

hospital-specific rate in order to 

compensate for their unique service 

requirements in the provider 

community. Similar to our approach 

with IPPS hospitals, through future 

rulemaking, we will consider a phase-in 

of the documentation and coding 

adjustment over an appropriate period, 

beginning in FY 2011, and will continue 

to separately analyze SCH and MDH 

claims data to assure that any future 

adjustment is appropriate for these 

provider types. 

9. Background on the Application of the 

Documentation and Coding Adjustment 

to the Puerto Rico-Specific Standardized 

Amount 

Puerto Rico hospitals are paid based 

on 75 percent of the national 

standardized amount and 25 percent of 

the Puerto Rico-specific standardized 

amount. As noted previously, the 

documentation and coding adjustment 

we adopted in the FY 2008 IPPS final 

rule with comment period relied upon 

our authority under section 

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

provides the Secretary the authority to 

adjust ‘‘the standardized amounts 

computed under this paragraph’’ to 

eliminate the effect of changes in coding 

or classification that do not reflect real 

changes in case-mix. Section 

1886(d)(3)(A)(vi) of the Act applies to 

the national standardized amounts 

computed under section 1886(d)(3) of 

the Act, but does not apply to the Puerto 

Rico-specific standardized amount 

computed under section 1886(d)(9)(C) of 

the Act. In calculating the FY 2008 

payment rates, we made an inadvertent 

error and applied the FY 2008 ¥0.6 

percent documentation and coding 

adjustment to the Puerto Rico-specific 

standardized amount, relying on our 

authority under section 

1886(d)(3)(A)(vi) of the Act. However, 

section 1886(d)(3)(A)(vi) of the Act 

authorizes application of a 

documentation and coding adjustment 

to the national standardized amount and 

does not apply to the Puerto Rico 

specific standardized amount. In the FY 

2009 IPPS final rule (73 FR 48449), we 

corrected this inadvertent error by 

removing the ¥0.6 percent 

documentation and coding adjustment 

from the FY 2008 Puerto Rico-specific 

rates. 

While section 1886(d)(3)(A)(vi) of the 

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

believe that we have the authority to 

apply the documentation and coding 

adjustment to the Puerto Rico-specific 

standardized amount using our special 

exceptions and adjustment authority 

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

Similar to SCHs and MDHs that are paid 

based on the hospital-specific rate, we 

believe that Puerto Rico hospitals that 

are paid based on the Puerto Ricospecific standardized amount should 

not have the potential to realize 

increased payments due to 

documentation and coding changes that 

do not reflect real increases in patients’ 

severity of illness. Consistent with the 

approach described for SCHs and 

MDHs, in the FY 2009 IPPS final rule 

(73 FR 48449), we indicated that we 

planned to examine our FY 2008 claims 

data for hospitals in Puerto Rico. We 

indicated in the FY 2009 IPPS proposed 

rule (73 FR 23541) that if we found 

evidence of significant increases in casemix for patients treated in these 

hospitals, we would consider proposing 

application of the documentation and 

coding adjustments to the FY 2010 

Puerto Rico-specific standardized 

amount under our authority in section 

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

10. Documentation and Coding 

Adjustment to the Puerto Rico-Specific 

Standardized Amount 

For the FY 2010 IPPS/RY 2010 LTCH 

PPS proposed rule, we performed a 

retrospective evaluation of the FY 2008 

claims data for Puerto Rico hospitals 

using the same methodology described 

earlier for IPPS hospitals paid under the 

national standardized amounts under 

section 1886(d) of the Act. We found 

that, for Puerto Rico hospitals, the 

increase in payments for discharges 

occurring during FY 2008 due to 

documentation and coding that did not 

reflect real changes in case-mix for 


sroberts on DSKD5P82C1PROD with RULES
Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 43777 

discharges occurring during FY 2008 

was approximately 1.1 percent. When 

we calculated the within-base DRG 

changes and the across-base DRG 

changes for Puerto Rico hospitals, we 

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

2008 is much more evenly shared. 

Across-base DRG shifts accounted for 44 

percent of the changes, and within-base 

DRG shifts accounted for 56 percent. 

Thus, the change in the percentage of 

discharges with an MCC was not as 

large as that for other IPPS hospitals. In 

Figure 4 in the proposed rule, we 

showed that, for Puerto Rico hospitals, 

there was a 3 percentage point increase 

in the discharges with an MCC from 22 

percent to 25 percent and a 

corresponding decrease of 3 percentage 

points from 58 percent to 55 percent in 

discharges without a CC or an MCC. 

In the FY 2010 IPPS/RY 2010 LTCH 

PPS proposed rule (74 FR 24101), we 

solicited public comment on the 

proposed ¥1.1 percent prospective 

adjustment to the hospital-specific rates 

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

and our intent to address in the FY 2011 

rulemaking cycle any changes in FY 

2009 case-mix due to changes in 

documentation and coding that did not 

reflect real changes in case-mix for 

discharges occurring during FY 2009. 

We also stated that we intended to 

update our analysis with FY 2008 data 

on claims paid through March 2009 for 

the FY 2010 IPPS final rule. 

Given these documentation and 

coding increases, consistent with our 

statements in prior IPPS rules, we will 

use our authority under section 

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

Puerto Rico-specific rate. However, in 

parallel to our decision to postpone 

adjustments to the Federal standardized 

amount, we are adopting a similar 

policy for the Puerto Rico-specific rate 

and will consider the phase-in of this 

adjustment over an appropriate time 

period through future rulemaking. The 

adjustment would be applied to the 

Puerto Rico-specific rate that accounts 

for 25 percent of payments to Puerto 

Rico hospitals, with the remaining 75 

percent based on the national 

standardized amount. Consequently, the 

overall reduction to the payment rates 

for Puerto Rico hospitals to account for 

documentation and coding changes will 

be slightly less than the reduction for 

IPPS hospitals paid based on 100 

percent of the national standardized 

amount. We note that, as with the 

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

previously been reduced based on 

estimated changes in documentation 

and coding associated with the adoption 

of the MS–DRGs. However, as we note 

earlier for IPPS hospitals and hospitals 

receiving hospital-specific rates, if the 

estimated documentation and coding 

effect determined based on a full 

analysis of FY 2009 claims data is more 

or less than our current estimates, it 

would change, possibly lessen, the 

anticipated cumulative adjustments that 

we currently estimate we would have to 

make for the FY 2008 and FY 2009 

combined adjustment. Therefore, we 

believe that it would be more prudent 

to delay implementation of the 

documentation and coding adjustment 

to allow for a more complete analysis of 

FY 2009 claims data for Puerto Rico 

hospitals. 

Consistent with our approach for IPPS 

hospitals discussed above, we will 

address in the FY 2011 rulemaking 

cycle any change in FY 2009 case-mix 

due to documentation and coding that 

did not reflect real changes in case-mix 

for discharges occurring during FY 

2009. We note that, unlike the national 

standardized rates, the FY 2009 

hospital-specific rates were not 

previously reduced in order to account 

for anticipated changes in 

documentation and coding that do not 

reflect real changes in case-mix 

resulting from the adoption of the MS– 

DRGs. 

E. Refinement of the MS–DRG Relative 

Weight Calculation 

1. Background 

In the FY 2009 IPPS final rule (73 FR 

48450), we continued to implement 

significant revisions to Medicare’s 

inpatient hospital rates by completing 

our 3-year transition from charge-based 

relative weights to cost-based relative 

weights. Beginning in FY 2007, we 

implemented relative weights based on 

cost report data instead of based on 

charge information. We had initially 

proposed to develop cost-based relative 

weights using the hospital-specific 

relative value cost center (HSRVcc) 

methodology as recommended by 

MedPAC. However, after considering 

concerns expressed in the public 

comments we received on the proposal, 

we modified MedPAC’s methodology to 

exclude the hospital-specific relative 

weight feature. Instead, we developed 

national CCRs based on distinct hospital 

departments and engaged a contractor to 

evaluate the HSRVcc methodology for 

future consideration. To mitigate 

payment instability due to the adoption 

of cost-based relative weights, we 

decided to transition cost-based weights 

over 3 years by blending them with 

charge-based weights beginning in FY 

2007. (We refer readers to the FY 2007 

IPPS final rule for details on the 

HSRVcc methodology and the 3-year 

transition blend from charge-based 

relative weights to cost-based relative 

weights (71 FR 47882 through 47898).) 

In FY 2008, we adopted severitybased MS–DRGs, which increased the 

number of DRGs from 538 to 745. Many 

commenters raised concerns as to how 

the transition from charge-based weights 

to cost-based weights would continue 

with the introduction of new MS–DRGs. 

We decided to implement a 2-year 

transition for the MS–DRGs to coincide 

with the remainder of the transition to 

cost-based relative weights. In FY 2008, 

50 percent of the relative weight for 

each DRG was based on the CMS DRG 

relative weight and 50 percent was 

based on the MS–DRG relative weight. 

In FY 2009, the third and final year 

of the transition from charge-based 

weights to cost-based weights, we 

calculated the MS–DRG relative weights 

based on 100 percent of hospital costs. 

We refer readers to the FY 2007 IPPS 

final rule (71 FR 47882) for a more 

detailed discussion of our final policy 

for calculating the cost-based DRG 

relative weights and to the FY 2008 

IPPS final rule with comment period (72 

FR 47199) for information on how we 

blended relative weights based on the 

CMS DRGs and MS–DRGs. 

a. Summary of the RTI Study of Charge 

Compression and CCR Refinement 

As we transitioned to cost-based 

relative weights, some commenters 

raised concerns about potential bias in 

the weights due to ‘‘charge 

compression,’’ which is the practice of 

applying a higher percentage charge 

markup over costs to lower cost items 

and services, and a lower percentage 

charge markup over costs to higher cost 

items and services. As a result, the costbased weights would undervalue highcost items and overvalue low-cost items 

if a single CCR is applied to items of 

widely varying costs in the same cost 

center. To address this concern, in 

August 2006, we awarded a contract to 

RTI to study the effects of charge 

compression in calculating the relative 

weights and to consider methods to 

reduce the variation in the CCRs across 

services within cost centers. RTI issued 

an interim draft report in January 2007 

with its findings on charge compression 

(which was posted on the CMS Web site 

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

downloads/Dalton.pdf). In that report, 

RTI found that a number of factors 

contribute to charge compression and 

affect the accuracy of the relative 

weights. RTI’s findings demonstrated 

that charge compression exists in 


sroberts on DSKD5P82C1PROD with RULES
43778 Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 

several CCRs, most notably in the 

Medical Supplies and Equipment CCR. 

In its interim draft report, RTI offered 

a number of recommendations to 

mitigate the effects of charge 

compression, including estimating 

regression-based CCRs to disaggregate 

the Medical Supplies Charged to 

Patients, Drugs Charged to Patients, and 

Radiology cost centers, and adding new 

cost centers to the Medicare cost report, 

such as adding a ‘‘Devices, Implants and 

Prosthetics’’ line under ‘‘Medical 

Supplies Charged to Patients’’ and a 

‘‘CT Scanning and MRI’’ subscripted 

line under ‘‘Radiology-Diagnostics’’. 

(For more details on RTI’s findings and 

recommendations, we refer readers to 

the FY 2009 IPPS final rule (73 FR 

48452).) Despite receiving public 

comments in support of the regressionbased CCRs as a means to immediately 

resolve the problem of charge 

compression, particularly within the 

Medical Supplies and Equipment CCR, 

we did not adopt RTI’s recommendation 

to create additional regression-based 

CCRs for several reasons. We were 

concerned that RTI’s analysis was 

limited to charges on hospital inpatient 

claims, while typically hospital cost 

report CCRs combine both inpatient and 

outpatient services. Further, because 

both the IPPS and the OPPS rely on 

cost-based weights, we preferred to 

introduce any methodological 

adjustments to both payment systems at 

the same time. RTI’s analysis of charge 

compression has since been expanded 

to incorporate outpatient services. RTI 

evaluated the cost estimation process for 

the OPPS cost-based relative weights, 

including a reassessment of the 

regression-based CCR models using both 

outpatient and inpatient charge data. 

This interim report was made available 

in April 2008 during the public 

comment period on the FY 2009 IPPS 

proposed rule and can be found on 

RTI’s Web site at: http://www.rti.org/

reports/cms/HHSM–500–2005–0029I/

PDF/Refining_Cost_to_Charge_Ratios

_200804.pdf. The IPPS-specific 

chapters, which were separately 

displayed in the April 2008 interim 

report, as well as the more recent OPPS 

chapters, were included in the July 3, 

2008 RTI final report entitled, ‘‘Refining 

Cost-to-Charge Ratios for Calculating 

APC [Ambulatory Payment 

Classification] and DRG Relative 

Payment Weights,’’ that became 

available at the time of the development 

of the FY 2009 IPPS final rule. The RTI 

final report can be found on RTI’s Web 

site at: http://www.rti.org/reports/cms/

HHSM–500–2005–0029I/PDF/Refining_

Cost_to_Charge_Ratios_200807_

Final.pdf. 

RTI’s final report distinguished 

between two types of research findings 

and recommendations: those pertaining 

to the accounting or cost report data and 

those related to statistical regression 

analysis. Importantly, RTI found that, 

under the IPPS and the OPPS, 

accounting improvements to the cost 

reporting data reduce some of the 

sources of aggregation bias without 

having to use regression-based 

adjustments. In general, with respect to 

the regression-based adjustments, RTI 

confirmed the findings of its March 

2007 report that regression models are a 

valid approach for diagnosing potential 

aggregation bias within selected services 

for the IPPS and found that regression 

models are equally valid for setting 

payments under the OPPS. RTI also 

suggested that regression-based CCRs 

could provide a short-term correction 

until accounting data could be 

sufficiently refined to support more 

accurate CCR estimates under both the 

IPPS and the OPPS. 

RTI also noted that cost-based weights 

are only one component of a final 

prospective payment rate. There are 

other rate adjustments (wage index, 

IME, and DSH) to payments derived 

from the revised cost-based weights and 

the cumulative effect of these 

components may not improve the ability 

of final payment to reflect resource cost. 

With regard to APCs and MS–DRGs that 

contain substantial device costs, RTI 

cautioned that the other rate 

adjustments largely offset the effects of 

charge compression among hospitals 

that receive these adjustments. RTI 

endorsed short-term regression-based 

adjustments, but also concluded that 

more refined and accurate accounting 

data are the preferred long-term solution 

to mitigate charge compression and 

related bias in hospital cost-based 

weights. 

As a result of this research, RTI made 

11 recommendations. For a more 

detailed summary of RTI’s findings, 

recommendations, and public 

comments we received on the report, we 

refer readers to the FY 2009 IPPS final 

rule (73 FR 48452 through 48453). 

b. Summary of the RAND Corporation 

Study of Alternative Relative Weight 

Methodologies 

One of the reasons that we did not 

implement regression-based CCRs at the 

time of the FY 2008 IPPS final rule with 

comment period was our inability to 

investigate how regression-based CCRs 

would interact with the implementation 

of MS–DRGs. In the FY 2008 final rule 

with comment period (72 FR 47197), we 

stated that we engaged the RAND 

Corporation as the contractor to evaluate 

the HSRV methodology in conjunction 

with regression-based CCRs, and that we 

would consider its analysis as we 

prepared for the FY 2009 IPPS 

rulemaking process. In the FY 2009 

IPPS final rule (73 FR 48453 through 

48457), we provided a summary of the 

RAND report and the public comments 

we received in response to the FY 2009 

IPPS proposed rule. The report may be 

found on RAND’s Web site at: http:// 

www.rand.org/pubs/working_papers/ 

WR560/. 

RAND evaluated six different 

methods that could be used to establish 

relative weights, CMS’ current relative 

weight methodology of 15 national 

CCRs and 5 alternatives, including a 

method in which the 15 national CCRs 

are disaggregated using the regressionbased methodology, and a method using 

hospital-specific CCRs for the 15 cost 

center groupings. In addition, RAND 

analyzed our standardization 

methodologies that account for 

systematic cost differences across 

hospitals. The purpose of 

standardization is to eliminate 

systematic facility-specific differences 

in cost so that these cost differences do 

not influence the relative weights. The 

three standardization methodologies 

analyzed by RAND include: The 

‘‘hospital payment factor’’ methodology 

currently used by CMS, under which a 

hospital’s wage index factor, and IME 

and/or DSH factor, are divided out of its 

estimated DRG cost; the HSRV 

methodology, which standardizes the 

cost for a given discharge by the 

hospital’s own costliness rather than by 

the effect of the systematic cost 

differences across groups of hospitals; 

and the HSRVcc methodology, which 

removes hospital-level cost variation by 

calculating hospital-specific chargebased relative values for each DRG at 

the cost center level and standardizing 

them for differences in case-mix. Under 

the HSRVcc methodology, a national 

average charge-based relative weight is 

calculated for each cost center. 

Overall, RAND found that none of the 

alternative methods of calculating the 

relative weights represented a marked 

improvement in payment accuracy over 

the current method, and there was little 

difference across methods in their 

ability to predict cost at either the 

discharge-level or the hospital-level. In 

their regression analysis, RAND found 

that after controlling for hospital 

payment factors, the relative weights are 

compressed (that is, understated). 

However, RAND also found that the 

hospital payment factors are overstated 

and increase more rapidly than cost. 


sroberts on DSKD5P82C1PROD with RULES
Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 43779 

Therefore, while the relative weights are 

compressed, these payment factors 

offset the compression such that total 

payments to hospitals increase more 

rapidly than hospitals’ costs. 

RAND found that relative weights 

using the 19 national disaggregated 

regression-based CCRs result in 

significant redistributions in payments 

among hospital groupings. However, 

RAND did not believe the regressionbased charge compression adjustments 

significantly improve payment 

accuracy. With regard to standardization 

methodologies, while RAND found that 

there is no clear advantage to the HSRV 

method or the HSRVcc method of 

standardizing cost compared to the 

current hospital payment factor 

standardization method, its analysis did 

reveal significant limitations of CMS’ 

current hospital payment factor 

standardization method. The current 

standardization method has a larger 

impact on the relative weights and 

payment accuracy than any of the other 

alternatives that RAND analyzed 

because the method ‘‘over-standardizes’’ 

by removing more variability for 

hospitals receiving a payment factor 

than can be empirically supported as 

being cost-related (particularly for IME 

and DSH). RAND found that instead of 

increasing proportionately with cost, the 

payment factors CMS currently uses 

(some of which are statutory), increase 

more rapidly than cost, thereby 

reducing payment accuracy. RAND 

concluded that further analysis is 

needed to isolate the cost-related 

component of the IPPS payment 

adjustments (some of which has already 

been done by MedPAC), use them to 

standardize cost, and revise the analysis 

of payment accuracy to reflect only the 

cost-related component. 

2. Summary of FY 2009 Changes and 

Discussion for FY 2010 

In the FY 2009 IPPS final rule (73 FR 

48458 through 48467), in response to 

the RTI’s recommendations concerning 

cost report refinements, and because of 

RAND’s finding that regression-based 

adjustments to the CCRs do not 

significantly improve payment 

accuracy, we discussed our decision to 

pursue changes to the cost report to split 

the cost center for Medical Supplies 

Charged to Patients into one line for 

‘‘Medical Supplies Charged to Patients’’ 

and another line for ‘‘Implantable 

Devices Charged to Patients.’’ We 

acknowledged, as RTI had found, that 

charge compression occurs in several 

cost centers that exist on the Medicare 

cost report. However, as we stated in the 

final rule, we focused on the CCR for 

Medical Supplies and Equipment 

because RTI found that the largest 

impact on the MS–DRG relative weights 

could result from correcting charge 

compression for devices and implants. 

In determining what should be reported 

in these respective cost centers, we 

adopted the commenters’ 

recommendation that hospitals should 

use revenue codes established by AHA’s 

National Uniform Billing Committee to 

determine what should be reported in 

the ‘‘Medical Supplies Charged to 

Patients’’ and the ‘‘Implantable Devices 

Charged to Patients’’ cost centers. 

When we developed the FY 2009 IPPS 

final rule, we considered all of the 

public comments we received both for 

and against adopting regression-based 

CCRs. Also noteworthy is RAND’s belief 

that regression-based CCRs may not 

significantly improve payment 

accuracy, and that it is equally, if not 

more, important to consider revisions to 

the current IPPS hospital payment factor 

standardization method in order to 

improve payment accuracy. We 

continue to believe that, ultimately, 

improved and more precise cost 

reporting is the best way to minimize 

charge compression and improve the 

accuracy of the cost weights. 

Accordingly, we did not propose to 

adopt regression-based CCRs for the 

calculation of the FY 2010 IPPS relative 

weights. 

However, in the FY 2010 IPPS/RY 

2010 LTCH PPS proposed rule (74 FR 

24103), we expressed our concern about 

RAND’s finding that there are 

significant limitations of CMS’ current 

hospital payment factor standardization 

method. As summarized above, RAND 

found that the current standardization 

method ‘‘over-standardizes’’ by 

removing more variability for hospitals 

receiving a payment factor than can be 

empirically supported as being costrelated (particularly for IME and DSH). 

RAND found that instead of increasing 

proportionately with cost, the payment 

factors CMS currently uses (some of 

which are statutory), increase more 

rapidly than cost, thereby reducing 

payment accuracy. Further analysis is 

needed to isolate the cost-related 

component of the IPPS payment 

adjustments, use them to standardize 

cost, and revise the analysis of payment 

accuracy to reflect only the cost-related 

component. However, RAND cautioned 

that ‘‘re-estimating’’ these payment 

factors ‘‘raises important policy issues 

that warrant additional analyses’’ (page 

49 of RAND’s report, which is available 

on the Web site at: http://www.rand.org/ 

pubs/working_papers/WR560/), 

particularly to ‘‘determine the 

analytically justified levels using the 

MS–DRGs’’ (page 86 of the RAND 

report). In addition, we noted that RTI, 

in its July 2008 final report, also 

observed that the adjustment factors 

under the IPPS (the wage index, IME, 

and DSH adjustments) complicate the 

determination of cost and these factors 

‘‘within the rate calculation may offset 

the effects of understated weights due to 

charge compression’’ (page 109 of RTI’s 

final report, which is available at the 

Web site at: http://www.rti.org/reports/

cms/HHSM-500-2005-0029I/PDF/

Refining_Cost_to_Charge_Ratios_

200807_Final.pdf). While it may be 

more accurate to standardize using the 

empirically justified levels of the IME 

and DSH adjustments, consideration 

needs to be given to the extent to which 

these payment factors offset the 

compression of the relative weights. 

In the FY 2010 IPPS/RY 2010 LTCH 

PPS proposed rule (74 FR 24103 and 

24104), we stated that we understood 

that MedPAC performed an analysis to 

identify empirically justifiable formulas 

for determining appropriate IME and 

DSH adjustments. For example, in its 

March 2007 report (and reiterated in its 

March 2009 report), MedPAC asserts 

that the current level of the IME 

adjustment factor, 5.5 percent for every 

10 percent increase in resident-to-bed 

ratio, overstates IME payments by more 

than twice the empirically justified 

level, resulting in approximately $3 

billion in overpayments. The empirical 

level of the IME adjustment is estimated 

to be 2.2 percent for every 10 percent 

increase in the resident-to-bed ratio. We 

stated that we cannot propose to change 

the IME and DSH factors used for actual 

payment under the IPPS because these 

factors are mandated by law. However, 

under section 1886(d)(4) of the Act, we 

have the authority to determine the 

appropriate weighting factor for each 

MS–DRG (including which factors or 

method we will employ in making 

annual adjustments to the MS–DRGs so 

as to reflect changes in the relative use 

of hospital resources). In addition, 

section 1886(d)(7)(B) of the Act 

precludes judicial review of our 

methodology for determining the 

appropriate weighting factors. 

Therefore, we do have some flexibility 

in what factors may be used for 

standardization purposes. For purposes 

of standardization only, we stated that 

one option may be for CMS to use the 

empirically justified IME adjustment of 

2.2 percent, such that only the costrelated component of teaching hospitals 

is removed from the claim charges prior 

to calculating the relative weights. 

Similarly, for the DSH adjustment, in its 

March 2007 report, MedPAC found that 

costs per case increase about 0.4 percent 


sroberts on DSKD5P82C1PROD with RULES
43780 Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 

for each 10 percent increase in the lowincome patient percentage. This is 

significantly less than the percentage 

increase expressed by the current factors 

used in the DSH payment formulas. 

(According to MedPAC, in FY 2004, 

about $5.5 billion in DSH payments 

were made above the empirically 

justified level.) In looking only at urban 

hospitals with greater than 100 beds, 

which manifest the strongest positive 

correlation between cost and low 

income patient share, MedPAC found 

that costs increase about 1.4 percent for 

every 10 percent increment of the lowincome patient percentage. MedPAC did 

not find a positive cost relationship 

between low-income patient percentage 

and costs per case for urban hospitals 

with less than 100 beds and/or for rural 

hospitals. Therefore, for purposes of 

standardizing for the DSH adjustment, 

we stated that an option we may 

consider is to incorporate an adjustment 

factor of 1.4 percent for urban hospitals 

with greater than 100 beds, and to 

remove the DSH payment adjustment 

altogether for other hospitals that 

otherwise currently qualify for DSH 

payment. We also noted that while we 

cannot predict the effect of using the 

empirical factors for IME and DSH in 

the standardized methodology on the 

relative weights without further 

analysis, dividing out (that is, 

excluding) reduced IME and DSH 

payment factors from a hospital’s total 

payment would result in a greater share 

of teaching and DSH hospitals’ costs 

used in calculating the relative weights. 

With respect to the wage index, because 

there are multiple wage index factors, 

one for each geographic area, 

determining the true cost associated 

with geographic location and 

standardizing for those costs is much 

more challenging. While we did not 

propose changes for FY 2010, in light of 

the previous discussion of the current 

IME and DSH adjustments in the 

standardization process, we solicited 

public comments as to how the 

standardization process can be 

improved to more precisely remove cost 

differences across hospitals, thereby 

improving the accuracy of the relative 

weights in subsequent fiscal years. 

Charge Compression 

Comment: Commenters continue to 

oppose the regression-based CCR 

approach to calculate the relative 

weights. The commenters cited the 

results of the RAND report on 

alternative relative weight 

methodologies in which RAND found 

that ‘‘none of the alternative weight 

methodologies represent a marked 

improvement over the current system.’’ 

In addition, the commenters noted the 

RTI study, which concluded that more 

refined and accurate accounting data 

would be the preferred long-term 

solution to mitigate charge compression. 

Some commenters also continue to 

support our policy finalized in the FY 

2009 IPPS final rule to address charge 

compression (that is, the creation of 

separate cost centers for Implantable 

Devices Charged to Patients and 

Medical Supplies Charged to Patients). 

Response: We appreciate the 

comments with respect to regressionbased CCRs and the use of refined cost 

report data. However, we note that we 

have not proposed any changes to the 

existing cost-based relative weight 

methodology for FY 2010. 

Comment: Some commenters sought 

clarification on which revenue codes 

should be used to report various 

implantable devices. Some commenters 

disagreed with the definition of a highcost device that only applied to 

implantables because the commenters 

believed that there are other high-cost 

devices that are not implantable, but 

should be included in the device cost 

center. 

Response: We did not propose any 

policy changes with respect to the use 

of revenue codes or alternative ways for 

identifying high-cost devices. Therefore, 

we are not responding to these 

comments at this time. We refer readers 

to the discussion in the FY 2009 IPPS 

final rule concerning our current policy 

on these matters (73 FR 48462 and 

48462). 

Comment: Commenters responded to 

our solicitation for options on possibly 

revising the current standardization 

methodology. MedPAC supported the 

option of standardizing hospitals’ 

service charges using the empirical 

estimates of DSH and IME rather than 

their actual payment amounts. MedPAC 

also expressed support for the use of the 

HSRV methodology for calculating 

relative weights because it would 

obviate the need to standardize 

hospitals’ charges and it would allow 

for costs to be comparable across 

hospitals. Other commenters continue 

to oppose the HSRV methods of 

standardization. These commenters 

believe that the HSRV methodology is 

inappropriate for a cost-based 

methodology and only applicable in 

charge-based systems that account for 

mark-up practices. Some of these 

commenters expressed general concern 

about revising the current 

standardization methodology because 

CMS has implemented numerous 

changes to the relative weights and 

DRGs in recent years, including moving 

to cost-based relative weights and to 

MS–DRGs, making it difficult for 

hospitals to predict their payments. 

Commenters suggested that, because 

hospitals have been dealing with other 

Medicare payment changes, such as 

quality reporting, and in light of health 

reform legislation, CMS wait before 

modifying the relative weight 

methodology to allow payments under 

the cost-based relative weights to 

stabilize and to allow hospitals to better 

predict their payments. 

Response: In the FY 2010 IPPS/RY 

2010 LTCH PPS proposed rule, we 

expressed our concerns regarding 

RAND’s finding that there are 

significant limitations of CMS’ current 

hospital payment factor standardization 

method. As summarized above, RAND 

found that the current standardization 

method ‘‘over-standardizes’’ by 

removing more variability for hospitals 

receiving a payment factor than can be 

empirically supported as being costrelated (particularly for IME and DSH). 

We further stated that given MedPAC’s 

analysis that identifies empirically 

justifiable formulas for determining 

appropriate IME and DSH adjustments, 

perhaps one option for improving the 

accuracy of the standardization process 

is to use the empirically justified IME 

and DSH factors. We did not propose 

any changes for FY 2010, although we 

solicited public comments as to how the 

standardization process can be changed 

to improve the accuracy of the relative 

weights in subsequent fiscal years. 

Therefore, the commenters need not be 

concerned that we are introducing yet 

another significant change to the 

calculation of the relative weights or the 

MS–DRGs for FY 2010. We appreciate 

the public comments received, and we 

will consider the commenters’ concerns 

as we continue to study the issue. 

Comment: One commenter expressed 

concern regarding the effects of 

standardizing the relative weights by 

only removing the empirical costs of 

DSH and IME, rather than removing the 

entire effects of DSH and IME. The 

commenter was concerned that, by 

removing the empirical costs of DSH 

and IME in setting the relative weights, 

the non-DSH and nonteaching hospitals 

would be adversely affected by lower 

relative weights and a lower 

standardized amount. The commenter 

requested that thorough analysis be 

done and shared with the industry 

before CMS proposed any changes to the 

standardization method. 

Response: As we stated in the 

proposed rule, we cannot predict the 

effect of using the empirical factors for 

IME and DSH in the standardized 

methodology on the relative weights 

without further analysis. We 


sroberts on DSKD5P82C1PROD with RULES
Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 43781 

acknowledge that dividing out (that is, 

excluding) reduced IME and DSH 

payment factors from a hospital’s total 

payment would result in a greater share 

of teaching and DSH hospitals’ 

payments being characterized as costs 

that would then be used in calculating 

the relative weights. We also are unsure 

as to whether a change in the relative 

weights would affect the standardized 

amount. In any case, should we propose 

changes to the current standardization 

process, we will make our analysis and 

impacts available to the public for 

comment, in accordance with our 

general practice. 

3. Timeline for Revising the Medicare 

Cost Report 

As mentioned in the FY 2009 IPPS 

final rule (73 FR 48467), we are 

currently in the process of 

comprehensively reviewing the 

Medicare hospital cost report, and the 

finalized policy from the FY 2009 IPPS 

final rule to split the current 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,’’ as part of our 

initiative to update and revise the 

hospital cost report. Under an effort 

initiated by CMS to update the Medicare 

hospital cost report to eliminate 

outdated requirements in conjunction 

with provisions of the Paperwork 

Reduction Act (PRA), we stated that we 

have been planning to propose the 

actual changes to the cost reporting 

form, the attending cost reporting 

software, and the cost reporting 

instructions in Chapter 40 of the 

Medicare Provider Reimbursement 

Manual (PRM), Part II. Under the effort 

to update the cost report and eliminate 

outdated requirements in conjunction 

with the provisions of the PRA, we 

stated that changes to the cost reporting 

form and cost reporting instructions 

would be made available to the public 

for comment. Thus, the public would 

have an opportunity to suggest 

comprehensive reforms (which they had 

advocated in the FY 2009 IPPS final rule 

in response to our proposals), and 

would similarly be able to make 

suggestions for ensuring that these 

reforms are made in a manner that is not 

disruptive to hospitals’ billing and 

accounting systems, and are first and 

foremost within the guidelines of 

GAAP, which are consistent with the 

Medicare principles of reimbursement, 

and sound accounting practices. 

In the FY 2009 IPPS final rule (73 FR 

48468), we stated that we expect the 

revised cost reporting forms that reflect 

one cost center for ‘‘Medical Supplies 

Charged to Patients’’ and one cost center 

for ‘‘Implantable Devices Charged to 

Patients’’ would not be available until 

cost reporting periods beginning after 

the Spring of 2009. At the time the 

proposed rule was issued, we 

anticipated that the transmittal to create 

this new cost center would be issued in 

June 2009. Because there is 

approximately a 3-year lag between the 

availability of cost report data for IPPS 

and OPPS ratesetting purposes in a 

given fiscal year or calendar year, we 

stated that we may be able to derive two 

distinct CCRs, one for medical supplies 

and one for devices, for use in 

calculating the FY 2013 IPPS relative 

weights and the CY 2013 OPPS relative 

weights. Until the revised cost reporting 

forms are published, we stated that 

hospitals must include costs and 

charges of separately chargeable medical 

supplies and implantable medical 

devices in the cost center for ‘‘Medical 

Supplies Charged to Patients’’ (section 

2202.8 of the PRM–I), and effective for 

cost reporting periods specified in the 

revised cost reporting forms, hospitals 

must include costs and charges of 

separately chargeable medical supplies 

in the cost center for ‘‘Medical Supplies 

Charged to Patients’’ and of separately 

chargeable implantable medical devices 

in the new ‘‘Implantable Devices 

Charged to Patients’’ cost center. 

Comment: A number of commenters 

addressed the new cost reporting forms 

in which implantable device costs that 

had been reported on Medical Supplies 

Charged to Patients under the current 

cost reporting forms will now be 

reported on a new line for ‘‘Implantable 

Devices Charged to Patients’’. The 

commenters recommended that CMS 

specifically mandate in the cost 

reporting instructions that hospitals 

report their medical supplies and 

implantable devices separately to ensure 

that hospitals will report their costs in 

both cost centers. 

Response: In the revised Form CMS– 

2552–96 and the new Form CMS–2552– 

10 cost reporting instructions, we will 

clearly indicate that low cost medical 

supplies should be reported on the line 

for Medical Supplies Charged to 

Patients, and that high cost medical 

devices should be reported on the 

Implantable Devices Charged to Patients 

line. The cost reporting instructions will 

provide further guidance on 

differentiating between high cost items 

and low cost items. 

Comment: Several commenters urged 

CMS to work with the hospital industry 

as CMS revises the Medicare hospital 

cost report. The commenters expressed 

disappointment that CMS has not 

worked with the hospital industry at the 

outset of revising the Medicare hospital 

cost report. The commenters urged CMS 

not to make piecemeal changes to the 

Medicare hospital cost report; rather, 

CMS should make changes that align 

with hospitals’ protocols and payment 

methodologies to improve the accuracy 

of the cost-based MS–DRG relative 

weights. The commenters requested that 

the public have the opportunity to 

comment on cost reporting forms and 

instructions before they are 

implemented. In addition, the 

commenters urged that CMS work with 

the National Uniform Billing Committee 

(NUBC) to develop standards for the use 

of revenue codes and to mandate 

standardized cost centers. 

Response: In the FY 2009 IPPS 

proposed and final rules (73 FR 23546 

and 73 FR 48461), we stated that we 

began a comprehensive review of the 

Medicare hospital cost report, and 

splitting the current 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’’ is part of that initiative to 

update and revise the cost report. We 

also stated that under the effort to 

update the cost report and eliminate 

outdated requirements in conjunction 

with the PRA, changes to the cost report 

form and cost report instructions would 

be made available to the public for 

comment. Thus, the public would have 

an opportunity to suggest the more 

comprehensive reforms that they are 

advocating, and would similarly be able 

to make suggestions for ensuring that 

these reforms are made in a manner that 

is not disruptive to hospitals’ billing 

and accounting systems, and are within 

the guidelines of GAAP, which are 

consistent with the Medicare principles 

of reimbursement, and sound 

accounting practices. In fact, the new 

draft hospital cost report Form CMS– 

2552–10 went on public display through 

the Federal Register on July 2, 2009, for 

a 60-day review and comment period, 

which ends August 31, 2009. Those 

wishing to review and comment on the 

document can do so at http:// 

www.cms.hhs.gov/ 

PaperworkReductionActof1995. We are 

willing to work with and consider 

comments from finance and cost report 

experts from the hospital community as 

we work to improve and modify the 

hospital cost report and standardize the 

use of revenue codes. The cost center for 

Implantable Devices Charged to Patients 

will be available for use for cost 

reporting periods beginning on or after 

May 1, 2009. The revised hospital cost 

report Form CMS–2552–10 will be 


sroberts on DSKD5P82C1PROD with RULES
43782 Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 

available for cost reporting periods 

beginning on or after February 1, 2010. 

Comment: Some comments that 

expressed concerns with the delay of 

the cost reporting changes which would, 

in turn, delay the ability to use supply 

and device CCRs in the ratesetting 

process. The commenters stated that, in 

the FY 2009 IPPS final rule, CMS had 

anticipated using the revised CCR for 

the FY 2012 rule. However, due to 

delays in the issuance of instructions on 

cost reporting, CMS now believes that 

new CCRs for Medical Supplies Charged 

to Patients and Implantable Devices 

Charged to Patients may be used in the 

FY 2013 IPPS proposed and final rules. 

The commenters urged CMS to issue 

instructions to hospitals on a timely 

basis so that the new cost centers may 

be implemented as quickly as possible 

for FY 2013 ratesetting purposes. The 

commenters also suggested that, if CMS 

anticipates further delays in 

implementing the new cost centers, 

CMS implement regression-based CCRs 

as a short-term solution to address 

charge compression until data from the 

new cost centers become available. The 

commenters were also concerned that 

the new cost center may not be 

implemented consistently across 

hospitals and urged CMS to use 

analytical methods to test and 

supplement hospital cost center data in 

rate setting. For example, the 

commenters suggested that CMS use 

regression-based CCRs to measure the 

accuracy of the device cost center for 

the FY 2013 relative weights. 

Response: We are sympathetic to the 

commenters’ concerns and regret the 

delay in the issuance of the revised cost 

reporting forms. However, we are 

making progress on this front. As we 

stated in response to a previous 

comment, the new draft hospital cost 

report Form CMS–2552–10 went on 

display at the Federal Register on July 

2, 2009, for a 60-day review and 

comment period, which ends August 31, 

2009. Those wishing to review and 

comment on the document can do so at 

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

PaperworkReductionActof1995. After 

the revised cost report is available for 

use by all hospitals, and we begin to use 

the data to create CCRs for use in the 

calculation of the relative weights, we 

will analyze and monitor how hospitals 

are reporting their data and what effect 

the data are having on the separate CCRs 

for medical supplies and implantable 

devices. Comparison of the CCRs 

derived from the revised cost report to 

regression-based CCRs might be one 

method of gauging the accuracy and 

effectiveness of the separate cost centers 

for Medical Supplies Charged to 

Patients and Implantable Devices 

Charged to Patients. 

Comment: Several commenters asked 

for clarification on the new 

‘‘Implantable Devices Charged to 

Patients’’ cost center that was finalized 

in the FY 2009 IPPS final rule and will 

be part of the new Medicare Hospital 

Cost Report form. The commenters 

asked that CMS clarify the statement in 

the FY 2010 IPPS/RY 2010 LTCH PPS 

proposed rule that ‘‘hospitals must 

include costs and charges of separately 

chargeable medical supplies and 

implantable medical devices in the cost 

center for ‘Medical Supplies Charged to 

Patients’ ’’ as referenced in PRM–I 

Section 2202.8. The commenters were 

confused by the reference to PRM–I 

Section 2202.8 because that section 

defines ancillary services, with no 

mention of medical supplies. In 

addition, one commenter noted the 

hospitals are currently testing their 

systems to report costs and charges for 

implantable devices and asked whether 

it would be acceptable for hospitals to 

establish a cost center for ‘‘Implantable 

Devices Charged to Patients’’ at line 

55.01 of the current cost report until the 

revised cost report is available. The 

commenter understood that the 

subscripted cost center would be rolled 

up into Line 55 for the purposes of 

calculating the relative weights until the 

new cost report is available. 

Response: We included the reference 

to Section 2202.8 of the PRM–I, which 

defines ancillary services, to remind 

hospitals that any items reported in the 

Medical Supplies Charged to Patients 

cost center are items (high cost or low 

cost) that are separately chargeable 

ancillary services. In accordance with 

Section 2202.8 of the PRM–I, ancillary 

services are those services for which a 

separate charge is customarily made in 

addition to the routine service charge. 

With respect to subscripting Line 55 to 

establish a cost center for Implantable 

Devices Charged to Patients, we have 

provided Line 55.30 to report 

Implantable Devices Charged to Patients 

on Form CMS–2552–96 and Line 69 on 

the proposed new Form CMS–2552–10. 

Comment: Some commenters 

suggested that CMS engage in outreach 

and educational activities to hospitals 

on the changes to the cost report and 

reporting of charges with respect to the 

medical device and medical supply cost 

centers so that hospitals can 

appropriately report data. The 

commenters recommended that the 

outreach activities go beyond the 

‘‘distribution of bulletins that are used 

to inform providers about changes to the 

Medicare program.’’ 

Response: Although it is a bit early to 

plan specific outreach activities at this 

point, given that the proposed rule for 

the revised cost reporting forms has 

only been released on July 2, 2009, we 

agree that such educational activities are 

important, and we have been 

considering some options for educating 

the provider community involving the 

fiscal intermediaries and MACs and the 

cost report vendors. We look forward to 

working with the provider community 

in these initiatives. 

Accordingly, we are not 

implementing any changes to the 

relative weight calculation for FY 2010. 

We will continue to focus on possible 

ways to improve the weights through 

cost reporting and look forward to 

reviewing the comments received on the 

draft revised cost reporting forms. In 

addition, we will continue to think 

about possible ways to refine the 

standardization process as a means to 

improve the accuracy of the relative 

weights. As stated above, any further 

changes we decide to make to any 

portion of the relative weights 

calculation will be promulgated first 

through notice and comment 

rulemaking, which will allow the public 

sufficient opportunity to review relevant 

analyses and impacts of such potential 

changes. 

F. Preventable Hospital-Acquired 

Conditions (HACs), Including Infections 

1. Statutory Authority 

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

addresses certain hospital-acquired 

conditions (HACs), including infections. 

By October 1, 2007, the Secretary was 

required to select, in consultation with 

the Centers for Disease Control (CDC), at 

least two conditions that: (a) are high 

cost, high volume, or both; (b) are 

assigned to a higher paying MS–DRG 

when present as a secondary diagnosis 

(that is, conditions under the MS–DRG 

system that are CCs or MCCs); and (c) 

could reasonably have been prevented 

through the application of evidencebased guidelines. The list of conditions 

can be revised, again in consultation 

with CDC, from time to time as long as 

the list contains at least two conditions. 

Medicare continues to assign a 

discharge to a higher paying MS–DRG if 

a selected HAC is present on admission 

(POA). However, since October 1, 2008, 

Medicare no longer assigns an inpatient 

hospital discharge to a higher paying 

MS–DRG if a selected condition is not 

POA. Thus, if a selected HAC that was 

not present on admission manifests 

during the hospital stay, the case is paid 

as though the secondary diagnosis was 

not present. However, if any 


sroberts on DSKD5P82C1PROD with RULES
Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 43783 

nonselected CC/MCC appears on the 

claim, the claim will be paid at the 

higher MS–DRG rate; to cause a lower 

MS–DRG payment, all CCs/MCCs on the 

claim must be selected conditions for 

the HAC payment provision. 

Since October 1, 2007, hospitals have 

been required to submit information on 

Medicare claims specifying whether 

diagnoses were POA. The POA indicator 

reporting requirement and the HAC 

payment provision apply to IPPS 

hospitals only. Non-IPPS hospitals, 

including CAHs, LTCHs, IRFs, IPFs, 

cancer hospitals, children’s hospitals, 

hospitals in Maryland operating under 

waivers, rural health clinics, federally 

qualified health centers, RNHCIs, and 

Department of Veterans Affairs/ 

Department of Defense hospitals, are 

exempt from POA reporting and the 

HAC payment provision. Throughout 

this section, the term ‘‘hospital’’ refers 

to an IPPS hospital. 

2. HAC Selection Process 

In the FY 2007 IPPS proposed rule (71 

FR 24100), we sought public input 

regarding conditions with evidencebased prevention guidelines that should 

be selected in implementing section 

1886(d)(4)(D) of the Act. The public 

comments we received were 

summarized in the FY 2007 IPPS final 

rule (71 FR 48051 through 48053). 

In the FY 2008 IPPS proposed rule (72 

FR 24716 through 24726), we sought 

public comment on conditions that we 

proposed to select. In the FY 2008 IPPS 

final rule with comment period (72 FR 

47200 through 47218), we selected 8 

categories to which the HAC payment 

provisions would apply. 

In the FY 2009 IPPS proposed rule (73 

FR 23547), we proposed several 

additional candidate HACs as well as 

refinements to the previously selected 

HACs. In the FY 2009 IPPS final rule (73 

FR 48471), we expanded and refined 

several of the previously selected HACs, 

and we selected 2 additional categories 

of HACs. A complete list of the 10 

current categories of HACs is included 

in section II.F.4. of this preamble. 

3. Collaborative Process 

CMS experts have worked closely 

with public health and infectious 

disease professionals from across the 

Department of Health and Human 

Services, including CDC, AHRQ, and 

the Office of Public Health and Science, 

to identify the candidate preventable 

HACs, review comments, and select 

HACs. CMS and CDC have also 

collaborated on the process for hospitals 

to submit a POA indicator for each 

diagnosis listed on IPPS hospital 

Medicare claims and on the payment 

implications of the various POA 

reporting options. 

On December 17, 2007, CMS and CDC 

hosted a jointly-sponsored HAC and 

POA Listening Session to receive input 

from interested organizations and 

individuals. On December 18, 2008, 

CMS, CDC, and AHRQ hosted a second 

jointly-sponsored HAC and POA 

Listening Session to receive input from 

interested organizations and 

individuals. The agenda, presentations, 

audio file, and written transcript of the 

December 18, 2008 Listening Session 

are available on the CMS Web site at: 

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

AcqCond/07_EducationalResources.asp

#TopOfPage. 

4. Selected HAC Categories 

The following table lists the current 

HACs. 

HAC CC/MCC (ICD–9–CM code) 

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

Air Embolism ............................................................................................ 999.1 (MCC). 

Blood Incompatibility ................................................................................. 999.6 (CC). 

Pressure Ulcer Stages III & IV ................................................................. 707.23 (MCC), 707.24 (MCC). 

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

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

—Dislocation ..................................................................................... 830–839. 

—Intracranial Injury ........................................................................... 850–854. 

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

—Burn ............................................................................................... 940–949. 

—Electric Shock ................................................................................ 991–994. 

Catheter-Associated Urinary Tract Infection (UTI) ................................... 996.64 (CC). 

Also excludes the following from acting as a CC/MCC: 112.2 (CC), 

590.10 (CC), 590.11 (MCC), 590.2 (MCC), 590.3 (CC), 590.80 (CC), 

590.81 (CC), 595.0 (CC), 597.0 (CC), 599.0 (CC). 

Vascular Catheter-Associated Infection ................................................... 999.31 (CC). 

Manifestations of Poor Glycemic Control ................................................. 250.10–250.13 (MCC), 250.20–250.23 (MCC), 251.0 (CC), 249.10– 

249.11 (MCC), 249.20–249.21 (MCC). 

Surgical Site Infections 

Surgical Site Infection, Mediastinitis, Following Coronary Artery Bypass 

Graft (CABG).

519.2 (MCC). 

And one of the following procedure codes: 36.10–36.19. 

Surgical Site Infection Following Certain Orthopedic Procedures ........... 996.67 (CC), 998.59 (CC). 

And one of the following procedure codes: 81.01–81.08, 81.23–81.24, 

81.31–81.38, 81.83, 81.85. 

Surgical Site Infection Following Bariatric Surgery for Obesity ............... Principal Diagnosis—278.01, 998.59 (CC) 

And one of the following procedure codes: 44.38, 44.39, or 44.95. 

Deep Vein Thrombosis and Pulmonary Embolism Following Certain Orthopedic Procedures.415.11 (MCC), 415.19 (MCC), 453.40–453.42 (CC). 

And one of the following procedure codes: 00.85–00.87, 81.51–81.52, 

or 81.54. 

We refer readers to section II.F.6. of 

the FY 2008 IPPS final rule with 

comment period (72 FR 47202 through 

47218) and to section II.F.7. of the FY 

2009 IPPS final rule (73 FR 48474 

through 48486) for detailed analyses 


sroberts on DSKD5P82C1PROD with RULES
43784 Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 

supporting the selection of each of these 

HACs. 

The list of selected HAC categories is 

dependent upon CMS’ list of diagnoses 

designated as CC/MCCs. As changes 

and/or new diagnosis codes are 

proposed and finalized to the list of CC/ 

MCCs, these changes need to be 

reflected in the list of selected HAC 

categories. In the FY 2010 IPPS/RY 2010 

LTCH PPS proposed rule (74 FR 24106), 

we proposed the addition of ICD–9–CM 

codes 813.46 (Torus fracture of ulna) 

and 813.47 (Torus fracture of radius and 

ulna) to more precisely define the 

previously selected HAC category of 

falls and trauma. We refer readers to 

Table 6A in the Addendum to this final 

rule for the adoption of ICD–9–CM 

codes 813.46 and 813.47 as CCs. 

Comment: Commenters supported the 

addition of ICD–9–CM codes 813.46 and 

813.47 to more precisely define the falls 

and trauma HAC category. 

Response: We appreciate the 

commenters’ support of a more precise 

definition of the falls and trauma 

category. We are finalizing the addition 

of ICD–9–CM codes 813.46 and 813.47 

to more precisely define the falls and 

trauma HAC category. 

5. Public Input Regarding Selected and 

Potential Candidate HACs 

In the FY 2010 IPPS/RY 2010 LTCH 

PPS proposed rule (74 FR 24104 

through 24106), we did not propose to 

add or remove categories of HACs. 

However, we indicated that we continue 

to encourage public dialogue about 

refinements to the HAC list. During and 

after the December 18, 2008 Listening 

Session, we received many oral and 

written stakeholder comments about 

both previously selected and potential 

candidate HACs. In response to the 

Listening Session, commenters strongly 

supported using information gathered 

from early experience with the HAC 

payment provision to inform 

maintenance of the HAC list and 

consideration of future potential 

candidate HACs. Further, commenters 

emphasized the need for a robust 

program evaluation prior to modifying 

the HAC list. Strong support was also 

expressed for a program evaluation in 

response to the FY 2010 IPPS/RY 2010 

LTCH PPS proposed rule (74 FR 24106). 

Comment: Commenters 

overwhelmingly expressed strong 

support for a robust program evaluation 

before modifying the HAC list. Many 

commenters stated that CMS’ approach 

to employ a studied program analysis 

during FY 2010 allows hospitals 

additional time to develop processes for 

improving performance on previously 

selected HACs. 

Response: We appreciate the support 

we have received for our decision to 

undertake a program evaluation. The 

Medicare HAC policy aims to ensure 

patients are receiving high quality care, 

and the program evaluation will enable 

us to understand the impact of the 

program. 

Comment: Several commenters made 

specific suggestions for the program 

evaluation. A number of commenters 

suggested that the program evaluation 

should consider assessing the policy’s 

impact on patient treatment and 

potential unintended consequences. 

Some commenters indicated that CMS 

should validate POA indicator data and 

explore how information learned from 

POA coding could be used to better 

understand and prevent certain HACs. 

Commenters encouraged CMS to 

examine the extent to which the 

program is increasing adherence to 

evidence-based guidelines. Commenters 

also encouraged CMS to ensure 

transparency in the development of its 

program evaluation and to allow for 

public comment at various stages of the 

evaluation. Some commenters requested 

that the final program evaluation results 

be shared publicly. 

Response: We appreciate the specific 

suggestions provided regarding the 

program evaluation. These 

recommendations will be taken into 

consideration as the program evaluation 

is developed. We agree with 

commenters that monitoring unintended 

consequences and assessing adherence 

to evidence-based guidelines should be 

a priority for the program evaluation. 

We also agree that validation of POA 

coding, as well as examining each POA 

indicator, are areas of critical 

importance for the program evaluation. 

We appreciate the public’s interest in 

the program evaluation and plan to 

include updates and findings from the 

evaluation on CMS’ Hospital-Acquired 

Conditions and Present on Admission 

Indicator Web site available at: http:// 

www.cms.hhs.gov/HospitalAcqCond/. 

6. POA Indicator Reporting 

Collection of POA indicator data is 

necessary to identify which conditions 

were acquired during hospitalization for 

the HAC payment provision as well as 

for broader public health uses of 

Medicare data. Through Change Request 

No. 5679 (released on June 20, 2007), 

CMS issued instructions requiring IPPS 

hospitals to submit POA indicator data 

for all diagnosis codes on Medicare 

claims. CMS also issued Change Request 

No. 6086 (released on June 13, 2008) 

regarding instructions for processing 

non-IPPS claims. Specific instructions 

on how to select the correct POA 

indicator for each diagnosis code are 

included in the ICD–9–CM Official 

Guidelines for Coding and Reporting, 

available on the CDC Web site at: http:// 

www.cdc.gov/nchs/datawh/ftpserv/ 

ftpicd9/icdguide07.pdf (the POA 

reporting guidelines begin on page 92). 

Additional information regarding POA 

indicator reporting and application of 

the POA reporting options is available 

on the CMS Web site at: http:// 

www.cms.hhs.gov/HospitalAcqCond. 

CMS has historically not provided 

coding advice. Rather, CMS collaborates 

with the American Hospital Association 

(AHA) through the Coding Clinic for 

ICD–9–CM. CMS has been collaborating 

with the AHA to promote the Coding 

Clinic for ICD–9–CM as the source for 

coding advice about the POA indicator. 

There are five POA indicator 

reporting options, as defined by the 

ICD–9–CM Official Guidelines for 

Coding and Reporting: 

Indicator Descriptor 

Y ............... Indicates that the condition was present on admission. 

W .............. Affirms that the hospital has determined based on data and clinical judgment that it is not possible to document when the onset of 

the condition occurred. 

N ............... Indicates that the condition was not present on admission. 

U ............... Indicates that the documentation is insufficient to determine if the condition was present at the time of admission. 

1 ............... Signifies exemption from POA reporting. CMS established this code as a workaround to blank reporting on the electronic 4010A1. 

A list of exempt ICD–9–CM diagnosis codes is available in the ICD–9–CM Official Guidelines for Coding and Reporting. 

In the FY 2009 IPPS final rule (73 FR 

48486 through 48487), we adopted as 

final our proposal to: (1) Pay the CC/ 

MCC MS–DRGs for those HACs coded 

with ‘‘Y’’ and ‘‘W’’ indicators; and (2) 

not pay the CC/MCC MS–DRGs for those 


sroberts on DSKD5P82C1PROD with RULES
Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 43785 

HACs coded with ‘‘N’’ and ‘‘U’’ 

indicators. Though we did not make any 

proposals regarding the HAC POA 

payment determinations in the FY 2010 

IPPS/RY 2010 LTCH PPS proposed rule, 

commenters addressed this aspect of the 

HAC payment provision. 

Comment: Commenters suggested that 

CMS should consider paying for HACs 

coded with the ‘‘U’’ indicator. 

Response: We adopted a policy of not 

paying for the ‘‘U’’ option because we 

believe that this approach encourages 

documentation and will ensure more 

accurate public health data. We refer 

readers to the FY 2009 IPPS final rule 

(73 FR 48486 through 48487) for further 

discussion of our coding policy. In 

addition, as part of CMS’ program 

evaluation of the HAC payment 

provision, we intend to analyze the ‘‘U’’ 

POA reporting options (section II.F.4. of 

this preamble). 

In addition to providing specific 

suggestions on what CMS should 

consider for the program evaluation, 

commenters also offered suggestions on 

how to address POA data beyond the 

program evaluation. 

Comment: A few commenters 

recommended that AHRQ continue to 

develop strategies to improve the 

accuracy of documenting POA. 

Response: Through the collaborative 

partnership that CMS has developed 

with AHRQ around the program 

evaluation, we will continue to work 

with AHRQ to identify strategies to 

improve the accuracy of documenting 

POA reporting. 

Comment: Some comments suggested 

that CMS consider publicly releasing 

aggregate POA data to decrease the 

incidence of preventable HACs. The 

commenters indicated that one effective 

approach for decreasing the incidence of 

preventable HACs would be to provide 

each hospital with aggregate POA rates 

based on peer comparisons. 

Response: We agree with the 

suggestion that the public release of 

aggregate POA data should be 

considered as one prong in a multipronged strategy to decrease the 

incidence of preventable HACs. We 

refer readers to the FY 2009 IPPS final 

rule (73 FR 48488) for a detailed 

discussion regarding public reporting of 

POA indicator data. 

7. Additional Considerations 

Addressing the HAC and POA Payment 

Provision 

In addition to receiving comments on 

the program evaluation (II.F.5) and uses 

of POA indicator data (II.F.6), we also 

received comments addressing many 

other topics related to HAC and POA. 

This section summarizes those topics 

and provides responses. 

Comment: Commenters suggested that 

CMS consider the evaluation of new 

technologies that detect, prevent, and 

treat HACs as a research priority. 

Response: We agree with commenters 

that evaluating all methods to reduce 

preventable HACs, including new 

technologies, is a top priority for CMS. 

We refer readers to section II.I. of this 

preamble for additional information on 

CMS’ new technology add-on payment 

policy. 

Comment: Some commenters 

addressed expansion of the principles 

behind the HAC payment provision to 

other settings of care and other 

entitlement benefits, beyond fee-forservice Medicare. One commenter 

specifically expressed concern that the 

Medicare HAC policy may have 

unintended consequences for the 

pediatric population, as similar policies 

are being adopted by State Medicaid 

agencies. The commenter suggested that 

these Medicaid policies may discourage 

physicians from treating complicated 

pediatric patients for whom the risk of 

certain HACs cannot be eliminated 

using evidence-based guidelines. 

Response: The Medicare HAC policy 

applies only to hospitals that are subject 

to the IPPS. While CMS does not 

develop or implement individual State 

Medicaid policies, we do endorse 

alignment of incentives across all 

systems of care and between the 

Medicare and Medicaid programs. 

Comment: Commenters recommended 

that CMS clarify how hospitals may 

appeal a HAC payment determination 

for a particular patient who is not 

eligible for higher payment through 

assignment to the higher CC/MCC level 

of the MS–DRG. 

Response: We thank the commenters 

for seeking clarification regarding 

appeals and the HAC payment 

provision. We refer readers to the FY 

2008 IPPS final rule with comment 

period (72 FR 47216) for further 

information on existing procedures for 

review of HAC payment adjustments. 

Comment: Several commenters 

believed that some of CMS’ selected 

HACs may not be fully preventable and 

recommended that CMS’ payment 

methodology include risk adjustment. 

Response: We agree with the 

commenters that a risk adjustment 

methodology may lead to greater 

precision of HAC payment 

determinations and refer readers to the 

FY 2009 IPPS final rule (73 FR 48487 

through 48488) for a detailed discussion 

of HACs and risk adjustment at both the 

individual and population levels. 

Comment: A few commenters urged 

CMS to focus on more global hospitalwide assessments of harm, such as ratebased measurement of HACs, rather 

than targeting individual HAC events. 

Response: We agree with the 

commenters that capturing rates of 

HACs may more accurately assess the 

level of harm within a given institution 

and refer readers to the FY 2009 IPPS 

final rule (73 FR 48488) for a detailed 

discussion of the advantages and 

disadvantages of rate-based 

measurement of HACs. 

Comment: Commenters expressed 

support for expansion of the HAC list to 

include categories such as ventilatorassociated pneumonia, failure to rescue, 

surgical site infection following 

implantation of devices, Clostridium 

difficile-associated disease, and 

malnutrition. 

Response: We thank the commenters 

for their continued engagement and 

monitoring of candidate HACs. We will 

continue to monitor these conditions as 

an aspect of the program evaluation and 

may consider discussion of these 

candidate HACs in future rulemaking. 

Comment: A few commenters 

encouraged CMS to adopt a pay-forperformance initiative that is 

complementary to the current HAC 

program and incorporates specific 

initiatives outlined in the HHS Action 

Plan to Prevent Healthcare-Associated 

Infections. One commenter suggested 

that mandatory reporting of case rates 

should be incorporated into pay-forperformance initiatives. 

Response: We agree with the 

commenters that pay-for-performance 

and value-based purchasing (VBP) 

programs may be one of several 

payment tools for reducing preventable 

HACs and refer readers to the FY 2009 

IPPS final rule (73 FR 48487 through 

48488) for a detailed discussion of how 

VBP initiatives such as the Hospital 

VBP Plan Report to Congress can 

address preventable HACs. 

G. Changes to Specific MS–DRG 

Classifications 

1. MDC 5 (Diseases and Disorders of the 

Circulatory System): Intraoperative 

Fluorescence Vascular Angiography 

(IFVA) 

As we discussed in the FY 2010 IPPS/ 

RY 2010 LTCH PPS proposed rule (74 

FR 24106 through 24107) we received a 

request to reassign cases reporting the 

use of intraoperative fluorescence 

vascular angiography (IFVA) with 

coronary artery bypass graft (CABG) 

procedures from MS–DRGs 235 and 236 

(Coronary Bypass without Cardiac 

Catheterization with and without MCC, 


sroberts on DSKD5P82C1PROD with RULES
43786 Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 

respectively) into MS–DRG 233 

(Coronary Bypass with Cardiac 

Catheterization with MCC) and MS– 

DRG 234 (Coronary Bypass with Cardiac 

Catheterization without MCC). Effective 

October 1, 2007, procedure code 88.59 

(Intra-operative fluorescence vascular 

angiography (IFVA)) describes this 

technology. 

IFVA technology consists of a mobile 

device imaging system with software. 

The technology is used to test cardiac 

graft patency and technical adequacy at 

the time of coronary artery bypass 

grafting (CABG). While this system does 

not involve fluoroscopy or cardiac 

catheterization, it has been suggested by 

the manufacturer and clinical studies 

that it yields results that are similar to 

those achieved with selective coronary 

arteriography and cardiac 

catheterization. Intraoperative coronary 

angiography provides information about 

the quality of the anastomosis, blood 

flow through the graft, distal perfusion 

and durability. For additional detailed 

information regarding IFVA technology, 

we refer readers to the September 28– 

29, 2006 ICD–9–CM Coordination and 

Maintenance Committee meeting 

handout at the following Web site: 

http://www.cms.hhs.gov/ICD9Provider

DiagnosticCodes/03_meetings.asp#

TopOfPage. 

We examined data on cases identified 

by procedure code 88.59 in MS–DRGs 

233, 234, 235, and 236 in the FY 2008 

MedPAR file. As shown in the table 

below, for both MS–DRGs 235 and 236, 

the cases utilizing IFVA technology 

identified by procedure code 88.59 have 

a shorter length of stay and lower 

average costs compared to all cases in 

MS–DRGs 235 and 236. There were a 

total of 10,312 cases in MS–DRG 235 

with an average length of stay of 11.12 

days with average costs of $33,846. 

There were 88 cases in MS–DRG 235 

identified by procedure code 88.59 with 

an average length of stay of 9.82 days 

with average costs of $29,258. In MS– 

DRG 236, there were a total of 24,799 

cases with an average length of stay of 

6.52 days and average costs of $22,329. 

There were 159 cases in MS–DRG 236 

identified by procedure code 88.59 with 

an average length of stay of 6.30 days 

and average costs of $20,404. The data 

clearly demonstrate that the IFVA cases 

identified by procedure code 88.59 are 

assigned appropriately to MS–DRGs 235 

and 236. We also examined data on 

cases identified by procedure code 

88.59 in MS–DRGs 233 and 234. 

Similarly, in MS–DRGs 233 and 234, 

cases identified by procedure code 

88.59 reflect shorter lengths of stay and 

lower average costs compared to all of 

the other cases in those MS–DRGs. 

There were a total of 17,453 cases in 

MS–DRG 233 with an average length of 

stay of 13.65 days with average costs of 

$41,199. There were 60 cases in MS– 

DRG 233 identified by procedure code 

88.59 with an average length of stay of 

12.82 days and average costs of $38,842. 

In MS–DRG 234, there were a total of 

27,003 cases with an average length of 

stay of 8.70 days and average costs of 

$28,327. There were 69 cases in MS– 

DRG 234 identified by procedure code 

88.59 with an average length of stay of 

8.75 days and average costs of $25,308. 

As a result of our analysis, the data 

demonstrate that the IFVA cases 

identified by procedure code 88.59 are 

appropriately assigned to MS–DRGs 233 

and 234. 

MS–DRG Number of 

cases 

Average 

length of stay Average cost* 

235—All cases ............................................................................................................................. 10,312 11.12 $33,846 

235—Cases with code 88.59 ...................................................................................................... 88 9.82 29,258 

235—Cases without code 88.59 ................................................................................................. 10,224 11.14 33,886 

236—All cases ............................................................................................................................. 24,799 6.52 22,329 

236—Cases with code 88.59 ...................................................................................................... 159 6.30 20,404 

236—Cases without code 88.59 ................................................................................................. 24,640 6.52 22,341 

MS–DRG Number of 

cases 

Average 

length of stay Average cost* 

233—All cases ............................................................................................................................. 17,453 13.65 41,199 

233—Cases with code 88.59 ...................................................................................................... 60 12.82 38,842 

233—Cases without code 88.59 ................................................................................................. 17,393 13.65 41,207 

234—All cases ............................................................................................................................. 27,003 8.70 28,327 

234—Cases with code 88.59 ...................................................................................................... 69 8.75 25,308 

234—Cases without code 88.59 ................................................................................................. 26,934 8.70 28,334 

* In the FY 2007 IPPS final rule (71 FR 47882), we adopted a cost-based weighting methodology. The cost-based weights were adopted over 

a 3-year transition period in 1⁄3 increments between FY 2007 and FY 2009. The average cost represents the average standardized charges on 

the claims reduced to cost using the cost center-specific CCRs for a specific DRG. The standardization process includes adjustments for IME, 

DSH, and wage index as applied to individual hospitals. This estimation of cost is the same method used in the computation of the relative 

weights. We are using cost-based data instead of our historical charge-based data to evaluate proposed MS–DRG classification changes. 

We believe that if the cases identified 

by procedure code 88.59 were proposed 

to be reassigned from MS–DRGs 235 and 

236 to MS–DRGs 233 and 234, they 

would be significantly overpaid. In 

addition, because the cases in MS–DRGs 

235 and 236 did not actually have a 

cardiac catheterization performed, a 

proposal to reassign cases identified by 

procedure code 88.59 would result in 

lowering the relative weights of MS– 

DRGs 233 and 234 where a cardiac 

catheterization is truly performed. 

In summary, the data do not support 

moving IFVA cases identified by 

procedure code 88.59 from MS–DRGs 

235 and 236 into MS–DRGs 233 and 

234. 

In the FY 2010 IPPS/RY 2010 LTCH 

PPS proposed rule, we invited the 

public to submit comments on our 

proposal not to make any MS–DRG 

modifications for cases reporting 

procedure code 88.59 for FY 2010. 

Below, we provide a summation of the 

public comments we received and our 

responses. 


sroberts on DSKD5P82C1PROD with RULES
Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 43787 

Comment: A number of commenters 

believed that the use of IFVA in 

conjunction with CABG procedures 

leads to positive outcomes. Many of the 

commenters stated that they had 

performed IFVA and that, by using 

IFVA along with the CABG procedure, 

they were able to reduce their patients’ 

lengths of stay and reduce 

complications, which in turn reduced 

hospitals costs. The commenters stated 

that the CMS published data indicated 

that patients who undergo a CABG 

procedure along with IFVA ‘‘showed 

consistently shortened length of stay 

and the resulting cost savings.’’ The 

commenters stated that, despite cost 

savings from the routine treatment of 

CABG patients with IFVA, their 

facilities were not prepared to purchase 

this technology unless there were 

additional Medicare payments. 

The commenters did not dispute the 

fact that the CMS data showed IFVA 

cases used considerably less resources 

than cases undergoing a cardiac 

catheterization. However, the 

commenters expressed concern that 

CMS did not suggest a mechanism to 

encourage hospitals to invest in the 

IFVA equipment by providing 

additional payment for the utilization of 

IFVA. 

Some commenters urged CMS to 

explore alternative methods of payment 

to facilities for utilizing the IFVA 

technology. 

Another commenter representing a 

specialty society indicated that several 

of its members, who are cardiothoracic 

surgeons, had differing opinions on the 

value of IFVA as an adjunctive 

procedure to CABG surgery. This 

commenter stated that, due to a lack of 

information regarding the efficacy of 

IFVA within its cardiac surgery 

database, the commenter was unable to 

appropriately assess the effectiveness of 

the technology. 

Response: We appreciate and 

acknowledge the commenters’ concerns. 

We would like to point out that the 

costs associated with the IFVA 

technology, when utilized with 

coronary artery bypass (CABG) 

procedures, are already accounted for 

within the MS–DRGs for the CABG 

procedure. In other words, cases 

reporting procedure code 88.59, when 

performed with a CABG procedure, are 

currently grouped to one of the MS– 

DRGs describing a CABG procedure. 

Our claims data indicate that IFVA 

cases have average costs very similar to 

other cases within the MS–DRGs to 

which they are currently assigned. Our 

data do not support classifying code 

88.59 as a cardiac catheterization so that 

all cases where IFVA is performed 

would be assigned to the CABG DRGs 

with cardiac catheterization (MS–DRGs 

233 and 234). The cardiac 

catheterization cases have consistently 

higher costs than cases that only utilize 

IFVA with CABG. 

In response to concerns that CMS did 

not provide an alternative for facilities 

to account for costs associated with 

IFVA use in conjunction with CABG 

surgery, in our evaluation of data for 

possible proposals for modifications to 

the MS–DRGs, we did not find data to 

support a MS–DRG change for IFVA. 

The request we received was to reassign 

cases reporting the use of IFVA with 

CABG procedures from MS–DRGs 235 

and 236 into MS–DRG 233 and MS– 

DRG 234. To make this change, we 

would have to add the IFVA procedure 

to the list of cardiac catheterization 

procedures listed under MS–DRGs 233 

and 234. As the commenters noted in its 

own submitted comments, the data 

presented in the FY 2010 proposed rule 

(74 FR 24107), for cases where IFVA 

(code 88.59) was reported with a CABG 

procedure, demonstrated that these 

cases resulted in shorter lengths of stay 

and lower average costs compared to all 

cases within the specified CABG MS– 

DRGs. As such, it would be 

inappropriate to reassign cases reporting 

the use of IFVA to higher weighted MS– 

DRGs merely as an incentive for 

hospitals to invest in the IFVA 

technology. 

With regards to the commenter’s 

suggestion that CMS give consideration 

to the utilization of the cardiac surgery 

database to analyze IFVA, we refer the 

commenter and readers to section 

V.A.1–5 of the FY 2010 proposed rule 

(74 FR 24165 through 24176) for a 

discussion of CMS’ Hospital ValueBased Purchasing (VBP) Plan, a policy 

that strives to align payment incentives 

with the quality of care as well as the 

resources used to deliver care to 

encourage high-value health care. 

In conclusion, many commenters 

expressed support for the limited MS– 

DRG changes proposed for FY 2010, 

given the major changes that took place 

with the recent implementation of the 

MS–DRG system. Our analysis of claims 

data indicates that IFVA cases have 

average costs very similar to other cases 

within the MS–DRGs to which they are 

currently assigned, and the data do not 

support the request to classify IFVA as 

a cardiac catheterization at this time. 

Therefore, as final policy for FY 2010, 

we are finalizing our proposal to not 

make any changes to MS–DRGs 233, 

234, 235, or 236 for cases reporting the 

use of intraoperative fluorescence 

vascular angiography (IFVA), procedure 

code 88.59. 

2. MDC 8 (Diseases and Disorders of the 

Musculoskeletal System and Connective 

Tissue): Infected Hip and Knee 

Replacements 

As discussed in the FY 2010 IPPS/RY 

2010 LTCH PPS proposed rule (74 FR 

24107 through 24109), we received a 

request that we examine the issue of 

patients who have undergone hip or 

knee replacement procedures that have 

subsequently become infected and who 

are then admitted for inpatient services 

for removal of the prosthesis. The 

requestor stated that these patients are 

presented with devastating 

complications and require extensive 

resources to treat. The infection often 

results in the need for multiple reoperations, prolonged use of 

intravenous and oral antibiotics, 

extended rehabilitation, and frequent 

followups. Furthermore, the requestor 

stated that, even with extensive 

treatment, the outcomes can still be 

poor for some of these patients. The 

requestor stated that patients who are 

admitted for inpatient services with an 

infected hip or knee prosthesis must 

first undergo a procedure to remove the 

prosthesis and to insert an antibiotic 

spacer to treat the infection and 

maintain a space for the new prosthesis. 

The new prosthesis cannot be inserted 

until after the infection has been treated. 

Patients who are admitted for inpatient 

services with a hip or knee infection 

and then undergo a removal of the 

prosthesis are captured by the following 

procedure codes: 

• 80.05 (Arthrotomy for removal of 

prosthesis, hip) 

• 80.06 (Arthrotomy for removal of 

prosthesis, knee) 

In addition, code 84.56 (Insertion or 

replacement of (cement) spacer)) would 

be used for any insertion of a spacer that 

would be reported if an antibiotic spacer 

were inserted. 

The issue of hip and knee infections 

and revisions was discussed in the FY 

2009 IPPS final rule (73 FR 48498 

through 48507) in response to a more 

complicated request that we received 

involving the creation and modification 

of several joint DRGs. Because data did 

not support the requestor’s suggested 

changes, we did not make any 

modifications to the joint DRGs at that 

time. 

The current requestor asked that we 

move cases involving the removal of hip 

and knee prostheses (procedure codes 

80.05 and 80.06) from their current 

assignment in MS–DRGs 480, 481, and 

482 (Hip and Femur Procedures Except 

Major Joint with MCC, with CC, without 

CC/MCC, respectively) and in MS–DRGs 

495, 496, and 497 (Local Excision of 


sroberts on DSKD5P82C1PROD with RULES
43788 Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 

Internal Fixation Device Except Hip and 

Femur with MCC, with CC, and with 

CC/MCC, respectively) and assign them 

to MS–DRGs 463, 464, and 465 (Wound 

Debridement and Skin Graft Except 

Hand, for Musculo-Connective Tissue 

Disease with MCC, with CC, without 

CC/MCC, respectively). MS–DRGs 463, 

464, and 465 include cases that are 

treated with a debridement for infection. 

The requestor stated that these cases are 

clinically similar to those captured by 

procedure codes 80.05 and 80.06 where 

the prosthesis is removed and a new 

prosthesis is not inserted because of an 

infection. 

The requestor specifically asked that 

we remove the hip arthrotomy code 

80.05 from MS–DRGs 480, 481, and 482, 

and assign it to MS–DRGs 463, 464, and 

465. The requestor also recommended 

that we remove the knee arthrotomy 

code 80.06 from MS–DRGs 495, 496, 

and 497 and assign it to MS–DRGs 463, 

464, and 465. 

If we were to accept the requestor’s 

suggestion, joint replacement cases in 

which the patients were admitted for 

inpatient services to remove the 

prosthesis because of an infection 

would be assigned to the higher paying 

debridement MS–DRGs (MS–DRGs 463, 

464, and 465). As mentioned earlier, 

these MS–DRGs contain other cases 

involving treatment for infections. 

For the FY 2010 IPPS/RY 2010 LTCH 

PPS proposed rule, we examined hip 

replacement cases identified by 

procedure code 80.05 in MS–DRGs 480, 

481, and 482, and knee replacement 

cases identified by procedure code 

80.06 in MS–DRGs 495, 496, and 497 

using the FY 2008 MedPAR file. Our 

data from the FY 2008 MedPAR file 

support the requestor’s suggestion that 

these cases have similar costs to those 

in MS–DRGs 463, 464, and 465, and that 

they are significantly more expensive to 

treat than those in their current MS– 

DRG assignments. The following table 

summarizes those findings: 

MS–DRG Number of 

cases 

Average 

length of stay Average cost* 

463—All Cases ............................................................................................................................ 4,834 16.59 $26,696 

464—All Cases ............................................................................................................................ 4,934 9.52 15,065 

465—All Cases ............................................................................................................................ 1,696 5.45 9,041 

480—All Cases ............................................................................................................................ 31,181 8.89 17,168 

480—Cases with code 80.05 ...................................................................................................... 643 13.35 26,053 

480—Cases without code 80.05 ................................................................................................. 30,538 8.80 16,981 

481—All Cases ............................................................................................................................ 72,406 5.68 11,259 

481—Cases with code 80.05 ...................................................................................................... 871 8.34 17,202 

481—Cases without code 80.05 ................................................................................................. 71,535 5.65 11,187 

482—All Cases ............................................................................................................................ 37,443 4.65 9,320 

482—Cases with code 80.05 ...................................................................................................... 282 6.82 13,718 

482—Cases without code 80.05 ................................................................................................. 37,161 4.63 9,287 

495—All Cases ............................................................................................................................ 2,140 10.40 18,729 

495—Cases with code 80.06 ...................................................................................................... 513 11.53 23,508 

495—Cases without code 80.06 ................................................................................................. 1,627 10.04 17,432 

496—All Cases ............................................................................................................................ 5,518 5.73 10,827 

496—Cases with code 80.06 ...................................................................................................... 1,346 6.67 14,454 

496—Cases without code 80.06 ................................................................................................. 4,172 5.42 9,657 

497—All Cases ............................................................................................................................ 5,856 2.84 7,148 

497—Cases with code 80.06 ...................................................................................................... 688 5.08 12,234 

497—Cases without code 80.06 ................................................................................................. 5,168 2.54 6,470 

* In the FY 2007 IPPS final rule (71 FR 47882), we adopted a cost-based weighting methodology. The cost-based weights were adopted over 

a 3-year transition period in 1⁄3 increments between FY 2007 and FY 2009. The average cost represents the average standardized charges on 

the claims reduced to cost using the cost center-specific CCRs for a specific DRG. The standardization process includes adjustments for IME, 

DSH, and wage index as applied to individual hospitals. This estimation of cost is the same method used in the computation of the relative 

weights. We are using cost-based data instead of our historical charge-based data to evaluate proposed MS–DRG classification changes. 

The data show that hip replacement 

cases with procedure code 80.05 in MS– 

DRGs 480, 481, and 482 have average 

costs of $26,053, $17,202, and $13,718, 

respectively, compared to overall 

average costs of $17,168 in MS–DRG 

480; $11,259 in MS–DRG 481; and 

$9,320 in MS–DRG 482. The data also 

show that knee replacement cases with 

procedure code 80.06 in MS–DRGs 495, 

496, and 497 have average costs of 

$23,508, $14,454, and $12,234, 

respectively, compared to average costs 

of all cases of $18,729 in MS–DRG 495, 

$10,827 in MS–DRG 496, and $7,148 in 

MS–DRG 497. All cases in MS–DRGs 

463, 464, and 465 had average costs of 

$26,696, $15,065, and $9,041, 

respectively. 

The results of this analysis of data 

support the reassignment of procedure 

codes 80.05 and 80.06 to MS–DRGs 463, 

464, and 465. Therefore, in the FY 2010 

IPPS/RY 2010 LTCH PPS proposed rule 

(74 FR 24107 through 24109), we 

proposed to move procedure codes 

80.05 and 80.06 from their current 

assignments in MS–DRGs 480, 481, and 

482 and 495, 496, and 497, and assign 

them to MS–DRGs 463, 464, and 465. 

We also proposed to revise the code title 

of procedure code 80.05 to read 

‘‘Arthrotomy for removal of prosthesis 

without replacement, hip’’ and the title 

of procedure code 80.06 to read 

‘‘Arthrotomy for removal of prosthesis 

without replacement, knee’’, effective 

October 1, 2009, as in shown in Table 

6F of the Addendum to the FY 2010 

IPPS/RY 2010 LTCH PPS proposed rule. 

Comment: A number of commenters 

supported our recommendation to move 

codes 80.05 and 80.06 from their current 

assignments in MS–DRGs 480, 481, and 

482 and 495, 496, and 497 and assign 

them to MS–DRGs 463, 464, and 465. 

The commenters also supported the 

proposed changes to the code titles for 

both codes 80.05 and 80.06, effective 

October 1, 2009. 

One commenter supported this MS– 

DRG change for the treatment of 

infection following hip and knee 

arthroplasty patients because, according 

to the commenter, considerable 

resources are required to care for these 

patients whose deep infections are one 

of the most devastating complications 


sroberts on DSKD5P82C1PROD with RULES
Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 43789 

associated with hip and knee 

arthroplasty. The commenter further 

stated that the current hospital payment 

rate provides a disincentive for 

hospitals to admit patients with infected 

total joint replacements and creates an 

economic burden on tertiary care 

referral centers treating these patients. 

Several other commenters also agreed 

that these cases are significantly more 

expensive to treat than other cases in 

the current MS–DRG assignments. One 

commenter stated that this reassignment 

will more accurately reflect the costs 

associated with treating the removal of 

hip and knee prostheses. 

Some of the commenters who 

supported the proposed changes stated 

that, given the recent major changes to 

the MS–DRGs, it was appropriate for 

CMS to propose a limited number of 

MS–DRG classification changes for FY 

2010. The commenters had no 

objections to the proposal to move codes 

80.05 and 80.06 to MS–DRGs 463, 464, 

and 465. 

Response: We appreciate the support 

of the commenters and agree that it is 

appropriate to move codes 80.05 and 

80.06 to MS–DRGs 463, 464, and 465. 

Comment: Several commenters who 

supported this proposed MS–DRG 

assignment change also recommended 

that CMS consider revising the titles for 

MS–DRGs 463, 464, and 465 to reflect 

the proposed reassignment change. The 

commenters suggested the following 

MS–DRG titles for MS–DRGs 463, 464, 

and 465: ‘‘Wound Debridement, Skin 

Graft, and/or Removal of Infected 

Prosthesis Except hand for 

Musculoskeletal-Connective Tissue 

Disease with MCC, with CC, or without 

CC/MCC,’’ respectively. 

Response: The MS–DRG titles are 

general in nature and usually do not 

describe all the diagnoses and 

procedure codes included in each MS– 

DRG. We do not use the full MS–DRG 

titles within the IPPS. Rather, we use 

abbreviated titles, as is shown in Table 

5 of the Addendum to this FY 2010 

IPPS/RY 2010 LTCH PPS final rule. Our 

abbreviated titles are constrained by the 

fact that they must be 68 characters 

long. The current abbreviated title for 

MS–DRG 465 is already 68 characters 

long. The MS–DRG 465 abbreviated title 

is as follows: Wnd debrid & skn graft 

exc hand, for musculo-conn tiss dis 

w/o CC/MM. As a result, we are unable 

to accommodate the commenter’s 

suggestion by making a clear MS–DRG 

abbreviated title that includes all of the 

recommended language within our 68 

character limitation. We also note that 

not all prosthesis removals are being 

moved to MS–DRGs 463, 364, and 465. 

We are only moving knee and hip 

prosthesis removals to these MS–DRGs. 

Therefore, we believe that the suggested 

new title may be misleading because it 

implies all types of prosthesis removals 

are in these MS–DRGs. Therefore, we 

are maintaining the current titles for 

MS–DRGs 463, 464, and 465. 

After consideration of the public 

comments we received, we are 

finalizing our proposal to move 

procedure codes 80.05 and 80.06 to MS– 

DRGs 463, 464, and 465. We are also 

finalizing our proposal to revise the 

titles of procedure codes 80.05 and 

80.06. The revised title for procedure 

code 80.05 is ‘‘Arthrotomy for removal 

of prosthesis without replacement, hip’’. 

The revised title for procedure code 

80.06 is ‘‘Arthrotomy for removal of 

prosthesis without replacement, knee’’. 

These modifications and revisions are 

effective October 1, 2009, as reflected in 

Table 6F of the Addendum to this final 

rule. 

3. Medicare Code Editor (MCE) Changes 

As explained under section II.B.1. of 

the preamble of this final rule, the 

Medicare Code Editor (MCE) is a 

software program that detects and 

reports errors in the coding of Medicare 

claims data. Patient diagnoses, 

procedure(s), and demographic 

information are entered into the 

Medicare claims processing systems and 

are subjected to a series of automated 

screens. The MCE screens are designed 

to identify cases that require further 

review before classification into a DRG. 

In the FY 2020 IPPS/LTCH PPS 

proposed rule (74 FR 24109 through 

24110), for FY 2010, we proposed to 

make the following changes to the MCE 

edits: 

a. Diagnoses Allowed for Males Only 

Edit 

There are four diagnosis codes that 

were inadvertently left off of the MCE 

edit titled ‘‘Diagnoses Allowed for 

Males Only.’’ These codes are located in 

the chapter of the ICD–9–CM diagnosis 

codes entitled ‘‘Diseases of Male Genital 

Organs.’’ In the FY 2009 IPPS final rule, 

we indicated that we were adding the 

following four codes to this MCE edit: 

• 603.0 (Encysted hydrocele) 

• 603.1 (Infected hydrocele) 

• 603.8 (Other specified types of 

hydrocele) 

• 603.9 (Hydrocele, unspecified). 

We had no reported problems or 

confusion with the omission of these 

codes from this section of the MCE, but 

in order to have an accurate product, we 

indicated that we were adding these 

codes for FY 2009. However, through an 

oversight, we failed to implement the 

indicated FY 2009 changes to the MCE 

by adding codes 603.0, 603.1, 603.8, and 

603.9 to the MCE edit of diagnosis 

allowed for males only. In the FY 2010 

IPPS/RY 2010 LTCH PPS proposed rule, 

we acknowledged this omission and 

again proposed to make the changes. 

We did not receive any public 

comments on the proposed changes to 

the edit for Diagnosis Allowed for Males 

Only. Therefore, we are finalizing our 

proposal to add diagnosis codes 603.0, 

603.1, 603.8, and 603.9 to this MCE edit 

for FY 2010. 

b. Manifestation Codes as Principal 

Diagnosis Edit 

Manifestation codes describe the 

manifestation of an underlying disease, 

not the disease itself. Therefore, 

manifestation codes should not be used 

as a principal diagnosis. The National 

Center for Health Statistics (NCHS) has 

removed the advice ‘‘code first 

associated disorder’’ from three codes, 

thereby making them acceptable 

principal diagnosis codes. These codes 

are: 

• 365.41 (Glaucoma associated with 

chamber angle anomalies) 

• 365.42 (Glaucoma associated with 

anomalies of iris) 

• 365.43 (Glaucoma associated with 

other anterior segment anomalies) 

In order to make conforming changes 

to the MCE, in the FY 2010 IPPS/RY 

2010 LTCH PPS proposed rule (74 FR 

24109), we proposed to remove codes 

365.41, 365.42, and 365.43 from the 

Manifestation Code as Principal 

Diagnosis Edit. 

We did not receive any public 

comments on the proposed changes to 

the edit for Manifestation Codes as 

Principal Diagnosis. Therefore, we are 

finalizing our proposal to remove 

manifestation codes 365.41, 365.42, and 

365.43 from the principal diagnosis edit. 

These codes will be acceptable as 

principal diagnosis, effective October 1, 

2010. 

c. Invalid Diagnosis or Procedure Code 

The MCE checks each diagnosis, 

including the admitting diagnosis, and 

each procedure against a table of valid 

ICD–9–CM codes. If an entered code 

does not agree with any code on the list, 

it is assumed to be invalid or that the 

4th or 5th digit of the code is invalid or 

missing. 

An error was discovered in this edit. 

ICD–9–CM code 00.01 (Therapeutic 

ultrasound of vessels of head and neck) 

was inadvertently left out of the MCE 

tables. The inclusion of this code in the 

MCE tables would have generated an 

error message at the Medicare contractor 

level, but we had instructed the 


sroberts on DSKD5P82C1PROD with RULES
43790 Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 

Medicare contractors to override this 

edit for discharges on or after October 1, 

2008. To make a conforming change to 

the MCE, in the FY 2010 IPPS/RY 2010 

LTCH PPS proposed rule (74 FR 24109), 

we proposed to add code 00.01 to the 

table of valid codes. 

We did not receive any public 

comments on our proposed changes to 

the edit for Invalid Diagnosis or 

Procedure Codes. Therefore, we are 

finalizing our proposal to add code 

00.01 to the table of valid codes for FY 

2010. 

d. Unacceptable Principal Diagnosis 

There are selected codes that describe 

a circumstance that influences an 

individual’s health status but not a 

current illness or injury and codes that 

are not specific manifestations but may 

describe illnesses due to an underlying 

cause. These codes are considered 

unacceptable as a principal diagnosis. 

For FY 2008, a series of diagnostic 

codes were created at subcategory 209, 

Neuroendocrine Tumors. An 

instructional note under this 

subcategory stated that coders were to 

‘‘Code first any associated multiple 

endocrine neoplasia syndrome (258.01– 

258.03)’’. Medicare contractors had 

interpreted this note to mean that none 

of the codes in subcategory 209 were 

acceptable principal diagnoses and had 

entered these codes on the MCE edit for 

unacceptable principal diagnoses. We 

later deemed this interpretation to be 

incorrect. We had not intended that the 

series of codes at subcategory 209 were 

only acceptable as secondary diagnoses. 

To avoid future misinterpretation, in 

the FY 2010 IPPS/RY 2919 LTCH PPS 

proposed rule (74 FR 24109 through 

24110), we proposed to remove the 

following codes from the MCE edit for 

unacceptable principal diagnoses. 

• 209.00 (Malignant carcinoid tumor of 

the small intestine, unspecified 

portion) 

• 209.01 (Malignant carcinoid tumor of 

the duodenum) 

• 209.02 (Malignant carcinoid tumor of 

the jejunum) 

• 209.03 (Malignant carcinoid tumor of 

the ileum) 

• 209.10 (Malignant carcinoid tumor of 

the large intestine, unspecified 

portion) 

• 209.11 (Malignant carcinoid tumor of 

the appendix) 

• 209.12 (Malignant carcinoid tumor of 

the cecum) 

• 209.13 (Malignant carcinoid tumor of 

the ascending colon) 

• 209.14 (Malignant carcinoid tumor of 

the transverse colon) 

• 209.15 (Malignant carcinoid tumor of 

the descending colon) 

• 209.16 (Malignant carcinoid tumor of 

the sigmoid colon) 

• 209.17 (Malignant carcinoid tumor of 

the rectum) 

• 209.20 (Malignant carcinoid tumor of 

unknown primary site) 

• 209.21 (Malignant carcinoid tumor of 

the bronchus and lung) 

• 209.22 (Malignant carcinoid tumor of 

the thymus) 

• 209.23 (Malignant carcinoid tumor of 

the stomach) 

• 209.24 (Malignant carcinoid tumor of 

the kidney) 

• 209.25 (Malignant carcinoid tumor of 

foregut, not otherwise specified) 

• 209.26 (Malignant carcinoid tumor of 

midgut, not otherwise specified) 

• 209.27 (Malignant carcinoid tumor of 

hindgut, not otherwise specified) 

• 209.29 (Malignant carcinoid tumor of 

other sites) 

• 209.30 (Malignant poorly 

differentiated neuroendocrine 

carcinoma, any site) 

• 209.40 (Benign carcinoid tumor of the 

small intestine, unspecified portion) 

• 209.41 (Benign carcinoid tumor of the 

duodenum) 

• 209.42 (Benign carcinoid tumor of the 

jejunum) 

• 209.43 (Benign carcinoid tumor of the 

ileum) 

• 209.50 (Benign carcinoid tumor of the 

large intestine, unspecified portion) 

• 209.51 (Benign carcinoid tumor of the 

appendix) 

• 209.52 (Benign carcinoid tumor of the 

cecum) 

• 209.53 (Benign carcinoid tumor of the 

ascending colon) 

• 209.54 (Benign carcinoid tumor of the 

transverse colon) 

• 209.55 (Benign carcinoid tumor of the 

descending colon) 

• 209.56 (Benign carcinoid tumor of the 

sigmoid colon) 

• 209.57 (Benign carcinoid tumor of the 

rectum) 

• 209.60 (Benign carcinoid tumor of 

unknown primary site) 

• 209.61 (Benign carcinoid tumor of the 

bronchus and lung) 

• 209.62 (Benign carcinoid tumor of the 

thymus) 

• 209.63 (Benign carcinoid tumor of the 

stomach) 

• 209.64 (Benign carcinoid tumor of the 

kidney) 

• 209.65 (Benign carcinoid tumor of 

foregut, not otherwise specified) 

• 209.66 (Benign carcinoid tumor of 

midgut, not otherwise specified) 

• 209.67 (Benign carcinoid tumor of 

hindgut, not otherwise specified) 

• 209.69 (Benign carcinoid tumor of 

other sites) 

In the meantime, CMS has issued 

instructions in the form of an internal 

working document called a joint 

signature memorandum to the Medicare 

contractors to override this edit and 

process claims containing codes from 

the subcategory 209 series as acceptable 

principal diagnoses. 

We acted quickly to negate the effects 

of this edit, as it was an erroneous edit 

to the MCE resulting in unintended 

consequences. We did not receive any 

public comments on the proposed 

change to the edit for Unacceptable 

Principal Diagnosis. Therefore, we are 

finalizing our proposal to remove the 

codes listed above (that is, codes 209.00 

through 209.69) from the MCE edit for 

Unacceptable Principal Diagnosis. 

e. Creation of New Edit Titled ‘‘Wrong 

Procedure Performed’’ 

On January 15, 2009, CMS issued 

three National Coverage Decision 

memoranda on the coverage of 

erroneous surgeries on Medicare 

patients: Wrong Surgical or Other 

Invasive Procedure Performed on a 

Patient (CAG–00401N); Surgical or 

Other Invasive Procedure Performed on 

the Wrong Body Part (CAG–00402N); 

and Surgical or Other Invasive 

Procedure Performed on the Wrong 

Patient (CAG–00403N). We refer readers 

to the following CMS Web sites to view 

the memoranda in their entirety: For the 

decision memorandum on surgery on 

the wrong body part: https://

www.cms.hhs.gov/mcd/viewdecision

memo.asp?id=222. For the decision 

memorandum on surgery on the wrong 

patient: https://www.cms.hhs.gov/mcd/

viewdecisionmemo.asp?id=221. For the 

decision memorandum on the wrong 

surgery performed on a patient: https://

www.cms.hhs.gov/mcd/

viewdecisionmemo.asp?id=223. 

To conform to these new coverage 

decisions, in the FY 2010 IPPS/RY 2010 

LTCH PPS proposed rule (74 FR 24110), 

we proposed to create a new edit to 

identify cases in which wrong surgeries 

occurred. The NCHS has revised the 

title of one E-code and created two new 

E-codes to identify cases in which 

incorrect surgeries have occurred. The 

revised E-code title is: 

• E876.5 (Performance of wrong 

operation (procedure) on correct 

patient). 

The two new E-codes are as follows: 

• E876.6 (Performance of operation 

(procedure) on patient not scheduled for 

surgery). 

• E876.7 (Performance of correct 

operation (procedure) on wrong side/ 

body part). 

For the benefit of the reader, we are 

providing the following brief 

background information on external 

causes of injury and poisoning codes (EVerDate Nov<24>2008 19:22 Aug 26, 2009 Jkt 217001 PO 00000 Frm 00038 Fmt 4701 Sfmt 4700 E:\FR\FM\27AUR2.SGM 27AUR2

sroberts on DSKD5P82C1PROD with RULES
Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 43791 

codes). E-codes are intended to provide 

data for injury research and evaluation 

of injury prevention strategies. E-codes 

capture how the injury or poisoning 

happened (cause), the intent 

(unintentional or accidental; or 

intentional, such as suicide or assault), 

and the place where the event occurred. 

The use of E-codes is supplemental to 

the ICD–9–CM diagnosis codes. The 

National Center for Health Statistics 

(NCHS)/CDC has created and maintains 

the ICD–9–CM Official Guidelines for 

Coding and Reporting, including 

instructions concerning E-codes, and 

has made these guidelines available on 

the Web site at: http://www.cdc.gov/

nchs/datawh/ftpserv/ftpicd9/

icdguide08.pdf. The guidelines are a 

national HIPAA standard. The 

guidelines are being updated effective 

October 1, 2009, to recognize the fact 

that CMS requires the reporting of Ecodes as part of its wrong procedure 

performed national coverage decision. 

The fourth quarter issue of Coding 

Clinic for ICD–9–CM will also include 

information on the new wrong surgery 

codes as well as the updated Coding 

Guidelines. 

A complete list of all of the E-codes 

that will be implemented on October 1, 

2009, can be found on the CMS Web site 

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

ICD9ProviderDiagnosticCodes/07_

summarytables.asp#TopOfPage in the 

download titled ‘‘New, Deleted, and 

Invalid Diagnosis and Procedure 

Codes.’’ 

Currently, an E-code used as a 

principal diagnosis will receive the 

MCE Edit ‘‘E-code as principal 

diagnosis’’. This edit will remain in 

effect. However, we proposed a change 

to the MCE so that E-codes E876.5 

through E876.7, whether they are in the 

principal or secondary diagnosis 

position, will trigger the ‘‘Wrong 

Procedure Performed’’ edit. Any claim 

with this edit will be rejected. 

Comment: Several commenters 

requested that CMS clarify its policy on 

reporting of E-codes, stating that CMS 

has never required the reporting of these 

codes prior to the proposed rule. The 

commenters also stated that an edit for 

codes E876.5 through E876.7 should not 

be applied to claims in which one of 

these E-codes was listed as the principal 

diagnosis as there is already an MCE 

edit that addresses E-codes in this 

position. One commenter agreed that 

eliminating the ‘‘E-code as Principal 

Diagnosis’’ edit that is currently in place 

will address many issues for reporting 

E-codes as principal diagnosis. 

Response: The commenters are correct 

that the reporting of E-codes has not 

previously been required for reporting 

to CMS. However, as noted above, the 

E-codes are used for many purposes and 

are often required by institutions in 

order to describe a complete patient 

encounter with health services. We 

believe that any of the three 

aforementioned wrong surgery 

situations presents such an egregious 

scenario that hospitals will capture this 

information through the use of the 

applicable E-codes. 

The commenters are correct that Ecodes in the principal diagnosis 

position on the claim will trigger an edit 

in which claims will be returned to the 

provider. However, we did not propose 

to delete this edit; this edit will remain 

in place along with the Wrong 

Procedure Performed edit. Claims with 

E-codes other than codes E876.5 

through E876.7 reported in the principal 

diagnosis position will be subject to the 

longstanding Principal Diagnosis edit. 

Claims with codes E876.5 through 

E876.7 reported in either the principal 

or secondary diagnosis position will be 

subject to the Wrong Procedures 

Performed edit. These claims will be 

rejected. 

Comment: Commenters suggested that 

the Wrong Procedure Performed edit 

should be triggered if the E-code is 

reported in either the E-code position on 

the claim or in the secondary diagnosis 

position. 

Response: We agree that the edit 

should be triggered no matter in what 

position it is reported. However, we 

encourage reporting of the E-codes in 

the secondary diagnosis position. 

Comment: One commenter suggested 

that if codes E876.5 through E876.7 

were to be reported in the principal 

diagnosis position, the ‘‘E-code as 

Principal Diagnosis’’ edit should be 

invoked and the claim returned to the 

provider so that the claim could then be 

resubmitted listing the codes in the 

correct sequence. The commenter 

further suggested that the Wrong 

Procedure Performed edit should only 

be triggered when the E-codes are 

reported in the correct position on the 

claim. 

Response: We do not believe this 

suggestion is in the best interest of the 

hospital industry. Performance of the 

wrong surgery is not a reasonable and 

necessary treatment for the Medicare 

beneficiary, and these claims will be 

rejected. To cause the Medicare 

contractor (the fiscal intermediary or the 

A/B MAC) to return the claim to the 

provider, have the provider correct the 

sequencing of the codes on the claim 

and return it to the contractor, only to 

ultimately have the claim be rejected, 

add steps to a process that results in the 

same outcome. 

Comment: One commenter suggested 

that updated coding guidance should 

address the definition of operation/ 

procedure, and [define] what constitutes 

a wrong procedure for consistent 

assignment [of the codes] to coincide 

with industry definitions. 

Response: We take this opportunity to 

point out that the definition of an 

operation or procedure is a longstanding 

description, dating from the Uniform 

Hospital Discharge Data Set 

promulgated by the Secretary of the U.S. 

Department of Health, Education, and 

Welfare in 1974. In addition, with 

regard to the suggestion that there need 

to be guidelines regarding the 

performance of a wrong surgery in any 

of the three cases described by these 

codes, we believe that any of these three 

scenarios are so flagrant that the average 

individual could determine that a wrong 

surgery had taken place. Therefore, we 

do not believe we should wait for a 

determination by the industry of what 

constitutes the definition of a wrong 

surgery. 

Comment: One commenter urged 

CMS to work closely with the other 

Cooperating Parties for ICD–9–CM to 

provide guidance for coding, reporting, 

and sequencing of codes E876.5 through 

E876.7. Several commenters suggested 

that CMS begin processing all of the 

reported diagnosis and procedure codes. 

Response: We acknowledge the 

current CMS system limitations that 

allow us to process only the first nine 

diagnosis codes and six procedure codes 

reported on the hospital bills and that 

do not allow us to process codes from 

the external cause of injury field when 

making an MS–DRG assignment. We 

have discussed these internal CMS 

system limitations in previous rules. In 

anticipation of the implementation of 

ICD–10 on October 1, 2013, CMS is 

undertaking extensive efforts to update 

its systems. These system updates 

include plans to begin processing up to 

25 diagnosis codes and 25 procedure 

codes as well as the ability to process 

codes reported in the external cause of 

injury field. With these system updates, 

we believe the concerns expressed by 

commenters concerning CMS’ limited 

processing of reported codes will be 

resolved. In the meantime, hospitals 

should continue their current and 

longstanding practice of reporting the 

ICD–9–CM diagnosis and procedure 

codes which affect the MS–DRG 

assignment among the first nine 

diagnosis and first six procedure coding 

fields. 

As stated below, CMS will implement 

a wrong surgery (Wrong Procedure 

Performed) coverage edit in the MCE on 

October 1, 2009, that will lead to any 


sroberts on DSKD5P82C1PROD with RULES
43792 Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 

claim with a wrong surgery E-code 

triggering this edit to be rejected. 

Should hospitals perform any of the 

three wrong surgeries and submit claims 

on which the E-code is omitted or is 

listed in a field that we do not currently 

process for the MS–DRG assignment 

(the code is not reported among the first 

nine diagnosis codes or the code is 

reported in the External Cause of Injury 

field), the case may be subject to 

retrospective review by the Recovery 

Audit Contractor (RAC) and then 

subsequently denied. Patterns of 

apparent coding abuse may be referred 

to the Office of Inspector General for 

HHS for additional investigation. 

We also have referred this new Wrong 

Procedure Performed national coverage 

decision to the Cooperating Parties for 

ICD–9–CM who update and maintain 

the Official ICD–9–CM Coding 

Guidelines. These guidelines are a 

national HIPAA standard. The 

guidelines are being updated effective 

October 1, 2009, to recognize the fact 

that CMS requires the reporting of Ecodes as part of its wrong procedure 

performed national coverage decision. 

The fourth quarter issue of Coding 

Clinic for ICD–9–CM will also include 

information on the new wrong surgery 

codes as well as the updated Coding 

Guidelines. We believe the clarity 

provided by the national coverage 

decisions, the MCE edits, the updated 

Official ICD–9–CM Coding Guidelines, 

and the Fourth Quarter Coding Clinic 

article on the new wrong surgery codes 

should make clear how the codes are to 

be used and reported. 

After consideration of the public 

comments we received, we are 

finalizing our proposal to change the 

MCE so the E-codes E876.5 through 

E876.7, whether they are in the 

principal or secondary diagnosis 

position, will trigger the ‘‘Wrong 

Procedure Performed’’ edit. Therefore, 

any claim with this edit will be rejected, 

effective October 1, 2009. 

f. Procedures Allowed for Females Only 

Edit 

It has come to our attention that code 

75.37 (Amnioinfusion) and code 75.38 

(Fetal pulse oximetry) were 

inadvertently omitted from the MCE 

edit ‘‘Procedures Allowed for Females 

Only.’’ In order to correct this omission, 

in the FY 2010 IPPS/RY 2010 LTCH 

proposed rule (74 FR 24110 through 

24111), we proposed to add codes 75.37 

and 75.38 to the edit for procedures 

allowed for females only. 

We did not receive any public 

comments on our proposal. Therefore, 

for FY 2010, we are adding codes 75– 

37 and 75.38 to the Procedures Allowed 

for Females Only edit. 

4. Surgical Hierarchies 

Some inpatient stays entail multiple 

surgical procedures, each one of which, 

occurring by itself, could result in 

assignment of the case to a different 

MS–DRG within the MDC to which the 

principal diagnosis is assigned. 

Therefore, it is necessary to have a 

decision rule within the GROUPER by 

which these cases are assigned to a 

single MS–DRG. The surgical hierarchy, 

an ordering of surgical classes from 

most resource-intensive to least 

resource-intensive, performs that 

function. Application of this hierarchy 

ensures that cases involving multiple 

surgical procedures are assigned to the 

MS–DRG associated with the most 

resource-intensive surgical class. 

Because the relative resource intensity 

of surgical classes can shift as a function 

of MS–DRG reclassification and 

recalibrations, we reviewed the surgical 

hierarchy of each MDC, as we have for 

previous reclassifications and 

recalibrations, to determine if the 

ordering of classes coincides with the 

intensity of resource utilization. 

A surgical class can be composed of 

one or more MS–DRGs. For example, in 

MDC 11, the surgical class ‘‘kidney 

transplant’’ consists of a single MS–DRG 

(MS–DRG 652) and the class ‘‘major 

bladder procedures’’ consists of three 

MS–DRGs (MS–DRGs 653, 654, and 

655). Consequently, in many cases, the 

surgical hierarchy has an impact on 

more than one MS–DRG. The 

methodology for determining the most 

resource-intensive surgical class 

involves weighting the average 

resources for each MS–DRG by 

frequency to determine the weighted 

average resources for each surgical class. 

For example, assume surgical class A 

includes MS–DRGs 1 and 2 and surgical 

class B includes MS–DRGs 3, 4, and 5. 

Assume also that the average costs of 

MS–DRG 1 is higher than that of MS– 

DRG 3, but the average costs of MS– 

DRGs 4 and 5 are higher than the 

average costs of MS–DRG 2. To 

determine whether surgical class A 

should be higher or lower than surgical 

class B in the surgical hierarchy, we 

would weight the average costs of each 

MS–DRG in the class by frequency (that 

is, by the number of cases in the MS– 

DRG) to determine average resource 

consumption for the surgical class. The 

surgical classes would then be ordered 

from the class with the highest average 

resource utilization to that with the 

lowest, with the exception of ‘‘other 

O.R. procedures’’ as discussed below. 

This methodology may occasionally 

result in assignment of a case involving 

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

resource-intensive surgical class) of the 

available alternatives. However, given 

that the logic underlying the surgical 

hierarchy provides that the GROUPER 

search for the procedure in the most 

resource-intensive surgical class, in 

cases involving multiple procedures, 

this result is sometimes unavoidable. 

We note that, notwithstanding the 

foregoing discussion, there are a few 

instances when a surgical class with a 

lower average cost is ordered above a 

surgical class with a higher average cost. 

For example, the ‘‘other O.R. 

procedures’’ surgical class is uniformly 

ordered last in the surgical hierarchy of 

each MDC in which it occurs, regardless 

of the fact that the average costs for the 

MS–DRG or MS–DRGs in that surgical 

class may be higher than those for other 

surgical classes in the MDC. The ‘‘other 

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

procedures that are only infrequently 

related to the diagnoses in the MDC, but 

are still occasionally performed on 

patients in the MDC with these 

diagnoses. Therefore, assignment to 

these surgical classes should only occur 

if no other surgical class more closely 

related to the diagnoses in the MDC is 

appropriate. 

A second example occurs when the 

difference between the average costs for 

two surgical classes is very small. We 

have found that small differences 

generally do not warrant reordering of 

the hierarchy because, as a result of 

reassigning cases on the basis of the 

hierarchy change, the average costs are 

likely to shift such that the higherordered surgical class has a lower 

average costs than the class ordered 

below it. 

For FY 2010, we did not propose any 

revisions to the surgical hierarchy. 

We did not receive any public 

comments on our proposal not to make 

any revisions to the surgical hierarchy 

and, therefore, are finalizing our 

proposed decision in this final rule. 

5. Complications or Comorbidity (CC) 

Exclusions List 

a. Background 

As indicated earlier in the preamble 

of this final rule, under the IPPS 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 


sroberts on DSKD5P82C1PROD with RULES
Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 43793 

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

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

discharges occurring in FY 1989; the FY 1990 final 

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

the FY 2008 revisions, and the FY 2009 final rule 

(73 FR 48510). 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. 

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 2010 

In the September 1, 1987 final notice 

(52 FR 33143) concerning changes to the 

DRG classification system, we modified 

the GROUPER logic so that certain 

diagnoses included on the standard list 

of CCs would not be considered valid 

CCs in combination with a particular 

principal diagnosis. We created the CC 

Exclusions List for the following 

reasons: (1) To preclude coding of CCs 

for closely related conditions; (2) to 

preclude duplicative or inconsistent 

coding from being treated as CCs; and 

(3) to ensure that cases are appropriately 

classified between the complicated and 

uncomplicated DRGs in a pair. As we 

indicated above, we developed a list of 

diagnoses, using physician panels, to 

include those diagnoses that, when 

present as a secondary condition, would 

be considered a substantial 

complication or comorbidity. In 

previous years, we have made changes 

to the list of CCs, either by adding new 

CCs or deleting CCs already on the list. 

In the May 19, 1987 proposed notice 

(52 FR 18877) and the September 1, 

1987 final notice (52 FR 33154), we 

explained that the excluded secondary 

diagnoses were established using the 

following five principles: 

• Chronic and acute manifestations of 

the same condition should not be 

considered CCs for one another. 

• Specific and nonspecific (that is, 

not otherwise specified (NOS)) 

diagnosis codes for the same condition 

should not be considered CCs for one 

another. 

• Codes for the same condition that 

cannot coexist, such as partial/total, 

unilateral/bilateral, obstructed/ 

unobstructed, and benign/malignant, 

should not be considered CCs for one 

another. 

• Codes for the same condition in 

anatomically proximal sites should not 

be considered CCs for one another. 

• Closely related conditions should 

not be considered CCs for one another. 

The creation of the CC Exclusions List 

was a major project involving hundreds 

of codes. We have continued to review 

the remaining CCs to identify additional 

exclusions and to remove diagnoses 

from the master list that have been 

shown not to meet the definition of a 

CC.2

In the FY 2010 IPPS/RY 2010 LTCH 

PPS proposed rule (74 FR 24111 

through 24112), we proposed to make 

limited revisions to the CC Exclusions 

List for FY 2010 to take into account the 

changes made in the ICD–9–CM 

diagnosis coding system effective 

October 1, 2009. (We refer readers to 

section II.G.7. of the preamble of this 

final rule for a discussion of ICD–9–CM 

changes.) We proposed to make these 

changes in accordance with the 

principles established when we created 

the CC Exclusions List in 1987. In 

addition, we indicated on the CC 

Exclusions List some changes as a result 

of updates to the ICD–9–CM codes to 

reflect the exclusion of codes from being 

MCCs under the MS–DRG system that 

we adopted in FY 2008. 

Comment: One comment asked CMS 

if it would be reasonable to consider 

modifying future GROUPER logic so 

that patients with multiple secondary 

diagnoses classified as CCs would be 

assigned to the MCC level. In other 

words, the commenter stated, multiple 

CCs would be considered the same as 

having an MCC. 

Response: We believe this comment is 

outside the scope of the proposed rule 

because we did not propose significant 

revisions to the MS–DRGs. Moreover, as 

discussed earlier, we made significant 

refinements to the inpatient payment 

system when we implemented the MS– 

DRG system in FY 2008. We refer 

readers to section II.D. of the FY 2008 

IPPS final rule with comment period for 

a full discussion of how the MS–DRG 

system was established based on 

severity levels of illness (72 FR 47141). 

As we noted earlier, we received a 

number of comments recognizing the 

recent major changes to the MS–DRGs. 

The commenters stated that, given these 

recent major changes, it is appropriate 

for CMS to make only a limited number 

of MS–DRG classification changes for 

FY 2010. We believe that reclassifying a 

case with two or more CCs as an MCC 

would have a major impact on the MS– 

DRG system because 51 percent of the 

cases in the MedPAR file have more 

than one CC (5,980,824 of 11,801,371 

cases in FY 2008). Therefore, we have 

decided not to modify the GROUPER 

logic to classify a case with multiple 

CCs as an MCC for FY 2010. 

Comment: Several commenters 

recommended that CMS consider 

making further adjustments to the MS– 

DRG assignments based on obesity. The 

commenters stated that higher Body 

Mass Index (BMI) ratings add to the 

complexity of care for patients, such as 

those patients undergoing orthopedic 

procedures. The commenters 

recommended the following changes to 

the list of MCCs and CCs. 

One commenter recommended that 

CMS add the following codes to the CC 

list. Another commenter recommended 

that CMS add these same codes to the 

MCC list. 

• 731.3 (Major osseous defects) 

• V85.35 (Body mass index 35.0–35.9, 

adult) 

• V85.36 (Body mass index 36.0–36.9, 

adult) 

• V85.37 (Body mass index 37.0–37.9, 

adult) 

Both commenters recommended that 

CMS add the following codes to the 

MCC list: 

• V85.38 (Body mass index 38.0–38.9, 

adult) 

• V85.39 (Body mass index 39.0–39.9, 

adult) 

• V85.40 (Body mass index 40 and over, 

adult) 

Response: We believe this comment is 

outside the scope of the specific 

proposal in the proposed rule because 

we did not propose significant revisions 

to the MS–DRGs. In the FY 2010 IPPS/ 

RY 2010 LTCH PPS proposed rule (74 

FR 24091), we stated that we were 

encouraging individuals with comments 

about MS–DRG classifications to submit 

these comments no later than early 

December of each year so they can be 

carefully considered for possible 


sroberts on DSKD5P82C1PROD with RULES
43794 Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 

inclusion in the annual proposed rule 

and, if included, may be subjected to 

public review and comment. Therefore, 

we are not adding these codes to the 

MCC list or the CC list for FY 2010. We 

may consider their appropriateness for 

inclusion in next year’s annual IPPS 

proposed rule. 

After consideration of the public 

comments received, we are adopting the 

proposed limited revisions to the CC 

Exclusion List as final for FY 2010 

without change. 

Tables 6G and 6H, Additions to and 

Deletions from the CC Exclusion List, 

respectively, which are effective for 

discharges occurring on or after October 

1, 2009, are not being published in 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/AcuteInpatientPPS. 

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 also available 

through the Internet on the CMS Web 

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

AcuteInpatientPPS. Beginning with 

discharges on or after October 1, 2009, 

the indented diagnoses will not be 

recognized by the GROUPER as valid 

CCs for the asterisked principal 

diagnosis. 

To assist readers in identifying the 

changes to the MCC and CC lists that 

occurred as a result of updates to the 

ICD–9–CM codes, as described in Tables 

6A, 6C, and 6E of the Addendum to this 

final rule, we are providing the 

following summaries of those MCC and 

CC changes. 

SUMMARY OF ADDITIONS TO THE MS–DRG MCC LIST—TABLE 6I.1 

Code Description 

277.88 ........................... Tumor lysis syndrome. 

670.22 ........................... Puerperal sepsis, delivered, with mention of postpartum complication. 

670.24 ........................... Puerperal sepsis, postpartum condition or complication. 

670.32 ........................... Puerperal septic thrombophlebitis, delivered, with mention of postpartum complication. 

670.34 ........................... Puerperal septic thrombophlebitis, postpartum condition or complication. 

670.80 ........................... Other major puerperal infection, unspecified as to episode of care or not applicable. 

670.82 ........................... Other major puerperal infection, delivered, with mention of postpartum complication. 

670.84 ........................... Other major puerperal infection, postpartum condition or complication. 

756.72 ........................... Omphalocele. 

756.73 ........................... Gastroschisis. 

768.73 ........................... Severe hypoxic-ischemic encephalopathy. 

779.32 ........................... Bilious vomiting in newborn. 

SUMMARY OF DELETIONS FROM THE MS–DRG MCC LIST—TABLE 6I.2 

Code Description 

768.7 ............................. Hypoxic-ischemic encephalopathy (HIE). 

SUMMARY OF ADDITIONS TO THE MS–DRG CC LIST—TABLE 6J.1 

Code Description 

209.71 ........................... Secondary neuroendocrine tumor of distant lymph nodes. 

209.72 ........................... Secondary neuroendocrine tumor of liver. 

209.73 ........................... Secondary neuroendocrine tumor of bone. 

209.74 ........................... Secondary neuroendocrine tumor of peritoneum. 

209.79 ........................... Secondary neuroendocrine tumor of other sites. 

416.2 ............................. Chronic pulmonary embolism. 

453.50 ........................... Chronic venous embolism and thrombosis of unspecified deep vessels of lower extremity. 

453.51 ........................... Chronic venous embolism and thrombosis of deep vessels of proximal lower extremity. 

453.52 ........................... Chronic venous embolism and thrombosis of deep vessels of distal lower extremity. 

453.6 ............................. Venous embolism and thrombosis of superficial vessels of lower extremity. 

453.71 ........................... Chronic venous embolism and thrombosis of superficial veins of upper extremity. 

453.72 ........................... Chronic venous embolism and thrombosis of deep veins of upper extremity. 

453.73 ........................... Chronic venous embolism and thrombosis of upper extremity, unspecified. 

453.74 ........................... Chronic venous embolism and thrombosis of axillary veins. 

453.75 ........................... Chronic venous embolism and thrombosis of subclavian veins. 

453.76 ........................... Chronic venous embolism and thrombosis of internal jugular veins. 

453.77 ........................... Chronic venous embolism and thrombosis of other thoracic veins. 

453.79 ........................... Chronic venous embolism and thrombosis of other specified veins. 

453.81 ........................... Acute venous embolism and thrombosis of superficial veins of upper extremity. 

453.82 ........................... Acute venous embolism and thrombosis of deep veins of upper extremity. 

453.83 ........................... Acute venous embolism and thrombosis of upper extremity, unspecified. 

453.84 ........................... Acute venous embolism and thrombosis of axillary veins. 

453.85 ........................... Acute venous embolism and thrombosis of subclavian veins. 

453.86 ........................... Acute venous embolism and thrombosis of internal jugular veins. 

453.87 ........................... Acute venous embolism and thrombosis of other thoracic veins. 

453.89 ........................... Acute venous embolism and thrombosis of other specified veins. 

569.71 ........................... Pouchitis. 

569.79 ........................... Other complications of intestinal pouch. 

670.10 ........................... Puerperal endometritis, unspecified as to episode of care or not applicable. 


sroberts on DSKD5P82C1PROD with RULES
Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 43795 

3The original list of the ICD–9–CM procedure 

codes for the procedures we consider nonextensive 

procedures, if performed with an unrelated 

principal diagnosis, was published in Table 6C in 

section IV. of the Addendum to the FY 1989 final 

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

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

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

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

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

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

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

other procedures from DRG 468 to DRG 477, and 

some procedures from DRG 477 to DRG 468. No 

procedures were moved in FY 1999, as noted in the 

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

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

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

did not move any procedures from DRG 477. 

However, we did move procedure codes from DRG 

468 and placed them in more clinically coherent 

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

moved several procedures from DRG 468 to DRGs 

476 and 477 because the procedures are 

nonextensive. In the FY 2005 final rule (69 FR 

48950), we moved one procedure from DRG 468 to 

477. In addition, we added several existing 

procedures to DRGs 476 and 477. In the FY 2006 

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

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

moved one procedure from DRG 468 and assigned 

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

no procedures were moved, as noted in the FY 2008 

Continued 

SUMMARY OF ADDITIONS TO THE MS–DRG CC LIST—TABLE 6J.1—Continued 

Code Description 

670.12 ........................... Puerperal endometritis, delivered, with mention of postpartum complication. 

670.14 ........................... Puerperal endometritis, postpartum condition or complication. 

670.20 ........................... Puerperal sepsis, unspecified as to episode of care or not applicable. 

670.30 ........................... Puerperal septic thrombophlebitis, unspecified as to episode of care or not applicable. 

768.70 ........................... Hypoxic-ischemic encephalopathy, unspecified. 

768.71 ........................... Mild hypoxic-ischemic encephalopathy. 

768.72 ........................... Moderate hypoxic-ischemic encephalopathy. 

813.46 ........................... Torus fracture of ulna (alone). 

813.47 ........................... Torus fracture of radius and ulna. 

SUMMARY OF DELETIONS FROM THE MS–DRG CC LIST—TABLE 6J.2 

Code Description 

453.8 ............................. Other venous embolism and thrombosis of other specified veins. 

These summary lists are the same as 

those lists included in the FY 2010 

IPPS/RY 2010 LTCH PPS proposed rule 

(74 FR 24111 through 24112). 

Comment: One commenter supported 

the CC designations for new codes 

813.46 (Torus fracture of ulna (alone)) 

and 813.47 (Torus fracture of radius and 

ulna). 

Response: We appreciate the 

commenter’s support. 

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 26.0, 

is available for $250.00, which includes 

shipping and handling. Version 26.0 of 

the manual is also available on a CD for 

$200.00; a combination hard copy and 

CD is available for $400.00. Version 27.0 

of this manual, which will include the 

final FY 2010 MS–DRG changes, will be 

available in CD only for $225.00. These 

manuals may be obtained by writing 

3M/HIS at the following address: 100 

Barnes Road, Wallingford, CT 06492; or 

by calling (203) 949–0303, or by 

obtaining an order form at the Web site: 

http://www.3MHIS.com. Please specify 

the revision or revisions requested. 

6. Review of Procedure Codes in MS 

DRGs 981 Through 983; 984 Through 

986; and 987 Through 989 

Each year, we review cases assigned 

to former CMS DRG 468 (Extensive O.R. 

Procedure Unrelated to Principal 

Diagnosis), CMS DRG 476 (Prostatic 

O.R. Procedure Unrelated to Principal 

Diagnosis), and CMS DRG 477 

(Nonextensive O.R. Procedure Unrelated 

to Principal Diagnosis) to determine 

whether it would be appropriate to 

change the procedures assigned among 

these CMS DRGs. Under the MS–DRGs 

that we adopted for FY 2008, CMS DRG 

468 was split three ways and became 

MS–DRGs 981, 982, and 983 (Extensive 

O.R. Procedure Unrelated to Principal 

Diagnosis with MCC, with CC, and 

without CC/MCC). 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). 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). 

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 DRGs are intended to 

capture atypical cases, that is, those 

cases not occurring with sufficient 

frequency to represent a distinct, 

recognizable clinical group. MS–DRGs 

984 through 986 (previously CMS DRG 

476) are assigned to those discharges in 

which one or more of the following 

prostatic procedures are performed and 

are unrelated to the principal diagnosis: 

• 60.0, Incision of prostate 

• 60.12, Open biopsy of prostate 

• 60.15, Biopsy of periprostatic tissue 

• 60.18, Other diagnostic procedures 

on prostate and periprostatic tissue 

• 60.21, Transurethral prostatectomy 

• 60.29, Other transurethral 

prostatectomy 

• 60.61, Local excision of lesion of 

prostate 

• 60.69, Prostatectomy, not elsewhere 

classified 

• 60.81, Incision of periprostatic 

tissue 

• 60.82, Excision of periprostatic 

tissue 

• 60.93, Repair of prostate 

• 60.94, Control of (postoperative) 

hemorrhage of prostate 

• 60.95, Transurethral balloon 

dilation of the prostatic urethra 

• 60.96, Transurethral destruction of 

prostate tissue by microwave 

thermotherapy 

• 60.97, Other transurethral 

destruction of prostate tissue by other 

thermotherapy 

• 60.99, Other operations on prostate 

All remaining O.R. procedures are 

assigned to MS–DRGs 981 through 983 

and 987 through 989, with MS–DRGs 

987 through 989 assigned to those 

discharges in which the only procedures 

performed are nonextensive procedures 

that are unrelated to the principal 

diagnosis.3


sroberts on DSKD5P82C1PROD with RULES
43796 Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 

final rule with comment period (72 FR 46241), and 

in the FY 2009 final rule (73 FR 48513). 

For FY 2010, we did not propose to 

change the procedures assigned among 

these MS–DRGs. We did not receive any 

public comments on our proposal not to 

change the procedures assigned among 

the cited MS–DRGs and, therefore, are 

adopting it as final for FY 2010 in this 

final rule. 

a. Moving Procedure Codes From MS– 

DRGs 981 Through 983 or MS–DRGs 

987 Through 989 to MDCs 

We annually conduct a review of 

procedures producing assignment to 

MS–DRGs 981 through 983 (formerly 

CMS DRG 468) or MS–DRGs 987 

through 989 (formerly CMS DRG 477) 

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 DRGs for the MDC in 

which the diagnosis falls. For FY 2010, 

we did not propose to remove any 

procedures from MS–DRGs 981 through 

983 or MS–DRGs 987 through 989. We 

did not receive any public comments on 

our proposal and, therefore, are 

adopting it as final for FY 2010 in this 

final rule. 

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, and 987 through 989 (formerly, 

CMS DRGs 468, 476, and 477, 

respectively), to ascertain whether any 

of those procedures should be 

reassigned from one of these three MS– 

DRGs to another of the three MS–DRGs 

based on average charges and the length 

of stay. We look at the data for trends 

such as shifts in treatment practice or 

reporting practice that would make the 

resulting MS–DRG assignment illogical. 

If we find these shifts, we would 

propose to move cases to keep the MS– 

DRGs clinically similar or to provide 

payment for the cases in a similar 

manner. Generally, we move only those 

procedures for which we have an 

adequate number of discharges to 

analyze the data. 

For FY 2010, we did not propose to 

move any procedure codes among these 

MS–DRGs. We did not receive any 

public comments on our proposal and, 

therefore, are adopting it as final for FY 

2010 in this final rule. 

c. Adding Diagnosis or Procedure Codes 

to MDCs 

Based on our review this year, we did 

not propose to add any diagnosis codes 

to MDCs for FY 2010. We did not 

receive any public comments on this 

subject. 

7. Changes to the ICD–9–CM Coding 

System 

As described in section II.B.1. of the 

preamble of this final rule, the ICD–9– 

CM is a coding system used for the 

reporting of diagnoses and procedures 

performed on a patient. In September 

1985, the ICD–9–CM Coordination and 

Maintenance Committee was formed. 

This is a Federal interdepartmental 

committee, co-chaired by the National 

Center for Health Statistics (NCHS), the 

Centers for Disease Control and 

Prevention, and CMS, charged with 

maintaining and updating the ICD–9– 

CM system. The Committee is jointly 

responsible for approving coding 

changes, and developing errata, 

addenda, and other modifications to the 

ICD–9–CM to reflect newly developed 

procedures and technologies and newly 

identified diseases. The Committee is 

also responsible for promoting the use 

of Federal and non-Federal educational 

programs and other communication 

techniques with a view toward 

standardizing coding applications and 

upgrading the quality of the 

classification system. 

The Official Version of the ICD–9–CM 

contains the list of valid diagnosis and 

procedure codes. (The Official Version 

of the ICD–9–CM is available from the 

Government Printing Office on CD– 

ROM for $19.00 by calling (202) 512– 

1800.) Complete information on 

ordering the CD–ROM is also available 

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

ICD9ProviderDiagnosticCodes/ 

05_CDROM.asp#TopOfPage. The 

Official Version of the ICD–9–CM is no 

longer available in printed manual form 

from the Federal Government; it is only 

available on CD–ROM. Users who need 

a paper version are referred to one of the 

many products available from 

publishing houses. 

The NCHS has lead responsibility for 

the ICD–9–CM diagnosis codes included 

in the Tabular List and Alphabetic 

Index for Diseases, while CMS has lead 

responsibility for the ICD–9–CM 

procedure codes included in the 

Tabular List and Alphabetic Index for 

Procedures. 

The Committee encourages 

participation in the above process by 

health-related organizations. In this 

regard, the Committee holds public 

meetings for discussion of educational 

issues and proposed coding changes. 

These meetings provide an opportunity 

for representatives of recognized 

organizations in the coding field, such 

as the American Health Information 

Management Association (AHIMA), the 

American Hospital Association (AHA), 

and various physician specialty groups, 

as well as individual physicians, health 

information management professionals, 

and other members of the public, to 

contribute ideas on coding matters. 

After considering the opinions 

expressed at the public meetings and in 

writing, the Committee formulates 

recommendations, which then must be 

approved by the agencies. 

The Committee presented proposals 

for coding changes for implementation 

in FY 2010 at a public meeting held on 

September 24–25, 2008 and finalized 

the coding changes after consideration 

of comments received at the meetings 

and in writing by December 5, 2008. 

Those coding changes are announced in 

Tables 6A through 6F in the Addendum 

to this final rule. The Committee held 

its 2009 meeting on March 11–12, 2009. 

New codes for which there was a 

consensus of public support and for 

which complete tabular and indexing 

changes are made by May 2009 will be 

included in the October 1, 2009 update 

to ICD–9–CM. Code revisions that were 

discussed at the March 11–12, 2009 

Committee meeting but that could not 

be finalized in time to include them in 

the Addendum to the FY 2010 IPPS/RY 

2010 LTCH PPS proposed rule are 

included in Tables 6A through 6F of 

this final rule and are marked with an 

asterisk (*). 

Copies of the minutes of the 

procedure codes discussions at the 

Committee’s September 24–25, 2008 

meeting and March 11–12, 2009 meeting 

can be obtained from the CMS Web site 

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

ICD9ProviderDiagnosticCodes/ 

03_meetings.asp. The minutes of the 

diagnosis codes discussions at the 

September 24–25, 2008 meeting and 

March 11–12, 2009 meeting are found 

at: http://www.cdc.gov/nchs/icd9.htm. 

Paper copies of these minutes are no 

longer available and the mailing list has 

been discontinued. These Web sites also 

provide detailed information about the 

Committee, including information on 


sroberts on DSKD5P82C1PROD with RULES
Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 43797 

requesting a new code, attending a 

Committee meeting, and timeline 

requirements and meeting dates. 

We encourage commenters to address 

suggestions on coding issues involving 

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

and Maintenance Committee, NCHS, 

Room 2402, 3311 Toledo Road, 

Hyattsville, MD 20782. Comments may 

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

Questions and comments concerning 

the procedure codes should be 

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

and Maintenance Committee, CMS, 

Center for Medicare Management, 

Hospital and Ambulatory Policy Group, 

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

Security Boulevard, Baltimore, MD 

21244–1850. Comments may be sent by 

E-mail to: 

patricia.brooks2@cms.hhs.gov. 

The ICD–9–CM code changes that 

have been approved will become 

effective October 1, 2009. The new ICD– 

9–CM codes are listed, along with their 

MS–DRG classifications, in Tables 6A 

and 6B (New Diagnosis Codes and New 

Procedure Codes, respectively) in the 

Addendum to this final rule. As we 

stated above, the code numbers and 

their titles were presented for public 

comment at the ICD–9–CM 

Coordination and Maintenance 

Committee meetings. Both oral and 

written comments were considered 

before the codes were approved. 

In the FY 2010 IPPS/RY 2010 LTCH 

PPS proposed rule (74 FR 24114), we 

solicited comments on the proposed 

classification of these new codes. We 

did not receive any public comments on 

the proposed MS–DRG assignments for 

the new diagnosis and procedure codes. 

Therefore, in this final rule, we are 

adopting as final without modification 

the MS–DRG classifications for the new 

codes for FY 2010 that were included in 

the proposed rule and the new codes 

that were discussed at the spring but 

were not finalized in time to be 

included in the proposed rule. 

For codes that have been replaced by 

new or expanded codes, the 

corresponding new or expanded 

diagnosis codes are included in Table 

6A in the Addendum to this final rule. 

New procedure codes are shown in 

Table 6B in the Addendum to this final 

rule. Diagnosis codes that have been 

replaced by expanded codes or other 

codes or have been deleted are in Table 

6C (Invalid Diagnosis Codes) in the 

Addendum to this final rule. These 

invalid diagnosis codes will not be 

recognized by the GROUPER beginning 

with discharges occurring on or after 

October 1, 2009. Table 6D in the 

Addendum to this final rule contains 

invalid procedure codes. These invalid 

procedure codes will not be recognized 

by the GROUPER beginning with 

discharges occurring on or after October 

1, 2009. Revisions to diagnosis code 

titles are in Table 6E (Revised Diagnosis 

Code Titles) in the Addendum to this 

final rule, which also includes the MS– 

DRG assignments for these revised 

codes. Table 6F in the Addendum to 

this final rule includes revised 

procedure code titles for FY 2010. 

In the September 7, 2001 final rule 

implementing the IPPS new technology 

add-on payments (66 FR 46906), we 

indicated we would attempt to include 

proposals for procedure codes that 

would describe new technology 

discussed and approved at the Spring 

meeting as part of the code revisions 

effective the following October. As 

stated previously, ICD–9–CM codes 

discussed at the March 11–12, 2009 

Committee meeting that receive 

consensus and that were finalized by 

May 2009 are included in Tables 6A 

through 6F in the Addendum to this 

final rule. 

Section 503(a) of Public Law 108–173 

included a requirement for updating 

ICD–9–CM codes twice a year instead of 

a single update on October 1 of each 

year. This requirement was included as 

part of the amendments to the Act 

relating to recognition of new 

technology under the IPPS. Section 

503(a) amended section 1886(d)(5)(K) of 

the Act by adding a clause (vii) which 

states that the ‘‘Secretary shall provide 

for the addition of new diagnosis and 

procedure codes on April 1 of each year, 

but the addition of such codes shall not 

require the Secretary to adjust the 

payment (or diagnosis-related group 

classification) * * * until the fiscal year 

that begins after such date.’’ This 

requirement improves the recognition of 

new technologies under the IPPS system 

by providing information on these new 

technologies at an earlier date. Data will 

be available 6 months earlier than 

would be possible with updates 

occurring only once a year on October 

1. 

While section 1886(d)(5)(K)(vii) of the 

Act states that the addition of new 

diagnosis and procedure codes on April 

1 of each year shall not require the 

Secretary to adjust the payment, or DRG 

classification, under section 1886(d) of 

the Act until the fiscal year that begins 

after such date, we have to update the 

DRG software and other systems in 

order to recognize and accept the new 

codes. We also publicize the code 

changes and the need for a mid-year 

systems update by providers to identify 

the new codes. Hospitals also have to 

obtain the new code books and encoder 

updates, and make other system changes 

in order to identify and report the new 

codes. 

The ICD–9–CM Coordination and 

Maintenance Committee holds its 

meetings in the spring and fall in order 

to update the codes and the applicable 

payment and reporting systems by 

October 1 of each year. Items are placed 

on the agenda for the ICD–9–CM 

Coordination and Maintenance 

Committee meeting if the request is 

received at least 2 months prior to the 

meeting. This requirement allows time 

for staff to review and research the 

coding issues and prepare material for 

discussion at the meeting. It also allows 

time for the topic to be publicized in 

meeting announcements in the Federal 

Register as well as on the CMS Web site. 

The public decides whether or not to 

attend the meeting based on the topics 

listed on the agenda. Final decisions on 

code title revisions are currently made 

by March 1 so that these titles can be 

included in the IPPS proposed rule. A 

complete addendum describing details 

of all changes to ICD–9–CM, both 

tabular and index, is published on the 

CMS and NCHS Web sites in May of 

each year. Publishers of coding books 

and software use this information to 

modify their products that are used by 

health care providers. This 5-month 

time period has proved to be necessary 

for hospitals and other providers to 

update their systems. 

A discussion of this timeline and the 

need for changes are included in the 

December 4–5, 2005 ICD–9–CM 

Coordination and Maintenance 

Committee minutes. The public agreed 

that there was a need to hold the fall 

meetings earlier, in September or 

October, in order to meet the new 

implementation dates. The public 

provided comment that additional time 

would be needed to update hospital 

systems and obtain new code books and 

coding software. There was considerable 

concern expressed about the impact this 

new April update would have on 

providers. 

In the FY 2005 IPPS final rule, we 

implemented section 1886(d)(5)(K)(vii) 

of the Act, as added by section 503(a) 

of Public Law 108–173, by developing a 

mechanism for approving, in time for 

the April update, diagnosis and 

procedure code revisions needed to 

describe new technologies and medical 

services for purposes of the new 

technology add-on payment process. We 

also established the following process 

for making these determinations. Topics 

considered during the Fall ICD–9–CM 

Coordination and Maintenance 

Committee meeting are considered for 


sroberts on DSKD5P82C1PROD with RULES
43798 Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 

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, 2009 implementation of an 

ICD–9–CM code at the September 24– 

25, 2008 Committee meeting. Therefore, 

there were no new ICD–9–CM codes 

implemented on April 1, 2009. 

Current addendum and code title 

information is published on the CMS 

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

icd9ProviderDiagnosticCodes/ 

01_overview.asp#TopofPage. 

Information on ICD–9–CM diagnosis 

codes, along with the Official ICD–9– 

CM Coding Guidelines, can be found on 

the Web site at: http://www.cdc.gov/ 

nchs/icd9.htm. Information on new, 

revised, and deleted ICD–9–CM codes is 

also provided to the AHA for 

publication in the Coding Clinic for 

ICD–9–CM. AHA also distributes 

information to publishers and software 

vendors. 

CMS also sends copies of all ICD–9– 

CM coding changes to its Medicare 

contractors for use in updating their 

systems and providing education to 

providers. 

These same means of disseminating 

information on new, revised, and 

deleted ICD–9–CM codes will be used to 

notify providers, publishers, software 

vendors, contractors, and others of any 

changes to the ICD–9–CM codes that are 

implemented in April. The code titles 

are adopted as part of the ICD–9–CM 

Coordination and Maintenance 

Committee process. Thus, although we 

publish the code titles in the IPPS 

proposed and final rules, they are not 

subject to comment in the proposed or 

final rules. We will continue to publish 

the October code updates in this manner 

within the IPPS proposed and final 

rules. For codes that are implemented in 

April, we will assign the new procedure 

code to the same DRG in which its 

predecessor code was assigned so there 

will be no DRG impact as far as 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. 

Comment: A number of commenters 

addressed concerns regarding the 

implementation of ICD–10 and the 

processing more than nine diagnosis 

and six procedure codes in anticipation 

of the implementation of ICD–10. 

Several commenters recommended that 

CMS begin processing all reported 

diagnosis and procedure codes on 

claims, even before the planned 

implementation of ICD–10–CM and 

ICD–10–PCS on October 1, 2013. Other 

commenters recommended that CMS be 

transparent during all steps of ICD–10 

implementation and make provisions 

for stakeholder comments and input 

during the transition. One commenter 

recommended that the final ICD–10 

version of MS–DRGs be adopted using 

notice and comment rulemaking. 

Response: We did not address the 

planned implementation of ICD–10 in 

the FY 2010 IPPS/RY 2010 LTCH PPS 

proposed rule and, therefore, consider 

these comments beyond the scope of the 

proposed rule. Therefore, we will not 

address them in this final rule. We refer 

readers to the separate CMS final rule 

published in the Federal Register that 

announced the implementation of 

modifications to medical data code set 

standards to adopt ICD–10–CM and 

ICD–10–PCS (74 FR 3328 through 3362). 

CMS is currently undergoing extensive 

efforts to update its Medicare payment 

systems as part of the move to ICD–10. 

Part of these system efforts will involve 

the expansion of our ability to process 

more diagnosis and procedure codes. 

Information on ICD–10 can be found on 

the CMS Web site at: http:// 

www.cms.hhs.gov/ICD10. The final 

ICD–10 version of MS–DRGs will be 

adopted under the formal rulemaking 

process as part of our annual IPPS 

updates. 

8. Other Issues Not Addressed in the 

Proposed Rule 

We received a number of public 

comments on issues that were not the 

subject of proposals in the FY 2010 

IPPS/RY 2010 LTCH PPS proposed rule. 

a. Administration of Tissue 

Plasminogen Activator (tPA) (rtPA) 

We received a public comment 

requesting that CMS conduct an 

analysis of diagnosis code V45.88 

(Status post administration of tPA (rtPA) 

in a different facility within the last 24 

hours prior to admission to current 

facility) under MDC 1 (Diseases and 

Disorders of the Nervous System). This 

code was created for use beginning 

October 1, 2008, and the commenter 

believes that the use of this code during 

FY 2009 and FY 2010 could potentially 

result in a new MS–DRG or set of MS– 

DRGs in FY 2011. The commenter 

believed that an expedited analysis 

would help show if the code is being 

used. 

This comment is outside the scope of 

the proposed rule, as we did not 

propose any MS–DRG changes based on 

data analysis of cases including 

diagnosis code V45.88. Therefore, we 

will not undertake an evaluation of code 

V45.88 at this time for FY 2010. As we 

stated in FY 2010 IPPS/RY 2010 LTCH 

PPS proposed rule (74 FR 24091), we 

encourage individuals with comments 

about MS–DRG classifications to submit 

these comments no later than early 

December of each year so they can be 

carefully considered for possible 

inclusion in the annual proposed rule 

and, if included, may be subjected to 

public review and comment. 

b. Coronary Artery Bypass Graft (CABG) 

With Intraoperative Angiography 

We received a number of comments 

that recommended creating new MS– 

DRGs to separately identify the use of 

intraoperative angiography, by any 

method, in CABG surgery under MDC 5 

(Diseases and Disorders of the 

Circulatory System). Intraoperative 

angiography is used to assess bypass 

graft patency. The commenters 

acknowledged that imaging in the 

operating room is a fairly new concept. 

However, the commenters stated that 

there is a movement to encourage 

greater use of this technology in 

conjunction with CABG procedures to 

identify and correct any technical issues 

with the graft(s) at the time of surgery. 

According to the commenters, 

intraoperative angiography would 

reduce graft failure complications and 

hospital readmissions while improving 

patient care outcomes. 

The commenters expressed concern 

that the costs related to intraoperative 

angiography are not fully realized in the 

current structure of the MS–DRGs. One 

commenter suggested creating four new 

MS–DRGs to identify the use of 

intraoperative angiography when 

performed with CABG surgery. The 

commenter stated that in the current 

MS–DRG scheme, there is not a 

mechanism to determine when 

intraoperative angiography is 

performed. Angiography is commonly 

performed as a separate procedure in a 

catheterization laboratory and the ICD– 

9–CM procedure codes do not 

distinguish between preoperative, 


sroberts on DSKD5P82C1PROD with RULES
Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 43799 

intraoperative, and postoperative 

angiography. Procedure code 88.59 

(Intraoperative fluorescence vascular 

angiography (IFVA)), is one 

intraoperative angiography technique 

that allows visualization of the coronary 

vasculature. The commenter proposed 

four new MS–DRGs in addition to the 

existing MS–DRGs for CABG in an 

attempt to differentiate the utilization of 

resources between intraoperative 

angiography and IFVA when utilized 

with CABG. 

Another commenter suggested that 

CMS should consider completely 

separating CABG procedures from 

cardiac catheterization. This commenter 

indicated that the concept is ‘‘worthy of 

serious consideration because of its 

relationship to much larger issues in 

management of coronary artery 

disease.’’ Other commenters 

recommended that CMS assign IFVA 

cases to the ‘‘Other Cardiovascular MS– 

DRGs,’’ MS–DRGs 228, 229, and 230. 

We believe the requests to create new 

MS–DRGs in FY 2010 for CABG cases 

with intraoperative angiography and 

IFVA are outside the scope of the issues 

addressed in the proposed rule. The 

recommendation to move IFVA cases to 

Other Cardiovascular MS–DRGs 228, 

229, and 230 is also out of scope issues 

addressed in the proposed rule. 

Therefore, we are not providing 

responses to these public comments in 

this final rule. We will consider the 

requests for new MS–DRGs regarding 

this topic during the FY 2011 

rulemaking process. 

c. Insertion of Gastrointestinal Stent 

We received a public comment 

requesting that CMS analyze the need to 

create new MS–DRGs in FY 2011 to 

better capture patients who undergo the 

insertion of a gastrointestinal stent 

under MDC 6 (Diseases and Disorders of 

the Digestive System). The stents are 

inserted in the esophagus, duodenum, 

biliary tract, or the colon in order to 

reestablish or maintain patency of these 

vessels to allow swallowing, drainage, 

or passage of waste. The commenter 

requested that the new MS–DRGs be 

subdivided into three severity levels 

(with MCC, with CC, and without CC/ 

MCC). The commenter stated it had data 

that showed cases with gastrointestinal 

stent insertions have higher costs than 

other cases within the same MS–DRGs. 

The commenter also stated that there are 

a small number of these cases, and 

acknowledged that there may be some 

concern about the need to establish new 

DRGs for such a small number of cases. 

This comment relating to a request to 

create new MS–DRGs in FY 2011 for 

cases with gastrointestinal stents is 

outside the scope of the FY 2010 

proposed rule. We will consider this 

request alone with other timely received 

requests for updates to the FY 2011 MS– 

DRGs during the FY 2011 rulemaking 

process. As we stated above, we 

encourage individuals with comments 

about MS–DRG classifications to submit 

these comments no later than early 

December of each year so they can be 

carefully considered for possible 

inclusion in the annual proposed rule 

and, if included, may be subjected to 

public review and comment. 

H. Recalibration of MS–DRG Weights 

In section II.E. of the preamble of this 

final rule, we state that we fully 

implemented the cost-based DRG 

relative weights for FY 2009, which was 

the third year in the 3-year transition 

period to calculate the relative weights 

at 100 percent based on costs. In the FY 

2008 IPPS final rule with comment 

period (72 FR 47267), as recommended 

by RTI, for FY 2008, we added two new 

CCRs for a total of 15 CCRs: one for 

‘‘Emergency Room’’ and one for ‘‘Blood 

and Blood Products,’’ both of which can 

be derived directly from the Medicare 

cost report. 

As we proposed, in developing the FY 

2010 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 2008 

MedPAR data used in this final rule 

include discharges occurring on October 

1, 2007, through September 30, 2008, 

based on bills received by CMS through 

March 31, 2009, from all hospitals 

subject to the IPPS and short-term, acute 

care hospitals in Maryland (which are 

under a waiver from the IPPS under 

section 1814(b)(3) of the Act). The FY 

2008 MedPAR file used in calculating 

the relative weights includes data for 

approximately 11,283,982 Medicare 

discharges from IPPS providers. 

Discharges for Medicare beneficiaries 

enrolled in a Medicare Advantage 

managed care plan are excluded from 

this analysis. The data exclude CAHs, 

including hospitals that subsequently 

became CAHs after the period from 

which the data were taken. The second 

data source used in the cost-based 

relative weighting methodology is the 

FY 2007 Medicare cost report data files 

from HCRIS (that is, cost reports 

beginning on or after October 1, 2006, 

and before October 1, 2007), which 

represents the most recent full set of 

cost report data available. We used the 

March 31, 2009 update of the HCRIS 

cost report files for FY 2007 in setting 

the relative cost-based weights. 

The methodology we used to calculate 

the DRG cost-based relative weights 

from the FY 2008 MedPAR claims data 

and FY 2007 Medicare cost report data 

is as follows: 

• To the extent possible, all the 

claims were regrouped using the FY 

2010 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 Medicareapproved transplant centers that have 

cases in the FY 2008 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 95.9 percent of the 

providers in the MedPAR file had 

charges for 10 of the 15 cost centers. 

Claims for providers that did not have 

charges greater than zero for at least 10 

of the 15 cost centers were deleted. 

• Statistical outliers were eliminated 

by removing all cases that were beyond 

3.0 standard deviations from the mean 

of the log distribution of both the total 

charges per case and the total charges 

per day for each MS–DRG. 

• Effective October 1, 2008, because 

hospital inpatient claims include a POA 

indicator field for each diagnosis 


sroberts on DSKD5P82C1PROD with RULES
43800 Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 

present on the claim, the POA indicator 

field was reset to ‘‘Y’’ for ‘‘Yes’’ just for 

relative weight-setting purposes 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), then it is not a 

‘‘HAC,’’ and the hospital is paid with 

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 this meets 

policy goals of encouraging quality care 

and generates program savings, it 

presents an issue for the relative weightsetting process. Because cases identified 

as HACs are likely to be more complex 

than similar cases that are not identified 

as HACs, the charges associated with 

HACs are likely to be higher as well. 

Thus, if the higher charges of these HAC 

claims are grouped into lower severity 

MS–DRGs prior to the relative weightsetting 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, in the FY 

2010 IPPS/RY 2010 LTCH PPS proposed 

rule (74 FR 24116), we proposed to reset 

the POA indicator field to ‘‘Y’’ just for 

relative weight-setting purposes for all 

claims that otherwise have an ‘‘N’’ or a 

‘‘U’’ in the POA field. This ‘‘forces’’ 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. 

We did not receive any public 

comments on our proposal to reset the 

POA indicator field to ‘‘Y’’ for relative 

weight-setting purposes for all claims 

that otherwise have an ‘‘N’’ or a ‘‘U’’ in 

the POA field. We are finalizing this 

proposal for FY 2010 accordingly. 

Once the MedPAR data were trimmed 

and the statistical outliers were 

removed, the charges for each of the 15 

cost groups for each claim were 

standardized to remove the effects of 

differences in area wage levels, IME and 

DSH payments, and for hospitals in 

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

charges include charges for both 

operating and capital costs, we 

standardized total charges to remove the 

effects of differences in geographic 

adjustment factors, cost-of-living 

adjustments, and DSH payments under 

the capital IPPS as well. Charges were 

then summed by MS–DRG for each of 

the 15 cost groups so that each MS–DRG 

had 15 standardized charge totals. These 

charges were then adjusted to cost by 

applying the national average CCRs 

developed from the FY 2007 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 


sroberts on DSKD5P82C1PROD with RULES
Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 43801 


sroberts on DSKD5P82C1PROD with RULESER27AU09.000</GPH>
43802 Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 


sroberts on DSKD5P82C1PROD with RULESER27AU09.001</GPH>
Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 43803 


sroberts on DSKD5P82C1PROD with RULESER27AU09.002</GPH>
43804 Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 


sroberts on DSKD5P82C1PROD with RULESER27AU09.003</GPH>
Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 43805 


sroberts on DSKD5P82C1PROD with RULESER27AU09.004</GPH>
43806 Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 


sroberts on DSKD5P82C1PROD with RULESER27AU09.005</GPH>
Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 43807 

BILLING CODE 4120–01–C 

We developed the national average 

CCRs as follows: 

Taking the FY 2007 cost report data, 

we removed CAHs, Indian Health 

Service hospitals, all-inclusive rate 

hospitals, and cost reports that 

represented time periods of less than 1 

year (365 days). We included hospitals 

located in Maryland as we are including 

their charges in our claims database. We 

then created CCRs for each provider for 

each cost center (see prior table for line 

items used in the calculations) and 

removed any CCRs that were greater 

than 10 or less than 0.01. We 

normalized the departmental CCRs by 

dividing the CCR for each department 

by the total CCR for the hospital for the 

purpose of trimming the data. We then 

took the logs of the normalized cost 

center CCRs and removed any cost 

center CCRs where the log of the cost 

center CCR was greater or less than the 

mean log plus/minus 3 times the 

standard deviation for the log of that 

cost center CCR. Once the cost report 

data were trimmed, we calculated a 

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

the Medicare charges for each line item 

from Worksheet D–4 and deriving the 

Medicare-specific costs by applying the 

hospital-specific departmental CCRs to 

the Medicare-specific charges for each 

line item from Worksheet D–4. Once 

each hospital’s Medicare-specific costs 

were established, we summed the total 

Medicare-specific costs and divided by 

the sum of the total Medicare-specific 

charges to produce national average, 

charge-weighted CCRs. 

After we multiplied the total charges 

for each MS–DRG in each of the 15 cost 

centers by the corresponding national 

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

across each MS–DRG to produce a total 

standardized cost for the MS–DRG. The 

average standardized cost for each MS– 

DRG was then computed as the total 

standardized cost for the MS–DRG 

divided by the transfer-adjusted case 

count for the MS–DRG. The average cost 

for each MS–DRG was then divided by 

the national average standardized cost 

per case to determine the relative 

weight. 

The new cost-based relative weights 

were then normalized by an adjustment 

factor of 1.54381 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 

2010 are as follows: 

Group CCR 

Routine Days .................................... 0.553 

Intensive Days .................................. 0.480 

Drugs ................................................ 0.200 

Supplies & Equipment ...................... 0.348 

Therapy Services .............................. 0.415 

Laboratory ......................................... 0.163 

Operating Room ............................... 0.282 

Cardiology ......................................... 0.181 

Radiology .......................................... 0.161 

Emergency Room ............................. 0.278 

Blood and Blood Products ................ 0.424 

Other Services .................................. 0.426 

Labor & Delivery ............................... 0.462 

Inhalation Therapy ............................ 0.201 

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

As we explained in section II.E. of the 

preamble of this final rule, we have 

completed our 2-year transition to the 

MS–DRGs. For FY 2008, the first year of 

the transition, 50 percent of the relative 

weight for an MS–DRG was based on the 

two-thirds cost-based weight/one-third 

charge-based weight calculated using 

FY 2006 MedPAR data grouped to the 

Version 24.0 (FY 2007) DRGs. The 

remaining 50 percent of the FY 2008 

relative weight for an MS–DRG was 

based on the two-thirds cost-based 

weight/one-third charge-based weight 

calculated using FY 2006 MedPAR 

grouped to the Version 25.0 (FY 2008) 

MS–DRGs. In FY 2009, the relative 

weights were based on 100 percent cost 

weights computed using the Version 

26.0 (FY 2009) MS–DRGs. 

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 2010 IPPS/ 

RY 2010 LTCH PPS proposed rule (74 

FR 24123), we proposed to use that 

same case threshold in recalibrating the 

MS–DRG weights for FY 2010. Using the 

FY 2008 MedPAR data set, there are 8 

MS–DRGs that contain fewer than 10 

cases. Under the MS–DRGs, we have 

fewer low-volume DRGs than under the 

CMS DRGs because we no longer have 

separate DRGs for patients age 0 to 17 

years. With the exception of newborns, 

we previously separated some DRGs 

based on whether the patient was age 0 

to 17 years or age 17 years and older. 

Other than the age split, cases grouping 

to these DRGs are identical. The DRGs 

for patients age 0 to 17 years generally 

have very low volumes because children 

are typically ineligible for Medicare. In 

the past, we have found that the low 

volume of cases for the pediatric DRGs 

could lead to significant year-to-year 

instability in their relative weights. 

Although we have always encouraged 

non-Medicare payers to develop weights 

applicable to their own patient 

populations, we have heard frequent 

complaints from providers about the use 

of the Medicare relative weights in the 

pediatric population. We believe that 

eliminating this age split in the MS– 

DRGs will provide more stable payment 

for pediatric cases by determining their 

payment using adult cases that are 

much higher in total volume. Newborns 

are unique and require separate MS– 

DRGs that are not mirrored in the adult 

population. Therefore, it remains 

necessary to retain separate MS–DRGs 

for newborns. All of the low-volume 

MS–DRGs listed below are for 

newborns. In FY 2010, 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 


sroberts on DSKD5P82C1PROD with RULESER27AU09.006</GPH>
43808 Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 

low-volume MS–DRGs by adjusting 

their FY 2009 weights by the percentage 

change in the average weight of the 

cases in other MS–DRGs. The crosswalk 

table is shown below: 

Low-volume 

MS–DRG MS–DRG title Crosswalk to MS–DRG 

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

or D&C.

FY 2009 FR weight (adjusted by percent change in average 

weight of the cases in other MS–DRGs). 

789 ............... Neonates, Died or Transferred to Another Acute Care Facility .. FY 2009 FR weight (adjusted by percent change in average 

weight of the cases in other MS–DRGs). 

790 ............... Extreme Immaturity or Respiratory Distress Syndrome, 

Neonate.

FY 2009 FR weight (adjusted by percent change in average 

weight of the cases in other MS–DRGs). 

791 ............... Prematurity with Major Problems ................................................ FY 2009 FR weight (adjusted by percent change in average 

weight of the cases in other MS–DRGs). 

792 ............... Prematurity without Major Problems ........................................... FY 2009 FR weight (adjusted by percent change in average 

weight of the cases in other MS–DRGs). 

793 ............... Full-Term Neonate with Major Problems .................................... FY 2009 FR weight (adjusted by percent change in average 

weight of the cases in other MS–DRGs). 

794 ............... Neonate with Other Significant Problems ................................... FY 2009 FR weight (adjusted by percent change in average 

weight of the cases in other MS–DRGs). 

795 ............... Normal Newborn ......................................................................... FY 2009 FR weight (adjusted by percent change in average 

weight of the cases in other MS–DRGs). 

Comment: Some commenters 

questioned whether Medicare 

Advantage claims were used to calculate 

the MS–DRG relative weights for FY 

2010 in the proposed rule. The 

commenters noted that CMS’ policy has 

been to exclude Medicare Advantage 

claims from the relative weights 

calculation, but believed that CMS may 

have inadvertently included those 

claims in the calculation in the 

proposed rule. The commenters 

believed that if the Medicare Advantage 

claims were included, the amount paid 

under the IPPS will be overstated. The 

commenters recommended that CMS 

ensure that Medicare Advantage claims 

are excluded from the relative weights 

calculation. However, the commenters 

requested that CMS continue to include 

the Medicare Advantage claims in the 

MedPAR dataset for analysis purposes. 

Response: Historically, we have 

excluded data from Medicare Advantage 

claims from the calculation of the 

relative weights. As has been stated in 

the preamble of previous IPPS rules 

and, most recently, in the FY 2010 IPPS/ 

RY 2010 LTCH PPS proposed rule (74 

FR 24115), ‘‘Discharges for Medicare 

beneficiaries enrolled in a Medicare 

Advantage managed care plan are 

excluded from this analysis.’’ Consistent 

with this language, in the FY 2010 

proposed rule, we intended to exclude 

Medicare Advantage claims from the 

calculation of the relative weights for 

FY 2010 as well. However, the 

December 2008 update of the FY 2008 

MedPAR data that was used as the 

source for calculating the relative 

weights contained a significant number 

of Medicare Advantage claims. This 

inclusion is a result of hospitals being 

required to submit informational only 

claims for all Medicare Advantage 

patients they treated for discharges 

occurring on or after October 1, 2006, 

under Change Request 5647, Transmittal 

1311. As a result, we inadvertently 

included claims from discharges of 

patients enrolled in Medicare 

Advantage plans in the calculation of 

the proposed FY 2010 relative weights. 

We have corrected this oversight in the 

calculation of the final FY 2010 relative 

weights and, therefore, no Medicare 

Advantage claims data are included in 

the calculations in this final rule. 

Specifically, we added an edit to the 

relative weight calculation to remove 

any claims that have a GHO_Paid 

indicator value of ‘‘1,’’ which effectively 

removes Medicare Advantage claims 

from the relative weights calculations. 

We are continuing to include Medicare 

Advantage claims in the Expanded 

Modified MedPAR file that is available 

to researchers for purchase under a data 

use agreement with CMS. 

We did not receive any public 

comments on this section. Therefore, we 

are adopting the national average CCRs 

as proposed, with the MS–DRG weights 

recalibrated based on these CCRs. 

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 the process must apply to 

a new medical service or technology if, 

‘‘based on the estimated costs incurred 

with respect to discharges involving 

such service or technology, the DRG 

prospective payment rate otherwise 

applicable to such discharges under this 

subsection is inadequate.’’ We note that 

beginning with FY 2008, CMS 

transitioned from CMS–DRGs to MS– 

DRGs. 

The regulations implementing these 

provisions specify three criteria for a 

new medical service or technology to 

receive an additional payment: (1) The 

medical service or technology must be 

new; (2) the medical service or 

technology must be costly such that the 

DRG rate otherwise applicable to 

discharges involving the medical service 

or technology is determined to be 

inadequate; and (3) the service or 

technology must demonstrate a 

substantial clinical improvement over 

existing services or technologies. These 

three criteria are explained below in the 

ensuing paragraphs in further detail. 

Under the first criterion, as reflected 

in 42 CFR 412.87(b)(2), a specific 

medical service or technology will be 

considered ‘‘new’’ for purposes of new 

medical service or technology add-on 

payments until such time as Medicare 

data are available to fully reflect the cost 

of the technology in the MS–DRG 

weights through recalibration. 

Typically, there is a lag of 2 to 3 years 

from the point a new medical service or 

technology is first introduced on the 

market (generally on the date that the 

technology receives FDA approval/ 

clearance) and when data reflecting the 

use of the medical service or technology 


sroberts on DSKD5P82C1PROD with RULES
Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 43809 

are used to calculate the MS–DRG 

weights. For example, data from 

discharges occurring during FY 2008 are 

used to calculate the FY 2010 MS–DRG 

weights in this final rule. Section 

412.87(b)(2) of the regulations therefore 

provides that ‘‘a medical service or 

technology may be considered new 

within 2 or 3 years after the point at 

which data begin to become available 

reflecting the ICD–9–CM code assigned 

to the new medical service or 

technology (depending on when a new 

code is assigned and data on the new 

medical service or technology become 

available for DRG recalibration). After 

CMS has recalibrated the DRGs, based 

on available data to reflect the costs of 

an otherwise new medical service or 

technology, the medical service or 

technology will no longer be considered 

‘new’ under the criterion for this 

section.’’ 

The 2-year to 3-year period during 

which a medical service or technology 

can be considered new would ordinarily 

begin on the date on which the medical 

service or technology received FDA 

approval or clearance. (We note that, for 

purposes of this section of the final rule, 

we generally refer to both FDA approval 

and FDA clearance as FDA ‘‘approval.’’) 

However, in some cases, initially there 

may be no Medicare data available for 

the new service or technology following 

FDA approval. For example, the 

newness period could extend beyond 

the 2-year to 3-year period after FDA 

approval is received in cases where the 

product initially was generally 

unavailable to Medicare patients 

following FDA approval, such as in 

cases of a national noncoverage 

determination or a documented delay in 

bringing the product onto the market 

after that approval (for instance, 

component production or drug 

production has been postponed 

following FDA approval due to shelf life 

concerns or manufacturing issues). After 

the MS–DRGs have been recalibrated to 

reflect the costs of an otherwise new 

medical service or technology, the 

medical service or technology is no 

longer eligible for special add-on 

payment for new medical services or 

technologies (as specified under 

§ 412.87(b)(2)). For example, an 

approved new technology that received 

FDA approval in October 2008 and 

entered the market at that time may be 

eligible to receive add-on payments as a 

new technology for discharges occurring 

before October 1, 2011 (the start of FY 

2012). Because the FY 2012 MS–DRG 

weights would be calculated using FY 

2010 MedPAR data, the costs of such a 

new technology would be fully reflected 

in the FY 2012 MS–DRG weights. 

Therefore, the new technology would no 

longer be eligible to receive add-on 

payments as a new technology for 

discharges occurring in FY 2012 and 

thereafter. 

Under the second criterion, 

§ 412.87(b)(3) further provides that, to 

be eligible for the add-on payment for 

new medical services or technologies, 

the MS–DRG prospective payment rate 

otherwise applicable to the discharge 

involving the new medical services or 

technologies must be assessed for 

adequacy. Under the cost criterion, to 

assess the adequacy of payment for a 

new technology paid under the 

applicable MS–DRG prospective 

payment rate, we evaluate whether the 

charges for cases involving the new 

technology exceed certain threshold 

amounts. In the FY 2004 IPPS final rule 

(68 FR 45385), we established the 

threshold at the geometric mean 

standardized charge for all cases in the 

MS–DRG plus 75 percent of 1 standard 

deviation above the geometric mean 

standardized charge (based on the 

logarithmic values of the charges and 

converted back to charges) for all cases 

in the MS–DRG to which the new 

medical service or technology is 

assigned (or the case-weighted average 

of all relevant MS–DRGs, if the new 

medical service or technology occurs in 

more than one MS–DRG). 

However, section 503(b)(1) of Public 

Law 108–173 amended section 

1886(d)(5)(K)(ii)(I) of the Act to provide 

that, beginning in FY 2005, CMS will 

apply ‘‘a threshold * * * that is the 

lesser of 75 percent of the standardized 

amount (increased to reflect the 

difference between cost and charges) or 

75 percent of one standard deviation for 

the diagnosis-related group involved.’’ 

(We refer readers to section IV.D. of the 

preamble to the FY 2005 IPPS final rule 

(69 FR 49084) for a discussion of the 

revision of the regulations to 

incorporate the change made by section 

503(b)(1) of Pub. L. 108–173.) Table 10 

that was included in the notice 

published in the Federal Register on 

October 3, 2008, contains the final 

thresholds that are being used to 

evaluate applications for new 

technology add-on payments for FY 

2010 (73 FR 57888). 

We note that section 124 of Public 

Law 110–275 extended, through FY 

2009, wage index reclassifications under 

section 508 of Public Law 108–173 (the 

MMA) and special exceptions contained 

in the final rule promulgated in the 

Federal Register on August 11, 2004 (69 

FR 49105 and 49107) and extended 

under section 117 of Public Law 110– 

173 (the MMSEA). The wage data affect 

the standardized amounts (as well as the 

outlier offset and budget neutrality 

factors that are applied to the 

standardized amounts), which we use to 

compute the cost criterion thresholds. 

Therefore, the thresholds reflected in 

Table 10 in the Addendum to the FY 

2009 IPPS final rule were tentative. As 

noted earlier, on October 3, 2008, we 

published a Federal Register notice (73 

FR 57888) that contained a new Table 

10 with revised thresholds that reflect 

the wage index rates for FY 2009 as a 

result of implementation of section 124 

of Public Law 110–275. The revised 

thresholds also were published on the 

CMS Web site. The revised thresholds 

published in Table 10 in the October 3, 

2008 Federal Register notice were used 

to determine if an applicant for new 

technology add-on payments discussed 

in this FY 2010 final rule met the cost 

criterion threshold for new technology 

add-on payments for FY 2010. 

In the September 7, 2001 final rule 

that established the new technology 

add-on payment regulations (66 FR 

46917), we discussed the issue of 

whether the HIPAA Privacy Rule at 45 

CFR parts 160 and 164 applies to claims 

information that providers submit with 

applications for new technology add-on 

payments. Specifically, we explained 

that health plans, including Medicare, 

and providers that conduct certain 

transactions electronically, including 

the hospitals that would be receiving 

payment under the FY 2001 IPPS final 

rule, are required to comply with the 

HIPAA Privacy Rule. We further 

explained how such entities could meet 

the applicable HIPAA requirements by 

discussing how the HIPAA Privacy Rule 

permitted providers to share with health 

plans information needed to ensure 

correct payment, if they had obtained 

consent from the patient to use that 

patient’s data for treatment, payment, or 

health care operations. We also 

explained that, because the information 

to be provided within applications for 

new technology add-on payment would 

be needed to ensure correct payment, no 

additional consent would be required. 

The HHS Office for Civil Rights has 

since amended the HIPAA Privacy Rule, 

but the results remain. The HIPAA 

Privacy Rule no longer requires covered 

entities to obtain consent from patients 

to use or disclose protected health 

information for treatment, payment, or 

health care operations, and expressly 

permits such entities to use or to 

disclose protected health information 

for any of these purposes. (We refer 

readers to 45 CFR 164.502(a)(1)(ii), and 

164.506(c)(1) and (c)(3), and the 

Standards for Privacy of Individually 


sroberts on DSKD5P82C1PROD with RULES
43810 Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 

Identifiable Health Information 

published in the Federal Register on 

August 14, 2002, for a full discussion of 

changes in consent requirements.) 

Under the third criterion, 

§ 412.87(b)(1) of our existing regulations 

provides that a new technology is an 

appropriate candidate for an additional 

payment when it represents ‘‘an 

advance that substantially improves, 

relative to technologies previously 

available, the diagnosis or treatment of 

Medicare beneficiaries.’’ For example, a 

new technology represents a substantial 

clinical improvement when it reduces 

mortality, decreases the number of 

hospitalizations or physician visits, or 

reduces recovery time compared to the 

technologies previously available. (We 

refer readers to the September 7, 2001 

final rule for a complete discussion of 

this criterion (66 FR 46902).) 

The new medical service or 

technology add-on payment policy 

under the IPPS provides additional 

payments for cases with relatively high 

costs involving eligible new medical 

services or technologies while 

preserving some of the incentives 

inherent under an average-based 

prospective payment system. The 

payment mechanism is based on the 

cost to hospitals for the new medical 

service or technology. Under § 412.88, if 

the costs of the discharge (determined 

by applying cost to charge ratios 

(‘‘CCRs’’) as described in § 412.84(h)) 

exceed the full DRG payment (including 

payments for IME and DSH, but 

excluding outlier payments), Medicare 

will make an add-on payment equal to 

the lesser of: (1) 50 percent of the 

estimated costs of the new technology 

(if the estimated costs for the case 

including the new technology exceed 

Medicare’s payment); or (2) 50 percent 

of the difference between the full DRG 

payment and the hospital’s estimated 

cost for the case. Unless the discharge 

qualifies for an outlier payment, 

Medicare payment is limited to the full 

MS–DRG payment plus 50 percent of 

the estimated costs of the new 

technology. 

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

requires that the adjustments to annual 

MS–DRG classifications and relative 

weights must be made in a manner that 

ensures that aggregate payments to 

hospitals are not affected. Therefore, in 

the past, we accounted for projected 

payments under the new medical 

service and technology provision during 

the upcoming fiscal year, while at the 

same time estimating the payment effect 

of changes to the MS–DRG 

classifications and recalibration. The 

impact of additional payments under 

this provision was then included in the 

budget neutrality factor, which was 

applied to the standardized amounts 

and the hospital-specific amounts. 

However, section 503(d)(2) of Public 

Law 108–173 provides that there shall 

be no reduction or adjustment in 

aggregate payments under the IPPS due 

to add-on payments for new medical 

services and technologies. Therefore, 

following section 503(d)(2) of Public 

Law 108–173, add-on payments for new 

medical services or technologies for FY 

2005 and later years have not been 

subjected to budget neutrality. 

In the FY 2009 IPPS final rule (73 FR 

48561 through 48563), we modified our 

regulations at § 412.87 to codify our 

current practice of how CMS evaluates 

the eligibility criteria for new medical 

service or technology add-on payment 

applications. We also amended 

§ 412.87(c) to specify that all applicants 

for new technology add-on payments 

must have FDA approval for their new 

medical service or technology by July 1 

of each year prior to the beginning of the 

fiscal year that the application is being 

considered. 

Applicants for add-on payments for 

new medical services or technologies for 

FY 2011 must submit a formal request, 

including a full description of the 

clinical applications of the medical 

service or technology and the results of 

any clinical evaluations demonstrating 

that the new medical service or 

technology represents a substantial 

clinical improvement, along with a 

significant sample of data to 

demonstrate that the medical service or 

technology meets the high-cost 

threshold. Complete application 

information, along with final deadlines 

for submitting a full application, will be 

posted as it becomes available on our 

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

AcuteInpatientPPS/08_newtech.asp. To 

allow interested parties to identify the 

new medical services or technologies 

under review before the publication of 

the proposed rule for FY 2011, the Web 

site also will list the tracking forms 

completed by each applicant. 

The Council on Technology and 

Innovation (CTI) at CMS oversees the 

agency’s cross-cutting priority on 

coordinating coverage, coding and 

payment processes for Medicare with 

respect to new technologies and 

procedures, including new drug 

therapies, as well as promoting the 

exchange of information on new 

technologies between CMS and other 

entities. The CTI, composed of senior 

CMS staff and clinicians, was 

established under section 942(a) of 

Public Law 108–173. The Council is cochaired by the Director of the Office of 

Clinical Standards and Quality (OCSQ) 

and the Director of the Center for 

Medicare Management (CMM), who is 

also designated as the CTI’s Executive 

Coordinator. 

The specific processes for coverage, 

coding, and payment are implemented 

by CMM, OCSQ, and the local claimspayment contractors (in the case of local 

coverage and payment decisions). The 

CTI supplements, rather than replaces, 

these processes by working to assure 

that all of these activities reflect the 

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

time, the CTI also works to streamline, 

accelerate, and improve coordination of 

these processes to ensure that they 

remain up to date as new issues arise. 

To achieve its goals, the CTI works to 

streamline and create a more 

transparent coding and payment 

process, improve the quality of medical 

decisions, and speed patient access to 

effective new treatments. It is also 

dedicated to supporting better decisions 

by patients and doctors in using 

Medicare-covered services through the 

promotion of better evidence 

development, which is critical for 

improving the quality of care for 

Medicare beneficiaries. 

CMS plans to continue its Open Door 

forums with stakeholders who are 

interested in CTI’s initiatives. In 

addition, to improve the understanding 

of CMS’ processes for coverage, coding, 

and payment and how to access them, 

the CTI has developed an ‘‘innovator’s 

guide’’ to these processes. The intent is 

to consolidate this information, much of 

which is already available in a variety 

of CMS documents and in various 

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

published in August 2008 and is 

available on the CMS Web site at: 

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

Innov/Downloads/InnovatorsGuide8_

25_08.pdf. 

As we indicated in the FY 2009 IPPS 

final rule (73 FR 48554), we invite any 

product developers or manufacturers of 

new medical technologies to contact the 

agency early in the process of product 

development if they have questions or 

concerns about the evidence that would 

be needed later in the development 

process for the agency’s coverage 

decisions for Medicare. 

The CTI aims to provide useful 

information on its activities and 

initiatives to stakeholders, including 

Medicare beneficiaries, advocates, 

medical product manufacturers, 

providers, and health policy experts. 

Stakeholders with further questions 

about Medicare’s coverage, coding, and 

payment processes, or who want further 


sroberts on DSKD5P82C1PROD with RULES
Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 43811 

guidance about how they can navigate 

these processes, can contact the CTI at 

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

Us’’ section of the CTI home page 

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

CouncilonTechInnov/). 

Comment: One commenter 

recommended that CMS deem a device 

to be a substantial clinical improvement 

‘‘* * * if it has been granted a 

humanitarian device exemption or 

priority review based on the fact that it 

represents breakthrough technologies, 

that offer significant advantages over 

existing approved alternatives, for 

which no alternatives exist, or the 

availability of which is in the best 

interests of the patients.’’ 

Response: As stated in the FY 2008 

IPPS final rule (72 FR 47302), the FDA 

provides a number of different types of 

approvals to devices, drugs and other 

medical products. At this time, we do 

not believe that any particular type of 

FDA approval alone would 

automatically demonstrate a substantial 

clinical improvement for the Medicare 

population. However, as noted in 

previous final rules, we do take FDA 

approval into consideration in our 

evaluation of new technology 

applications. We note that a 

Humanitarian Device Exemption (HDE) 

approval only requires that ‘‘the 

probable benefit outweighs the risk of 

injury or illness’’ as opposed to the 

safety and effectiveness standard that 

exists for pre-market approval (PMA). 

Among other requirements, the labeling 

of a humanitarian use device must state 

that the effectiveness of the device for 

the specific indication has not been 

demonstrated. While an HDE approval 

certainly does not preclude us from 

considering a technology for an add-on 

payment, neither does it suggest that the 

product automatically meets the 

requirement to be judged a substantial 

clinical improvement. Under the 

substantial clinical improvement 

criterion, we will continue to evaluate a 

technology with an HDE approval by 

measuring it against the specific criteria 

we listed for determining substantial 

clinical improvement at 66 FR 46914. 

Comment: A number of commenters 

addressed topics relating to the marginal 

cost factor for the new technology addon payment, the potential 

implementation of ICD–10–CM, the use 

of external data in determining the cost 

threshold, paying new technology addon payments for two to three years, 

mapping new technologies to the 

appropriate MS–DRG and the use of the 

date that a ICD–9–CM code is assigned 

to a technology or the FDA approval 

date (whichever is later) as the start of 

the newness period. 

Response: We did not request public 

comments nor propose to make any 

changes to any of the issues summarized 

above. Because these comments are 

outside of the scope of the provisions 

included in the proposed rule, we are 

not providing a complete summary of 

the comments or responding to them in 

this final rule. 

2. Public Input Before Publication of a 

Notice of Proposed Rulemaking on AddOn Payments 

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

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

Public Law 108–173, provides for a 

mechanism for public input before 

publication of a notice of proposed 

rulemaking regarding whether a medical 

service or technology represents a 

substantial clinical improvement or 

advancement. The process for 

evaluating new medical service and 

technology applications requires the 

Secretary to— 

• Provide, before publication of a 

proposed rule, for public input 

regarding whether a new service or 

technology represents an advance in 

medical technology that substantially 

improves the diagnosis or treatment of 

Medicare beneficiaries; 

• Make public and periodically 

update a list of the services and 

technologies for which applications for 

add-on payments are pending; 

• Accept comments, 

recommendations, and data from the 

public regarding whether a service or 

technology represents a substantial 

clinical improvement; and 

• Provide, before publication of a 

proposed rule, for a meeting at which 

organizations representing hospitals, 

physicians, manufacturers, and any 

other interested party may present 

comments, recommendations, and data 

regarding whether a new medical 

service or technology represents a 

substantial clinical improvement to the 

clinical staff of CMS. 

In order to provide an opportunity for 

public input regarding add-on payments 

for new medical services and 

technologies for FY 2010 prior to 

publication of the FY 2010 IPPS/RY 

2010 LTCH PPS proposed rule, we 

published a notice in the Federal 

Register on November 28, 2008 (73 FR 

72490), and held a town hall meeting at 

the CMS Headquarters Office in 

Baltimore, MD, on February 17, 2009. 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 2010 new medical service and 

technology add-on payment 

applications before the publication of 

the FY 2010 IPPS proposed rule. 

Approximately 90 individuals 

registered to attend the town hall 

meeting in person, while additional 

individuals listened over an open 

telephone line. Each of the five FY 2010 

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 each applicant’s 

application, in our evaluation of the 

new technology add-on applications for 

FY 2010 in the FY 2010 proposed rule 

and in this final rule. 

In response to the published notice 

and the new technology town hall 

meeting, we received two written 

comments regarding applications for FY 

2010 new technology add-on payments. 

We summarized these comments or, if 

applicable, indicated that there were no 

comments received, at the end of each 

discussion of the individual 

applications in the FY 2010 IPPS/RY 

LTCH PPS proposed rule. We did not 

receive any general comments about the 

application of the substantial clinical 

improvement criterion. 

A further discussion of our evaluation 

of the applications and the 

documentation for new technology addon payments submitted for FY 2010 

approval is provided under the 

specified areas under this section. 

3. FY 2010 Status of Technologies 

Approved for FY 2009 Add-On 

Payments 

We approved one application for new 

technology add-on payments for FY 

2009: CardioWestTM Temporary Total 

Artificial Heart System (CardioWestTM

TAH–t). 

SynCardia Systems, Inc. submitted an 

application for approval of the 

CardioWestTM temporary Total 

Artificial Heart system (TAH–t). The 

TAH–t is a technology that is used as a 

bridge to heart transplant device for 

heart transplant-eligible patients with 

end-stage biventricular failure. The 

TAH–t pumps up to 9.5 liters of blood 

per minute. This high level of perfusion 

helps improve hemodynamic function 

in patients, thus making them better 

heart transplant candidates. 

The TAH–t was approved by the FDA 

on October 15, 2004, for use as a bridge 

to transplant device in cardiac 

transplant-eligible candidates at risk of 

imminent death from biventricular 

failure. The TAH–t is intended to be 


sroberts on DSKD5P82C1PROD with RULES
43812 Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 

used in hospital inpatients. One of the 

FDA’s post-approval requirements is 

that the manufacturer agrees to provide 

a post-approval study demonstrating 

success of the device at one center can 

be reproduced at other centers. The 

study was to include at least 50 patients 

who would be followed up to 1 year, 

including (but not limited to) the 

following endpoints: survival to 

transplant; adverse events; and device 

malfunction. 

In the past, Medicare did not cover 

artificial heart devices, including the 

TAH–t. However, on May 1, 2008, CMS 

issued a final national coverage 

determination (NCD) expanding 

Medicare coverage of artificial hearts 

when they are implanted as part of a 

study that is approved by the FDA and 

is determined by CMS to meet CMS’ 

Coverage with Evidence Development 

(CED) clinical research criteria. (The 

final NCD is available on the CMS Web 

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

viewdecisionmemo.asp?id=211.) 

We indicated in the FY 2009 IPPS 

final rule (73 FR 48555) that, because 

Medicare’s previous coverage policy 

with respect to this device had 

precluded payment from Medicare, we 

did not expect the costs associated with 

this technology to be currently reflected 

in the data used to determine the 

relative weights of MS–DRGs. As we 

have indicated in the past, and as we 

discussed in the FY 2009 IPPS final 

rule, although we generally believe that 

the newness period would begin on the 

date that FDA approval was granted, in 

cases where the applicant can 

demonstrate a documented delay in 

market availability subsequent to FDA 

approval, we would consider delaying 

the start of the newness period. This 

technology’s situation represented such 

a case. We also noted that section 

1886(d)(5)(K)(ii)(II) of the Act requires 

that we provide for the collection of cost 

data for a new medical service or 

technology for a period of at least 2 

years and no more than 3 years 

‘‘beginning on the date on which an 

inpatient hospital code is issued with 

respect to the service or technology.’’ 

Furthermore, the statute specifies that 

the term ‘‘inpatient hospital code’’ 

means any code that is used with 

respect to inpatient hospital services for 

which payment may be made under the 

IPPS and includes ICD–9–CM codes and 

any subsequent revisions. Although the 

TAH–t has been described by the ICD– 

9–CM code(s) since the time of its FDA 

approval, because the TAH–t had not 

been covered under the Medicare 

program (and, therefore, no Medicare 

payment had been made for this 

technology), this code could not be 

‘‘used with respect to inpatient hospital 

services for which payment’’ is made 

under the IPPS, and thus we assumed 

that none of the costs associated with 

this technology would be reflected in 

the Medicare claims data used to 

recalibrate the MS–DRG relative weights 

for FY 2009. For this reason, as 

discussed in the FY 2009 IPPS final 

rule, despite the FDA approval date of 

the technology, we determined that 

TAH–t would still be eligible to be 

considered ‘‘new’’ for purposes of the 

new technology add-on payment 

because the TAH–t met the newness 

criterion on the date that Medicare 

coverage began, consistent with 

issuance of the final NCD, effective on 

May 1, 2008. 

After evaluation of the newness, costs, 

and substantial clinical improvement 

criteria for new technology add-on 

payments for the TAH–t and 

consideration of the public comments 

we received on the FY 2009 IPPS 

proposed rule, we approved the 

TAH–t for new technology add-on 

payments for FY 2009 (73 FR 48557). 

We indicated that we believed the 

TAH–t offered a new treatment option 

that previously did not exist for patients 

with end-stage biventricular failure. 

However, we indicated that we 

recognized that Medicare coverage of 

the TAH–t is limited to approved 

clinical trial settings. The new 

technology add-on payment status does 

not negate the restrictions under the 

NCD nor does it obviate the need for 

continued monitoring of clinical 

evidence for the TAH–t. We remain 

interested in seeing whether the clinical 

evidence demonstrates that the TAH–t 

continues to be effective. If evidence is 

found that the TAH–t may no longer 

offer a substantial clinical improvement, 

we reserve the right to discontinue new 

technology add-on payments, even 

within the 2 to 3 year period that the 

device may still be considered to be 

new. 

The new technology add-on payment 

for the TAH–t for FY 2009 is triggered 

by the presence of ICD–9–CM procedure 

code 37.52 (Implantation of total heart 

replacement system), condition code 30, 

and the diagnosis code reflecting 

clinical trial—V70.7 (Examination of 

participant in clinical trial). For FY 

2009, we finalized a maximum add-on 

payment of $53,000 (that is, 50 percent 

of the estimated operating costs of the 

device of $106,000) for cases that 

involve this technology. As noted above, 

the TAH–t is still eligible to be 

considered ‘‘new’’ for purposes of the 

new technology add-on payment 

because the TAH–t met the newness 

criterion on the date that Medicare 

coverage began, consistent with 

issuance of the final NCD, effective on 

May 1, 2008. 

We did not receive any public 

comments on our proposal to continue 

new technology add-on payments for 

the TAH–t for FY 2010. Therefore, as we 

proposed, for FY 2010, we are 

continuing the new technology add-on 

payments for cases involving the 

TAH–t in FY 2010 with a maximum 

add-on payment of $53,000. 

4. FY 2010 Applications for New 

Technology Add-On Payments 

We received six applications to be 

considered for new technology add-on 

payment for FY 2010. However, one 

applicant, Emphasys Medical, withdrew 

its application for the Zephyr®

Endobronchial Valve (Zephyr® EBV) 

prior to the publication of the FY 2010 

IPPS/RY 2010 LTCH PPS proposed rule. 

Since the Zephyr® EBV application was 

withdrawn prior to the town hall 

meeting and publication of the FY 2010 

IPPS/RY 2010 LTCH PPS proposed rule, 

we did not discuss the application in 

the proposed rule and also will not 

discuss it in this final rule. 

During the public comment period, 

three additional applicants withdrew 

their applications from further 

consideration for FY 2010 new 

technology add-on payments. A 

discussion and final determination of 

the remaining two applications is 

presented below. 

a. The AutoLITTTM System 

Monteris Medical submitted an 

application for new technology add-on 

payments for FY 2010 for the 

AutoLITTTM. However, the applicant 

withdrew its application for new 

technology add-on payments during the 

public comment period. 

Comment: One commenter supported 

the AutoLITTTM application. The 

commenter stated that AutoLITTTM

represented an advance because it 

provides the ability to ‘‘steer and rotate 

the beam to the size and shape of the 

tumor’’ and that such ability is a 

significant advance from the current 

non-directional systems. The 

commenter noted that it had ‘‘no 

longitudinal or systemic studies to 

verify precisely the degree of 

improvement in patient care,’’ but that 

use of the AutoLITTTM had led to a 

quicker recovery time and fewer 

complications in its experience with the 

device. Specifically, the commenter 

stated that it was able to discharge 

patients within 24 to 48 hours which is 

faster than with traditional therapies. 

Response: We appreciate the 

commenter’s response to the proposed 


sroberts on DSKD5P82C1PROD with RULES
Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 43813 

rule. We note again that the applicant 

withdrew its application from 

consideration for new technology addon payments for FY 2010. Accordingly, 

we are not providing a response to the 

comment. 

b. CLOLAR® (Clofarabine) Injection 

Genzyme Oncology submitted an 

application for new technology add-on 

payments for FY 2010 for CLOLAR®

(clofarabine) injection. However, the 

applicant withdrew its application for 

new technology add-on payments 

during the public comment period. In 

the FY 2010 IPPS/RY 2010 LTCH PPS 

proposed rule in section II.I.4.b. of the 

preamble, we included a detailed 

discussion relating to our policy for 

determining whether a new technology 

is substantially similar to an existing 

technology in our analysis of whether 

CLOLAR would meet the newness 

criterion. Because the CLOLAR 

application has been withdrawn, we 

will not make a determination regarding 

substantially similarity to determine 

newness for that application. Instead, 

we have provided our discussion of 

substantial similarity below and have 

summarized and responded to 

comments received on that topic. 

Substantial Similarity Discussion 

In the FY 2010 IPPS/RY 2010 LTCH 

PPS proposed rule, we stated that the 

newness criterion is intended to apply 

to technologies that have been available 

to Medicare beneficiaries for no more 

than 2 to 3 years. Therefore, a 

technology that applies for a 

supplemental FDA approval must 

demonstrate that the new approval is 

not substantially similar to the prior 

approval. 

As discussed above, the new 

technology add-on payment is available 

to new medical services or technologies 

that satisfy the three criteria set forth in 

our regulations at § 412.87(b) (that is, 

newness, high-costs, and substantial 

clinical improvement). Typically, we 

begin our analysis with an evaluation of 

whether an applicant’s technology 

meets what we refer to as the ‘‘newness 

criterion’’ under § 412.87(b)(2) (that is, 

whether Medicare data are available to 

fully reflect the cost of the technology 

in the MS–DRG weights through 

recalibration). Generally, we believe that 

the costs of a technology begin to be 

reflected in the hospital charge data 

used to recalibrate the MS–DRG relative 

weights when the technology becomes 

available on the market, usually on or 

soon after the date on which it receives 

FDA approval. 

Congress provided for the new 

technology add-on payment in order to 

ensure that Medicare beneficiaries have 

access to new technologies. As 

discussed previously, there often is a lag 

time of 2 to 3 years before the costs of 

new technologies are reflected in the 

recalibration of the relevant MS–DRGs. 

Because a new technology often has 

higher costs than existing technologies, 

during this lag time the current MS– 

DRG payment may not adequately 

reflect the costs of the new technology. 

The new technology add-on payment 

addresses this concern by ensuring that 

hospitals receive an add-on payment 

under the IPPS for costly new 

technologies that represent a substantial 

clinical improvement over existing 

technologies until such time when the 

cost of the technology is reflected 

within the MS–DRG relative weights. 

When an existing technology receives 

FDA approval for a new indication, 

similar concerns may arise. If, prior to 

the FDA approval for the new 

indication, the technology has not been 

used to treat Medicare patients for 

purposes consistent with the new 

indication, the relevant MS–DRGs may 

not reflect the cost of the technology. 

Consequently, Medicare beneficiaries 

may not have adequate access to the 

technology when used for purposes 

consistent with the new indication. 

Allowing the new technology add-on 

payment for the technology when used 

for the new indication would address 

this concern. For these reasons, we 

believe that treating an existing 

technology as ‘‘new’’ when approved by 

the FDA for a new indication may be 

warranted under certain circumstances. 

In the September 7, 2001 final rule (66 

FR 46915), we stated that a new use of 

an existing technology may be eligible 

for the new technology add-on payment 

under certain conditions. In the FY 2010 

IPPS/RY 2010 LTCH PPS proposed rule, 

we stated that we believe it is 

appropriate to consider an existing 

technology for the new technology addon payments when its new use is not 

substantially similar to existing uses of 

the technology. In the FY 2006 IPPS 

final rule (70 FR 47351), we explained 

our policy regarding substantial 

similarity in detail and its relevance for 

assessing if the hospital charge data 

used in the development of the relative 

weights for the relevant DRGs reflect the 

costs of the technology. In that final 

rule, we stated that, for determining 

substantial similarity, we consider (1) 

whether a product uses the same or a 

similar mechanism of action to achieve 

a therapeutic outcome, and (2) whether 

a product is assigned to the same or a 

different DRG. We indicated that both of 

the above criteria should be met in order 

for a technology to be considered 

‘‘substantially similar’’ to an existing 

technology. However, in that same final 

rule, we also noted that, due to the 

complexity of issues regarding the 

substantial similarity component of the 

newness criterion, it may be necessary 

to exercise flexibility when considering 

whether technologies are substantially 

similar to one another. Specifically, we 

stated that we may consider additional 

factors depending on the circumstances 

specific to each application. 

In the FY 2010 IPPS/RY 2010 LTCH 

PPS proposed rule, we stated that we 

believe that in determining whether a 

new use of an existing technology is 

substantially similar to existing uses of 

the technology, it may be relevant to 

consider not only the two criteria 

discussed in the FY 2006 IPPS final 

rule, but also certain additional factors. 

Specifically, we stated that it may also 

be appropriate to analyze whether, as 

compared to existing uses of the 

technology, the new use involves the 

treatment of the same or similar type of 

disease and the same or similar patient 

population. Accordingly, we proposed 

to add a third factor of consideration to 

our analysis of whether a new 

technology is substantially similar to 

one or more existing technologies. 

Specifically, we proposed to consider 

whether the new use of the technology 

involves the treatment of the same or 

similar type of disease and the same or 

similar patient population (74 FR 

24130) in addition to considering the 

already established factors described in 

the FY 2006 IPPS final rule. We 

explained that if all three components 

are present and the new use is deemed 

substantially similar to one or more of 

the existing uses of the technology (that 

is beyond the newness period), we 

would conclude that the technology is 

not new and, therefore, is not eligible 

for the new technology add-on payment. 

In the FY 2010 IPPS/RY 2010 LTCH PPS 

proposed rule, we noted that we 

considered, but rejected, the inclusion 

of the third factor in the FY 2006 IPPS 

final rule on the grounds that we 

believed that it was more relevant to 

analyze whether the costs of the 

technology were already reflected in the 

relative weights of the MS–DRGs. 

However, in the FY 2010 IPPS/RY 2010 

LTCH PPS proposed rule, we stated that 

upon further consideration, we believe 

that both the type of disease and patient 

population for which a technology is 

used are also relevant in determining 

whether one indication of a technology 

is ‘‘substantially similar’’ to another. 

In the FY 2010 IPPS/RY 2010 LTCH 

PPS proposed rule, we noted that the 

discussion of substantial similarity in 

the FY 2006 IPPS final rule related to 


sroberts on DSKD5P82C1PROD with RULES
43814 Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 

comparing two separate technologies 

made by different manufacturers. 

Nevertheless, we stated that the criteria 

discussed in the FY 2006 IPPS final rule 

also are relevant when comparing the 

similarity between a new use and 

existing uses of the same technology (or 

a very similar technology manufactured 

by the same manufacturer). In other 

words, we stated that it is necessary to 

establish that the new indication for 

which the technology has received FDA 

approval is not substantially similar to 

that of the prior indication. We 

explained that such a distinction is 

necessary to determine the appropriate 

start date of the newness period in 

evaluating whether the technology 

would qualify for add-on payments (that 

is, the date of the ‘‘new’’ FDA approval 

or that of the prior approval), or whether 

the technology could qualify for 

separate new technology add-on 

payments under each indication. 

Comment: Several commenters 

supported our proposal to add a third 

factor of consideration to our analysis of 

whether a technology is substantially 

similar to another technology or to a 

previous version of the same technology 

with a new FDA indication. The 

commenters commended CMS for 

proposing to add the third factor and 

encouraged CMS to apply all three 

factors to future decisions regarding 

proposed new technologies. One 

commenter encouraged CMS to consider 

codifying all three substantial similarity 

factors in the regulations. Another 

commenter asked that CMS clarify 

whether the proposed criterion applied 

both to products that receive a second 

or follow-on indication as well as to 

separate and distinct products that have 

the same or similar mechanism of 

action, but are intended to treat a 

separate disease or patient population. 

The commenter also noted that, in FY 

2006, it recommended that CMS include 

an additional factor when determining 

whether products were substantially 

similar, specifically, whether the 

products conferred the same level of 

substantial clinical improvement. The 

commenter asserted that the addition of 

this would ‘‘ensure that products found 

to represent a true advancement in 

clinical care—even if they utilize a 

similar mechanism of action, could be 

eligible for new technology add-on 

payments.’’ 

Response: We thank the commenters 

for their support of our proposal. 

In response to the comment asking for 

clarification about whether the 

proposed additional factor under 

substantial similarity would apply 

solely to a technology approved for a 

new indication or to two separate and 

distinct products, we refer the 

commenter to our discussion above in 

which we stated, ‘‘the discussion of 

substantial similarity in the FY 2006 

IPPS final rule related to comparing two 

separate technologies made by different 

manufacturers. Nevertheless, we believe 

the criteria discussed in the FY 2006 

IPPS final rule also are relevant when 

comparing the similarity between a new 

use and existing uses of the same 

technology (or a very similar technology 

manufactured by the same 

manufacturer). In other words, we 

believe that it is necessary to establish 

that the new indication for which the 

technology has received FDA approval 

is not substantially similar to that of the 

prior indication.’’ Therefore, all three 

factors of substantial similarity will 

apply in both scenarios. 

In response to the comment that 

suggested we analyze whether two 

products (or one product with two 

different indications) confer the same 

level of substantial clinical 

improvement, we note that substantial 

similarity is considered under the 

newness criterion (that is, to determine 

if a technology may still be considered 

‘‘new’’ for purposes of the new 

technology add-on payment). As we 

stated in FY 2006 final IPPS rule, we 

base our decisions about new 

technology add-on payments on a 

logical sequence of determinations 

moving from the newness criterion to 

the cost criterion and finally to the 

substantial clinical improvement 

criterion. Specifically, we do not make 

determinations about substantial 

clinical improvement unless a product 

has already been determined to be new 

and to meet the cost criterion. 

Therefore, we are reluctant to import 

substantial clinical improvement 

considerations into the logical prior 

decision about whether technologies are 

new. Furthermore, while we make 

separate determinations about whether 

similar products meet the substantial 

clinical improvement criterion, we do 

not believe that it would be appropriate 

to make determinations about whether 

one product or another is clinically 

superior. 

In response to the comment that 

suggested that we codify the factors we 

use to evaluate substantial similarity, 

we note that we did not propose to 

amend the new technology add-on 

regulations in the proposed rule. 

However, we will consider making such 

a proposal in a future rulemaking 

period. 

We are finalizing our proposal to add 

a third factor of consideration to our 

analysis of whether a new technology is 

substantially similar to one or more 

existing technologies. Specifically, in 

making a determination of whether a 

new technology is substantially similar 

to an existing technology, we will 

consider whether the new use of the 

technology involves the treatment of the 

same or similar type of disease and the 

same or similar patient population (74 

FR 24130), in addition to considering 

the already established factors described 

in the FY 2006 IPPS final rule (that is, 

(1) whether a product uses the same or 

a similar mechanism of action to 

achieve a therapeutic outcome; and (2) 

whether a product is assigned to the 

same or a different DRG). 

c. LipiScanTM Coronary Imaging System 

InfraReDx, Inc. submitted an 

application for new technology add-on 

payments for FY 2010 for the 

LipiScanTM Coronary Imaging System 

(LipiScanTM). The LipiScanTM device is 

a diagnostic tool that uses Intravascular 

Near Infrared Spectroscopy (INIRS) 

during a cardiac catheterization to scan 

the artery wall in order to determine 

coronary plaque composition. The 

purpose of the device is to identify 

lipid-rich areas in the artery because 

such areas have been shown to be more 

prone to rupture. The procedure does 

not require flushing or occlusion of the 

artery. INIRS identifies the chemical 

content of plaque by focusing near 

infrared light at the vessel wall and 

measuring reflected light at different 

wavelengths (that is, spectroscopy). The 

LipiScanTM system collects 

approximately 1,000 measurements per 

12.5 mm of pullback, with each 

measurement interrogating an area of 1 

to 2 mm2 of lumen surface 

perpendicular to the longitudinal axis of 

the catheter. When the catheter is in 

position, the physician activates the 

pullback and rotation device and the 

scan is initiated providing 360 degree 

images of the length of the artery. The 

rapid acquisition speed for the image 

freezes the motion of the heart and 

permits scanning of the artery in less 

than 2 minutes. When the catheter 

pullback is completed, the console 

displays the scan results, which are 

referred to as a ‘‘chemogram’’ image. 

The chemogram image requires reading 

by a trained user, but, according to the 

applicant, was designed to be simple to 

interpret. 

With regard to the newness criterion, 

the LipiScanTM received a 510K FDA 

clearance for a new indication on April 

25, 2008, and was available on the 

market immediately thereafter. On June 

23, 2006, InfraReDx, Inc. was granted a 

510K FDA clearance for the ‘‘InfraReDx 

Near Infrared (NIR) Imaging System.’’ 

Both devices are under the common 


sroberts on DSKD5P82C1PROD with RULES
Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 43815 

name of ‘‘Near Infrared Imaging 

System’’ according to the 510K 

summary document from the FDA. 

However, the InfraReDx NIR Imaging 

System device that was approved by the 

FDA in 2006 was approved ‘‘for the near 

infrared imaging of the coronary 

arteries,’’ whereas the LipiScanTM

device cleared by the FDA in 2008 is for 

a modified indication. The modified 

indication specified that LipiScanTM is 

‘‘intended for the near-infrared 

examination of coronary arteries * * *, 

the detection of lipid-core-containing 

plaques of interest * * * [and] for the 

assessment of coronary artery lipid core 

burden.’’ 

In the FY 2010 IPPS/RY 2010 LTCH 

PPS proposed rule (74 FR 24132), we 

expressed our concerns regarding 

whether LipiScanTM is substantially 

similar to its predicate device that was 

approved by FDA in 2006. Specifically, 

it appears that the two devices, which 

are manufactured by the same company, 

do not differ in either design or 

functionality, according to the approval 

order documents from the FDA. In the 

2008 approval order, the FDA stated, 

‘‘The LipiScan Coronary Imaging 

System utilizes the same basic catheter 

design as the predicate, the InfraReDx 

NIR Imaging System (June 23, 2006). 

These devices have a similar intended 

use, use the same operating principal, 

incorporate the same basic catheter 

design, have the same shelf life, and are 

packaged using the same materials and 

processes. The modifications from the 

InfraReDx NIR Imaging System to the 

LipiScan Coronary Imaging System are 

the improved catheter design, improved 

user interface (including PBR and 

console), and the additional testing 

required to support an expanded 

indication for use.’’ Therefore, it 

appears that the only difference between 

the two approvals may be a 

modification of the intended use. 

As mentioned earlier in our 

discussion of substantial similarity in 

section II.I.4.b. of this final rule, our 

policy regarding substantial similarity 

discussed in the FY 2006 final rule (70 

FR 47351 through 47532) outlined two 

criteria as it relates to two separate 

technologies that are made by different 

manufacturers that were used to guide 

our determination of whether two 

technologies were substantially similar 

to one another. Although the 

LipiScanTM is a diagnostic device and 

not a therapeutic device we believe that 

the substantial similarity component of 

the newness criterion still applies. 

Both the prior and the new FDA 

indications for LipiScanTM use the same 

or a similar mechanism of action to 

achieve a desired therapeutic outcome, 

and both treat patients that would 

generally be assigned to the same MS– 

DRG. Similarly, both indications of 

LipiScanTM are intended to treat the 

same disease in the same patient 

population. Consequently, in the 2010 

IPPS/RY 2010 LTCH PPPS proposed 

rule, we stated that we have concerns as 

to whether or not the two intended uses 

are substantially similar, especially 

considering that the technologies appear 

essentially identical. In the FY 2010 

IPPS/RY 2010 LTCH PPS proposed rule, 

we welcomed public comment on 

whether or not the latest 510K FDA 

clearance should be considered 

‘‘substantially similar’’ to its predicate 

technology approved by the FDA in 

2006 (74 FR 24133). 

Comment: One commenter, the 

manufacturer, gave comments regarding 

whether LipiScanTM was substantially 

similar to its predicate device and 

whether it met the newness criterion for 

new technology add-on payments. The 

manufacturer included the following 

table to illustrate the differences 

between the version of the device that 

was approved in 2006 and the version 

that was approved in 2008: 

2006 NIRS device Marketed 2008 LipiScan 

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

Catheter .... Saline-filled with microbubble problem obscuring many scans ... Air-filled with no microbubble problem. 

Algorithm ... No algorithmic processing of NIR signals—no means of certifying that lipid core plaque is present.Algorithm validated in over 1,000 autopsy measurements proving that NIRS can detect lipid core plaque, and providing diagnosis of lipid core plaque to the MD during the case. 

In addition, the commenter asserted 

that the version of the device that was 

approved by the FDA in 2006 was 

‘‘never marketed, donated or sold to 

hospitals because it had numerous 

shortcomings that were not overcome 

until [the date of its second FDA 

clearance, April 25, 2008].’’ Finally, the 

commenter noted that Medicare claims 

do not contain any charge for 

LipiScanTM prior to that date. 

Response: Because the manufacturer 

has provided statements that 

LipiScanTM was not marketed until after 

its second FDA clearance, we believe 

that it is no longer necessary to 

determine whether the version of the 

device that was cleared by the FDA in 

2008 is substantially similar to that 

which was cleared in 2006. As noted by 

the applicant, CMS uses the date of FDA 

approval or the date that a technology 

is marketed (if the manufacturer can 

document there was a delay in bringing 

the technology to market after FDA 

approval) and thus available to 

Medicare beneficiaries as the start of the 

newness period. In this case, the 

manufacturer has provided such 

documentation. Therefore, we believe 

that based on the evidence that supports 

that LipiScanTM was not marketed or 

otherwise available to Medicare 

beneficiaries until April 25, 2008, 

LipiScanTM meets the newness criterion. 

We note that the LipiScanTM

technology is identified by ICD–9–CM 

procedure code 38.23 (Intravascular 

spectroscopy), which became effective 

October 1, 2008, and cases involving the 

use of this device generally map to MS– 

DRG 246 (Percutaneous Cardiovascular 

Procedures with Drug-Eluting Stent(s) 

with MCC or 4+ Vessels/Stents); MS– 

DRG 247 (Percutaneous Cardiovascular 

Procedures with Drug-Eluting Stent(s) 

without MCC); MS–DRG 248 

(Percutaneous Cardiovascular 

Procedures with Non-Drug-Eluting 

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

MS–DRG 249 (Percutaneous 

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

MS–DRG 250 (Percutaneous 

Cardiovascular Procedures without 

Coronary Artery Stent with MCC); and 

MS–DRG 251 (Percutaneous 

Cardiovascular Procedures without 

Coronary Artery Stent without MCC). 

In an effort to demonstrate that the 

technology meets the cost criterion, the 

applicant used the FY 2009 After 

Outliers Removed (AOR) file (posted on 

the CMS Web site) for cases potentially 

eligible for LipiScanTM. The applicant 

believes that every case within DRGs 

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

eligible for LipiScanTM. In addition, the 

applicant believes that LipiScanTM will 

be evenly distributed across patients in 

each of the six MS–DRGs (16.6 percent 

within each MS–DRG). Using data from 

the AOR file, the applicant found the 

average standardized charge per case for 

MS–DRGs 246, 247, 248, 249, 250, and 


sroberts on DSKD5P82C1PROD with RULES
43816 Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 

251 was $65,364, $42,162, $58,754, 

$37,048, $61,016, and $35,878 

respectively, equating to an average 

standardized charge per case of $50,037. 

The applicant indicated that the average 

standardized charge per case does not 

include charges related to LipiScanTM; 

therefore, it is necessary to add the 

charges related to the device to the 

average standardized charge per case in 

evaluating the cost threshold criterion. 

Although the applicant submitted data 

related to the estimated cost of 

LipiScanTM per case, the applicant 

noted that the cost of the device was 

proprietary information. Based on a 

sampling of two hospitals that have 

used the device, the applicant used a 

markup of 120 percent of the costs and 

estimates $5,280 in charges related to 

LipiScanTM. Because the applicant 

lacked a significant sample of cases to 

determine the charges associated with 

the device, we expressed our concerns 

in the proposed rule as to whether or 

not the estimate of $5,280 in charges 

related to the device was a valid 

estimate (74 FR 24133). 

Adding the estimated charges related 

to the drug to the average standardized 

charge per case (based on the case 

distribution from the applicant’s 2009 

AOR analysis) results in a case-weighted 

average standardized charge per case of 

$55,317 ($50,037 plus $5,280). Using 

the FY 2010 thresholds published in 

Table 10 (73 FR 58008), the caseweighted threshold for MS–DRGs 246, 

247, 248, 249, 250, and 251 was $53,847 

(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 LipiScanTM would meet 

the cost criterion. In the FY 2010 IPPS/ 

RY 2010 LTCH PPS proposed rule, we 

invited public comment on whether or 

not LipiScanTM meets the cost criterion. 

Comment: One commenter, the 

applicant, submitted comments 

regarding whether LipiScanTM meets the 

cost criterion. The commenter noted 

that LipiScanTM is now used in 11 

hospitals, 10 of which are nonDepartment of Veterans Affairs (VA) 

hospitals. This represented an increase 

from the two hospitals it noted in its 

application when the applicant 

submitted it in November 2008. Based 

on a sampling of all 10 non-VA 

hospitals that are actively using the 

device, the applicant determined that 

the average charge for the device was 

$7,497. Using the same methodology 

from the proposed rule and the AOR file 

from the FY 2010 proposed rule (posted 

on the CMS Web site) instead of the FY 

2009 final rule AOR file, the applicant 

determined a case-weighted average 

standardized charge of $47,059 for MS– 

DRGs 246–251. Based on charge data 

from these 10 hospitals, the applicant 

determined a mean charge of $7,497 for 

the LipiScanTM device. The applicant 

added the average charge of the device 

to the charge per case and determined 

an average case-weighted charge per 

case of $54,556 ($47,059 plus $7,497). 

Based on the Table 10 thresholds 

published in the proposed rule (74 FR 

24570), the case-weighted threshold for 

MS–DRGs 246–251 was $52,881. 

Because the case-weighted average 

standardized charge per case for the 

applicable MS–DRGs exceed the caseweighted threshold amount, the 

applicant maintains that based on this 

analysis the LipiScanTM would meet the 

cost criterion. 

In addition, the applicant stated that 

it analyzed Hospital Cost Report 

Information System (‘‘HCRIS’’) data 

from 2007. Specifically, the applicant 

searched for the 100 cardiac 

catheterization labs that had the highest 

volume of cases in the United States. 

Based on the HCRIS data from these 100 

labs, the applicant determined the mean 

cost-to-charge ratio was 0.204 with a 

mark-up of 490 percent yielding a 

charge of $11,760 for LipiScanTM. 

Assuming that the LipiScanTM device 

was marked-up 490 percent, the caseweighted average standardized charge 

per case for cases involving the use of 

LipiScanTM would be $58,819 ($47,059 

plus $11,760) across MS–DRGs 246– 

251. Similar to the above computation, 

based on the Table 10 thresholds 

published in the proposed rule (74 FR 

24570), the case-weighted threshold for 

MS–DRGs 246–251 was $52,881. 

Because the case-weighted average 

standardized charge per case for the 

applicable MS–DRGs exceed the caseweighted threshold amount, the 

applicant maintains that based on this 

analysis the LipiScanTM would also 

meet the cost criterion. 

Response: We thank the commenter 

for the updated analyses. As noted 

above in its comment, the applicant 

determined the case-weighted threshold 

using Table 10 thresholds from the 

proposed rule. The thresholds in Table 

10 published in the proposed rule are 

for applicants for new technology addon payments for FY 2011. The correct 

case-weighted threshold to be used to 

evaluate FY 2010 proposals is the same 

threshold ($53,847) that the applicant 

used in its analysis from the proposed 

rule, which is based on Table 10 

thresholds for FY 2010 applicants (as 

noted in the FY 2010 IPPS/RY 2010 

LTCH PPS proposed rule). Nevertheless, 

under the applicant’s updated analysis 

using the Table 10 threshold for FY 

2010 applicants, the case-weighted 

average standardized charge per case in 

either of the two analyses above (in the 

applicant’s comment) would exceed the 

case-weighted Table 10 threshold of 

$53,847. 

We reviewed all three analyses that 

the applicant submitted (one in the 

proposed rule and two in its comment) 

and, based on all three analyses, we 

agree that the applicant meets the cost 

criterion. 

With regard to substantial clinical 

improvement, the applicant maintains 

that the device meets this criterion for 

the following reasons. The applicant 

noted that the September 1, 2001 final 

rule states that one facet of the criterion 

for substantial clinical improvement is 

‘‘the device offers the ability to diagnose 

a medical condition in a patient 

population where the medical condition 

is currently undetectable or offers the 

ability to diagnose a medical condition 

earlier in a patient population than 

allowed by currently available methods. 

There must also be evidence that use of 

the device to make a diagnosis affects 

the management of the patient’’ (66 FR 

46914). The applicant believes that 

LipiScanTM meets all facets of this 

criterion. The applicant asserted that the 

device is able to detect a condition that 

is not currently detectable. The 

applicant explained that LipiScanTM is 

the first device of its kind to be able to 

detect lipid-core-containing plaques and 

to assess coronary artery lipid core 

burden. The applicant further noted that 

FDA, in its approval documentation, has 

indicated that ‘‘This is the first device 

that can help assess the chemical 

makeup of coronary artery plaques and 

help doctors identify those of particular 

concern.’’ 

In addition, the applicant stated that 

the LipiScanTM chemogram permits a 

clinician to detect lipid-core-containing 

plaques in the coronary arteries 

compared to other currently available 

devices that do not have this ability. 

The applicant explained that the 

angiogram, the conventional test for 

coronary atherosclerosis, shows only 

minimal coronary narrowing. However, 

the applicant indicated that the 

LipiScanTM chemogram has the ability 

to reveal when an artery contains 

extensive lipid-core-containing plaque 

at an earlier stage. 

The applicant also noted that the 

device has the ability to allow providers 

to make a diagnosis that better affects 

the management of the patient. 

Specifically, the applicant explained 

that the chemogram results are available 

to the interventional cardiologist during 


sroberts on DSKD5P82C1PROD with RULES
Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 43817 

the PCI procedure, and have been found 

to be useful in decision-making. In their 

application, the applicant stated that 

physicians have reported changes in 

therapy based on LipiScanTM findings in 

20 to 50 percent of patients. The 

applicant further stated in their 

application that the most common use 

of LipiScanTM results has been for 

selection of the length of artery to be 

stented. In some cases a longer stent has 

been used when there is a lipid-corecontaining plaque adjacent to the area 

that is being stented because a flowlimiting stenosis is present. Therefore, 

the applicant contends that the use of 

LipiScanTM by clinicians to select the 

length of artery to be stented and as an 

aid in selection of intensity of lipidaltering therapy, demonstrates that 

LipiScanTM affects the management of 

patients. 

The applicant also submitted 

commentary from Interventional 

Cardiologists (a group of clinicians who 

currently utilize the LipiScanTM device) 

explaining the clinical benefits of the 

device. The applicant further noted that 

the device may have other potential 

uses that would be of clinical benefit, 

and studies are currently being 

conducted to investigate these other 

potential uses. The applicant explained 

that LipiScanTM offers promise as a 

means to enhance progress against the 

two leading problems in coronary 

disease management: (1) The 

unacceptably high rate of second events 

that occur even after catheterization, 

revascularization, and the institution of 

optimal medical therapy; and (2) the 

failure to diagnose coronary disease 

early, which results in sudden death or 

myocardial infarction being the first 

sign of the disease in most patients. The 

applicant further stated that the 

identification of coronary lipid-corecontaining plaques, which can most 

readily be done in those already 

undergoing catheterization, is likely to 

be of benefit in the prevention of second 

events. In the longer term, the applicant 

stated that the identification of lipidcore-containing plaques by LipiScanTM

may contribute to the important goal of 

primary prevention of coronary events, 

which, in the absence of adequate 

diagnostic methods, continue to cause 

extensive morbidity, mortality and 

health care expenditures in Medicare 

beneficiaries and the general 

population. 

In the FY 2010 IPPS/RY 2010 LTCH 

PPS proposed rule, we noted that while 

we recognize that the identification of 

lipid-rich plaques in the coronary 

vasculature holds promise in the 

management of coronary artery disease, 

we were concerned that statements in 

the FDA approval documents, as well as 

statements made by investigators in the 

literature, suggest that the clinical 

implications of identifying these lipidrich plaques are not yet certain and that 

further studies need to be done to 

understand the clinical implications of 

this information (74 FR 24134). We also 

noted that we were concerned that there 

are no outcome data regarding the use 

of the LipiScanTM technology. 

In the FY 2010 IPPS/RY 2010 LTCH 

PPS proposed rule, we welcomed public 

comment regarding whether or not the 

LipiScanTM technology represents a 

substantial clinical improvement in the 

Medicare population. 

Comment: Two commenters 

submitted comments regarding whether 

LipiScanTM represented a substantial 

clinical improvement. One commenter 

supported approving LipiScanTM for 

new technology add-on payments and 

noted that the statute indicated that 

either a ‘‘diagnostic device or a therapy 

should be eligible for the add-on 

payment.’’ (emphasis provided) The 

commenter stated that the device had 

been studied in detail by the FDA and 

that the FDA concluded that the device 

identified lipid core plaques with 

‘‘accuracy suitable for clinical use.’’ 

Additionally, the commenter stated that 

the device ‘‘has already started changing 

the therapeutic decisionmaking process 

and has the potential to provide 

additional benefits in the struggle 

against the leading cause of death in the 

United States.’’ 

The applicant stated that it believed 

that LipiScanTM is a ‘‘substantial 

clinical improvement’’ over existing 

technologies because it enables the 

physician to choose the length of artery 

to be stented as well as the intensity of 

lipid lowering medical therapy that 

should be used. The applicant asserted 

that the detection of lipid core plaque 

could ultimately be helpful to 

physicians in managing patient care and 

improving clinical outcomes because 

such plaques are prone to sudden 

rupture. Additionally, the applicant 

asserted that there were three ways in 

which it met CMS’ regulatory standard 

for a substantial clinical improvement 

including: 

1. It detects ‘‘a condition that is not 

currently detectable’’ because it is the 

only device approved to identify the 

lipid core content in coronary arteries. 

2. It ‘‘enables the patient to be 

diagnosed earlier’’ because other 

available diagnostic tests (including 

exercise testing and coronary 

angiography) do not identify lipid core 

plaque; whereas without this 

technology, the first sign that a lipidrich plaque is present may be an acute 

myocardial infarction. 

3. It affects the management of the 

patient by: 

• Affecting the selection of the length 

of the artery to be stented; 

• Affecting the selection of the 

appropriate target levels for lipid 

altering pharmacologic therapy; 

• The chance that it may eventually 

be linked to the prevention of peristenting myocardial infarction. 

As an attachment to its comment, the 

applicant submitted a legal analysis that 

stated that neither the statute nor the 

regulations require that a diagnostic 

device be linked to improved clinical 

outcomes; rather, an improvement in 

diagnosis alone is the only requirement. 

The legal memorandum also noted that 

the statute ‘‘references technology that 

improves either diagnosis or treatment’’ 

and that a new technology ‘‘need not 

improve both, nor does the statute 

specify that the diagnostic must be 

linked to a treatment that improves 

outcomes.’’ Additionally, the legal 

analysis stated that LipiScanTM has 

submitted evidence in accord with both 

the statute and the regulations that it 

‘‘provides an improvement in diagnosis 

of coronary artery disease by identifying 

the presence of the lipid core plaque’’ 

and asserts that this point is further 

evidenced by the FDA which stated that 

the device ‘‘is the first device that can 

help assess the chemical make-up of 

coronary artery plaques and help 

physicians identify those plaques with 

lipid cores, which may be of particular 

concern.’’ The legal analysis also stated 

that CMS should not require new 

diagnostics to be judged by the same 

criteria that have been applied to judge 

new therapeutics because ‘‘such an 

approach would not be in accord with 

the plain language of the regulation and 

that statue, both of which envision 

distinct clinical benefits associated with 

either a diagnostic or a therapy.’’ 

Finally, the applicant summarized an 

article that considered the ‘‘effect of 

diagnostic imaging on decisionmaking.’’ 

Specifically, the applicant summarized 

the hierarchy of six levels of diagnostic 

efficacy presented in the article: 

‘‘Level 1: Technical efficacy, the 

physics are appropriate for the target of 

the diagnostic; 

Level 2: Diagnostic accuracy, the 

sensitivity and specificity for the 

diagnostic target are appropriate; 

Level 3: Diagnostic thing efficacy, the 

physician accepts the diagnostic as 

capable of identifying the target; 

Level 4: Therapeutic efficacy, the 

physician selects or does not select a 

given therapy on the basis of the 

diagnostic outcome; 


sroberts on DSKD5P82C1PROD with RULES
43818 Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 

Level 5: Therapeutic outcome efficacy, 

the therapy selected on the basis of the 

results of the diagnostic outcome 

provides an improvement in the health 

outcome of the patient; 

Level 6: Cost-effectiveness, the 

benefits to society have a favorable 

relationship to the costs of the 

diagnostic.’’ 

The applicant claimed that, applying 

the analysis from the article, the FDA 

approval established that Levels 1 and 

2 were met which it believed to be 

consistent with the requirement under 

42 CFR 412.87(b)(1). Further, the 

applicant asserted that the testimony 

provided by physicians who are using 

LipiScan demonstrates that physicians 

are accepting the results to identify lipid 

core plaque (Level 3) and are utilizing 

the device to guide therapy (Level 4). 

Response: We disagree with the 

commenters who stated that the statute 

and regulations require that a diagnostic 

technology need only ‘‘improve’’ 

diagnosis and that the FDA approval of 

a diagnostic technology in and of itself 

meets the regulatory criteria under 

§ 412.87(b)(1). The commenter correctly 

notes that section 1886(d)(5)(K)(viii) of 

the Act requires us to provide for public 

input on whether a new technology 

‘‘substantially improves the diagnosis or 

treatment’’ of Medicare beneficiaries. 

Section 1886(d)(5)(K)(vi) of the Act also 

authorizes the Secretary to establish 

through notice-and-comment 

rulemaking the criteria that a new 

medical service or technology must 

meet in order to be eligible for the new 

technology add-on patient. Under this 

authority, we established three criteria 

through notice and comment 

rulemaking—the newness criterion, the 

cost criterion, and the substantial 

clinical improvement criterion (66 FR 

46924). Specifically, § 412.87(b)(1) of 

the regulations provides that a new 

medical service or technology must 

‘‘represent an advance that substantially 

improves, relating to technologies 

previously available, the diagnosis or 

treatment of Medicare beneficiaries.’’ 

As we explained in that rule, we will 

consider a diagnostic technology to 

meet the substantial clinical 

improvement criterion if the technology 

not only ‘‘offers the ability to diagnose 

a medical condition in a patient 

population where that medical 

condition is currently undetectable or 

offers the ability to diagnose a medical 

condition earlier in a patient population 

than allowed by currently available 

methods,’’ but also if ‘‘use of the device 

to make a diagnosis affects the 

management of the patient’’ (66 FR 

46914). Under the commenter’s 

analysis, a diagnostic technology 

effectively would only need to receive 

FDA approval and be the only 

technology approved for a particular 

diagnostic capability in order to be 

deemed a ‘‘substantial improvement’’ 

for purposes of new technology add-on 

payments, regardless of its ability to 

positively affect patient management. 

This approach would deem a device 

leading to the identification of new 

information (in this case, whether 

plaques contain a lipid core) as a 

substantial improvement in diagnosis 

even if such detection has not been 

‘‘demonstrated to represent a substantial 

improvement in caring for Medicare 

beneficiaries’’ and is not linked to 

evidence-based, significant, and positive 

changes in the management of patients 

or, ultimately, to changes in clinical 

outcomes. We do not believe this 

rationale is consistent with our prior 

statements regarding the substantial 

clinical improvement criterion of the 

new technology add-on payment 

provision. Nor do we believe it would 

be appropriate to provide additional 

payments for new diagnostic tools that 

fail to significantly change the 

management of patients, thereby 

improving clinical outcomes. 

As to whether LipiScanTM represents 

a substantial improvement in diagnosis, 

we considered first, whether 

LipiScanTM ‘‘offers the ability to 

diagnose a medical condition in a 

patient population where that medical 

condition is currently undetectable or 

offers the ability to diagnose a medical 

condition earlier in a patient population 

than allowed by currently available 

methods,’’ and second whether ‘‘use of 

the device to make a diagnosis affects 

the management of the patient’’ (66 FR 

46914). In the case of LipiScanTM, the 

applicant has stated that it believes that 

LipiScanTM offers the ability to diagnose 

a condition that is previously 

undetectable because it allows the 

detection of lipid-rich plaques in 

patients with coronary artery disease 

(CAD). We agree with the applicant that 

existing technologies may not be able to 

adequately identify lipid-rich plaques. 

However, we disagree that use of 

LipiScanTM affects the management of 

the patient at this time. 

To qualify for the new technology 

add-on payment, a diagnostic capability 

must also be linked to ‘‘evidence that 

use of the device to make a diagnosis 

affects the management of the patient.’’ 

We believe that this evidence is 

necessary to determine whether the new 

technology affords a ‘‘clear 

improvement over the use of previously 

available technologies.’’ We do not 

consider any particular type of evidence 

to be dispositive; instead, we will 

consider all information presented for 

each application to determine whether 

there is evidence to support a 

conclusion that ‘‘use of the device to 

make a diagnosis affects the 

management of the patient’’ (in the case 

of a diagnostic technology). 

Consequently, we do not consider 

merely anecdotal claims that a device 

affects the management of the patient as 

sufficient evidence to demonstrate that 

a new diagnostic device affects the 

management of the patient, particularly 

where the device could be used for a 

relatively large patient population. 

Rather, we will consider whether the 

peer-reviewed medical literature 

supports or clinical studies indicate that 

the diagnostic device should generally 

be used by providers in guiding the 

management of their patients. In 

addition, we will consider evidence 

demonstrating clinically accepted use of 

the device in a manner that actually 

affects the management of patients. 

In the case of LipiScanTM, we note 

that other methods exist for diagnosing 

CAD, including intravascular 

ultrasound (IVUS) and optical 

coherence tomography (OCT). In 

addition, the evidence available to CMS 

at the time of making a final rule 

determination consisted of anecdotal 

claims made by the applicant and one 

other commenter, that the identification 

of such plaques affects the management 

of the patient. A review of the literature 

yielded no additional evidence to 

support the applicant’s claim. 

Furthermore, we believe that the 

prognostic implications of detecting 

lipid-rich plaque are not yet sufficiently 

well enough understood and 

documented in the peer-reviewed 

evidence to conclude that such 

identification will lead to significant 

and evidence-based changes in the 

management of CAD. In addition, we 

note that there are relatively few cases 

in which LipiScanTM has been used 

relative to the patient population in 

which it could potentially be used. 

Specifically, the applicant claims that 

the device could potentially be used in 

every patient who undergoes coronary 

angiography. To date, the device is only 

in use in 11 hospitals total, and there 

have been no data published to indicate 

that management of patients has 

changed, even in the hospitals where 

the device has been used. Given the size 

of the patient population that the 

manufacturer claims stands to benefit 

from use of LipiScanTM, the fact that so 

few hospitals are using the technology 

raises significant concerns regarding 

whether use of LipiScanTM actually 


sroberts on DSKD5P82C1PROD with RULES
Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 43819 

affects the management of patients in a 

meaningful manner. 

Therefore, while we recognize that 

LipiScanTM provides the ability to 

detect lipid-rich plaque which is 

currently undetectable by any other 

means, we are nonetheless still 

concerned that there is significant 

uncertainty within the clinical 

community regarding the prognostic 

implications of obtaining this 

information. We note that we did not 

receive any public comment during the 

public comment period from physicians 

who may be using the device. We 

believe the evidence supplied by the 

applicant that the device is affecting the 

management of the patient is not able to 

be validated broadly and is still 

anecdotal. Further, the discussions of 

the technology in the scientific studies 

submitted by the applicant acknowledge 

the possible potential of the technology 

to affect treatment in the future, but all 

stated that additional studies are 

necessary to determine its actual 

clinical utility. Specifically, in an 

editorial published in 2008, the author 

wrote, ‘‘In conclusion, further studies 

are warranted to determine if detection 

of [lipid core plaque of interest] by [near 

infrared spectroscopy] imaging will 

contribute to enhanced prediction of 

outcomes in patients with known CAD.’’ 

(Young, 2008) Also, in a letter to the 

editor in the Journal of the College of 

Cardiology, another author wrote about 

his experience with three patients over 

a period of three weeks to share his 

‘‘initial observations.’’ The author wrote 

that ‘‘* * * preliminary results suggest 

that intravascular investigation of 

chemical composition of a coronary 

plaque has become a clinical reality 

[but] it remains to be seen whether 

chemograms would perform better than 

the ultrasound of whether they will be 

able to predict adverse events and 

faciltate development of clinically 

effective strategies for management of 

vulnerable plaques before it is too late.’’ 

(Maini, 2008) (emphasis added). 

We believe that these conclusions, 

and others, as stated in the literature 

further support our previously stated 

view that the prognostic implications of 

detecting lipid-rich plaque are not well 

enough understood and therefore the 

detection of such plaque cannot be 

reasonably assumed to lead to evidencebased, significant, and positive medical 

management of patients with CAD that 

is generally accepted by clinicians, 

much less lead to improved clinical 

outcomes. We agree with the commenter 

and applicant that the identification of 

lipid-rich plaques may hold promise 

and ultimately lead to changes in the 

management of CAD and that 

LipiScanTM ‘‘has the potential to 

provide additional benefits in the 

struggle against the leading cause of 

death in the United States.’’ However, 

we do not believe the evidence and 

information available at this time allows 

us to determine that it meets the 

substantial clinical improvement 

criterion. 

For these reasons, we are not 

approving LipiScanTM for new 

technology add-on payments for FY 

2010. 

d. Spiration® IBV® Valve System 

Spiration, Inc. submitted an 

application for new technology add-on 

payments for FY 2010 for the Spiration®

IBV® Valve System (Spiration® IBV®). 

The Spiration® IBV® is a device that is 

used to place, via bronchoscopy, small, 

one-way valves into selected small 

airways in the lung in order to limit 

airflow into selected portions of lung 

tissue that have prolonged air leaks 

following surgery while still allowing 

mucus, fluids, and air to exit, thereby 

reducing the amount of air that enters 

the pleural space. The device is 

intended to control prolonged air leaks 

following three specific surgical 

procedures: lobectomy; segmentectomy; 

or lung volume reduction surgery. 

According to the applicant, an air leak 

that is present on postoperative day 7 is 

considered ‘‘prolonged’’ unless present 

only during forced exhalation or cough. 

In order to help prevent valve migration, 

there are five anchors with tips that 

secure the valve to the airway. The 

implanted valves are intended to be 

removed no later than 6 weeks after 

implantation. 

With regard to the newness criterion, 

the Spiration® IBV® received a 

Humanitarian Device Exemption (HDE) 

approval from the FDA on October 24, 

2008. We are unaware of any previously 

FDA-approved predicate devices, or 

otherwise similar devices, that could be 

considered substantially similar to the 

Spiration® IBV®. However, the 

applicant asserted that the FDA has 

precluded the device from being used in 

the treatment of any patients until 

Institutional Review Board (IRB) 

approvals regarding its study sites. 

Therefore, it would appear that the 

Spiration® IBV® would meet the 

newness criterion once it has obtained 

at least one IRB approval because the 

device would then be available on the 

market to treat Medicare beneficiaries. 

In the FY 2010 IPPS/RY 2010 LTCH PPS 

proposed rule, we welcomed public 

comments about the date on which the 

newness period should begin for this 

technology should it meet the other 

criteria to be approved for new 

technology add-on payments (74 FR 

24135). 

We also noted that the Spiration®

IBV® is currently described by ICD–9– 

CM procedure code 33.71 (Endoscopic 

insertion or replacement of bronchial 

valve(s)). At the September 2008 ICD–9– 

CM Coordination and Maintenance 

Committee meeting, we discussed a 

proposal to revise the existing code and 

create a new code for endoscopic 

bronchial valve insertion in single and 

multiple lobes. In the proposed rule, we 

included the revised title of procedure 

code 33.71 to ‘‘Endoscopic insertion or 

replacement of bronchial valve(s), single 

lobes’’ and also the new procedure code 

33.73 (Endoscopic insertion or 

replacement of bronchial valve(s), 

multiple lobes) in order to distinguish 

between single and multiple lobes 

(Table 6F and 6B in the Addendum to 

the proposed rule (74 FR 24501 and 

24494, respectively)). 

Comment: The applicant commented 

that nine hospitals have confirmed 

receipt of the Spiration® IBV® and the 

first IRB approval for the Spiration®

IBV® was March 12, 2009. The 

applicant believes that this would 

confirm that the technology meets the 

newness criteria. 

Another commenter commented that 

the IRB at the commenter’s hospital has 

made pending approval of the 

Spiration® IBV® and expects to be able 

to use the Spiration® IBV® within the 

next month. 

Response: We thank the commenters 

for providing this information on when 

the newness period should begin for the 

Spiration® IBV®. Based on the 

information above from the applicant, 

the Spiration® IBV® meets the newness 

criterion and the newness period for the 

Spiration® IBV® begins on March 12, 

2009. 

In an effort to demonstrate that the 

technology meets the cost criterion, the 

applicant searched the FY 2007 

MedPAR file for cases potentially 

eligible for use of the Spiration® IBV®. 

Specifically, the applicant searched for 

cases with one of the following 

procedure codes: 32.4 (Lobectomy of 

lung); 32.3 (Segmental resection of 

lung); or 32.22 (Long volume reduction 

surgery). The applicant found 4,225 

cases (or 21.6 percent of all cases) in 

MS–DRG 163 (Major Chest Procedure 

with MCC), 8,960 cases (or 45.8 percent 

of all cases) in MS–DRG 164 (Major 

Chest Procedure with CC), and 6,358 

cases (or 32.5 percent of all cases) in 

MS–DRG 165 (Major Chest Procedure 

without CC/MCC). The average 

standardized charge per case was 

$88,326 for MS–DRG 163, $48,494 for 

MS–DRG 164, and $38,463 for MS–DRG 


sroberts on DSKD5P82C1PROD with RULES
43820 Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 

4Travaline JM et al. Treatment of persistent 

pulmonary air leaks using endobronchial valves. 

Chest; Prepublished online; April 6, 2009. 

5Bardell T, Petiskas D Can Respir J 2003 March, 

Vol. 10, No 2. 

6 Decamp MM, Ann Thorac Surg. 2006 July; Vol. 

82, No. 1. 

7Abolhoda A et al. Chest 1998; 113:1507–10. 

165, equating to a case-weighted average 

standardized charge per case of $53,842. 

The average standardized charge per 

case does not include charges related to 

the Spiration® IBV®; therefore, it is 

necessary to add the charges related to 

the device to the average standardized 

charge per case in evaluating the cost 

threshold criterion. Although the 

applicant submitted data related to the 

estimated cost of the Spiration® IBV®

per case, the applicant noted that the 

cost of the device was proprietary 

information. The applicant estimates 

$21,450 in charges related to the 

Spiration® IBV® (based on a 100-percent 

charge markup of the cost of the device). 

The applicant based this amount on 

seven actual cases that received the 

device. Because the applicant lacked a 

significant sample of cases to determine 

the charges associated with the device, 

we expressed our concerns in the 

proposed rule as to whether or not the 

$21,450 in charges related to the device 

is a valid estimate. In addition, based on 

the seven cases, the applicant 

determined an estimate of the number of 

valves used per case (the applicant 

noted that the number of valves used 

per case is proprietary). We also 

expressed concerns that the applicant 

lacked a significant sample of cases to 

determine a valid estimate of the 

number of valves per case. Adding the 

estimated charges related to the device 

to the average standardized charge per 

case (based on the case distribution 

from the applicant’s FY 2007 MedPAR 

claims data analysis) resulted in a caseweighted average standardized charge 

per case of $75,292 ($53,842 plus 

$21,450). Using the FY 2010 thresholds 

published in Table 10 (73 FR 58008), 

the case-weighted threshold for MS– 

DRGs 163, 164, and 165 was $54,715 (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 Spiration® IBV®

would meet the cost criterion. 

In the FY 2010 IPPS/RY 2010 LTCH 

PPS proposed rule, we invited public 

comment on whether or not the 

Spiration® IBV® meets the cost 

criterion. 

Comment: In response to our concerns 

in the proposed rule, the applicant 

commented and cited a recent study in 

Chest,4 prepublished on line on April 6, 

2009 (Travaline 2009). The study 

reports on use of bronchial valves (not 

necessarily made by the applicant) for 

air leaks from a number of etiologies. 

From December 2002 through January 

2007, 40 patients were treated with 

bronchial valves in 17 centers. The 

mean number of valves per case was 2.9 

for all patients in the study. The mean 

number of valves was 2.28 for the subset 

of seven post surgical air leak cases in 

the study. 

We note that the applicant informed 

us that the information in the proposed 

rule was incorrect and the number of 

actual cases where the Spiration® IBV®

was used was not seven. The applicant 

informed CMS that the correct number 

of actual cases that used the Spiration®

IBV® was eight cases. In the proposed 

rule, the applicant determined an 

average of 3.9 valves per case (or 

$21,450 in charges related to the device) 

for the Spiration® IBV® based on these 

eight actual cases. However, the 

applicant explained that if we were to 

remove one case that they considered to 

be outlier because it used 10 valves, the 

average number of valves per case 

would be 3.0, which is similar to the 

average amount of valves per case from 

the Travaline study. The commenter 

also noted that the lower number of 

valves used in the Travaline study for 

post surgical leaks compared to the 

Spiration® IBV® data can be attributed 

to the design of the Spiration® IBV®

compared to the valve used in the study 

that limits the sub segmental treatment. 

The commenter believes that this newly 

published data supports the conclusion 

that it is typical to insert multiple valves 

per case in prolonged air leak cases. 

The applicant also commented that 

since the proposed rule, two additional 

cases were performed using the 

Spiration® IBV® (making a total of 10 

cases). The applicant included these 

two additional cases in its revised 

estimate of the average amount of valves 

per case. In addition to removing the 

outlier case above, the applicant also 

removed an additional case they 

considered to be an outlier that used 

four valves and determined an average 

of 2.5 valves per case (or $13,750 in 

charges related to the Spiration® IBV®). 

The applicant also noted that the 

case-weighted threshold was $54,715 

which is slightly higher than the caseweighted average standardized charge 

per case of $53,842 (which does not 

include charges related to the device). 

The commenter explained that even if 

we added a charge of $5,550 for only 

one Spiration® IBV® to the caseweighted average standardized charge 

per case (for a total case-weighted 

average standardized charge per case of 

$59,392), the Spiration® IBV® would 

still meet the cost criterion since the 

case-weighted average standardized 

charge per case ($59,392) exceeds the 

case-weighted threshold ($53,842). 

The commenter also stated the 

following to strengthen confidence in its 

MedPAR analysis. The commenter 

explained that its MedPAR analysis 

profiled cases identified by the relevant 

surgical codes since specific ICD–9–CM 

procedure and diagnosis are not 

available to identify cases of prolonged 

air leaks within the FY 2007 MedPAR. 

The applicant cited peer reviewed 

clinical literature that was submitted as 

part of its new technology add-on 

payment application to demonstrate that 

patients with prolonged air leaks had a 

greater length of stay and complication 

rates compared to patients who did not 

have a prolonged air leak. Specifically, 

the applicant noted that one study 5

with 91 post operative patients after 

pulmonary resection demonstrated that 

patients with air leaks after 3 days had 

a greater length of stay (mean of 9.4 days 

vs. 5.4 days with a p value of p<0.0001). 

The commenter also noted that a study 

of 552 post operative patients after 

LVRS in the National Emphysema 

Treatment Trial 6 demonstrated that 

patients with air leaks had more 

complications (57 percent versus 30 

percent with a p value of p=0.0004) and 

longer length of stay (11.8 days vs. 7.6 

days with a p value of p=0.0005). The 

commenter also cited a retrospective 

study 7 of 100 patients from a single 

center that showed the median length of 

stay for patients with prolonged air leak 

after radical upper lobectomy procedure 

was 11 days versus the median of 7 days 

for patients without prolonged air leak. 

Based on these clinical data, the 

applicant concluded that prolonged air 

leak cases are costlier than cases 

without prolonged air leak. As a result, 

the commenter believes that its 

MedPAR analysis was conservative in 

evaluating charges for surgical 

procedures as a whole, without being 

able to uniquely identify costlier 

prolonged air leak cases. 

Response: We thank the applicant for 

submitting additional data to determine 

the amount of charges related to the 

Spiration® IBV®. In order to determine 

that the applicant met the cost criteria, 

in addition to the applicant’s analysis, 

we searched the March update of the FY 

2008 MedPAR for the same procedure 

codes that the applicant searched in 

their MedPAR analysis. We found 5,501 

cases in MS–DRG 163 (or 23.9 percent 


sroberts on DSKD5P82C1PROD with RULES
Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 43821 

of all cases), 11,151 cases in MS–DRG 

164 (or 48.4 percent of all cases), and 

6,380 cases in MS–DRG 165 (or 27.7 

percent of all cases). The average 

standardized charge per case was 

$85,958 for MS–DRG 163, $48,731 for 

MS–DRG 164, and $37,586 for MS–DRG 

165, equating to a case-weighted average 

standardized charge per case of $54,535. 

Adding the revised estimate of charges 

of $13,750 (2.5 valves × $5,550) related 

to the device to the average 

standardized charge per case (based on 

the case distribution from out FY 2008 

MedPAR claims data analysis) resulted 

in a case-weighted average standardized 

charge per case of $68,285. Using the FY 

2010 thresholds published in Table 10 

(73 FR 58008), the case-weighted 

threshold for MS–DRGs 163, 164 and 

165 was $55,952 (all calculations above 

were performed using unrounded 

numbers). Based on this analysis, the 

case-weighted average standardized 

charge per case for the applicable MS– 

DRGs exceeds the case-weighted 

threshold amount. Additionally, similar 

to what the applicant stated above, if we 

only included the amount of charges for 

one valve, the case-weighted average 

standardized charge per case of $60,035 

($54,535 plus $5,550) would still exceed 

the case-weighted threshold of $55,952. 

Therefore, we believe that the applicant 

meets the cost criterion. 

Additionally, the applicant submitted 

supplemental data from multiple 

sources in an effort to determine the 

average amount of valves that would be 

used per case. We note that the average 

number of valves from actual cases 

involving the Spiration® IBV® (2.5 

valves per case) is higher than the 

average amount of valves (2.28 valves 

per case) from the seven post surgical 

air leak cases from the Traveline study 

(not the Spiration® IBV®). However, we 

prefer to rely on actual case data when 

available and the actual case data is a 

more conservative estimate of the 

average amount of valves per case 

compared to those cases in the studies 

that did not use the Spiration® IBV®. 

With respect to how the device would 

meet the substantial clinical 

improvement criterion, the applicant 

submitted information that was based 

on the Summary of Safety and Probable 

Benefit (SSPB) from the FDA’s HDE 

approval order for the device. The 

clinical results indicate the Spiration®

IBV® can be deployed in the intended 

airway reasonably safely with a 

minimally invasive bronchoscopy 

procedure. There have been a limited 

number of device complications and no 

occurrences of device erosion or 

migration. The Spiration® IBV® can be 

removed using a bronchoscope. 

Laboratory results indicate that the 

Spiration® IBV® significantly reduces 

airflow to the lung tissue beyond the 

treated airway, and a significant 

reduction in distal airflow is anticipated 

to augment the resolution of air leaks of 

the lung. Therefore, the applicant 

asserts, it is reasonable to conclude that 

the probable benefit to health associated 

with using the device for the target 

population outweighs the risk of illness 

or injuries, taking into account the 

probable risks and benefits of currently 

available devices or alternative forms of 

treatment when used as indicated in 

accordance with the directions for use. 

We recognize that prolonged air leaks 

after these types of lung surgery can be 

a significant problem, and that 

Spiration® IBV® therapy may represent 

a new alternative in treating properly 

selected patients. However, we 

emphasized our concerns in the 

proposed rule that the outcome data 

presented are from a sample set of only 

seven patients, and the FDA HDE did 

not require demonstration of either 

safety or effectiveness. Therefore, in the 

FY 2010 IPPS/RY 2010 LTCH PPS 

proposed rule, we welcomed public 

comment as to whether or not the 

Spiration® IBV® represents a substantial 

clinical improvement for Medicare 

beneficiaries. 

We did not receive any written public 

comments regarding this application for 

new technology add-on payments 

concerning the new technology town 

hall meeting. 

Comment: A number of commenters 

agreed with the applicant that the 

Spiration® IBV® meets the substantial 

clinical improvement criteria. The 

commenters also recommended the 

approval of the Spiration® IBV® for new 

technology add-on payments in FY 

2010. One commenter, an association of 

thoracic surgeons, expressed support for 

approving the Spiration® IBV® for new 

technology add-on payments. The 

commenter explained that the 

Spiration® IBV® offers a less invasive 

treatment of the prolonged air leak, 

whereas the alternative treatment would 

be a major re-operation which costs 

more money and poses a greater risk to 

the patient. 

The remaining commenters were 

physicians who had experience using 

bronchial valves or had actual 

experience using the Spiration® IBV®. 

These commenters noted that excluding 

the Spiration® IBV®, current treatments 

for prolonged air leaks include chest 

tube drainage, occlusion of airways with 

fibrin ‘‘glue’’, and/or re-operation. One 

of the commenters explained that 

endobronchial valves offer a unique 

method for treating prolonged air leaks 

by temporarily preventing air from 

flowing into the segment of the lung 

with the air leak. The commenter noted 

that the efficacy of the valve can be 

predicted effectively by occluding the 

lobe or segment involved with a balloon 

catheter to determine if the air leak can 

be stopped. If a balloon is effective in 

stopping the leak, then a valve can also 

be effective in stopping the leak. The 

commenter explained that the advantage 

of this treatment is that after the leak 

has completely healed, the valves can be 

removed with a minimally invasive 

fiber-optic bronchoscopy. The 

commenter concluded that the 

Spiration® IBV® represents a substantial 

improvement since it offers a valuable, 

new, unique treatment option for 

prolonged post thoracotomy air leak and 

is the only bronchial valve with FDA 

approval (HDE). 

Another commenter stated that using 

a bronchial valve to treat an air leak, 

resulted in the air leak ceasing at the 

end of the procedure. The commenter 

noted that for safety reasons, chest tubes 

are left in for 48 hours and patients in 

its care have been discharged 72 hours 

after the procedure. The bronchial valve 

was typically removed within 4–6 

weeks after the procedure. The 

commenter further stated that it was not 

aware of any randomized clinical trials 

that prove that bronchial valves make 

air leaks stop. However, the commenter 

maintained that based on their 

experience, air leaks that lasted 14 days 

or longer which suddenly ceased upon 

use of a bronchial valve would be strong 

circumstantial evidence that the therapy 

works and can shorten hospitalization 

in appropriately selected patients. The 

commenter also believes that using a 

bronchial valve for air leaks still present 

after five days following surgery would 

likely result in an overall cost savings 

since the duration of hospitalization is 

usually dependent on air leak cessation. 

The commenter concluded that the 

Spiration® IBV® represents a substantial 

clinical improvement and CMS should 

approve Spiration® IBV® for new 

technology add-on payments in FY 

2010. 

One of the commenters noted that in 

its experience using endobronchial 

valves, patients with prolonged air leaks 

who were in the hospital for many 

weeks with chest tubes in place were 

discharged and had the chest tubes 

removed within days upon use of an 

endobronchial valve. The commenter 

cited an example of a patient currently 

treated by the commenter who has 

undergone numerous procedures with 

anesthesia in the operating room and 

requires another two procedures. The 

commenter believed that this patient 


sroberts on DSKD5P82C1PROD with RULES
43822 Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 

would have been able to be managed in 

a bronchoscopy suite under moderate 

sedation with use of an endobronchial 

valve. As the only bronchial valve with 

FDA approval (HDE), the commenter 

believed the Spiration® IBV® represents 

a substantial clinical improvement and 

recommended that CMS make new 

technology add-on payments for the 

Spiration® IBV® in FY 2010. 

Another commenter noted that 

conservative management of air leaks 

results in prolonged hospitalization and 

limited mobilization of patients with a 

much higher risk of additional 

complications such as pneumonia, 

empyema, deep venous thrombosis and 

pulmonary embolism, and progressive 

deconditioning. These complications 

take a toll on patients with prolonged 

air leaks and result in a significantly 

worse overall outcomes, prolonged 

hospital stay, and substantial increase in 

costs. 

The commenter also noted its 

extensive experience using the 

Spiration® IBV® valve in clinical trials 

as a potential therapy for palliation of 

severe emphysema. Specifically, the 

commenter stated that the valves are 

easy to place in desired segments and 

effectively block distal airflow with a 

high safety profile in published studies. 

The commenter further stated that the 

valves are stable with no incidence of 

valve migration in over 600 valves 

placed in emphysema patients with 

follow-up that included endoscopic and 

radiologic surveillance. The commenter 

also noted their extensive experience in 

valve removal, which is part of the 

intended therapy for patients that have 

valve treatment for air leaks (since once 

the air leaks are resolved the valves will 

no longer be necessary). The commenter 

disclosed that it did not have any 

personal experience in using the 

Spiration® IBV® for patients with air 

leaks, but are familiar with the existing 

literature on similar treatments as well 

as the case series using the Spiration®

IBV® for this indication. With this 

background, the commenter believed 

that the Spiration® IBV® has a high 

likelihood of helping to resolve 

prolonged postsurgical air leaks and 

therefore minimizes the duration of 

chest tube drainage and hospitalization 

for patients (with an attendant decrease 

in the risk of complications that 

accompany prolonged hospitalization). 

The commenter also believed that the 

high safety profile and effectiveness of 

the Spiration® IBV® for occluding 

segmental airways suggests a very high 

likelihood of clinical benefit in this 

group of patients with the indication of 

prolonged air leak. The commenter 

concluded that it believed that the 

Spiration® IBV® represents a substantial 

improvement to currently available 

treatment options for patients who have 

post-surgical prolonged air leaks. The 

commenter recommended that CMS 

approve the Spiration® IBV® for new 

technology add payments so that 

hospitals are appropriately reimbursed 

for this new important technology. 

Response: We appreciate the 

commenters submitting their comments 

in support of the Spiration® IBV®. Many 

of the commenters described their 

positive experiences using the 

Spiration® IBV® or other bronchial 

valves that resolved cases of air leaks, 

which improved the clinical outcome of 

the patient. Furthermore, the 

commenters suggested that most, if not 

all, of the cases treated using the 

Spiration® IBV® and other bronchial 

valves would have had to have 

undergone further invasive treatments 

had the Spiration® IBV® or other 

bronchial valves not have been available 

to resolve the air leak. Additionally, the 

Spiration® IBV® and other bronchial 

valve provided a quick resolution to 

these cases of prolonged air leaks. We 

considered the commenters’ positive 

experiences using the Spiration® IBV®

in our determination (below) on 

whether the Spiration® IBV® represents 

a substantial clinical improvement. 

Comment: The applicant commented 

that providers have few treatment 

options for effectively controlling 

prolonged air leaks. The applicant noted 

that aside from the Spiration® IBV®, no 

other bronchoscopic treatments have 

been clinically accepted or approved by 

the FDA. Therefore, management of 

prolonged air leaks due to persistent 

bronchopleural fistula involves chest 

drainage and occasionally pleurodesis, 

with more difficult cases requiring 

pleurectomy and surgical repair. The 

applicant further noted that current 

treatment options for air leaks are 

associated with risks and complications 

such as prolonged use of chest tubes 

which increases the risk of pneumonia, 

deep venous thrombosis, pulmonary 

embolus, atelectasis, subcutaneous 

emphysema and empyema; restricted 

ambulation due to chest tube which 

increases the risks associated with 

inactivity; prolonged requirements for 

pain medication and extended post 

operative length of stay which increases 

the potential for hospital acquired 

infections. 

In response to our concerns in the 

proposed rule, the applicant 

acknowledged that there are limited 

outcomes data associated with the use 

of the Spiration® IBV® for prolonged air 

leaks. However, the applicant cited that 

additional data has been published 

since the proposed rule regarding the 

use of a bronchial valve for prolonged 

air leaks. Specifically, the applicant 

cited the following clinical benefit data 

from the Traveline 2009 study for 

patients who received a bronchial valve 

for air leaks from multiple causes: 

following valve placement, the air leaks 

resolved or decreased in 37 of 40 

patients (92.5 percent); 19 patients (47.5 

percent) had complete resolution of the 

air leak acutely, 18 patients (45 percent) 

had reduction, two patients (5 percent) 

had no change in air leak status, and 

one patient (2.5 percent) the immediate 

change in air leak was not reported. 

Additionally, the applicant reported 

that all 10 procedures performed with 

the Spiration® IBV® resulted in air leak 

decrease and/or resolution. The 

applicant concluded that these results 

demonstrated the following: Valve 

placement may reduce or avoid 

complications associated with current 

treatments of prolonged air leaks; 

patients who received bronchial valves 

experienced air leak resolution or 

decrease unlike a situation absent 

bronchial valves where a patient may 

need to remain in the hospital; patients 

with a bronchial valve are able to be 

discharged with the valve thus avoiding 

risks, complications and costs 

associated with prolonged lengths of 

hospitalizations. The applicant believed 

that these conclusions from the newly 

published data together with Spiration®

data demonstrate that the Spiration®

IBV® meets the substantial clinical 

improvement criteria. 

Response: We thank the applicant for 

providing additional clinical data to 

demonstrate that the Spiration® IBV®

meets the substantial clinical 

improvement criteria. With respect to 

substantial clinical improvement, we 

considered all the case specific clinical 

information presented by the applicant 

and the public to determine whether 

there is evidence to support a 

conclusion that use of the Spiration®

IBV® represents a substantial clinical 

improvement. Specifically, we 

considered the peer-reviewed medical 

literature, clinical studies, and the 

clinically accepted use of the device. 

We remain concerned that no 

prospective comparative data exists to 

help understand the benefit of the 

technology versus other modalities. We 

also do not know what the outcome 

would have been for the cases presented 

as examples in the Traveline study (that 

is, if or when those air leaks might have 

resolved on their own). Additionally, 

many of the cases in that study were not 

for the indicated use (post-operative 

prolonged air leak management). 

However, we agree that the Spiration®


sroberts on DSKD5P82C1PROD with RULES
Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 43823 

IBV® can improve clinical outcomes by 

providing an alternative treatment that 

is effective and often a less invasive 

method of treating prolonged air leaks 

in a small patient population that is 

properly and carefully selected (as 

required by the FDA). Additionally, we 

received positive comments from a 

major thoracic society and from 

physicians who indicated that the 

Spiration® IBV® and other bronchial 

valves produced positive clinical 

outcomes by resolving air leaks. Also, 

the comments we received from the 

physicians demonstrated a change to the 

clinical therapy for cases of air leaks by 

using a bronchial valve such as the 

Spiration® IBV® instead of other 

alternative treatments such as an 

invasive surgery to resolve the air leak. 

Furthermore, the Spiration® IBV® is the 

only device currently approved for the 

purpose of treating prolonged air leaks 

following lobectomy, segmentectomy, 

and LVRS patients in the United States. 

Without the availability of this device, 

patients with prolonged air leaks 

(following lobectomy, segmentectomy, 

and LVRS) might otherwise remain 

inpatients in the hospital (and have a 

longer length of stay than they might 

otherwise have without the Spiration®

IBV®) or might even require additional 

invasive surgeries to resolve the air leak. 

We also note that use of the Spiration®

IBV® may lead to more rapid beneficial 

resolution of prolonged air leaks and 

reduce recovery time following the three 

lung surgeries mentioned above. 

Therefore, after reviewing the totality of 

the evidence, we have determined that 

the Spiration® IBV® represents a 

substantial clinical improvement over 

existing therapies for prolonged air 

leaks for carefully selected patients. 

Accordingly, after consideration of 

the clinical evidence received, we are 

approving the Spiration® IBV® for new 

technology add-on payments in FY 

2010. However, we remain interested in 

seeing whether the clinical evidence 

continues to find it to be effective. This 

approval is on the basis of using the 

Spiration® IBV® consistent with the 

FDA approval (HDE), and we emphasize 

the need for appropriate patient 

selection accordingly. Therefore, we 

intend to limit the add-on payment to 

cases involving prolonged air leaks 

following lobectomy, segmentectomy 

and LVRS in MS–DRGs 163, 164, and 

165. Cases involving the Spiration®

IBV® that are eligible for the new 

technology add-on payment will be 

identified by assignment to MS–DRGs 

163, 164, and 165 with procedure code 

33.71 or 33.73 in combination with one 

of the following procedure codes: 32.22, 

32.30, 32.39, 32.41, or 32.49. 

The average cost of the Spiration®

IBV® is reported as $2,750. Based on the 

applicant’s revised data, the average 

amount of valves per case is 2.5. 

Therefore, the total maximum cost for 

the Spiration® IBV® is expected to be 

$6,875 per case ($2,750 × 2.5). Under 

section 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 addon payment for a case involving the 

Spiration® IBV® is $3,437.50. 

e. TherOx Downstream® System 

TherOx, Inc. submitted an application 

for new technology add-on payments for 

FY 2010 for the TherOx Downstream®

System. However, the applicant 

withdrew its application for new 

technology add-on payments during the 

public comment period. 

We did not receive any public 

comments on this application. 

5. Technical Correction to the 

Regulations 

In the FY 2009 IPPS final rule, when 

we revised the regulations at § 412.87 to 

incorporate changes relating to the 

announcement of determinations and 

deadline for consideration of new 

medical service or technology 

applications, we made a change to 

paragraph (b)(1) (73 FR 48755). In 

paragraph (b)(1), we inadvertently used 

the incorrect word ‘‘relating’’ in the 

provision that read ‘‘A new medical 

service or technology represents an 

advance that substantially improves, 

relating to technologies previously 

available, the diagnosis or treatment of 

Medicare beneficiaries’’ (emphasis 

added). The correct word should have 

been ‘‘relative.’’ We proposed to make a 

technical correction to § 412.87(b)(1), 

replacing the word ‘‘relating’’ with the 

word ‘‘relative’’ (74 FR 24137). We did 

not receive any public comments on this 

proposal. Accordingly, we are finalizing 

this proposed correction. 

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 definitions of statistical areas 

established by the Office of Management 

and Budget (OMB). A discussion of the 

FY 2010 hospital wage index based on 

the statistical areas, including OMB’s 

revised definitions of Metropolitan 

Areas, appears under section III.C. of 

this preamble. 

Beginning October 1, 1993, section 

1886(d)(3)(E) of the Act requires that we 

update the wage index annually. 

Furthermore, this section of the Act 

provides that the Secretary base the 

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

hospitals. The survey must exclude the 

wages and wage-related costs incurred 

in furnishing skilled nursing services. 

This provision also requires us to make 

any updates or adjustments to the wage 

index in a manner that ensures that 

aggregate payments to hospitals are not 

affected by the change in the wage 

index. The adjustment for FY 2010 is 

discussed in section II.B. of the 

Addendum to this final rule. 

As discussed below in section III.I. of 

this preamble, we also take into account 

the geographic reclassification of 

hospitals in accordance with sections 

1886(d)(8)(B) and 1886(d)(10) of the Act 

when calculating IPPS payment 

amounts. Under section 1886(d)(8)(D) of 

the Act, the Secretary is required to 

adjust the standardized amounts so as to 

ensure that aggregate payments under 

the IPPS after implementation of the 

provisions of sections 1886(d)(8)(B) and 

(C) and 1886(d)(10) of the Act are equal 

to the aggregate prospective payments 

that would have been made absent these 

provisions. The budget neutrality 

adjustment for FY 2010 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, 2009 

(the FY 2010 wage index) appears under 

section III.D. of this preamble. 


sroberts on DSKD5P82C1PROD with RULES
43824 Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 

B. Requirements of Section 106 of the 

MIEA–TRHCA 

1. Wage Index Study Required Under 

the MIEA–TRHCA 

a. Legislative Requirement 

Section 106(b)(1) of the MIEA– 

TRHCA (Pub. L. 109–432) required 

MedPAC to submit to Congress, not later 

than June 30, 2007, a report on the 

Medicare wage index classification 

system applied under the Medicare 

IPPS. Section 106(b) of MIEA–TRHCA 

required the report to include any 

alternatives that MedPAC recommends 

to the method to compute the wage 

index under section 1886(d)(3)(E) of the 

Act. 

In addition, section 106(b)(2) of the 

MIEA–TRHCA instructed the Secretary 

of Health and Human Services, taking 

into account MedPAC’s 

recommendations on the Medicare wage 

index classification system, to include 

in the FY 2009 IPPS proposed rule one 

or more proposals to revise the wage 

index adjustment applied under section 

1886(d)(3)(E) of the Act for purposes of 

the IPPS. The Secretary was also to 

consider each of the following: 

• Problems associated with the 

definition of labor markets for the wage 

index adjustment. 

• The modification or elimination of 

geographic reclassifications and other 

adjustments. 

• The use of Bureau of Labor of 

Statistics (BLS) data or other data or 

methodologies to calculate relative 

wages for each geographic area. 

• Minimizing variations in wage 

index adjustments between and within 

MSAs and statewide rural areas. 

• The feasibility of applying all 

components of CMS’ proposal to other 

settings. 

• Methods to minimize the volatility 

of wage index adjustments while 

maintaining the principle of budget 

neutrality. 

• The effect that the implementation 

of the proposal would have on health 

care providers on each region of the 

country. 

• Methods for implementing the 

proposal(s), including methods to phase 

in such implementations. 

• Issues relating to occupational mix 

such as staffing practices and any 

evidence on quality of care and patient 

safety including any recommendation 

for alternative calculations to the 

occupational mix. 

In the FY 2009 IPPS final rule (73 FR 

48563 through 48567), we discussed the 

MedPAC’s study and recommendations, 

the CMS contract with Acumen, L.L.C. 

for assistance with impact analysis and 

study of wage index reform, and public 

comments we received on the MedPAC 

recommendations and the CMS/ 

Acumen study and analysis. 

b. Interim and Final Reports on Results 

of Acumen’s Study 

(1) Interim Report on Impact Analysis of 

Using MedPAC’s Recommended Wage 

Index 

In the FY 2009 IPPS final rule (73 FR 

48566 through 48567), we discussed the 

analysis conducted by Acumen 

comparing use of the MedPAC 

recommended wage indices to the 

current CMS wage index. We refer 

readers to section III.B.1.e. of that final 

rule for a full discussion of the impact 

analysis as well as to Acumen’s interim 

report available on the Web site: 

http://www.acumenllc.com/reports/cms. 

(2) Acumen’s Final Report on Analysis 

of the Wage Index Data and 

Methodology 

Acumen’s final report addressing the 

issues in section 106(b)(2) of the MIEA– 

TRHCA is divided into two parts. The 

first part analyzes the strengths and 

weaknesses of the data sources used to 

construct the MedPAC and CMS 

indexes. The first part of Acumen’s 

study is complete and was published on 

Acumen’s Web site after the publication 

of the FY 2010 IPPS/RY 2010 LTCH PPS 

proposed rule. The second part of 

Acumen’s study, which is expected to 

be released on Acumen’s Web site after 

the publication of this FY 2010 IPPS/RY 

2010 LTCH PPS final rule, will focus on 

the methodology of wage index 

construction and covers issues related to 

the definition of wage areas and 

methods of adjusting for differences 

among neighboring wage areas, as well 

as reasons for differential impacts of 

shifting to a new index. 

The following is a description of the 

analyses for both parts of Acumen’s 

final report. 

Part I: Wage Data Analysis 

• Differences between the BLS data 

and the CMS wage data—Acumen 

assessed the strengths and weaknesses 

of the data used to construct the CMS 

wage index and the MedPAC 

compensation index by examining the 

differences between the BLS and the 

CMS wage data. Acumen also evaluated 

the importance of accounting for selfemployed workers, part-time workers, 

and industry wage differences. 

• Employee benefit (wage-related) 

cost—Acumen considered whether 

benefit costs need to be included in the 

hospital wage index and discussed the 

differences between Worksheet A 

benefits data (proposed by MedPAC to 

use with BLS wage data) and Worksheet 

S–3 benefit data. Acumen also analyzed 

the possibility of using BLS’ Employer 

Costs for Employee Compensation 

(ECEC) series as an alternative to 

Worksheet A or Worksheet S–3 benefits 

data that would pose less of a data 

collection burden for providers. 

• Impact of the fixed national 

occupational weights—Acumen 

assessed MedPAC’s and CMS’ methods 

for adjusting for occupational mix 

differences. While the proposed 

MedPAC compensation index uses fixed 

weights for occupations representative 

of the hospital industry nationally, the 

CMS wage index incorporates an 

occupational mix adjustment (OMA) 

from a separate data collection. 

• Year-to-year volatility in the CMS 

and BLS wage data—Acumen calculated 

the extent of volatility in the CMS and 

BLS wage indexes using several 

measures of volatility. Acumen also 

explored potential causes of volatility, 

such as the number of hospitals and the 

annual change in the number of 

hospitals in a wage area. Finally, 

Acumen evaluated the impact on annual 

volatility of using a 2-year rolling 

average of CMS wage index values. 

In the first part of its final report, 

Acumen suggests that MedPAC’s 

recommended methods for revising the 

wage index represent an improvement 

over the existing methods, and that the 

BLS data should be used so that the 

MedPAC approach can be implemented. 

Comment: Several commenters 

reiterated their concerns regarding the 

use of the BLS data for computing the 

Medicare wage index that they had 

expressed in public comments on the 

FY 2009 IPPS final rule (73 FR 48564). 

The commenters stated that they still 

have significant concerns about the 

shortcomings of the BLS data, and they 

urged CMS to move cautiously in 

considering MedPAC’s and Acumen’s 

findings. Other commenters expressed 

support for MedPAC’s and Acumen’s 

findings and recommendations, 

although some commenters cautioned 

that a few refinements may still be 

needed before adopting these 

recommendations. MedPAC commented 

that they look forward to the completion 

of the Acumen study and to working 

with CMS on improving the hospital 

wage index. 

Response: As Acumen’s study is 

incomplete at the time of preparation of 

this final rule, we are making no 

assessments or conclusions in this rule 

with regards to Acumen’s findings in 

Part I of its final report. As we mention 

below, we will consider both of 

Acumen’s final reports and public 

comments in assessing MedPAC’s 


sroberts on DSKD5P82C1PROD with RULES
Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 43825 

recommendations and making future 

proposals for changes in the wage index. 

Part II: Wage Index Construction 

• Alternative wage area definitions— 

Acumen will explore the conceptual 

basis for defining wage areas and 

investigate alternative wage area 

definitions that have been considered in 

prior literature to reduce differences 

between areas. 

• Differences between and within 

contiguous wage areas—Acumen will 

estimate different methods for 

smoothing wage index values between 

geographically proximate areas and 

examine the justification for and 

sensitivity to assumptions used by 

MedPAC in its smoothing method. 

• Reasons for differential impacts of 

shifting to a new index—Acumen will 

analyze the impact on hospitals if CMS 

were to adopt MedPAC’s proposed 

compensation index, with a focus on 

hospitals that would no longer qualify 

for exceptions such as geographic 

reclassification and the rural floor. 

Acumen will also determine if there are 

identifiable reasons for the different 

impacts. 

As mentioned above, Acumen is 

expected to complete and publish its 

analysis for the second part of its final 

report after the publication date of this 

final rule. 

We indicated in the FY 2009 IPPS 

final rule that, in developing any 

proposal(s) for additional wage index 

reform that may be included in the FY 

2010 IPPS proposed rule, we would 

consider all of the public comments on 

the MedPAC recommendations that we 

had received in that proposed 

rulemaking cycle, along with the 

interim and final reports to be submitted 

to us by Acumen. As Acumen’s study 

was not complete at the time of issuance 

of the FY 2010 IPPS/RY 2010 LTCH PPS 

proposed rule, we did not propose any 

additional changes to the hospital wage 

index for acute care hospitals for the FY 

2010 IPPS. 

2. FY 2009 Policy Changes in Response 

to Requirements Under Section 106(b) 

of the MIEA–TRHCA 

To implement the requirements of 

section 106(b) of the MIEA–TRHCA and 

respond to MedPAC’s recommendations 

in its June 2007 report to Congress, in 

the FY 2009 IPPS final rule (73 FR 

48567 through 48574), we made the 

following policy changes relating to the 

hospital wage index. (We refer readers 

to the FY 2009 IPPS final rule for a full 

discussion of the basis for the proposals, 

the public comments received, and the 

FY 2009 final policy.) 

a. Reclassification Average Hourly Wage 

Comparison Criteria 

In the FY 2009 IPPS final rule, we 

adopted the policy to adjust the 

reclassification average hourly wage 

standard, comparing a reclassifying 

hospital’s (or county hospital group’s) 

average hourly wage relative to the 

average hourly wage of the area to 

which it seeks reclassification. We 

provided for a phase-in of the 

adjustment over 2 years. For 

applications for reclassification for the 

first transitional year, FY 2010, the 

average hourly wage standards were set 

at 86 percent for urban hospitals and 

group reclassifications and 84 percent 

for rural hospitals. For applications for 

reclassification for FY 2011 (for which 

the application deadline is September 1, 

2009) and for subsequent fiscal years, 

the average hourly wage standards will 

be 88 percent for urban and group 

reclassifications and 86 percent for rural 

hospitals (§§ 412.230, 412.232, and 

412.234 of the regulations). As stated 

above, these policies were adopted in 

the FY 2009 IPPS final rule. 

In response to our summary of the FY 

2009 policy changes in the FY 2010 

IPPS/RY 2010 LTCH PPS proposed rule 

(74 FR 24139), we received several 

public comments, which are 

summarized below. 

Comment: Several commenters 

opposed raising the average hourly wage 

thresholds to 88 percent for urban and 

group reclassifications and 86 percent 

for rural hospitals for applications for 

FY 2011 and subsequent years. 

Response: As we discussed in the FY 

2009 IPPS proposed and final rules, 

section 106(b) of the MIEA–TRHCA 

required the Secretary to make one or 

more proposals to revise the wage index 

adjustment for FY 2009. In the FY 2009 

IPPS proposed rule (73 FR 48567 

through 48574), we indicated that while 

we had limited authority to make 

changes to the nine specific areas of the 

wage index that the law required us to 

study, we did carefully review the 

criteria established in regulations for 

allowing a hospital to geographically 

reclassify. Specifically, in the FY 2009 

IPPS final rule, we updated the 

geographic reclassification criteria based 

on a review of the statistical metrics that 

were used to establish the original 

standards in 1993. The original 

individual standards were set using a 

methodology that calculated a 

percentile range of one standard 

deviation from the mean in which a 

typical hospital’s average hourly wage 

would be expected to fall relative to its 

combined labor market average hourly 

wage. In short, we found that the 

average hospital average hourly wage as 

a percentage of its area’s wage had 

increased from approximately 96 

percent in FY 1993 to 98 percent in the 

most recent 3 fiscal years. Further, the 

standard deviation had been reduced 

from approximately 12 percent to 10 

percent over the same time period. The 

original criteria were set equal to the 

average less the standard deviation (96 

percent less 12 percentage points). The 

revised reclassification criteria based on 

these same statistical metrics led us to 

change the standard to 88 percent (98 

percent less 10 percentage points). By 

refining our standards, we found that 

the number of hospitals that are able to 

reclassify despite not demonstrating 

average hourly wage levels that truly 

justify a higher wage index will be 

reduced. 

We considered public comments 

received in response to the FY 2009 

IPPS proposed rule before making this 

change final in the FY 2009 IPPS final 

rule (73 FR 48567 through 48574). The 

change in policy did not affect any 3- 

year geographic reclassifications that 

went into effect beginning in FY 2009. 

Further, in response to public comments 

on the FY 2009 IPPS proposed rule, we 

decided to adopt the revised 

reclassification criteria over a 2-year 

transitional period. Hospitals will be 

subject to the 88 percent criteria for 

urban and group reclassifications (86 

percent for rural areas) for 3-year 

geographic reclassifications beginning 

for FY 2011 applications due to the 

MGCRB no later than 5 p.m. (EST) on 

September 1, 2009. 

Finally, in the FY 2009 IPPS final rule 

and in section III.B.1.b. of the preamble 

of this final rule, we discuss our 

contract with Acumen to assist us in 

studying the wage index and the 

MedPAC recommendations, and also to 

assist us in developing other proposals 

for reforming the wage index. At this 

time, the study is still in progress and 

Acumen intends to issue its final report 

this year. We will consider possible 

additional changes to the wage index 

through the formal rulemaking process 

after our review of Acumen’s final 

report and recommendations. 

b. Within-State Budget Neutrality 

Adjustment for the Rural and Imputed 

Floors 

In the FY 2009 IPPS final rule, we 

adopted State level budget neutrality 

(rather than the national budget 

neutrality adjustment) for the rural and 

imputed floors, to be effective beginning 

with the FY 2009 wage index. The 

transition from the national budget 

neutrality adjustment to the State level 

budget neutrality adjustment is being 


sroberts on DSKD5P82C1PROD with RULES
43826 Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 

phased in over a 3-year period. In FY 

2009, hospitals received a blended wage 

index that was 20 percent of a wage 

index with the State level rural and 

imputed floor budget neutrality 

adjustment and 80 percent of a wage 

index with the national budget 

neutrality adjustment. In FY 2010, the 

blended wage index reflects 50 percent 

of the State level adjustment and 50 

percent of the national adjustment. In 

FY 2011, the adjustment will be 

completely transitioned to the State 

level methodology. 

In the FY 2009 IPPS final rule, we 

incorporated this policy in our 

regulation at § 412.64(e)(4). Specifically, 

we provided that CMS makes an 

adjustment to the wage index to ensure 

that aggregate payments after 

implementation of the rural floor under 

section 4410 of the Balanced Budget Act 

of 1997 (Pub. L. 105–33) and the 

imputed rural floor under § 412.64(h)(4) 

are made in a manner that ensures that 

aggregate payments to hospitals are not 

affected and that, beginning October 1, 

2008, CMS would transition from a 

nationwide adjustment to a statewide 

adjustment, with a statewide adjustment 

fully in place by October 1, 2010. We 

note that the imputed floor expires on 

September 30, 2011 (as discussed in 

section III.H. of this preamble). 

Comment: Several commenters 

requested that CMS repeal its decision 

to apply a State level budget neutrality 

adjustment for the rural and imputed 

floors. The commenters cited the 

disparity between the severe negative 

economic consequences of the policy for 

States with hospitals receiving a floor 

payment, compared to the relatively 

minor benefits received by nonfloor 

States. Multiple commenters pointed 

out that, because numerous other 

aspects of the Medicare wage index 

either cross State lines (CBSAs), or are 

modeled on national budget neutrality 

(geographic reclassification and outlier 

payments), they were concerned that a 

State-specific adjustment establishes a 

poor precedent and violates the intent of 

the legislation that established the rural 

floor. 

Response: We disagree that a State 

level budget neutrality adjustment 

establishes a poor precedent. Unlike 

geographic reclassification or outlier 

payment budget neutrality adjustments, 

the construction of the rural and 

imputed floors requires that wage index 

comparisons be made between labor 

market areas within a specific State. 

Analysis in the FY 2009 IPPS final rule 

demonstrated how, at a State-by-State 

level, the rural and imputed floors 

create a benefit for a minority of States 

that is then funded by a majority of 

States, including States that are 

overwhelmingly rural in character. In 

the FY 2009 IPPS final rule, we also 

explained that because the imputed and 

rural floor comparisons occur at the 

State level, we believed it would be 

sound policy to make the budget 

neutrality adjustment specific to the 

State, redistributing payments among 

hospitals within the State, rather than 

adjusting payments to hospitals in other 

States. In the FY 2009 IPPS final rule, 

we adopted a 3-year phase-in to address 

the concerns that such a transition in 

policy may lead to sudden decreases in 

payments for certain providers. FY 2010 

will mark the second year of this 

transition, with a 50-percent national, 

50-percent within-State budget 

neutrality adjustment. We believe that 

this transition period will continue to 

mitigate any negative impacts on 

affected hospitals while we proceed 

towards the planned adoption of 100- 

percent within-State budget neutrality 

in FY 2011. 

In addition, we do not believe the 

legislative history demonstrates an 

intent for a particular type of budget 

neutrality adjustment. The Conference 

Report for the rural floor states: ‘‘The 

Secretary would be required to make 

any adjustments in the wage index in a 

budget neutral manner.’’ (H.R. Conf. 

Rep. No. 105–217, 105th Cong., 1st Sess. 

at 712) However, the report does not 

reference a national budget neutrality 

adjustment, as compared to a statewide 

budget neutrality adjustment. Both the 

legislative history and the plain 

language of the rural floor provision 

anticipate that the Secretary would have 

administrative discretion regarding the 

‘‘manner’’ of the budget neutrality 

adjustment. Section 4410(b) of the BBA 

of 1997 (Pub. L. 105–33) requires that 

the Secretary adjust wage indices ‘‘in a 

manner which assures that the aggregate 

payments made under section 1886(d) 

of the Social Security Act * * * in a 

fiscal year for the operating costs of 

inpatient hospital services are not 

greater or less than those which would 

be made in the year if this section did 

not apply.’’ Thus, Congress provided 

discretion to the Secretary to determine 

the manner of ensuring that the rural 

floor did not increase costs above what 

they would have been in the absence of 

the rural floor, and the Secretary has 

exercised such discretion through the 

adoption of a statewide adjustment. 

Comment: A number of commenters 

in an all-urban State urged CMS to make 

the imputed floor a permanent 

provision. The commenters explained 

that their State is geographically 

disadvantaged because it is bordered by 

two of the five largest cities in the 

United States, and the hospitals in the 

State have to compete with those larger 

cities for labor resources and patients. 

The commenters noted that, when CMS 

adopted the imputed floor policy in the 

FY 2005 IPPS final rule (69 FR 49109), 

CMS acknowledged a concern by some 

individuals that hospitals in all-urban 

States are financially and competitively 

disadvantaged in the absence of an 

imputed floor wage index. The 

commenters stated that CMS has 

provided no rationale for discontinuing 

the imputed floor after FY 2011 and has 

provided no documentation to support 

that the ‘‘anomalous’’ situation, as it 

was described by CMS in the FY 2005 

IPPS final rule, has changed for allurban States. 

Response: We appreciate the 

commenter’s concern about the imputed 

floor. However, we made no proposals 

regarding the imputed floor in the FY 

2010 IPPS/RY 2010 LTCH PPS proposed 

rule. Therefore, we are making no 

decisions in this final rule regarding any 

future extension of the imputed floor. 

We will address the imputed floor 

policy in the FY 2011 IPPS proposed 

rule, which will allow for opportunity 

for public comment. 

Comment: One commenter requested 

clarification as to the discrepancy 

between rural and imputed floor budget 

neutrality factors referenced in the 

proposed rule (1.00016 referenced at 74 

FR 24243 (the Addendum to the 

proposed rule) and 1.000017 referenced 

at 74 FR 24663 (Appendix A to the 

proposed rule)). 

Response: We have included an 

updated budget neutrality factor in 

section I.A.4.c. of the Addendum to this 

final rule, along with an explanation in 

section VI.I of Appendix A to this final 

rule of why the adjustment amounts 

varied in the proposed rule. 

Comment: One commenter requested 

CMS to explain how the rural floor 

budget neutrality adjustment is 

performed so that it can be certified and 

compared to prior years. The 

commenter also expressed concerns 

about how State level budget neutrality 

may complicate a hospital’s geographic 

reclassification application process, may 

result in rural hospitals with high wage 

indices being significantly 

disadvantaged, and may cause 

deviations in payments between 

hospital reclassifications into a labor 

market from an adjoining State. 

Response: We provided ample details 

of the iterative rural floor budget 

neutrality calculation process in the FY 

2008 IPPS final rule with comment 

period (72 FR 47325 through 4733). In 

the FY 2009 IPPS final rule (73 FR 

48574), we further explained how the 


sroberts on DSKD5P82C1PROD with RULES
Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 43827 

same calculation process will be used to 

phase in a State level budget neutrality 

adjustment. 

In response to the commenter’s other 

concerns, the specific scenarios 

presented may occur regardless of how 

rural and imputed floor budget 

neutrality is achieved. The application 

of the rural floor itself, despite a 

national or a State level budget 

neutrality adjustment, may result in 

situations where hospitals classified or 

reclassified to the same labor market 

area may receive differing wage indices. 

Hospitals always must evaluate multiple 

scenarios when determining whether to 

apply for a reclassification or withdraw 

a geographic reclassification request. We 

provide the best information available 

in the IPPS proposed rule to facilitate 

these decisions and allow hospitals a 

45-day period following publication of 

the proposed rule to evaluate their 

options. 

C. Core-Based Statistical Areas for the 

Hospital Wage Index 

The wage index is calculated and 

assigned to hospitals on the basis of the 

labor market area in which the hospital 

is located. In accordance with the broad 

discretion under section 1886(d)(3)(E) of 

the Act, beginning with FY 2005, we 

define hospital labor market areas based 

on the Core-Based Statistical Areas 

(CBSAs) established by OMB and 

announced in December 2003 (69 FR 

49027). For a discussion of OMB’s 

revised definitions of CBSAs and our 

implementation of the CBSA 

definitions, we refer readers to the 

preamble of the FY 2005 IPPS final rule 

(69 FR 49026 through 49032). 

As with the FY 2009 final rule, in the 

FY 2010 IPPS/RY 2010 LTCH PPS 

proposed rule (74 FR 24139), we 

proposed to provide that hospitals 

receive 100 percent of their wage index 

based upon the CBSA configurations. 

Specifically, for each hospital, we 

proposed to determine a wage index for 

FY 2010 employing wage index data 

from hospital cost reports for cost 

reporting periods beginning during FY 

2006 and using the CBSA labor market 

definitions. We consider CBSAs that are 

MSAs to be urban, and CBSAs that are 

Micropolitan Statistical Areas as well as 

areas outside of CBSAs to be rural. In 

addition, it has been our longstanding 

policy that where an MSA has been 

divided into Metropolitan Divisions, we 

consider the Metropolitan Division to 

comprise the labor market areas for 

purposes of calculating the wage index 

(69 FR 49029) (regulations at 

§ 412.64(b)(1)(ii)(A)). 

On November 20, 2008, OMB 

announced three Micropolitan 

Statistical Areas that now qualify as 

MSAs (OMB Bulletin No. 09–01). The 

new urban CBSAs are as follows: 

• Cape Girardeau-Jackson, MissouriIllinois (CBSA 16020). This CBSA is 

comprised of the principal cities of Cape 

Girardeau and Jackson, Missouri in 

Alexander County, Illinois; Bollinger 

County, Missouri, and Cape Girardeau 

County, Missouri. 

• Manhattan, Kansas (CBSA 31740). 

This CBSA is comprised of the principal 

city of Manhattan, Kansas in Geary 

County, Pottawatomie County, and 

Riley County. 

• Mankato-North Mankato, 

Minnesota (CBSA 31860). This CBSA is 

comprised of the principal cities of 

Mankato and North Mankato, Minnesota 

in Blue Earth County and Nicollet 

County. 

OMB also changed the principal cities 

and titles of a number of CBSAs and a 

Metropolitan Division, as follows: 

• Broomfield, Colorado qualifies as a 

new principal city of the DenverAurora, Colorado CBSA. The new title 

is Denver-Aurora-Broomfield, Colorado 

CBSA. 

• Chapel Hill, North Carolina 

qualifies as a new principal city of the 

Durham, North Carolina CBSA. The new 

title is Durham-Chapel Hill, North 

Carolina CBSA. 

• Chowchilla, California qualifies as a 

new principal city of the Madera, 

California CBSA. The new title is 

Madera-Chowchilla, California CBSA. 

• Panama City Beach, Florida 

qualifies as a new principal city of the 

Panama City-Lynn Haven, Florida 

CBSA. The new title is Panama CityLynn Haven-Panama City Beach, Florida 

CBSA. 

• East Wenatchee, Washington 

qualifies as a new principal city of the 

Wenatchee, Washington CBSA. The new 

title is Wenatchee-East Wenatchee, 

Washington CBSA. 

• Rockville, Maryland replaces 

Gaithersburg, Maryland as the third 

most populous city of the BethesdaFrederick-Gaithersburg, Maryland 

Metropolitan Division. The new title is 

Bethesda-Frederick-Rockville, Maryland 

Metropolitan Division. 

The OMB bulletin is available on the 

OMB Web site at http:// 

www.whitehouse.gov/OMB—go to 

‘‘Bulletins’’ or ‘‘Statistical Programs and 

Standards.’’ CMS will apply these 

changes to the IPPS beginning October 

1, 2009. 

We note that several public 

commenters who responded to the 

proposed rule expressed their concerns 

that CAHs in the new MSAs will lose 

their CAH status and be forced to 

convert to IPPS hospitals because the 

areas will be designated as urban 

instead of rural. The commenters 

recalled that the same situation 

occurred in FY 2005 when CMS 

adopted OMB’s CBSA definitions. At 

that time, CMS allowed CAHs located in 

rural counties that became urban to 

maintain their CAH status for 2 years 

(69 FR 49221). If these CAHs were 

unable in 2 years to obtain rural status 

under § 412.103, they were required to 

convert to IPPS status. A more detailed 

discussion of the public comments and 

our response is included in section 

VII.C. of the preamble of this final rule. 

D. Occupational Mix Adjustment to the 

FY 2010 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 2010 

Occupational Mix Adjustment Based on 

the 2007–2008 Occupational Mix 

Survey 

As provided for under section 

1886(d)(3)(E) of the Act, we collect data 

every 3 years on the occupational mix 

of employees for each short-term, acute 

care hospital participating in the 

Medicare program. For the FY 2009 

hospital wage index, we used data from 

the 2006 Medicare Wage Index 

Occupational Mix Survey (the 2006 

survey) to calculate the occupational 

mix adjustment. In the 2006 survey, we 

included several modifications to the 

original occupational mix survey, the 

2003 survey, including (1) allowing 

hospitals to report their own average 

hourly wage rather than using BLS data; 

(2) extending the prospective survey 

period; and (3) reducing the number of 

occupational categories but refining the 

subcategories for registered nurses. 

The 2006 survey provided for the 

collection of hospital-specific wages and 

hours data, a 6-month prospective 


sroberts on DSKD5P82C1PROD with RULES
43828 Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 

reporting period (that is, January 1, 

2006, through June 30, 2006), the 

transfer of each general service category 

that comprised less than 4 percent of 

total hospital employees in the 2003 

survey to the ‘‘all other occupations’’ 

category (the revised survey focused 

only on the mix of nursing occupations), 

additional clarification of the 

definitions for the occupational 

categories, an expansion of the 

registered nurse category to include 

functional subcategories, and the 

exclusion of average hourly rate data 

associated with advance practice nurses. 

The 2006 survey included only two 

general occupational categories: Nursing 

and ‘‘all other occupations.’’ The 

nursing category had four subcategories: 

Registered nurses, licensed practical 

nurses, aides, orderlies, attendants, and 

medical assistants. The registered nurse 

subcategory included two functional 

subcategories: Management personnel 

and staff nurses or clinicians. As 

indicated above, the 2006 survey 

provided for a 6-month data collection 

period, from January 1, 2006 through 

June 30, 2006. To allow flexibility for 

the reporting period beginning and 

ending dates to accommodate some 

hospitals’ biweekly payroll and 

reporting systems, we modified the 6- 

month data collection period for the 

2006 survey from January 1, 2006, 

through June 30, 2006, to a 6-month 

reporting period that began on or after 

December 25, 2005, and ended before 

July 9, 2006. OMB approved the revised 

2006 occupational mix survey (Form 

CMS–10079 (2006)) on April 25, 2006. 

The original timelines for the collection, 

review, and correction of the 2006 

occupational mix data were discussed 

in detail in the FY 2007 IPPS final rule 

(71 FR 48008). 

As we proposed, for the FY 2010 

hospital wage index, we used 

occupational mix data collected on a 

revised 2007–2008 Medicare Wage 

Index Occupational Mix Survey (the 

2007–2008 survey) to compute the 

occupational mix adjustment for FY 

2010. In the FY 2008 IPPS final rule 

with comment period (72 FR 47315), we 

discussed how we modified the 2006 

occupational mix survey. The revised 

2007–2008 occupational mix survey 

provided for the collection of hospitalspecific wages and hours data for the 1- 

year period of July 1, 2007, through June 

30, 2008, additional clarifications to the 

survey instructions, the elimination of 

the registered nurse subcategories, some 

refinements to the definitions of the 

occupational categories, and the 

inclusion of additional cost centers that 

typically provide nursing services. 

On February 2, 2007, we published in 

the Federal Register a notice soliciting 

comments on the proposed revisions to 

the 2006 occupational mix survey (72 

FR 5055). The comment period for the 

notice ended on April 3, 2007. After 

considering the comments we received, 

we made a few minor editorial changes 

and published the final 2007–2008 

occupational mix survey on September 

14, 2007 (72 FR 52568). OMB approved 

the survey without change on February 

1, 2008 (OMB Control Number 0938– 

0907). The 2007–2008 Medicare 

occupational mix survey (Form CMS– 

10079 (2008)) is available on the CMS 

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

AcuteInpatientPPS/WIFN/ 

list.asp#TopOfPage, and through the 

fiscal intermediaries/MACs. Hospitals 

were required to submit their completed 

surveys to their fiscal intermediaries/ 

MACs by September 2, 2008. The 

preliminary, unaudited 2007–2008 

occupational mix survey data were 

released in early October 2008, along 

with the FY 2006 Worksheet S–3 wage 

data, for the FY 2010 wage index review 

and correction process. 

2. Calculation of the Occupational Mix 

Adjustment for FY 2010 

For FY 2010 (as we did for FY 2009), 

we are calculating the occupational mix 

adjustment factor using the following 

steps: 

Step 1—For each hospital, determine 

the percentage of the total nursing 

category attributable to a nursing 

subcategory by dividing the nursing 

subcategory hours by the total nursing 

category’s hours. Repeat this 

computation for each of the four nursing 

subcategories: Registered nurses; 

licensed practical nurses; nursing aides, 

orderlies, and attendants; and medical 

assistants. 

Step 2—Determine a national average 

hourly rate for each nursing subcategory 

by dividing a subcategory’s total salaries 

for all hospitals in the occupational mix 

survey database by the subcategory’s 

total hours for all hospitals in the 

occupational mix survey database. 

Step 3—For each hospital, determine 

an adjusted average hourly rate for each 

nursing subcategory by multiplying the 

percentage of the total nursing category 

(from Step 1) by the national average 

hourly rate for that nursing subcategory 

(from Step 2). Repeat this calculation for 

each of the four nursing subcategories. 

Step 4—For each hospital, determine 

the adjusted average hourly rate for the 

total nursing category by summing the 

adjusted average hourly rate (from Step 

3) for each of the nursing subcategories. 

Step 5—Determine the national 

average hourly rate for the total nursing 

category by dividing total nursing 

category salaries for all hospitals in the 

occupational mix survey database by 

total nursing category hours for all 

hospitals in the occupational mix 

survey database. 

Step 6—For each hospital, compute 

the occupational mix adjustment factor 

for the total nursing category by 

dividing the national average hourly 

rate for the total nursing category (from 

Step 5) by the hospital’s adjusted 

average hourly rate for the total nursing 

category (from Step 4). 

If the hospital’s adjusted average 

hourly rate is less than the national 

average hourly rate (indicating the 

hospital employs a less costly mix of 

nursing employees), the occupational 

mix adjustment factor is greater than 

1.0000. If the hospital’s adjusted average 

hourly rate is greater than the national 

average hourly rate, the occupational 

mix adjustment factor is less than 

1.0000. 

Step 7—For each hospital, calculate 

the occupational mix adjusted salaries 

and wage-related costs for the total 

nursing category by multiplying the 

hospital’s total salaries and wage-related 

costs (from Step 5 of the unadjusted 

wage index calculation in section III.G. 

of this preamble) by the percentage of 

the hospital’s total workers attributable 

to the total nursing category (using the 

occupational mix survey data, this 

percentage is determined by dividing 

the hospital’s total nursing category 

salaries by the hospital’s total salaries 

for ‘‘nursing and all other’’) and by the 

total nursing category’s occupational 

mix adjustment factor (from Step 6 

above). 

The remaining portion of the 

hospital’s total salaries and wage-related 

costs that is attributable to all other 

employees of the hospital is not 

adjusted by the occupational mix. A 

hospital’s all other portion is 

determined by subtracting the hospital’s 

nursing category percentage from 100 

percent. 

Step 8—For each hospital, calculate 

the total occupational mix adjusted 

salaries and wage-related costs for a 

hospital by summing the occupational 

mix adjusted salaries and wage-related 

costs for the total nursing category (from 

Step 7) and the portion of the hospital’s 

salaries and wage-related costs for all 

other employees (from Step 7). 

To compute a hospital’s occupational 

mix adjusted average hourly wage, 

divide the hospital’s total occupational 

mix adjusted salaries and wage-related 

costs by the hospital’s total hours (from 

Step 4 of the unadjusted wage index 

calculation in section III.G. of this 

preamble). 


sroberts on DSKD5P82C1PROD with RULES
Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 43829 

Step 9—To compute the occupational 

mix adjusted average hourly wage for an 

urban or rural area, sum the total 

occupational mix adjusted salaries and 

wage-related costs for all hospitals in 

the area, then sum the total hours for all 

hospitals in the area. Next, divide the 

area’s occupational mix adjusted 

salaries and wage-related costs by the 

area’s hours. 

Step 10—To compute the national 

occupational mix adjusted average 

hourly wage, sum the total occupational 

mix adjusted salaries and wage-related 

costs for all hospitals in the Nation, then 

sum the total hours for all hospitals in 

the Nation. Next, divide the national 

occupational mix adjusted salaries and 

wage-related costs by the national 

hours. The FY 2010 occupational mix 

adjusted national average hourly wage is 

$33.5268. 

Step 11—To compute the 

occupational mix adjusted wage index, 

divide each area’s occupational mix 

adjusted average hourly wage (Step 9) 

by the national occupational mix 

adjusted average hourly wage (Step 10). 

Step 12—To compute the Puerto Rico 

specific occupational mix adjusted wage 

index, follow Steps 1 through 11 above. 

The FY 2010 occupational mix adjusted 

Puerto Rico-specific average hourly 

wage is $14.2555. 

The table below is an illustrative 

example of the occupational mix 

adjustment. 

BILLING CODE 4120–01–P 


sroberts on DSKD5P82C1PROD with RULES
43830 Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 


sroberts on DSKD5P82C1PROD with RULESER27AU09.007</GPH>
Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 43831 

BILLING CODE 4120–01–C 


sroberts on DSKD5P82C1PROD with RULESER27AU09.008</GPH>
43832 Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 

Because the occupational mix 

adjustment is required by statute, all 

hospitals that are subject to payments 

under the IPPS, or any hospital that 

would be subject to the IPPS if not 

granted a waiver, must complete the 

occupational mix survey, unless the 

hospital has no associated cost report 

wage data that are included in the 

proposed FY 2010 wage index. For the 

FY 2007–2008 survey, the response rate 

was 89 percent. 

In computing the FY 2010 wage 

index, if a hospital did not respond to 

the occupational mix survey, or if we 

determined that a hospital’s submitted 

data were too erroneous to include in 

the wage index, we assigned the 

hospital the average occupational mix 

adjustment for the labor market area. We 

believed this method had the least 

impact on the wage index for other 

hospitals in the area. For areas where no 

hospital submitted data for purposes of 

calculating the proposed occupational 

mix adjustment, we applied the national 

occupational mix factor of 1.0000 in 

calculating the area’s FY 2010 

occupational mix adjusted wage index. 

(We indicated in the FY 2008 and FY 

2009 IPPS final rules that we reserve the 

right to apply a different approach in 

future years, including potentially 

penalizing nonresponsive hospitals (72 

FR 47314).) In addition, if a hospital 

submitted a survey, but that survey data 

cannot be used because we determine it 

to be aberrant, we also assigned the 

hospital the average occupational mix 

adjustment for its labor market area. For 

example, if a hospital’s individual nurse 

category average hourly wages were out 

of range (that is, unusually high or low), 

and the hospital did not provide 

sufficient documentation to explain the 

aberrancy, or the hospital did not 

submit any registered nurse salaries or 

hours data, we assigned the hospital the 

average occupational mix adjustment for 

the labor market area in which it is 

located. 

In calculating the average 

occupational mix adjustment factor for 

a labor market area, we replicated Steps 

1 through 6 of the calculation for the 

occupational mix adjustment. However, 

instead of performing these steps at the 

hospital level, we aggregated the data at 

the labor market area level. In following 

these steps, for example, for CBSAs that 

contain providers that did not submit 

occupational mix survey data, the 

occupational mix adjustment factor 

ranged from a low of 0.9252 (CBSA 

17780, College Station-Bryan, TX), to a 

high of 1.0933 (CBSA 29700, Laredo, 

TX). Also, in computing a hospital’s 

occupational mix adjusted salaries and 

wage-related costs for nursing 

employees (Step 7 of the calculation), in 

the absence of occupational mix survey 

data, we multiplied the hospital’s total 

salaries and wage-related costs by the 

percentage of the area’s total workers 

attributable to the area’s total nursing 

category. For FY 2010, there are 7 

CBSAs (that include 15 hospitals) for 

which we did not have occupational 

mix data for any of its hospitals. The 

CBSAs are: 

• CBSA 21940—Fajardo, PR (one 

hospital) 

• CBSA 22140—Farmington, NM (one 

hospital) 

• CBSA 25020—Guayama, PR (three 

hospitals) 

• CBSA 36140—Ocean City, NJ (one 

hospital) 

• CBSA 38660—Ponce, PR (six 

hospitals) 

• CBSA 41900—San German-Cabo Rojo, 

PR (two hospitals) 

• CBSA 49500—Yauco, PR (one 

hospital) 

Since the FY 2007 IPPS final rule, we 

have periodically discussed applying a 

hospital-specific penalty to hospitals 

that fail to submit occupational mix 

survey data. (71 FR 48013 through 

48014; 72 FR 47314 through 47315; and 

73 FR 48580). During the FY 2008 

rulemaking cycle, some commenters 

suggested a penalty equal to a 1- to 2- 

percent reduction in the hospital’s wage 

index value or a set percentage of the 

standardized amount. During the FY 

2009 rulemaking cycle, several 

commenters reiterated their view that 

full participation in the occupational 

mix survey is critical, and that CMS 

should develop a methodology that 

encourages hospitals to report 

occupational mix survey data but does 

not unfairly penalize neighboring 

hospitals. However, to date, we have not 

adopted a penalty for hospitals that fail 

to submit occupational mix data. 

After review of the data for the 

proposed FY 2010 wage index, we 

became concerned about the increasing 

number of hospitals that fail to submit 

occupational mix data and the impact it 

may have on area wage indices. The 

survey response rate has dropped 

significantly from 93.8 percent for the 

2003 survey to 90.7 percent for the 2006 

survey and 90.3 percent for the 2007– 

2008 survey. In 40 CBSAs, the response 

rate was under 70 percent. In addition, 

for 50 areas, including New York-White 

Plains-Wayne, New York-New Jersey 

(35644), Oklahoma City, Oklahoma 

(36420), Rural Georgia (11), Rural 

Oklahoma (37), Dallas-Plano-Irving, TX 

(19124), Newark-Union, NJ–PA (35084), 

and Fort Worth-Arlington, TX (23104), 

the area response rate decreased 15 

percent or more between the 2006 

survey and the 2007–2008 survey. In all 

of Puerto Rico, only 21.6 percent of 

hospitals submitted 2007–2008 survey 

data. If we had proposed to apply a 

penalty for nonresponsive hospitals for 

the FY 2010 wage index, Puerto Rico 

hospitals would have been significantly 

adversely affected in both the proposed 

national and Puerto Rico-specific wage 

indices. We indicated in the FY 2010 

IPPS/RY 2010 LTCH PPS proposed rule 

that, while we were not proposing a 

penalty at that time, we would consider 

the public comments we previously 

received, as well as any public 

comments on the proposed rule, as we 

develop the proposed FY 2011 wage 

index. One approach that we will 

explore is to assign any nonresponsive 

hospital the occupational mix factor 

deriving from the survey that would 

result in the greatest negative 

adjustment to the hospital’s wage index. 

We also will consider applying the same 

penalty to hospitals that submit 

unusable occupational mix data. 

Although we would apply this penalty 

factor in establishing the hospital’s 

payment rate, we would not use this 

factor in computing the area’s wage 

index. Rather, in computing the area 

wage index, we would apply the same 

methodology as described above (that is, 

assign the nonresponsive hospital the 

average occupational mix adjustment 

factor for the labor market area) so that 

other hospitals in the area are minimally 

impacted by the hospital’s failure to 

submit occupational mix data. Again, 

we note that we reserve the right to 

penalize nonresponsive hospitals in the 

future. In the FY 2010 IPPS/RY 2010 

LTCH PPS proposed rule, we welcomed 

public comments on this matter and 

indicated that we would address this 

issue in next year’s IPPS proposed rule. 

Comment: Several commenters 

indicated that they share CMS’ concerns 

about the increasing number of 

hospitals that fail to submit 

occupational mix data. The commenters 

contended that accuracy and fairness in 

the occupational mix adjustment will 

only be achieved through 100 percent 

hospital participation and agreed that 

CMS should consider a penalty for 

hospitals that do not participate. The 

commenters suggested that CMS should 

not simply substitute unfavorable 

occupational mix data for noncompliant 

hospitals because it could unfairly 

penalize other neighboring hospitals 

that are diligent in reporting their data. 

Some commenters recommended that 

CMS apply a percentage adjustment to 

the standardized rate or to the wage 

index that would reduce Medicare 


sroberts on DSKD5P82C1PROD with RULES
Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 43833 

payment to nonparticipating hospitals, 

similar to the slight payment differential 

for hospitals failing to provide quality 

data. One commenter added that the 

penalty should be applied in a budget 

neutral manner. Another commenter 

suggested that the penalty should be 

applied to inpatient and outpatient 

payments. The commenters also 

recommended an appeal process that 

would allow hospitals to rectify the 

situation when the Medicare contractor 

or CMS determines that a hospital’s data 

were not submitted, not acceptable, or 

unusable. 

Response: We appreciate all of the 

comments and suggestions we received 

regarding a penalty for hospitals that do 

not participate in the occupational mix 

survey. We will consider these 

comments and other methods in 

developing a proposal for the FY 2011 

IPPS proposed rule. 

Comment: Several commenters gave 

suggestions for improving the next 

update of the occupational mix survey. 

(The 2007–2008 survey will expire with 

the FY 2012 wage index.) Suggestions 

included the following: 

• Use calendar year 2010 instead of 

the 12 months ending June 30, 2011. 

• Add unit secretaries because their 

duties are similar to the administrative 

functions of nurses and medical 

assistants. 

• Add an ‘‘all other nursing’’ category 

to capture all employees in the specified 

cost centers who are not in the specific 

categories (for example, emergency 

medical technicians and instrument 

technicians). This will help CMS and 

others to quantify the percent of nursing 

cost center employees that are not 

covered under the survey categories. 

• Revise the Medicare cost report to 

include the occupational mix survey 

data. 

Response: Although we made no 

proposals in the FY 2010 proposed rule 

regarding the next update of the 

occupational mix survey, we appreciate 

receiving these comments and will 

consider them as we plan and develop 

the new survey. As with prior updates 

to the occupational mix survey, we will 

publish a notice of proposed data 

collection with a comment period, 

through the Paperwork Reduction Act 

process, in a future Federal Register. 

E. Worksheet S–3 Wage Data for the FY 

2010 Wage Index 

The FY 2010 wage index values are 

based on the data collected from the 

Medicare cost reports submitted by 

hospitals for cost reporting periods 

beginning in FY 2006 (the FY 2009 wage 

index was based on FY 2005 wage data). 

1. Included Categories of Costs 

The FY 2010 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 include direct patient 

care, certain top management, 

pharmacy, laboratory, and nonteaching 

physician Part A services, and certain 

contract indirect patient care services 

(as discussed in the FY 2008 final rule 

with comment period (72 FR 47315)). 

• Wage-related costs, including 

pensions and other deferred 

compensation costs. We note that, on 

March 28, 2008, CMS published a 

technical clarification to the cost 

reporting instructions for pension and 

deferred compensation costs (sections 

2140 through 2142.7 of the Provider 

Reimbursement Manual, Part I). These 

instructions are used for developing 

pension and deferred compensation 

costs for purposes of the wage index, as 

discussed in the instructions for 

Worksheet S–3, Part II, Lines 13 through 

20 and in the FY 2006 IPPS final rule 

(70 FR 47369). 

Comment: Several commenters 

addressed our policy for determining 

pension costs for the wage index. The 

commenters acknowledged that they 

have raised many of their arguments, 

such as arguments regarding 

retroactivity, before the Provider 

Reimbursement Review Board (PRRB). 

Response: First, we did not propose to 

make any changes to, nor request public 

comments on, reporting pension costs 

for the wage index. Therefore, we 

consider the public comments received 

on this issue outside of the scope of this 

rulemaking. Further, we already 

discussed our policies for reporting 

pension costs in the FY 2006 IPPS final 

rule (70 FR 47369). We note that the 

policy for reporting pension costs for 

the wage index currently can be found 

in section 3605.2 of the Provider 

Reimbursement Manual (PRM), Part II, 

and section 2142 of PRM, Part I. We 

expect that purely legal arguments, such 

as arguments on retroactivity, will be 

addressed through the adjudication 

process. 

2. Excluded Categories of Costs 

Consistent with the wage index 

methodology for FY 2009, the wage 

index for FY 2010 also excludes the 

direct and overhead salaries and hours 

for services not subject to IPPS payment, 

such as SNF services, home health 

services, costs related to GME (teaching 

physicians and residents) and certified 

registered nurse anesthetists (CRNAs), 

and other subprovider components that 

are not paid under the IPPS. The FY 

2010 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. 

(Beginning with this final rule, for the 

RY 2010, we are including in the same 

document updates to the LTCH PPS.) 

Such comments should be made in 

response to separate proposed rules for 

those providers. 

F. Verification of Worksheet S–3 Wage 

Data 

The wage data for the FY 2010 wage 

index were obtained from Worksheet 

S–3, Parts II and III of the FY 2006 

Medicare cost reports. 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 

2006 data submitted to us as of March 

2, 2009. As in past years, we performed 

an intensive review of the wage data, 

mostly through the use of edits designed 

to identify aberrant data. 

We asked our fiscal intermediaries/ 

MACs to revise or verify data elements 

that resulted in specific edit failures. 

For the proposed FY 2010 wage index, 

we identified and excluded 34 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 were 

corrected, we intended to include some 

of these providers in the FY 2010 final 

wage index. We instructed fiscal 

intermediaries/MACs to complete their 


sroberts on DSKD5P82C1PROD with RULES
43834 Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 

data verification of questionable data 

elements and to transmit any changes to 

the wage data no later than April 15, 

2009. The data for 2 of the hospitals 

identified in the proposed rule were 

resolved; however, the data for 8 

additional hospitals were identified as 

too aberrant to include in the final wage 

index. Therefore, we determined that 

the data for 40 hospitals (that is, 34 

¥ 2 + 8 = 40) should not be included 

in the FY 2010 final wage index. 

In constructing the FY 2010 wage 

index, we included the wage data for 

facilities that were IPPS hospitals in FY 

2006, inclusive of those facilities that 

have since terminated their 

participation in the program as 

hospitals, as long as those data did not 

fail any of our edits for reasonableness. 

We believe that including the wage data 

for these hospitals is, in general, 

appropriate to reflect the economic 

conditions in the various labor market 

areas during the relevant past period 

and to ensure that the current wage 

index represents the labor market area’s 

current wages as compared to the 

national average of wages. However, we 

excluded the wage data for CAHs as 

discussed in the FY 2004 IPPS final rule 

(68 FR 45397). For this final rule, we 

removed 17 hospitals that converted to 

CAH status between February 18, 2008, 

the cut-off date for CAH exclusion from 

the FY 2009 wage index, and February 

16, 2009, the cut-off date for CAH 

exclusion from the FY 2010 wage index. 

After removing hospitals with aberrant 

data and hospitals that converted to 

CAH status, the FY 2010 wage index is 

calculated based on 3,519 hospitals. 

In the FY 2008 final rule with 

comment period (72 FR 47317) and the 

FY 2009 IPPS final rule (73 FR 48582), 

we discussed our policy for allocating a 

multicampus hospital’s wages and 

hours data, by full-time equivalent 

(FTE) staff, among the different labor 

market areas where its campuses are 

located. During the FY 2010 wage index 

desk review process, we requested fiscal 

intermediaries/MACs to contact 

multicampus hospitals that had 

campuses in different labor market areas 

to collect the data for the allocation. As 

we proposed, the FY 2010 wage index 

in this final rule includes separate wage 

data for campuses of three multicampus 

hospitals. 

For FY 2010, we are again allowing 

hospitals to use FTE or discharge data 

for the allocation of a multicampus 

hospital’s wage data among the different 

labor market areas where its campuses 

are located. The Medicare cost report 

was updated in May 2008 to provide for 

the reporting of FTE data by campus for 

multicampus hospitals. Because the 

data from cost reporting periods that 

begin in FY 2008 will not be used in 

calculating the wage index until FY 

2012, a multicampus hospital will still 

have the option, through the FY 2011 

wage index, to use either FTE or 

discharge data for allocating wage data 

among its campuses by providing the 

information from the applicable cost 

reporting period to CMS through its 

fiscal intermediary/MAC. Two of the 

three multicampus hospitals chose to 

have their wage data allocated by their 

Medicare discharge data for the FY 2010 

wage index. One of the hospitals 

provided FTE staff data for the 

allocation. The average hourly wage 

associated with each geographical 

location of a multicampus hospital is 

reflected in Table 2 of the Addendum to 

this final rule. 

G. Method for Computing the FY 2010 

Unadjusted Wage Index 

The method used to compute the FY 

2010 wage index without an 

occupational mix adjustment follows: 

Step 1—As noted above, we are 

basing the FY 2010 wage index on wage 

data reported on the FY 2006 Medicare 

cost reports. We gathered data from each 

of the non-Federal, short-term, acute 

care hospitals for which data were 

reported on the Worksheet S–3, Parts II 

and III of the Medicare cost report for 

the hospital’s cost reporting period 

beginning on or after October 1, 2005, 

and before October 1, 2006. In addition, 

we included data from some hospitals 

that had cost reporting periods 

beginning before October 2005 and 

reported a cost reporting period 

covering all of FY 2005. These data are 

included because no other data from 

these hospitals would be available for 

the cost reporting period described 

above, and because particular labor 

market areas might be affected due to 

the omission of these hospitals. 

However, we generally describe these 

wage data as FY 2005 data. We note 

that, if a hospital had more than one 

cost reporting period beginning during 

FY 2006 (for example, a hospital had 

two short cost reporting periods 

beginning on or after October 1, 2005, 

and before October 1, 2006), we 

included wage data from only one of the 

cost reporting periods, the longer, in the 

wage index calculation. If there was 

more than one cost reporting period and 

the periods were equal in length, we 

included the wage data from the later 

period in the wage index calculation. 

Step 2—Salaries—The method used to 

compute a hospital’s average hourly 

wage excludes certain costs that are not 

paid under the IPPS. (We note that, 

beginning with FY 2008 (72 FR 47315), 

we include Lines 22.01, 26.01, and 

27.01 of Worksheet S–3, Part II for 

overhead services in the wage index. 

However, we note that the wages and 

hours on these lines are not 

incorporated into Line 101, Column 1 of 

Worksheet A, which, through the 

electronic cost reporting software, flows 

directly to Line 1 of Worksheet S–3, Part 

II. Therefore, the first step in the wage 

index calculation for FY 2010 is to 

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

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

(for wages and hours respectively) the 

amounts on Lines 22.01, 26.01, and 

27.01.) In calculating a hospital’s 

average salaries plus wage-related costs, 

we subtract from Line 1 (total salaries) 

the GME and CRNA costs reported on 

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

salaries reported on Lines 3, 5 and 5.01, 

home office salaries reported on Line 7, 

and exclude salaries reported on Lines 

8 and 8.01 (that is, direct salaries 

attributable to SNF services, home 

health services, and other subprovider 

components not subject to the IPPS). We 

also subtract from Line 1 the salaries for 

which no hours were reported. To 

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

salaries the costs of contract labor for 

direct patient care, certain top 

management, pharmacy, laboratory, and 

nonteaching physician Part A services 

(Lines 9 and 10), home office salaries 

and wage-related costs reported by the 

hospital on Lines 11 and 12, and 

nonexcluded area wage-related costs 

(Lines 13, 14, and 18). 

We note that contract labor and home 

office salaries for which no 

corresponding hours are reported are 

not included. In addition, wage-related 

costs for nonteaching physician Part A 

employees (Line 18) are excluded if no 

corresponding salaries are reported for 

those employees on Line 4. 

Step 3—Hours—With the exception of 

wage-related costs, for which there are 

no associated hours, we compute total 

hours using the same methods as 

described for salaries in Step 2. 

Step 4—For each hospital reporting 

both total overhead salaries and total 

overhead hours greater than zero, we 

then allocate overhead costs to areas of 

the hospital excluded from the wage 

index calculation. First, we determine 

the ratio of excluded area hours (sum of 

Lines 8 and 8.01 of Worksheet S–3, Part 

II) to revised total hours (Line 1 minus 

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

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

Worksheet S–3). We then compute the 

amounts of overhead salaries and hours 

to be allocated to excluded areas by 

multiplying the above ratio by the total 

overhead salaries and hours reported on 


sroberts on DSKD5P82C1PROD with RULES
Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 43835 

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

we compute the amounts of overhead 

wage-related costs to be allocated to 

excluded areas using three steps: (1) We 

determine the ratio of overhead hours 

(Part III, Line 13 minus the sum of lines 

22.01, 26.01, and 27.01) to revised hours 

excluding the sum of lines 22.01, 26.01, 

and 27.01 (Line 1 minus the sum of 

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

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

that for the FY 2008 and subsequent 

wage index calculations, we are 

excluding the sum of lines 22.01, 26.01, 

and 27.01 from the determination of the 

ratio of overhead hours to revised hours 

because hospitals typically do not 

provide fringe benefits (wage-related 

costs) to contract personnel. Therefore, 

it is not necessary for the wage index 

calculation to exclude overhead wagerelated costs for contract personnel. 

Further, if a hospital does contribute to 

wage-related costs for contracted 

personnel, the instructions for Lines 

22.01, 26.01, and 27.01 require that 

associated wage-related costs be 

combined with wages on the respective 

contract labor lines.); (2) we compute 

overhead wage-related costs by 

multiplying the overhead hours ratio by 

wage-related costs reported on Part II, 

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

multiply the computed overhead wagerelated costs by the above excluded area 

hours ratio. Finally, we subtract the 

computed overhead salaries, wagerelated costs, and hours associated with 

excluded areas from the total salaries 

(plus wage-related costs) and hours 

derived in Steps 2 and 3. 

Step 5—For each hospital, we adjust 

the total salaries plus wage-related costs 

to a common period to determine total 

adjusted salaries plus wage-related 

costs. To make the wage adjustment, we 

estimate the percentage change in the 

employment cost index (ECI) for 

compensation for each 30-day 

increment from October 14, 2003, 

through April 15, 2005, for private 

industry hospital workers from the BLS’ 

Compensation and Working Conditions. 

We use the ECI because it reflects the 

price increase associated with total 

compensation (salaries plus fringes) 

rather than just the increase in salaries. 

In addition, the ECI includes managers 

as well as other hospital workers. This 

methodology to compute the monthly 

update factors uses actual quarterly ECI 

data and assures that the update factors 

match the actual quarterly and annual 

percent changes. We also note that, 

since April 2006 with the publication of 

March 2006 data, the BLS’ ECI uses a 

different classification system, the North 

American Industrial Classification 

System (NAICS), instead of the Standard 

Industrial Codes (SICs), which no longer 

exist. We have consistently used the ECI 

as the data source for our wages and 

salaries and other price proxies in the 

IPPS market basket and, as we 

proposed, we are not making any 

changes to the usage for FY 2010. The 

factors used to adjust the hospital’s data 

were based on the midpoint of the cost 

reporting period, as indicated below. 

MIDPOINT OF COST REPORTING

PERIOD

After Before Adjustment 

factor 

10/14/2005 .... 11/15/2005 1.04966 

11/14/2005 .... 12/15/2005 1.04632 

12/14/2005 .... 01/15/2006 1.04296 

01/14/2006 .... 02/15/2006 1.03955 

02/14/2006 .... 03/15/2006 1.03610 

03/14/2006 .... 04/15/2006 1.03269 

04/14/2006 .... 05/15/2006 1.02936 

05/14/2006 .... 06/15/2006 1.02613 

06/14/2006 .... 07/15/2006 1.02298 

07/14/2006 .... 08/15/2006 1.01990 

08/14/2006 .... 09/15/2006 1.01688 

09/14/2006 .... 10/15/2006 1.01391 

10/14/2006 .... 11/15/2006 1.01098 

11/14/2006 .... 12/15/2006 1.00808 

12/14/2006 .... 01/15/2007 1.00526 

01/14/2007 .... 02/15/2007 1.00257 

02/14/2007 .... 03/15/2007 1.00000 

03/14/2007 .... 04/15/2007 0.99745 

For example, the midpoint of a cost 

reporting period beginning January 1, 

2006, and ending December 31, 2006, is 

June 30, 2006. An adjustment factor of 

1.02298 would be applied to the wages 

of a hospital with such a cost reporting 

period. In addition, for the data for any 

cost reporting period that began in FY 

2006 and covered a period of less than 

360 days or more than 370 days, we 

annualize the data to reflect a 1-year 

cost report. Dividing the data by the 

number of days in the cost report and 

then multiplying the results by 365 

accomplishes annualization. 

Step 6—Each hospital is assigned to 

its appropriate urban or rural labor 

market area before any reclassifications 

under section 1886(d)(8)(B), section 

1886(d)(8)(E), or section 1886(d)(10) of 

the Act. Within each urban or rural 

labor market area, we add the total 

adjusted salaries plus wage-related costs 

obtained in Step 5 for all hospitals in 

that area to determine the total adjusted 

salaries plus wage-related costs for the 

labor market area. 

Step 7—We divide the total adjusted 

salaries plus wage-related costs obtained 

under both methods in Step 6 by the 

sum of the corresponding total hours 

(from Step 4) for all hospitals in each 

labor market area to determine an 

average hourly wage for the area. 

Step 8—We add the total adjusted 

salaries plus wage-related costs obtained 

in Step 5 for all hospitals in the Nation 

and then divide the sum by the national 

sum of total hours from Step 4 to arrive 

at a national average hourly wage. Using 

the data as described above, the national 

average hourly wage (unadjusted for 

occupational mix) is $33.5491. 

Step 9—For each urban or rural labor 

market area, we calculate the hospital 

wage index value, unadjusted for 

occupational mix, by dividing the area 

average hourly wage obtained in Step 7 

by the national average hourly wage 

computed in Step 8. 

Step 10—Following the process set 

forth above, we develop a separate 

Puerto Rico-specific wage index for 

purposes of adjusting the Puerto Rico 

standardized amounts. (The national 

Puerto Rico standardized amount is 

adjusted by a wage index calculated for 

all Puerto Rico labor market areas based 

on the national average hourly wage as 

described above.) We add the total 

adjusted salaries plus wage-related costs 

(as calculated in Step 5) for all hospitals 

in Puerto Rico and divide the sum by 

the total hours for Puerto Rico (as 

calculated in Step 4) to arrive at an 

overall average hourly wage (unadjusted 

for occupational mix) of $14.2462 for 

Puerto Rico. For each labor market area 

in Puerto Rico, we calculate the Puerto 

Rico-specific wage index value by 

dividing the area average hourly wage 

(as calculated in Step 7) by the overall 

Puerto Rico average hourly wage. 

Step 11—Section 4410 of Public Law 

105–33 provides that, for discharges on 

or after October 1, 1997, the area wage 

index applicable to any hospital that is 

located in an urban area of a State may 

not be less than the area wage index 

applicable to hospitals located in rural 

areas in that State. The areas affected by 

this provision are identified in Table 

4D–2 of the Addendum to this final 

rule. 

In the FY 2005 IPPS final rule (69 FR 

49109), we adopted the ‘‘imputed’’ floor 

as a temporary 3-year measure to 

address a concern by some individuals 

that hospitals in all-urban States were 

disadvantaged by the absence of rural 

hospitals to set a wage index floor in 

those States. The imputed floor was 

originally set to expire in FY 2007, but 

we extended it an additional year in the 

FY 2008 IPPS final rule with comment 

period (72 FR 47321). In the FY 2009 

IPPS final rule (73 FR 48570 through 

48574 and 48584), we extended the 

imputed floor for an additional 3 years, 

through FY 2011. 


sroberts on DSKD5P82C1PROD with RULES
43836 Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 

H. Analysis and Implementation of the 

Occupational Mix Adjustment and the 

FY 2010 Occupational Mix Adjustment 

Wage Index 

As discussed in section III.D. of this 

preamble, for FY 2010, we apply the 

occupational mix adjustment to 100 

percent of the FY 2010 wage index. We 

calculated the occupational mix 

adjustment using data from the 2007– 

2008 occupational mix survey data, 

using the methodology described in 

section III.D.3. of this preamble. 

Using the occupational mix survey 

data and applying the occupational mix 

adjustment to 100 percent of the FY 

2010 wage index results in a national 

average hourly wage of $33.5268 and a 

Puerto Rico-specific average hourly 

wage of $14.2555. After excluding data 

of hospitals that either submitted 

aberrant data that failed critical edits, or 

that do not have FY 2006 Worksheet S– 

3 cost report data for use in calculating 

the FY 2010 wage index, we calculated 

the FY 2010 wage index using the 

occupational mix survey data from 

3,178 hospitals. Using the Worksheet 

S–3 cost report data of 3,519 hospitals 

and occupational mix survey data from 

3,178 hospitals represents a 90.3 percent 

survey response rate. The FY 2010 

national average hourly wages for each 

occupational mix nursing subcategory 

as calculated in Step 2 of the 

occupational mix calculation are as 

follows: 

Occupational mix nursing subcategory Average hourly 

wage 

National RN ................................................................................................................................................................................. $36.071788464 

National LPN and Surgical Technician ........................................................................................................................................ 20.882610908 

National Nurse Aide, Orderly, and Attendant .............................................................................................................................. 14.619113985 

National Medical Assistant .......................................................................................................................................................... 16.486068445 

National Nurse Category ............................................................................................................................................................. 30.482374867 

The national average hourly wage for 

the entire nurse category as computed in 

Step 5 of the occupational mix 

calculation is $30.482374867. 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 July 2007 through June 

2008 occupational mix survey data, we 

determined (in Step 7 of the 

occupational mix calculation) that the 

national percentage of hospital 

employees in the nurse category is 44.31 

percent, and the national percentage of 

hospital employees in the all other 

occupations category is 55.69 percent. 

At the CBSA level, the percentage of 

hospital employees in the nurse 

category ranged from a low of 29.08 

percent in one CBSA, to a high of 70.76 

percent in another CBSA. 

We compared the FY 2010 

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 205 (52.4 percent) 

urban areas and 32 (68.1 percent) rural 

areas will increase. One hundred and 

six (27.1 percent) urban areas will 

increase by 1 percent or more, and 5 (1.3 

percent) urban areas will increase by 5 

percent or more. Nineteen (40.4 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 186 (47.6 percent) 

urban areas and 14 (29.8 percent) rural 

areas will decrease. Eighty-eight (22.5 

percent) urban areas will decrease by 1 

percent or more, and no urban area will 

decrease by 5 percent or more. Seven 

(14.9 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 7.83 percent 

for an urban area and 2.97 percent for 

a rural area. The largest negative 

impacts are 3.90 percent for an urban 

area and 2.32 percent for a rural area. 

One rural area is unaffected. These 

results indicate that a larger percentage 

of rural areas (68.1 percent) benefit from 

the occupational mix adjustment than 

do urban areas (52.4 percent). While 

these results are more positive overall 

for rural areas than under the previous 

occupational mix adjustment that used 

survey data from 2006, approximately 

one-third (29.8 percent) of rural CBSAs 

will still experience a decrease in their 

wage indices as a result of the 

occupational mix adjustment. 

We also compared the FY 2010 wage 

data adjusted for occupational mix from 

the 2007–2008 survey to the FY 2010 

wage data adjusted for occupational mix 

from the 2006 survey. This analysis 

illustrates the effect on area wage 

indices of using the 2007–2008 survey 

data compared to the 2006 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 2010 wage 

index values for 185 (47.3 percent) 

urban areas and 19 (40.4 percent) rural 

areas will increase. Sixty-two (15.9 

percent) urban areas will increase by 1 

percent or more, and no urban areas will 

increase by 5 percent or more. One (2.1 

percent) rural area will increase by 1 

percent or more, and no rural areas will 

increase by 5 percent or more. However, 

the wage index values for 202 (51.7 

percent) urban areas and 28 (59.6 

percent) rural areas will decrease using 

the 2007–2008 data. Fifty-five (14.1 

percent) urban areas will decrease by 1 

percent or more, and one (0.26 percent) 

urban area will decrease by 5 percent or 

more. Three (6.4 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 2007–2008 data compared to 

the 2006 data are 4.32 percent for an 

urban area and 2.34 percent for a rural 

area. The largest negative impacts are 

6.46 percent for an urban area and 4.40 

percent for a rural area. Four urban 

areas and no rural areas will be 

unaffected. These results indicate that a 

larger percentage of urban areas (47.3 

percent) will benefit from the 2007– 

2008 occupational mix survey as 

compared to the 2006 survey than will 

rural areas (40.4 percent). Further, the 

wage indices of more CBSAs overall 

(52.5 percent) will be decreasing due to 

application of the 2007–2008 

occupational mix survey data as 

compared to the 2006 survey data to the 

wage index. However, as noted in the 

analysis above, a greater percentage of 

rural areas (68.1 percent) will benefit 

from the application of the occupational 

mix adjustment than will urban areas. 

The wage index values for FY 2010 

(except those for hospitals receiving 

wage index adjustments under section 

1886(d)(13) of the Act) included in 

Tables 4A, 4B, 4C, and 4F of the 


sroberts on DSKD5P82C1PROD with RULES
Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 43837 

Addendum to this final rule include the 

occupational mix adjustment. 

Tables 3A and 3B in the Addendum 

to this final rule list the 3-year average 

hourly wage for each labor market area 

before the redesignation of hospitals 

based on FYs 2008, 2009, and 2010 cost 

reporting periods. Table 3A lists these 

data for urban areas and Table 3B lists 

these data for rural areas. In addition, 

Table 2 in the Addendum to this final 

rule includes the adjusted average 

hourly wage for each hospital from the 

FY 2004 and FY 2005 cost reporting 

periods, as well as the FY 2006 period 

used to calculate the FY 2010 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 in the Addendum to this final 

rule include the occupational mix 

adjustment. The wage index values in 

Tables 4A, 4B, 4C, and 4D–1 also 

include the State-specific rural floor and 

imputed floor budget neutrality 

adjustments. 

I. Revisions to the Wage Index Based on 

Hospital Redesignations 

1. General 

Under section 1886(d)(10) of the Act, 

the MGCRB considers applications by 

hospitals for geographic reclassification 

for purposes of payment under the IPPS. 

Hospitals must apply to the MGCRB to 

reclassify 13 months prior to the start of 

the fiscal year for which reclassification 

is sought (generally by September 1). 

Generally, hospitals must be proximate 

to the labor market area to which they 

are seeking reclassification and must 

demonstrate characteristics similar to 

hospitals located in that area. The 

MGCRB issues its decisions by the end 

of February for reclassifications that 

become effective for the following fiscal 

year (beginning October 1). The 

regulations applicable to 

reclassifications by the MGCRB are 

located in 42 CFR 412.230 through 

412.280. 

Section 1886(d)(10)(D)(v) of the Act 

provides that, beginning with FY 2001, 

a MGCRB decision on a hospital 

reclassification for purposes of the wage 

index is effective for 3 fiscal years, 

unless the hospital elects to terminate 

the reclassification. Section 

1886(d)(10)(D)(vi) of the Act provides 

that the MGCRB must use average 

hourly wage data from the 3 most 

recently published hospital wage 

surveys in evaluating a hospital’s 

reclassification application for FY 2003 

and any succeeding fiscal year. 

Section 304(b) of Public Law 106–554 

provides that the Secretary must 

establish a mechanism under which a 

statewide entity may apply to have all 

of the geographic areas in the State 

treated as a single geographic area for 

purposes of computing and applying a 

single wage index, for reclassifications 

beginning in FY 2003. The 

implementing regulations for this 

provision are located at 42 CFR 412.235. 

Section 1886(d)(8)(B) of the Act 

requires the Secretary to treat a hospital 

located in a rural county adjacent to one 

or more urban areas as being located in 

the labor market area to which the 

greatest number of workers in the 

county commute, if the rural county 

would otherwise be considered part of 

an urban area under the standards for 

designating MSAs and if the commuting 

rates used in determining outlying 

counties were determined on the basis 

of the aggregate number of resident 

workers who commute to (and, if 

applicable under the standards, from) 

the central county or counties of all 

contiguous MSAs. In light of the CBSA 

definitions and the Census 2000 data 

that we implemented for FY 2005 (69 

FR 49027), we undertook to identify 

those counties meeting these criteria. 

Eligible counties are discussed and 

identified under section III.I.5. of this 

preamble. 

2. Effects of Reclassification/ 

Redesignation 

Section 1886(d)(8)(C) of the Act 

provides that the application of the 

wage index to redesignated hospitals is 

dependent on the hypothetical impact 

that the wage data from these hospitals 

would have on the wage index value for 

the area to which they have been 

redesignated. These requirements for 

determining the wage index values for 

redesignated hospitals are applicable 

both to the hospitals deemed urban 

under section 1886(d)(8)(B) of the Act 

and hospitals that were reclassified as a 

result of the MGCRB decisions under 

section 1886(d)(10) of the Act. 

Therefore, as provided in section 

1886(d)(8)(C) of the Act, the wage index 

values were determined by considering 

the following: 

• If including the wage data for the 

redesignated hospitals would reduce the 

wage index value for the area to which 

the hospitals are redesignated by 1 

percentage point or less, the area wage 

index value determined exclusive of the 

wage data for the redesignated hospitals 

applies to the redesignated hospitals. 

• If including the wage data for the 

redesignated hospitals reduces the wage 

index value for the area to which the 

hospitals are redesignated by more than 

1 percentage point, the area wage index 

determined inclusive of the wage data 

for the redesignated hospitals (the 

combined wage index value) applies to 

the redesignated hospitals. 

• If including the wage data for the 

redesignated hospitals increases the 

wage index value for the urban area to 

which the hospitals are redesignated, 

both the area and the redesignated 

hospitals receive the combined wage 

index value. Otherwise, the hospitals 

located in the urban area receive a wage 

index excluding the wage data of 

hospitals redesignated into the area. 

Rural areas whose wage index values 

would be reduced by excluding the 

wage data for hospitals that have been 

redesignated to another area continue to 

have their wage index values calculated 

as if no redesignation had occurred 

(otherwise, redesignated rural hospitals 

are excluded from the calculation of the 

rural wage index). The wage index value 

for a redesignated rural hospital cannot 

be reduced below the wage index value 

for the rural areas of the State in which 

the hospital is located. 

CMS also has adopted the following 

policies: 

• The wage data for a reclassified 

urban hospital is included in both the 

wage index calculation of the urban area 

to which the hospital is reclassified 

(subject to the rules described above) 

and the wage index calculation of the 

urban area where the hospital is 

physically located. 

• In cases where hospitals have 

reclassified to rural areas, such as urban 

hospitals reclassifying to rural areas 

under 42 CFR 412.103, the hospital’s 

wage data are: (a) included in the rural 

wage index calculation, unless doing so 

would reduce the rural wage index; and 

(b) included in the urban area where the 

hospital is physically located. The effect 

of this policy, in combination with the 

statutory requirement at section 

1886(d)(8)(C)(ii) of the Act, is that rural 

areas may receive a wage index based 

upon the highest of: (1) Wage data from 

hospitals geographically located in the 

rural area; (2) wage data from hospitals 

geographically located in the rural area, 

but excluding all data associated with 

hospitals reclassifying out of the rural 

area under section 1886(d)(8)(B) or 

section 1886(d)(10) of the Act; or (3) 

wage data associated with hospitals 

geographically located in the area plus 

all hospitals reclassified into the rural 

area. 


sroberts on DSKD5P82C1PROD with RULES
43838 Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 

In addition, in accordance with the 

statutory language referring to 

‘‘hospitals’’ in the plural under sections 

1886(d)(8)(C)(i) and 1886(d)(8)(C)(ii) of 

the Act, our longstanding policy is to 

consider reclassified hospitals as a 

group when deciding whether to 

include or exclude them from both 

urban and rural wage index 

calculations. 

3. FY 2010 MGCRB Reclassifications 

Under section 1886(d)(10) of the Act, 

the MGCRB considers applications by 

hospitals for geographic reclassification 

for purposes of payment under the IPPS. 

The specific procedures and rules that 

apply to the geographic reclassification 

process are outlined in 42 CFR 412.230 

through 412.280. 

At the time this final rule was 

constructed, the MGCRB had completed 

its review of FY 2010 reclassification 

requests. Based on such reviews, there 

were 292 hospitals approved for wage 

index reclassifications by the MGCRB 

for FY 2010. Because MGCRB wage 

index reclassifications are effective for 3 

years, for FY 2010, hospitals reclassified 

during FY 2008 or FY 2009 are eligible 

to continue to be reclassified to a 

particular labor market area based on 

such prior reclassifications. There were 

313 hospitals approved for wage index 

reclassifications in FY 2008 and 271 

hospitals approved for wage index 

reclassifications in FY 2009. Of all of 

the hospitals approved for 

reclassification for FY 2008, FY 2009, 

and FY 2010, based upon the review at 

the time of this final rule, 861 hospitals 

are in a reclassification status for FY 

2010. 

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. 

Generally stated, the request for 

withdrawal of an application for 

reclassification or termination of an 

existing 3-year reclassification that 

would be effective in FY 2010 had to be 

received by the MGCRB within 45 days 

of the publication of the FY 2010 IPPS 

proposed rule. Hospitals may also 

cancel prior reclassification 

withdrawals or terminations in certain 

circumstances. For further information 

about withdrawing, terminating, or 

canceling a previous withdrawal or 

termination of a 3-year reclassification 

for wage index purposes, we refer the 

reader to 42 CFR 412.273, as well as the 

FY 2002 IPPS final rule (66 FR 39887) 

and the FY 2003 IPPS final rule (67 FR 

50065). 

Changes to the wage index that result 

from withdrawals of requests for 

reclassification, wage index corrections, 

appeals, and the Administrator’s review 

process for FY 2010 are incorporated 

into the wage index values published in 

this FY 2010 IPPS/RY 2010 LTCH PPS 

final rule. These changes affect not only 

the wage index value for specific 

geographic areas, but also the wage 

index value redesignated 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 hospitals. Further, 

the wage index value for the area from 

which the hospitals are redesignated 

may be affected. 

Applications for FY 2011 

reclassifications are due to the MGCRB 

by September 1, 2009 (the first working 

day of September 2009). 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 2009, via the 

CMS Internet Web site at: http:// 

cms.hhs.gov/MGCRB/ 

02_instructions_and_applications.asp, 

or by calling the MGCRB at (410) 786– 

1174. The mailing address of the 

MGCRB is: 2520 Lord Baltimore Drive, 

Suite L, Baltimore, MD 21244–2670. 

Comment: Several commenters 

suggested that CMS lower the 

employment interchange measure (EIM) 

from 15 percent to 7.5 percent. EIM is 

a measure of ties between two adjacent 

entities, used when defining Combined 

Statistical Areas (CSAs). The EIM is 

calculated as the sum of the percentage 

of employed residents commuting from 

the smaller area to the larger area and 

the percentage of employment in the 

smaller area accounted for by workers 

residing in the larger area. Hospitals 

seeking a group reclassification from 

one urban area to another must be 

located in the same CSA (or CBSA 

where relevant) as the urban area to 

which they seek redesignation, as stated 

in § 412.234(a)(3)(iv) of the regulations. 

Response: We are not adopting the 

commenters’ recommendation. First, we 

have a longstanding policy of using 

OMB’s statistical area definitions to set 

our labor market areas, and OMB does 

not modify the statistical area 

definitions to meet the requirements of 

any nonstatistical program. Second, 

such a change in the EIM could 

significantly reduce the wage indices of 

some reclassified hospitals. In analyzing 

the implications of the EIM change 

suggested by the commenters, we 

reviewed 31 of 127 CSAs (these are the 

31 areas for which the Office of 

Personnel Management uses a 7.5 

percent EIM in determining locality 

payment adjustments under the general 

schedule for Federal employees). The 

result was that the change would allow 

a total of at least 57 hospitals in 21 

counties to reclassify, and while a 

national budget neutrality adjustment 

would affect all hospitals equally, the 

additional reclassifications could 

significantly reduce the wage index 

applied to reclassified hospitals in 

certain areas—in some cases, by as 

much as 10 percent as a result of the 

additional reclassifications. These 

effects could be even more significant 

were the EIM changed for all counties 

nationally. 

4. Redesignations of Hospitals Under 

Section 1886(d)(8)(B) of the Act 

Section 1886(d)(8)(B) of the Act 

requires us to treat a hospital located in 

a rural county adjacent to one or more 

urban areas as being located in the MSA 

if certain criteria are met. Effective 

beginning FY 2005, we use OMB’s 2000 

CBSA standards and the Census 2000 

data to identify counties in which 

hospitals qualify under section 

1886(d)(8)(B) of the Act to receive the 

wage index of the urban area. Hospitals 

located in these counties have been 

known as ‘‘Lugar’’ hospitals and the 

counties themselves are often referred to 

as ‘‘Lugar’’ counties. We provide the FY 

2010 chart below with the listing of the 

rural counties containing the hospitals 

designated as urban under section 

1886(d)(8)(B) of the Act. For discharges 

occurring on or after October 1, 2009, 

hospitals located in the rural county in 

the first column of this chart will be 

redesignated for purposes of using the 

wage index of the urban area listed in 

the second column. 

RURAL COUNTIES CONTAINING HOSPITALS REDESIGNATED AS URBAN UNDER SECTION 1886(d)(8)(B) OF THE ACT

[Based on CBSAs and Census 2000 data] 

Rural county CBSA 

Cherokee, AL ....................................... Rome, GA. 


sroberts on DSKD5P82C1PROD with RULES
Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 43839 

RURAL COUNTIES CONTAINING HOSPITALS REDESIGNATED AS URBAN UNDER SECTION 1886(d)(8)(B) OF THE ACT— 

Continued 

[Based on CBSAs and Census 2000 data] 

Rural county CBSA 

Macon, AL ............................................ Auburn-Opelika, AL. 

Talladega, AL ....................................... Anniston-Oxford, AL. 

Hot Springs, AR ................................... Hot Springs, AR. 

Windham, CT ....................................... Hartford-West Hartford-East Hartford, CT. 

Bradford, FL ......................................... Gainesville, FL. 

Hendry, FL ............................................ West Palm Beach-Boca Raton-Boynton, FL. 

Levy, FL ................................................ Gainesville, FL. 

Walton, FL ............................................ Fort Walton Beach-Crestview-Destin, FL. 

Banks, GA ............................................ Gainesville, GA. 

Chattooga, GA ...................................... Chattanooga, TN-GA. 

Jackson, GA ......................................... Atlanta-Sandy Springs-Marietta, GA. 

Lumpkin, GA ......................................... Atlanta-Sandy Springs-Marietta, GA. 

Morgan, GA .......................................... Atlanta-Sandy Springs-Marietta, GA. 

Peach, GA ............................................ Macon, GA. 

Polk, GA ............................................... Atlanta-Sandy Springs-Marietta, GA. 

Talbot, GA ............................................ Columbus, GA-AL. 

Bingham, ID .......................................... Idaho Falls, ID. 

Christian, IL .......................................... Springfield, IL. 

DeWitt, IL .............................................. Bloomington-Normal, IL. 

Iroquois, IL ............................................ Kankakee-Bradley, IL. 

Logan, IL .............................................. Springfield, IL. 

Mason, IL .............................................. Peoria, IL. 

Ogle, IL ................................................. Rockford, IL. 

Clinton, IN ............................................. Lafayette, IN. 

Henry, IN .............................................. Indianapolis-Carmel, IN. 

Spencer, IN .......................................... Evansville, IN-KY. 

Starke, IN ............................................. Gary, IN. 

Warren, IN ............................................ Lafayette, IN. 

Boone, IA .............................................. Ames, IA. 

Buchanan, IA ........................................ Waterloo-Cedar Falls, IA. 

Cedar, IA .............................................. Iowa City, IA. 

Allen, KY ............................................... Bowling Green, KY. 

Assumption Parish, LA ......................... Baton Rouge, LA. 

St. James Parish, LA ........................... Baton Rouge, LA. 

Allegan, MI ........................................... Holland-Grand Haven, MI. 

Montcalm, MI ........................................ Grand Rapids-Wyoming, MI. 

Oceana, MI ........................................... Muskegon-Norton Shores, MI. 

Shiawassee, MI .................................... Lansing-East Lansing, MI. 

Tuscola, MI ........................................... Saginaw-Saginaw Township North, MI. 

Fillmore, MN ......................................... Rochester, MN. 

Dade, MO ............................................. Springfield, MO. 

Pearl River, MS .................................... Gulfport-Biloxi, MS. 

Caswell, NC .......................................... Burlington, NC. 

Davidson, NC ....................................... Greensboro-High Point, NC. 

Granville, NC ........................................ Durham, NC. 

Harnett, NC .......................................... Raleigh-Cary, NC. 

Lincoln, NC ........................................... Charlotte-Gastonia-Concord, NC-SC. 

Polk, NC ............................................... Spartanburg, SC. 

Los Alamos, NM ................................... Santa Fe, NM. 

Lyon, NV ............................................... Carson City, NV. 

Cayuga, NY .......................................... Syracuse, NY. 

Columbia, NY ....................................... Albany-Schenectady-Troy, NY. 

Genesee, NY ........................................ Rochester, NY. 

Greene, NY .......................................... Albany-Schenectady-Troy, NY. 

Schuyler, NY ........................................ Ithaca, NY. 

Sullivan, NY .......................................... Poughkeepsie-Newburgh-Middletown, NY. 

Wyoming, NY ....................................... Buffalo-Niagara Falls, NY. 

Ashtabula, OH ...................................... Cleveland-Elyria-Mentor, OH. 

Champaign, OH .................................... Springfield, OH. 

Columbiana, OH ................................... Youngstown-Warren-Boardman, OH-PA. 

Cotton, OK ............................................ Lawton, OK. 

Linn, OR ............................................... Corvallis, OR. 

Adams, PA ........................................... York-Hanover, PA. 

Clinton, PA ........................................... Williamsport, PA. 

Greene, PA ........................................... Pittsburgh, PA. 

Monroe, PA .......................................... Allentown-Bethlehem-Easton, PA-NJ. 

Schuylkill, PA ........................................ Reading, PA. 

Susquehanna, PA ................................ Binghamton, NY. 

Clarendon, SC ...................................... Sumter, SC. 


sroberts on DSKD5P82C1PROD with RULES
43840 Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 

RURAL COUNTIES CONTAINING HOSPITALS REDESIGNATED AS URBAN UNDER SECTION 1886(d)(8)(B) OF THE ACT— 

Continued 

[Based on CBSAs and Census 2000 data] 

Rural county CBSA 

Lee, SC ................................................ Sumter, SC. 

Oconee, SC .......................................... Greenville, SC. 

Union, SC ............................................. Spartanburg, SC. 

Meigs, TN ............................................. Cleveland, TN. 

Bosque, TX ........................................... Waco, TX. 

Falls, TX ............................................... Waco, TX. 

Fannin, TX ............................................ Dallas-Plano-Irving, TX. 

Grimes, TX ........................................... College Station-Bryan, TX. 

Harrison, TX ......................................... Longview, TX. 

Henderson, TX ..................................... Dallas-Plano-Irving, TX. 

Milam, TX ............................................. Austin-Round Rock, TX. 

Van Zandt, TX ...................................... Dallas-Plano-Irving, TX. 

Willacy, TX ........................................... Brownsville-Harlingen, TX. 

Buckingham, VA ................................... Charlottesville, VA. 

Floyd, VA .............................................. Blacksburg-Christiansburg-Radford, VA. 

Middlesex, VA ...................................... Virginia Beach-Norfolk-Newport News, VA. 

Page, VA .............................................. Harrisonburg, VA. 

Shenandoah, VA .................................. Winchester, VA-WV. 

Island, WA ............................................ Seattle-Bellevue-Everett, WA. 

Mason, WA ........................................... Olympia, WA. 

Wahkiakum, WA ................................... Longview, WA. 

Jackson, WV ........................................ Charleston, WV. 

Roane, WV ........................................... Charleston, WV. 

Green, WI ............................................. Madison, WI. 

Green Lake, WI .................................... Fond du Lac, WI. 

Jefferson, WI ........................................ Milwaukee-Waukesha-West Allis, WI. 

Walworth, WI ........................................ Milwaukee-Waukesha-West Allis, WI. 

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 in the 

Addendum to the proposed rule into 

which they would be reclassified by the 

MGCRB to the wage index for the area 

to which they are redesignated under 

section 1886(d)(8)(B) of the Act. 

Hospitals could have withdrawn from 

an MGCRB reclassification within 45 

days of the publication of the FY 2010 

proposed rule. 

Comment: Several commenters 

suggested that CMS allow Lugar 

hospitals the ability to waive their Lugar 

status once and have the waiver be 

effective until the hospital chooses to 

withdraw. 

Response: Section 1886(d)(8)(B) of the 

Act required us to treat a hospital 

located in a rural county adjacent to one 

or more urban areas as being located in 

the MSA to which the greatest number 

of workers in the county commute. 

Hospitals satisfying the criteria under 

section 1886(d)(8)(B) of the Act are 

treated as urban hospitals and are also 

eligible for reclassification through the 

MGCRB or may waive their Lugar status 

if eligible to receive the out-migration 

adjustment. Once a hospital is listed as 

a Lugar hospital under section 

1886(d)(8)(B) of the Act, it is treated as 

such until the hospital waives its Lugar 

status. Hospitals can only waive Lugar 

status if they are in a county that is 

eligible to receive an out-migration 

adjustment. A rural hospital that is 

redesignated as Lugar, or urban, that 

wishes to stay rural can apply to be 

reclassified back to rural status under 

§ 412.103 of the regulations. Otherwise, 

hospitals that are redesignated as Lugar 

can only waive Lugar status if they are 

eligible for the out-migration 

adjustment. 

The wage index is updated annually 

and, as such, hospitals wishing to waive 

their Lugar redesignation in order to 

receive the rural area wage index plus 

the out-migration adjustment must 

request the waiver annually. Each year, 

the preamble of the IPPS proposed rule 

is specific that hospitals redesignated 

under section 1886(d)(8) of the Act or 

reclassified under section 1886(10) of 

the Act will be deemed to have chosen 

to retain their redesignation or 

reclassification, and that hospitals 

redesignated under section 1886(d)(8) of 

the Act will be deemed to have waived 

the out-migration adjustment, unless 

they explicitly notify CMS within 45 

days from the publication of the 

proposed rule that they elect to receive 

the out-migration adjustment instead. 

For example, we refer readers to the FY 

2009 IPPS proposed rule (73 FR 23635). 

The introductory text of Table 4J in the 

Addendum to the rule also reminds 

hospitals of the annual process. 

If a hospital chooses to waive its 

Lugar status within 45 days of the 

proposed rule, each year it must send a 

written request to CMS at the following 

address: Division of Acute Care, Center 

for Medicare Management, C4–08–06, 

7500 Security Boulevard, Baltimore, MD 

21244, Attn: Brian Slater; and must send 

a copy to the MGCRB. The mailing 

address for the MGCRB is: 2520 Lord 

Baltimore Drive, Suite L, Baltimore, MD 

21244–2670. 

5. Reclassifications Under Section 

1886(d)(8)(B) of the Act 

As discussed in the FY 2009 IPPS 

final rule (73 FR 48588), Lugar hospitals 

are treated like reclassified hospitals for 

purposes of determining their 

applicable wage index and receive the 

reclassified wage index for the urban 

area to which they have been 

redesignated. Because Lugar hospitals 

are treated like reclassified hospitals, 

when they are seeking reclassification 

by the MGCRB, they are subject to the 

rural reclassification rules set forth at 42 

CFR 412.230. The procedural rules set 

forth at § 412.230 list the criteria that a 

hospital must meet in order to reclassify 

as a rural hospital. Lugar hospitals are 


sroberts on DSKD5P82C1PROD with RULES
Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 43841 

subject to the proximity criteria and 

payment thresholds that apply to rural 

hospitals. Specifically, the hospital 

must be no more than 35 miles from the 

area to which it seeks reclassification 

(§ 412.230(b)(1)); and the hospital must 

show that its average hourly wage is at 

least 106 percent of the average hourly 

wage of all other hospitals in the area in 

which the hospital is located 

(§ 412.230(d)(1)(iii)(C)). In accordance 

with policy adopted in the FY 2009 

IPPS final rule (73 FR 48568 and 48569), 

beginning with reclassifications for the 

FY 2010 wage index, a Lugar hospital 

must also demonstrate that its average 

hourly wage is equal to at least 84 

percent (for FY 2010 reclassifications) 

and 86 percent (for reclassifications for 

FY 2011 and subsequent fiscal years) of 

the average hourly wage of hospitals in 

the area to which it seeks redesignation 

(§ 412.230(d)(1)(iv)(C)). 

Hospitals not located in a Lugar 

county seeking reclassification to the 

urban area where the Lugar hospitals 

have been redesignated are not 

permitted to measure to the Lugar 

county to demonstrate proximity (no 

more than 15 miles for an urban 

hospital, and no more than 35 miles for 

a rural hospital or the closest urban or 

rural area for RRCs or SCHs) in order to 

be reclassified to such urban area. These 

hospitals must measure to the urban 

area exclusive of the Lugar County to 

meet the proximity or nearest urban or 

rural area requirement. We treat New 

England deemed counties in a manner 

consistent with how we treat Lugar 

counties. (We refer readers to FY 2008 

IPPS final rule with comment period (72 

FR 47337) for a discussion of this 

policy.) 

6. Reclassifications Under Section 508 

of Public Law 108–173 

Section 508 of Public Law 108–173 

allowed certain qualifying hospitals to 

receive wage index reclassifications and 

assignments that they otherwise would 

not have been eligible to receive under 

the law. Although section 508 originally 

was scheduled to expire after a 3-year 

period, Congress extended the provision 

several times, as well as certain special 

exceptions that would have otherwise 

expired. For a discussion of the original 

section 508 provision and its various 

extensions, we refer readers to the FY 

2009 IPPS final rule (73 FR 48588). The 

most recent extension of the provision 

was included in section 124 of Public 

Law 110–275 (MIPPA). Section 124 

extended, through FY 2009, section 508 

reclassifications as well as certain 

special exceptions. Because the latest 

extension of these provisions expires on 

September 30, 2009, and will not be 

applicable in FY 2010, we are not 

making any changes related to these 

provisions in this final rule. 

J. FY 2010 Wage Index Adjustment 

Based on Commuting Patterns of 

Hospital Employees 

In accordance with the broad 

discretion under section 1886(d)(13) of 

the Act, as added by section 505 of 

Public Law 108–173, beginning with FY 

2005, we established a process to make 

adjustments to the hospital wage index 

based on commuting patterns of 

hospital employees (the ‘‘out-migration’’ 

adjustment). The process, outlined in 

the FY 2005 IPPS final rule (69 FR 

49061), provides for an increase in the 

wage index for hospitals located in 

certain counties that have a relatively 

high percentage of hospital employees 

who reside in the county but work in a 

different county (or counties) with a 

higher wage index. Such adjustments to 

the wage index are effective for 3 years, 

unless a hospital requests to waive the 

application of the adjustment. A county 

will not lose its status as a qualifying 

county due to wage index changes 

during the 3-year period, and counties 

will receive the same wage index 

increase for those 3 years. However, a 

county that qualifies in any given year 

may no longer qualify after the 3-year 

period, or it may qualify but receive a 

different adjustment to the wage index 

level. Hospitals that receive this 

adjustment to their wage index are not 

eligible for reclassification under 

section 1886(d)(8) or section 1886(d)(10) 

of the Act. Adjustments under this 

provision are not subject to the budget 

neutrality requirements under section 

1886(d)(3)(E) of the Act. 

Hospitals located in counties that 

qualify for the wage index adjustment 

are to receive an increase in the wage 

index that is equal to the average of the 

differences between the wage indices of 

the labor market area(s) with higher 

wage indices and the wage index of the 

resident county, weighted by the overall 

percentage of hospital workers residing 

in the qualifying county who are 

employed in any labor market area with 

a higher wage index. Beginning with the 

FY 2008 wage index, we use postreclassified wage indices when 

determining the out-migration 

adjustment (72 FR 47339). 

For the FY 2010 wage index, we 

calculated the out-migration adjustment 

using the same formula described in the 

FY 2005 IPPS final rule (69 FR 49064), 

with the addition of using the postreclassified wage indices, to calculate 

the out-migration adjustment. This 

adjustment is calculated as follows: 

Step 1—Subtract the wage index for 

the qualifying county from the wage 

index of each of the higher wage area(s) 

to which hospital workers commute. 

Step 2—Divide the number of hospital 

employees residing in the qualifying 

county who are employed in such 

higher wage index area by the total 

number of hospital employees residing 

in the qualifying county who are 

employed in any higher wage index 

area. For each of the higher wage index 

areas, multiply this result by the result 

obtained in Step 1. 

Step 3—Sum the products resulting 

from Step 2 (if the qualifying county has 

workers commuting to more than one 

higher wage index area). 

Step 4—Multiply the result from Step 

3 by the percentage of hospital 

employees who are residing in the 

qualifying county and who are 

employed in any higher wage index 

area. 

These adjustments will be effective 

for each county for a period of 3 fiscal 

years. For example, hospitals that 

received the adjustment for the first 

time in FY 2009 will be eligible to retain 

the adjustment for FY 2010. For 

hospitals in newly qualified counties, 

adjustments to the wage index are 

effective for 3 years, beginning with 

discharges occurring on or after October 

1, 2009. 

Hospitals receiving the wage index 

adjustment under section 1886(d)(13)(F) 

of the Act are not eligible for 

reclassification under sections 

1886(d)(8) or (d)(10) of the Act unless 

they waive the out-migration 

adjustment. Consistent with our FY 

2005, 2006, 2007, 2008, and 2009 IPPS 

final rules, we are specifying that 

hospitals redesignated under section 

1886(d)(8) of the Act or reclassified 

under section 1886(d)(10) of the Act 

will be deemed to have chosen to retain 

their redesignation or reclassification. 

Section 1886(d)(10) hospitals that 

wished to receive the out-migration 

adjustment, rather than their 

reclassification adjustment, had to 

follow the termination/withdrawal 

procedures specified in 42 CFR 412.273 

and section III.I.3. of the preamble of the 

proposed rule. Otherwise, they were 

deemed to have waived the outmigration adjustment. Hospitals 

redesignated under section 1886(d)(8) of 

the Act were deemed to have waived the 

out-migration adjustment unless they 

explicitly notified CMS within 45 days 

from the publication of the proposed 

rule that they elected to receive the outmigration adjustment instead. 

Table 4J in the Addendum to this 

final rule lists the out-migration wage 

index adjustments for FY 2010. 


sroberts on DSKD5P82C1PROD with RULES
43842 Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 

Hospitals that are not otherwise 

reclassified or redesignated under 

section 1886(d)(8) or section 1886(d)(10) 

of the Act will automatically receive the 

listed adjustment. In accordance with 

the procedures discussed above, 

redesignated/reclassified hospitals will 

be deemed to have waived the outmigration adjustment unless CMS was 

otherwise notified within the necessary 

timeframe. In addition, hospitals 

eligible to receive the out-migration 

wage index adjustment and that 

withdrew their application for 

reclassification will automatically 

receive the wage index adjustment 

listed in Table 4J in the Addendum to 

this final rule. 

Comment: One commenter requested 

that CMS allow hospitals to submit their 

own commuting data to apply for the 

out-migration adjustment. 

Response: First, we did not propose 

any changes on commuting data for 

purposes of calculating the outmigration adjustment. Therefore, we 

believe this comment is outside the 

scope of the proposed rule. In addition, 

as we stated in the FY 2005 IPPS final 

rule (69 FR 49063), because the 

adjustment is based on the number of 

hospital workers in a county who 

commute to other higher wage areas, we 

believe it would be extremely 

problematic for individual hospitals to 

track and submit the data necessary for 

determining the out-migration 

adjustment. A hospital could not simply 

survey its own employees to obtain 

these necessary data, but would have to 

survey all hospital workers who live in 

the county where the hospital is located 

and commute to hospitals in other 

higher wage index areas. 

K. Process for Requests for Wage Index 

Data Corrections 

The preliminary, unaudited 

Worksheet S–3 wage data and 

occupational mix survey data files for 

the FY 2010 wage index were made 

available on October 6, 2008, through 

the Internet on the CMS Web site at: 

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

AcuteInpatientPPS/WIFN/ 

list.asp#TopOfPage. 

In the interest of meeting the data 

needs of the public, beginning with the 

proposed FY 2009 wage index, we post 

an additional public use file on our Web 

site that reflects the actual data that are 

used in computing the proposed wage 

index. The release of this new file does 

not alter the current wage index process 

or schedule. We notified the hospital 

community of the availability of these 

data as we do with the current public 

use wage data files through our Hospital 

Open Door forum. We encouraged 

hospitals to sign up for automatic 

notifications of information about 

hospital issues and the scheduling of 

the Hospital Open Door forums at: 

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

OpenDoorForums/. 

In a memorandum dated October 6, 

2008, 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 6, 2008 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 8, 2008. Hospitals were 

notified of this deadline and of all other 

possible deadlines and requirements, 

including the requirement to review and 

verify their data as posted on the 

preliminary wage index data files on the 

Internet, through the October 6, 2008 

memorandum referenced above. 

In the October 6, 2008 memorandum, 

we also specified that a hospital 

requesting revisions to its first and/or 

second quarter occupational mix survey 

data was to copy its record(s) from the 

CY 2007–2008 occupational mix 

preliminary files posted to our Web site 

in October, highlight the revised cells 

on its spreadsheet, and submit its 

spreadsheet(s) and complete 

documentation to its fiscal 

intermediary/MAC no later than 

December 8, 2008. 

The fiscal intermediaries/MACs 

notified the hospitals by mid-February 

2009 of any changes to the wage index 

data as a result of the desk reviews and 

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

intermediaries/MACs also submitted the 

revised data to CMS by mid-February 

2009. CMS published the proposed 

wage index public use files that 

included hospitals’ revised wage index 

data on February 23, 2009. In a 

memorandum also dated February 23, 

2009, we instructed fiscal 

intermediaries/MACs to notify all 

hospitals regarding the availability of 

the proposed wage index public use 

files and the criteria and process for 

requesting corrections and revisions to 

the wage index data. Hospitals had until 

March 10, 2009, to submit requests to 

the fiscal intermediaries/MACs for 

reconsideration of adjustments made by 

the fiscal intermediaries/MACs as a 

result of the desk review, and to correct 

errors due to CMS’s or the fiscal 

intermediary’s (or, if applicable, the 

MAC’s) mishandling of the wage index 

data. Hospitals also were required to 

submit sufficient documentation to 

support their requests. 

After reviewing requested changes 

submitted by hospitals, fiscal 

intermediaries/MACs were required to 

transmit any additional revisions 

resulting from the hospitals’ 

reconsideration requests by April 15, 

2009. The deadline for a hospital to 

request CMS intervention in cases 

where the hospital disagrees with the 

fiscal intermediary’s (or, if applicable, 

the MAC’s) policy interpretations was 

April 22, 2009. 

Hospitals were given the opportunity 

to examine Table 2 in the Addendum to 

the proposed rule. Table 2 in the 

Addendum to the proposed rule 

contained each hospital’s adjusted 

average hourly wage used to construct 

the wage index values for the past 3 

years, including the FY 2006 data used 

to construct the proposed FY 2010 wage 

index. We noted that the hospital 

average hourly wages shown in Table 2 

only reflect changes made to a hospital’s 

data and transmitted to CMS by March 

2, 2009. 

We released the final wage index data 

public use files in early May 2009 on 

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

AcuteInpatientPPS/WIFN/ 

list.asp#TopOfPage. The May 2009 

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 15, 2009). If, after reviewing 

the May 2009 final 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 that 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 8, 2009. 

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. 


sroberts on DSKD5P82C1PROD with RULES
Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 43843 

At this point in the process, that is, 

after the release of the May 2009 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 

CMS by fiscal intermediaries or the 

MACs on or before April 15, 2009. 

• Requests for correction of errors 

that were not, but could have been, 

identified during the hospital’s review 

of the February 23, 2009 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 8, 2009) were incorporated 

into the final wage index in this FY 

2010 IPPS/RY 2010 LTCH PPS final 

rule, which will be effective October 1, 

2009. 

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 2010 payment rates. 

Accordingly, hospitals that did not meet 

the procedural deadlines set forth above 

will not be afforded a later opportunity 

to submit wage index data corrections or 

to dispute the fiscal intermediary’s (or, 

if applicable the MAC’s) decision with 

respect to requested changes. 

Specifically, our policy is that hospitals 

that do not meet the procedural 

deadlines set forth above will not be 

permitted to challenge later, before the 

Provider Reimbursement Review Board, 

the failure of CMS to make a requested 

data revision. (See W. A. Foote 

Memorial Hospital v. Shalala, No. 99– 

CV–75202–DT (E.D. Mich. 2001) and 

Palisades General Hospital v. 

Thompson, No. 99–1230 (D.D.C. 2003).) 

We refer readers also to the FY 2000 

IPPS final rule (64 FR 41513) for a 

discussion of the parameters for 

appealing to the PRRB for wage index 

data corrections. 

Again, we believe the wage index data 

correction process described above 

provides hospitals with sufficient 

opportunity to bring errors in their wage 

and occupational mix data to the fiscal 

intermediary’s (or, if applicable, the 

MAC’s) attention. Moreover, because 

hospitals had access to the final wage 

index data by early May 2009, they had 

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 2010 wage index by August 

2009, and the implementation of the FY 

2010 wage index on October 1, 2009. 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 8, 

2009, 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 8 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 MAC 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 8, 2009 deadline for the 

FY 2010 wage index); and (3) CMS 

agreed that the fiscal intermediary (or if 

applicable, the MAC) or CMS made an 

error in tabulating the hospital’s wage 

index data and the wage index should 

be corrected. 

In those circumstances where a 

hospital requested a correction to its 

wage index data before CMS calculates 

the final wage index (that is, by the June 

8, 2009 deadline), and CMS 

acknowledges that the error in the 

hospital’s wage index data was caused 

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

if applicable, the MAC’s) mishandling of 

the data, we believe that the hospital 

should not be penalized by our delay in 

publishing or implementing the 

correction. As with our current policy, 

we indicated that the provision is not 

available to a hospital seeking to revise 

another hospital’s data. In addition, the 

provision cannot be used to correct 

prior years’ wage index data; and it can 

only be used for the current Federal 

fiscal year. In other situations where our 

policies would allow midyear 

corrections, we continue to believe that 

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

We note that, as with prospective 

changes to the wage index, the final 

retroactive correction will be made 

irrespective of whether the change 

increases or decreases a hospital’s 

payment rate. In addition, we note that 

the policy of retroactive adjustment will 

still apply in those instances where a 

judicial decision reverses a CMS denial 

of a hospital’s wage index data revision 

request. 

IV. Rebasing and Revision of the 

Hospital Market Baskets for Acute Care 

Hospitals 

A. Background 

Effective for cost reporting periods 

beginning on or after July 1, 1979, we 

developed and adopted a hospital input 

price index (that is, the hospital market 

basket for operating costs). Although 

‘‘market basket’’ technically describes 

the mix of goods and services used in 

providing hospital care, this term is also 

commonly used to denote the input 

price index (that is, cost category 

weights and price proxies combined) 

derived from that market basket. 

Accordingly, the term ‘‘market basket’’ 


sroberts on DSKD5P82C1PROD with RULES
43844 Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 

as used in this document refers to the 

hospital input price index. 

The percentage change in the market 

basket reflects the average change in the 

price of goods and services hospitals 

purchase in order to provide inpatient 

care. We first used the market basket to 

adjust hospital cost limits by an amount 

that reflected the average increase in the 

prices of the goods and services used to 

provide hospital inpatient care. This 

approach linked the increase in the cost 

limits to the efficient utilization of 

resources. 

Since the inception of the IPPS, the 

projected change in the hospital market 

basket has been the integral component 

of the update factor by which the 

prospective payment rates are updated 

every year. An explanation of the 

hospital market basket used to develop 

the prospective payment rates was 

published in the Federal Register on 

September 1, 1983 (48 FR 39764). We 

also refer readers to the FY 2006 IPPS 

final rule (70 FR 47387) in which we 

discussed the most recent previous 

rebasing of the hospital input price 

index. 

The hospital market basket is a fixedweight, Laspeyres-type price index that 

is constructed in three steps. 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 of goods and services 

(that is, intensity) purchased over time 

are not measured. 

The index itself is constructed in 

three steps. First, a base period is 

selected (in this final rule, the base 

period is FY 2006) and total base period 

expenditures are estimated for a set of 

mutually exclusive and exhaustive 

spending categories based upon type of 

expenditure. Then the proportion of 

total operating costs that each category 

represents is determined. These 

proportions are called cost or 

expenditure weights. Second, each 

expenditure category is matched to an 

appropriate price or wage variable, 

referred to as a price proxy. In nearly 

every instance, these price proxies are 

price levels 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. 

The market basket is described as a 

fixed-weight index because it represents 

the change in price over time of the 

same mix (quantity and intensity) of 

goods and services purchased to provide 

hospital services in a base period. 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, shifting a traditionally 

inpatient type of care to an outpatient 

setting might affect the volume of 

inpatient goods and services purchased 

by the hospital, but would not be 

factored into the price change measured 

by a fixed-weight hospital market 

basket. In this manner, the market 

basket measures pure price change only. 

Only when the index is rebased would 

changes in the quantity and intensity be 

captured in the cost weights. Therefore, 

we rebase the market basket periodically 

so the cost weights reflect recent 

changes in the mix of goods and 

services that hospitals purchase 

(hospital inputs) to furnish inpatient 

care between base periods. We last 

rebased the hospital market basket cost 

weights effective for FY 2006 (70 FR 

47387), with FY 2002 data used as the 

base period for the construction of the 

market basket cost weights. 

In the FY 2010 IPPS/RY 2010 LTCH 

PPS proposed rule (74 FR 24154), we 

invited public comments on our 

proposed methodological changes to 

both the IPPS operating market basket 

and the capital input price index (CIPI). 

We note that this section addresses only 

the rebasing and revision of the IPPS 

market basket and CIPI for acute care 

hospitals and for children’s and cancer 

hospitals and RNHCIs, which are 

excluded from the IPPS. We address the 

market basket that will be applicable to 

LTCHs in section VIII.C.2. of the 

preamble of this final rule. Separate 

documents will address the market 

basket for other hospitals that are 

excluded from the IPPS. 

B. Rebasing and Revising the IPPS 

Market Basket 

The terms ‘‘rebasing’’ and ‘‘revising,’’ 

while often used interchangeably, 

actually denote different activities. 

‘‘Rebasing’’ means moving the base year 

for the structure of costs of an input 

price index (for example, in this final 

rule, we are shifting the base year cost 

structure for the IPPS hospital index 

from FY 2002 to FY 2006). ‘‘Revising’’ 

means changing data sources, or price 

proxies, used in the input price index. 

As published in the FY 2006 IPPS final 

rule (70 FR 47387), in accordance with 

section 404 of Public Law 108–173, 

CMS determined a new frequency for 

rebasing the hospital market basket. We 

established a rebasing frequency of 

every 4 years and, therefore, for the FY 

2010 IPPS update, as we proposed, we 

are rebasing and revising the IPPS 

market basket and the CIPI. 

1. Development of Cost Categories and 

Weights 

a. Medicare Cost Reports 

The major source of expenditure data 

for developing the rebased and revised 

hospital market basket cost weights is 

the FY 2006 Medicare cost reports. As 

was done in previous rebasings, these 

cost reports are from IPPS hospitals only 

(hospitals excluded from the IPPS and 

CAHs are not included) and are based 

on IPPS Medicare-allowable operating 

costs. IPPS Medicare-allowable 

operating costs are costs that are eligible 

to be paid for under the IPPS. For 

example, the IPPS market basket 

excludes home health agency (HHA) 

costs as these costs would be paid under 

the HHA PPS and, therefore, these costs 

are not IPPS Medicare-allowable costs. 

The IPPS cost reports yield seven 

major expenditure or cost categories— 

the same as in the FY 2002-based 

hospital market basket: Wages and 

salaries, employee benefits, contract 

labor, pharmaceuticals, professional 

liability insurance (malpractice), blood 

and blood products, and a residual ‘‘all 

other.’’ The cost weights that were 

obtained directly from the Medicare cost 

reports are reported in Chart 1. These 

Medicare cost report cost weights are 

then supplemented with information 

obtained from other data sources to 

derive the IPPS market basket cost 

weights. 

CHART 1—MAJOR COST CATEGORIES AND THEIR RESPECTIVE COST WEIGHTS FOUND IN THE MEDICARE COST REPORTS

Major cost categories FY 2002-based 

market basket 

FY 2006-based 

market basket 

Wages and salaries ......................................................................................................................................... 45.590 45.156 


sroberts on DSKD5P82C1PROD with RULES
Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 43845 

CHART 1—MAJOR COST CATEGORIES AND THEIR RESPECTIVE COST WEIGHTS FOUND IN THE MEDICARE COST

REPORTS—Continued 

Major cost categories FY 2002-based 

market basket 

FY 2006-based 

market basket 

Employee benefits ........................................................................................................................................... 11.189 11.873 

Contract labor .................................................................................................................................................. 3.214 2.598 

Professional Liability Insurance (Malpractice) ................................................................................................. 1.589 1.661 

Pharmaceuticals .............................................................................................................................................. 5.855 5.380 

Blood and blood products ................................................................................................................................ 1.082 1.078 

All other ............................................................................................................................................................ 31.481 32.254 

b. Other Data Sources 

In addition to the Medicare cost 

reports, the other data source we used 

to develop the IPPS market basket cost 

weights was the Benchmark InputOutput (I–O) Tables created by the 

Bureau of Economic Analysis (BEA), 

U.S. Department of Commerce. The BEA 

Benchmark I–O data are 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 complete set of data that are derived 

from the 2002 Economic Census. The 

Annual I–O is simply an update of the 

Benchmark I–O tables. For the FY 2006 

market basket rebasing, we used the 

1997 Benchmark I–O data. In the FY 

2010 IPPS/RY 2010 LTCH PPS proposed 

rule (74 FR 24155), we proposed to use 

the 2002 Benchmark I–O data in the FY 

2006-based IPPS market basket, to be 

effective for FY 2010. Instead of using 

the less detailed, less accurate Annual 

I–O data, we aged the 2002 Benchmark 

I–O data forward to FY 2006. The 

methodology we used 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 obtained 

directly from the Medicare cost reports 

is divided into other hospital 

expenditure category shares using the 

2002 Benchmark I–O data. Therefore, 

the ‘‘all other’’ cost category 

expenditure shares are proportional to 

their relationship to ‘‘all other’’ totals in 

the 2002 Benchmark I–O data. For 

instance, if the cost for telephone 

services was to represent 10 percent of 

the sum of the ‘‘all other’’ Benchmark I– 

O (see below) hospital expenditures, 

then telephone services would represent 

10 percent of the IPPS market basket’s 

‘‘all other’’ cost category. Following 

publication of the FY 2010 IPPS/RY 

2010 LTCH PPS proposed rule, and in 

an effort to provide greater 

transparency, we posted on the CMS 

market basket Web page at: http://

www.cms.hhs.gov/MedicareProgram

RatesStats/05_MarketBasket

Research.asp#TopOfPage an illustrative 

spreadsheet that shows how the detailed 

cost weights in the proposed rule (that 

is, those not calculated using Medicare 

cost reports) were determined using the 

2002 Benchmark I–O data. 

2. Final Cost Category Computation 

As stated previously, for this rebasing 

we used the Medicare cost reports to 

derive seven major cost categories. As 

we proposed, the FY 2006-based IPPS 

market basket includes three additional 

cost categories that were not broken out 

separately in the FY 2002-based IPPS 

market basket. The first is lifted directly 

from the Medicare cost reports: Blood 

and blood products. The remaining two 

are derived using the Benchmark I–O 

data: Administrative and business 

support services and financial services. 

As we proposed, we broke out the latter 

two categories so we can better match 

their respective expenses with price 

proxies. A thorough discussion of our 

rationale for each of these cost 

categories is provided in section IV.B.3. 

of the FY 2010 IPPS/RY 2010 LTCH PPS 

proposed rule (74 FR 24155) and this 

final rule. Also, the FY 2006-based IPPS 

market basket excludes one cost 

category: Photo supplies. The 2002 

Benchmark I–O weight for this category 

is considerably smaller than the 1997 

Benchmark I–O weight, presently 

accounting for less than one-tenth of 

one percentage point of the IPPS market 

basket. Therefore, as we proposed, we 

include the photo supplies costs in the 

chemical cost category weight with 

other similar chemical products (74 FR 

24155). 

As we proposed, we are not changing 

our definition of the labor-related share. 

However, we rename our aggregate cost 

categories from ‘‘labor-intensive’’ and 

‘‘non-labor-intensive’’ services to 

‘‘labor-related’’ and ‘‘nonlabor-related’’ 

services (74 FR 24155). As discussed in 

more detail below and similar to the 

previous rebasing, we classify a cost 

category as labor-related and include it 

in the labor-related share if the cost 

category is defined as being laborintensive and its cost varies with the 

local labor market. In previous 

regulations, we grouped cost categories 

that met both of these criteria into laborintensive services. We believe the new 

labels more accurately reflect the 

concepts that they are intended to 

convey. We are not changing our 

definition of the labor-related share 

because we continue to classify a cost 

category as labor-related if the costs are 

labor-intensive and vary with the local 

labor market. 

3. Selection of Price Proxies 

After computing the FY 2006 cost 

weights for the rebased hospital 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, all the proxies 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 these PPIs better reflect 

the actual price changes faced by 

hospitals. For example, we use a special 

PPI for prescription drugs, rather than 

the Consumer Price Index (CPI) for 

prescription drugs, because hospitals 

generally purchase drugs directly from a 

wholesaler. The PPIs that we use 

measure price changes at the final stage 

of production. 

• Consumer Price Indexes— 

Consumer Price Indexes (CPIs) measure 

change in the prices of final goods and 

services bought by the typical 

consumer. Because they may not 

represent the price faced by a producer, 

we used CPIs only if an appropriate PPI 

was not available, or if the expenditures 

were more similar to those faced by 

retail consumers in general rather than 

by purchasers of goods at the wholesale 

level. For example, the CPI for food 


sroberts on DSKD5P82C1PROD with RULES
43846 Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 

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. 

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. The CPIs, 

PPIs, and ECIs selected meet these 

criteria. 

Comment: Several commenters stated 

that although the MMA requires CMS to 

rebase the weights used in the hospital 

market basket more frequently than 

every 5 years to reflect the most current 

data available, it does not require CMS 

to modify or revise the price proxies 

used in the market basket calculation. 

The commenters discouraged CMS from 

incorporating any new price proxies, 

particularly the new blended price 

proxy associated with the Chemicals 

cost category, and indicated that such a 

change was not preferred at this time. 

They pointed out that the methodology 

and data sources used by CMS to derive 

the proposed 2006-based IPPS market 

basket yield a projected 2.1 percent 

increase in the hospital market basket 

update, while the historical 

methodology and data sources used to 

derive the FY 2002-based IPPS market 

basket yield a projected update of 2.3 

percent. Several commenters pointed to 

the current status and volatility of the 

economy as a basis for maintaining the 

same price proxies going forward. Those 

comments included the following: 

• Maintaining the current proxies 

will result in a more stable market 

basket increase and will demonstrate 

forbearance, given the current economic 

volatility that has occurred or may be 

yet to come. 

• The country has recently 

experienced a period of very low 

inflation. The funds from the ARRA 

(Pub. L. 111–5) are beginning to work 

their way into the economy, possibly 

resulting in a period of higher inflation 

that could substantially affect the 

market basket estimate. 

• The new price proxies selected by 

CMS are not responsive to the 

inflationary effects of the President’s FY 

2010 Budget and the inflationary 

stimulus effect of the Troubled Asset 

Relief Program (TARP), which is 

demonstrated by the modest market 

basket increases in FY 2010 and FY 

2011. 

• The traditional approach taken in 

developing the annual market basket 

forecast is inadequate, given the severe 

downturn in the economy and the 

potential for inflation to pick up at a 

pace quicker than we have seen for 

many years. Following several years of 

updates between 3 percent and 3.5 

percent, a lower forecast may well 

underestimate hospital input costs, 

particularly nursing labor, as hospitals 

will not benefit from swelling labor 

markets due to the fact that it is unlikely 

that newly-unemployed workers possess 

the specialized skills required by 

hospitals. 

As a result of these issues, multiple 

commenters urged CMS only to rebase 

the data and weights used in the market 

basket calculation, and not to revise the 

price proxies. 

Response: We continuously monitor 

the technical appropriateness of all of 

CMS’ market baskets (including the 

hospital market basket) whether or not 

the market basket is being rebased. 

However, whenever a market basket is 

rebased, it is a matter of practice for 

CMS to scrutinize all of its aspects, 

including the data sources that are used 

to construct it, the selection of its 

exhaustive and mutually exclusive cost 

categories, the weights associated with 

those categories, and the price proxies 

that are applied. We are revising the 

hospital market basket to make 

technical improvements that we believe 

results in more accurate payment 

updates. 

We believe that revising four new 

price proxies for existing cost categories 

and including three additional price 

proxies for the new cost categories in 

the FY 2006-based hospital market 

basket represents a significant technical 

improvement to the market basket. 

As many of the commenters stated, 

we proposed (and are adopting as final) 

a new blended chemical price proxy for 

the Chemicals cost weight in the FY 

2006-based IPPS market basket. The FY 

2002-based IPPS market basket used the 

PPI for industrial chemicals (WPI061) to 

proxy the chemicals cost category. In 

evaluating the technical merit of the 

continuing use of that proxy, we 

compared the 2002 BEA Benchmark I– 

O expenditure weights with the 

composition of the PPI for industrial 

chemicals. Using a commodity-toindustry crosswalk, we were able to 

identify the industry expenses classified 

by North American Industrial 

Classification System (NAICS) that 

comprise the commodity-based PPI for 

industrial chemicals. 

We found that the relative PPI weights 

for each of the NAICS expense 

categories were not always consistent 

with the expense weights for the 

hospital industry, as indicated by the 

2002 Benchmark I–O data. For example, 

hospital spending for NAICS 325120 

(Industrial Gas Manufacturing)—the 

hospital industry’s largest chemical 

expense category (accounting for 29 

percent of the hospital industry’s total 

chemical expenses)—is not found in the 

PPI for industrial chemicals. In 

addition, hospital spending attributable 

to NAICS 325190 (Other Basic Organic 

Chemical Manufacturing) accounts for 

just 26 percent of the hospital industry’s 

total chemical expenses. However, 

NAICS 325190 accounts for 41 percent 

of the PPI for industrial chemicals. 

Given these findings, we proposed 

using a blended chemical price index 

that reflects the relative weights of the 

hospital industry’s chemical expenses 

as indicated by the 2002 Benchmark I– 

O data. This blended index is composed 

of the PPI for industrial gases (NAICS 

325120), the PPI for other basic 

inorganic chemical manufacturing 

(NAICS 325180), the PPI for other basic 

organic chemical manufacturing (NAICS 

325190), and the PPI for soap and 

cleaning compound manufacturing 

(NAICS 325610). The expenses for these 

NAICS industries account for 

approximately 90 percent of the hospital 

industry’s chemical expenses, excluding 

NAICS 324110—Petroleum Refineries, 

which we proposed to include with 

other petroleum-related expenses 

classified in the fuel, oil, and gas cost 

category. We believe this new blended 

proxy represents a more accurate 

reflection of the price pressures 

associated with hospital chemical 

expenses. 

With respect to the state of the 

economy, we are attentive to the recent 

downturn and the fact that this year’s 

update is lower relative to historical 

market basket updates. We also 

recognize the commenters’ uncertainty 

regarding future inflationary pressures, 

given the activities undertaken in the 

last several months to aid the economy. 

However, the most recent forecast of the 

rebased and revised FY 2006-based IPPS 

market basket FY 2010 update factor 

reflects the current expectations 

regarding the performance of the 

economy during FY 2010, including the 

inflation expectations associated with 

the economic stimulus plans. Moreover, 


sroberts on DSKD5P82C1PROD with RULES
Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 43847 

this forecast also reflects our most 

recent expectations regarding price 

pressures associated with the labor 

market for hospital workers. 

Comment: One commenter stated that 

CMS’ proposal to rebase and revise the 

market basket appears to be directed at 

reducing the rate of increase in future 

market basket increases. 

Response: When selecting the price 

proxies for the IPPS market basket, we 

do not evaluate the resulting market 

basket update as a criterion in selecting 

these proxies, but rather choose the 

most technically appropriate measures 

of the price pressures faced by the 

hospital industry. We believe the 

proxies that were articulated in the FY 

2010 proposed rule reflect that 

approach. 

Comment: Several commenters 

supported CMS’ proposed use of the PPI 

for blood and organ banks for measuring 

changes in the cost of blood and blood 

products. The commenters expressed 

appreciation for CMS’ responsiveness to 

the need for greater accuracy in the 

calculation of price changes attributable 

to blood and blood products in the IPPS 

market basket. 

Response: We appreciate the 

commenters’ support for our proposed 

price proxy for the blood and blood 

products cost category. We agree with 

the commenters that the 

implementation of this price proxy 

represents a technical improvement to 

the IPPS market basket. 

After consideration of the public 

comments received, we are adopting as 

final the price proxies that we proposed 

in the FY 2010 IPPS/RY 2010 LTCH PPS 

proposed rule (74 FR 24155–24159). 

Chart 2 sets forth the FY 2006-based 

IPPS market basket, including cost 

categories, weights, and price proxies. 

For comparison purposes, the 

corresponding FY 2002-based IPPS 

market basket is listed as well. A 

summary outlining the choice of the 

various proxies follows the chart. 

CHART 2—FY 2006-BASED IPPS HOSPITAL MARKET-BASKET COST CATEGORIES, WEIGHTS, AND PRICE PROXIES WITH

FY 2002-BASED IPPS MARKET BASKET INCLUDED FOR COMPARISON

Cost Categories 

FY 

2002-based 

hospital market basket 

cost weights 

Rebased FY 

2006-based 

hospital market basket 

cost weights 

Rebased FY 2006-based hospital market basket price 

proxies 

1. Compensation .......................................................... 59.993 59.627 

A. Wages and Salaries 1 ....................................... 48.171 47.213 ECI for Wages and Salaries, Civilian Hospital Workers. 

B. Employee Benefits 1 .......................................... 11.822 12.414 ECI for Benefits, Civilian Hospital Workers. 

2. Utilities ...................................................................... 1.251 2.180 

A. Fuel, Oil, and Gasoline ..................................... 0.206 0.418 PPI for Petroleum Refineries. 

B. Electricity ........................................................... 0.669 1.645 PPI for Commercial Electric Power. 

C. Water and Sewage ........................................... 0.376 0.117 CPI–U for Water & Sewerage Maintenance. 

3. Professional Liability Insurance ................................ 1.589 1.661 CMS Professional Liability Insurance Premium Index. 

4. All Other ................................................................... 37.167 36.533 

A. All Other Products ............................................ 20.336 19.473 

(1.) Pharmaceuticals ............................................. 5.855 5.380 PPI for Pharmaceutical Preparations (Prescriptions). 

(2.) Food: Direct Purchases .................................. 1.664 3.982 PPI for Processed Foods & Feeds. 

(3.) Food: Contract Services ................................. 1.180 0.575 CPI–U for Food Away From Home. 

(4.) Chemicals 2 ..................................................... 2.096 1.538 Blend of Chemical PPIs. 

(5.) Blood and Blood Products 3 ............................ ........................ 1.078 PPI for Blood and Organ Banks. 

(6.) Medical Instruments ........................................ 1.932 2.762 PPI for Medical, Surgical, and Personal Aid Devices. 

(7.) Photographic Supplies .................................... 0.183 

(8.) Rubber and Plastics ....................................... 2.004 1.659 PPI for Rubber & Plastic Products. 

(9.) Paper and Printing Products .......................... 1.905 1.492 PPI for Converted Paper & Paperboard Products. 

(10.) Apparel .......................................................... 0.394 0.325 PPI for Apparel. 

(11.) Machinery and Equipment ............................ 0.565 0.163 PPI for Machinery & Equipment. 

(12.) Miscellaneous Products 3 .............................. 2.558 0.519 PPI for Finished Goods Less Food and Energy. 

B. Labor-related Services ...................................... 9.738 9.175 

(1.) Professional Fees: Labor-related 4 ................. 5.510 5.356 ECI for Compensation for Professional and Related 

Occupations. 

(2.) Administrative and Business Support Services 5.n/a 0.626 ECI for Compensation for Office and Administrative 

Services. 

(3.) All Other: Labor-Related Services 5 ................ 4.228 3.193 ECI for Compensation for Private Service Occupations. 

C. Nonlabor-Related Services ............................... 7.093 7.885 

(1.) Professional Fees: Nonlabor-Related 4 .......... n/a 4.074 ECI for Compensation for Professional and Related 

Occupations. 

(2.) Financial Services 6 ........................................ n/a 1.281 ECI for Compensation for Financial Activities. 

(3.) Telephone Services ........................................ 0.458 0.627 CPI–U for Telephone Services. 

(4.) Postage ........................................................... 1.300 0.963 CPI–U for Postage. 

(5.) All Other: Nonlabor-Related Services 6 .......... 5.335 0.940 CPI–U for All Items Less Food and Energy. 

Total ....................................................................... 100.000 100.000 

Note: Detail may not add to total due to rounding. 1 Contract labor is distributed to wages and salaries and employee benefits based on the share of total compensation that each category represents. 2To proxy the ‘‘chemicals’’ cost category, we used a blended PPI composed of the PPI for industrial gases, the PPI for other basic inorganic 

chemical manufacturing, the PPI for other basic organic chemical manufacturing, and the PPI for soap and cleaning compound manufacturing. 

For more detail about this proxy, see section IV.B.3.j. of the preamble of this final rule. 3The ‘‘blood and blood products’’ cost category was contained within ‘‘miscellaneous products’’ cost category in the FY 2002-based IPPS market basket. 


sroberts on DSKD5P82C1PROD with RULES
43848 Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 

4The ‘‘professional fees: Labor-related’’ and ‘‘professional fees: Nonlabor-related’’ cost categories were included in one cost category called 

‘‘professional fees’’ in the FY 2002-based IPPS market basket. For more detail about how these new categories were derived, we refer readers 

to sections IV.B.3.s. and v. of the preamble of this final rule, on the labor-related share. 5The ‘‘administrative and business support services’’ cost category was contained within ‘‘all other: Labor-intensive services’’ cost category in 

the FY 2002-based IPPS market basket. The ‘‘all other: Labor-intensive services’’ cost category is renamed the ‘‘all other: Labor-related services’’ cost category for the FY 2006-based IPPS market basket. 6The ‘‘financial services’’ cost category was contained within the ‘‘all other: Non-labor intensive services’’ cost category in the FY 2002-based 

IPPS market basket. The ‘‘all other: Nonlabor intensive services’’ cost category is renamed the ‘‘all other: Nonlabor-related services’’ cost category for the FY 2006-based IPPS market basket. 

As we proposed in the FY 2010 IPPS/ 

RY 2010 LTCH PPS proposed rule (74 

FR 24156 through 24159), for this final 

rule, we use the following choices with 

respect to the various proxies: 

a. Wages and Salaries 

We use the ECI for wages and salaries 

for hospital workers (all civilian) (series 

code #CIU1026220000000I) to measure 

the price growth of this cost category. 

This same proxy was used in the FY 

2002-based IPPS market basket. 

b. Employee Benefits 

We use the ECI for employee benefits 

for hospital workers (all civilian) to 

measure the price growth of this cost 

category. This same proxy was used in 

the FY 2002-based IPPS market basket. 

c. Fuel, Oil, and Gasoline 

For the FY 2002-based market basket, 

this category only included expenses 

classified under North American 

Industry Classification System (NAICS) 

21 (Mining). We proxied this category 

using the PPI for commercial natural gas 

(series code #WPU0552). For the FY 

2006-based market basket, we add costs 

to this category that had previously been 

grouped in other categories. The added 

costs include petroleum-related 

expenses under NAICS 324110 

(previously captured in the 

miscellaneous category), as well as 

petrochemical manufacturing classified 

under NAICS 325110 (previously 

captured in the chemicals category). 

These added costs represent 80 percent 

of the hospital industry’s fuel, oil, and 

gasoline expenses (or 80 percent of this 

category). Because the majority of the 

industry’s fuel, oil, and gasoline 

expenses originate from petroleum 

refineries (NAICS 324110), we use the 

PPI for petroleum refineries (series code 

#PCU324110) as the proxy for this cost 

category. 

d. Electricity 

We use the PPI for commercial 

electric power (series code #WPU0542) 

to measure the price growth of this cost 

category. This same proxy was used in 

the FY 2002-based IPPS market basket. 

e. Water and Sewage 

We use the CPI for water and 

sewerage maintenance (all urban 

consumers) (series code 

#CUUR0000SEHG01) to measure the 

price growth of this cost category. This 

same proxy was used in the FY 2002- 

based IPPS market basket. 

f. Professional Liability Insurance 

We proxy 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 also is used to proxy PLI price 

changes in the Medicare Economic 

Index (68 FR 63244). This same proxy 

was used in the FY 2002-based IPPS 

market basket. 

g. Pharmaceuticals 

We use the PPI for pharmaceutical 

preparations (prescription) (series code 

#PCU32541DRX) to measure the price 

growth of this cost category. This is a 

special index produced by BLS and is 

the same proxy used in the FY 2002- 

based IPPS market basket. 

h. Food: Direct Purchases 

We use the PPI for processed foods 

and feeds (series code #WPU02) to 

measure the price growth of this cost 

category. This same proxy was used in 

the FY 2002-based IPPS market basket. 

i. Food: Contract Services 

We use the CPI for food away from 

home (all urban consumers) (series code 

#CUUR0000SEFV) to measure the price 

growth of this cost category. This same 

proxy was used in the FY 2002-based 

IPPS market basket. 

j. Chemicals 

We use a blended PPI composed of 

the PPI for industrial gases (NAICS 

325120), the PPI for other basic 

inorganic chemical manufacturing 

(NAICS 325180), the PPI for other basic 

organic chemical manufacturing (NAICS 

325190), and the PPI for soap and 

cleaning compound manufacturing 

(NAICS 325610). Using the 2002 

Benchmark I–O data, we found that 

these NAICS industries accounted for 

approximately 90 percent of the hospital 

industry’s chemical expenses. 

Therefore, we use this blended index 

because we believe its composition 

better reflects the composition of the 

purchasing patterns of hospitals than 

does the PPI for industrial chemicals 

(series code #WPU061), the proxy used 

in the FY 2002-based IPPS market 

basket. Chart 3 below shows the weights 

for each of the four PPIs used to create 

the blended PPI, which we determined 

using the 2002 Benchmark I–O data. 

CHART 3—BLENDED CHEMICAL PPI WEIGHTS

Name Weights 

(in percent) NAICS 

PPI for Industrial Gases .................................................................................................................................. 35 325120 

PPI for Other Basic Inorganic Chemical Manufacturing ................................................................................. 25 325180 

PPI for Other Basic Organic Chemical Manufacturing .................................................................................... 30 325190 

PPI for Soap and Cleaning Compound Manufacturing ................................................................................... 10 325610 

k. Blood and Blood Products 

In the FY 2002-based IPPS market 

basket, we classified blood and blood 

products into the miscellaneous 

products category and used the PPI for 

finished goods less food and energy to 

proxy the price changes associated with 

these expenses. At the time of the 

rebasing of the FY 2002-based IPPS 

market basket, we noticed an apparent 

divergence between the PPI for blood 


sroberts on DSKD5P82C1PROD with RULES
Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 43849 

and blood derivatives, the price proxy 

used in the FY 1997-based IPPS market 

basket, and blood costs faced by 

hospitals over the recent time period. A 

thorough discussion of this analysis is 

found in the FY 2006 IPPS final rule (70 

FR 47390). 

Since the last rebasing of the market 

basket, BLS began collecting data and 

publishing an industry PPI for blood 

and organ banks (NAICS 621991). For 

the FY 2006-based IPPS market basket, 

as we proposed, we incorporate this 

series (series code #PCU621991) into the 

market basket and use it to proxy the 

blood and blood products cost category. 

l. Medical Instruments 

We use the PPI for medical, surgical, 

and personal aid devices (series code 

#WPU156) to measure the price growth 

of this cost category. In the 1997 

Benchmark I–O data, approximately half 

of the expenses classified in this 

category were for surgical and medical 

instruments. Thus, we used the PPI for 

surgical and medical instruments and 

equipment (series code #WPU1562) to 

proxy this category in the FY 2002- 

based IPPS market basket. The 2002 

Benchmark I–O data show that this 

category now represents only 33 percent 

of these expenses and the largest 

expense category is surgical appliance 

and supplies manufacturing 

(corresponding to series code 

#WPU1563). Due to this reallocation of 

costs over time, we are changing the 

price proxy for this cost category to the 

more aggregated PPI for medical, 

surgical, and personal aid devices. 

m. Photographic Supplies 

We are eliminating the cost category 

specific to photographic supplies for the 

proposed FY 2006-based IPPS market 

basket. These costs will now be 

included in the chemicals cost category 

because the costs are presently reported 

as all other chemical products. Notably, 

although we are eliminating the specific 

cost category, these costs will still be 

accounted for within the IPPS market 

basket. 

n. Rubber and Plastics 

We use the PPI for rubber and plastic 

products (series code #WPU07) to 

measure price growth of this cost 

category. This same proxy was used in 

the FY 2002-based IPPS market basket. 

o. Paper and Printing Products 

We use the PPI for converted paper 

and paperboard products (series code 

#WPU0915) to measure the price growth 

of this cost category. This same proxy 

was used in the FY 2002-based IPPS 

market basket. 

p. Apparel 

We use the PPI for apparel (series 

code #WPU0381) to measure the price 

growth of this cost category. This same 

proxy was used in the FY 2002-based 

IPPS market basket. 

q. Machinery and Equipment 

We use the PPI for machinery and 

equipment (series code #WPU11) to 

measure the price growth of this cost 

category. This same proxy was used in 

the FY 2002-based IPPS market basket. 

r. Miscellaneous Products 

We use the PPI for finished goods less 

food and energy (series code 

#WPUSOP3500) to measure the price 

growth of this cost category. Using this 

index removes the double-counting of 

food and energy prices, which are 

already captured elsewhere in the 

market basket. This same proxy was 

used in the FY 2002-based IPPS market 

basket. 

s. Professional Fees: Labor-Related 

We use the ECI for compensation for 

professional and related occupations 

(private industry) (series code 

#CIS2020000120000I) to measure the 

price growth of this category. It includes 

occupations such as legal, accounting, 

and engineering services. This same 

proxy was used in the FY 2002-based 

IPPS market basket. 

t. Administrative and Business Support 

Services 

We use the ECI for compensation for 

office and administrative support 

services (private industry) (series code 

#CIU2010000220000I) to measure the 

price growth of this category. Previously 

these costs were included in the ‘‘all 

other: labor-intensive cost’’ category 

(now renamed the ‘‘all other: laborrelated cost’’ category), and were 

proxied by the ECI for compensation for 

service occupations. We believe that 

this compensation index better reflects 

the changing price of labor associated 

with the provision of administrative 

services and its incorporation represents 

a technical improvement to the market 

basket. 

u. All Other: Labor-Related Services 

We use the ECI for compensation for 

service occupations (private industry) 

(series code #CIU2010000300000I) to 

measure the price growth of this cost 

category. This same proxy was used in 

the FY 2002-based IPPS market basket. 

v. Professional Fees: Nonlabor-Related 

We use the ECI for compensation for 

professional and related occupations 

(private industry) (series code 

#CIS2020000120000I) to measure the 

price growth of this category. This is the 

same price proxy that we use for the 

professional fees: labor-related cost 

category. 

w. Financial Services 

We use the ECI for compensation for 

financial activities (private industry) 

(series code #CIU201520A000000I) to 

measure the price growth of this cost 

category. Previously these costs were 

included in the ‘‘all other: nonlaborintensive cost’’ category (now renamed 

the ‘‘all other: nonlabor-related cost’’ 

category), and were proxied by the CPI 

for all items. We believe that this 

compensation index better reflects the 

changing price of labor associated with 

the provision of financial services and 

its incorporation represents a technical 

improvement to the market basket. 

x. Telephone Services 

We use the CPI for telephone services 

(series code #CUUR0000SEED) to 

measure the price growth of this cost 

category. This same proxy was used in 

the FY 2002-based IPPS market basket. 

y. Postage 

We use the CPI for postage (series 

code #CUUR0000SEEC01) to measure 

the price growth of this cost category. 

This same proxy was used in the FY 

2002-based IPPS market basket. 

z. All Other: Nonlabor-Related Services 

We use the CPI for all items less food 

and energy (series code 

#CUUR0000SA0L1E) to measure the 

price growth of this cost category. 

Previously these costs were proxied by 

the CPI for all items in the FY 2002- 

based IPPS market basket. We believe 

that using the CPI for all items less food 

and energy will remove any doublecounting of food and energy prices, 

which are already captured elsewhere in 

the market basket. Consequently, we 

believe that the incorporation of this 

proxy represents a technical 

improvement to the market basket. 

Chart 4 compares both the historical 

and forecasted percent changes in the 

FY 2002-based IPPS market basket and 

the FY 2006-based IPPS market basket. 


sroberts on DSKD5P82C1PROD with RULES
43850 Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 

CHART 4—FY 2002–BASED AND FY 2006–BASED PROSPECTIVE PAYMENT HOSPITAL OPERATING INDEX PERCENT

CHANGE, FY 2004 THROUGH FY 2012 

Fiscal year (FY) 

FY 2002-based 

IPPS market 

basket operating 

index percent 

change 

FY 2006–based 

IPPS market 

basket operating 

index percent 

change 

Historical data: 

FY 2004 .................................................................................................................................................... 4.0 4.0 

FY 2005 .................................................................................................................................................... 4.3 3.9 

FY 2006 .................................................................................................................................................... 4.3 4.0 

FY 2007 .................................................................................................................................................... 3.4 3.6 

FY 2008 .................................................................................................................................................... 4.3 4.0 

Average FYs 2004–2008 .......................................................................................................................... 4.1 3.9 

Forecast: 

FY 2009 .................................................................................................................................................... 2.1 2.6 

FY 2010 .................................................................................................................................................... 2.3 2.1 

FY 2011 .................................................................................................................................................... 2.8 2.7 

FY 2012 .................................................................................................................................................... 3.0 2.9 

Average FYs 2009–2012 .......................................................................................................................... 2.6 2.6 

Source: IHS Global Insight, Inc., 2nd Quarter 2009, USMACRO/CONTROL0609@CISSIM/TL0509.SIM. 

The differences between the FY 2002- 

based and the FY 2006-based IPPS 

market basket increases are mostly 

stemming from the revision the proxy 

used for the chemicals cost category. As 

stated earlier, we are adopting a blended 

chemical index that is comprised of four 

industry-based chemical price proxies 

that represent approximately 90 percent 

of the hospital industry’s chemical 

expenses. The FY 2002-based IPPS 

market basket used the PPI for industrial 

chemicals. The PPI for industrial 

chemicals attributes more weight to 

direct petroleum expenses, which is not 

consistent with a hospital’s most recent 

purchasing pattern according to the 

2002 Benchmark I–O data. The lower 

weight for direct petroleum expenses in 

the blended chemical index results in 

less volatile price movements. We 

believe the blended index represents a 

technical improvement because it better 

reflects the purchasing patterns of 

hospitals. 

Also contributing to the differences 

between the FY 2002-based and the FY 

2006-based IPPS market basket 

increases is the larger weight associated 

with the professional fees category. In 

both market baskets, these expenditures 

are proxied by the ECI for compensation 

for professional and related services. 

The weight for professional fees in the 

FY 2002-based IPPS market basket is 5.5 

percent compared to 9.4 percent in the 

FY 2006-based IPPS market basket. 

4. Labor-Related Share 

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

Act, the Secretary estimates from time to 

time the proportion of payments that are 

labor-related. ‘‘The Secretary shall 

adjust the proportion (as estimated by 

the Secretary from time to time) of 

hospitals’ costs which are attributable to 

wages and wage-related costs of the 

DRG prospective payment rates * * *.’’ 

We refer to the proportion of hospitals’ 

costs that are attributable to wages and 

wage-related costs as the ‘‘labor-related 

share.’’ 

The labor-related share is used to 

determine the proportion of the national 

PPS base payment rate to which the area 

wage index is applied. We include a 

cost category in the labor-related share 

if the costs are labor intensive and vary 

with the local labor market. Given this, 

as we proposed, we are including in the 

labor-related share the national average 

proportion of operating costs that are 

attributable to wages and salaries, 

employee benefits, contract labor, the 

labor-related portion of professional 

fees, administrative and business 

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

in the FY 2002-based IPPS market 

basket as labor-intensive) (74 FR 24159). 

Consistent with previous rebasings, the 

‘‘all other: labor-related services’’ cost 

category is mostly comprised of 

building maintenance and security 

services (including, but not limited to, 

commercial and industrial machinery 

and equipment repair, nonresidential 

maintenance and repair, and 

investigation and security services). 

Because these services tend to be laborintensive and are mostly performed at 

the hospital facility (and, therefore, 

unlikely to be purchased in the national 

market), we believe that they meet our 

definition of labor-related services. 

For the rebasing of the FY 2002-based 

IPPS market basket in the FY 2006 IPPS 

final rule, we included in the laborrelated share the national average 

proportion of operating costs that are 

attributable to wages and salaries, 

employee benefits, contract labor, 

professional fees, and labor-intensive 

services (70 FR 47393). For the FY 2006- 

based IPPS market basket rebasing, the 

inclusion of the administrative and 

business support services cost category 

into the labor-related share remains 

consistent with the current labor-related 

share because this cost category was 

previously included in the laborintensive cost category. As previously 

stated, we are establishing a separate 

administrative and business support 

service cost category so that we can use 

the ECI for compensation for office and 

administrative support services to more 

precisely proxy these specific expenses. 

For the FY 2002-based IPPS market 

basket, we assumed that all nonmedical 

professional services (including 

accounting and auditing services, 

engineering services, legal services, and 

management and consulting services) 

were purchased in the local labor 

market and, therefore, all of their 

associated fees varied with the local 

labor market. As a result, we previously 

included 100 percent of these costs in 

the labor-related share. In an effort to 

more accurately determine the share of 

professional fees that should be 

included in the labor-related share, we 

surveyed hospitals regarding the 

proportion of those fees that go to 

companies that are located beyond their 

own local labor market (the results are 

discussed below). 

We continue to look for ways to refine 

our market basket approach to more 

accurately account for the proportion of 

costs influenced by the local labor 

market. To that end, we conducted a 

survey of hospitals to empirically 

determine the proportion of contracted 


sroberts on DSKD5P82C1PROD with RULES
Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 43851 

professional services purchased by the 

industry that are attributable to local 

firms and the proportion that are 

purchased from national firms. We 

notified the public of our intent to 

conduct this survey on December 9, 

2005 (70 FR 73250) and received no 

comments (71 FR 8588). 

With approval from the OMB, we 

contacted the industry and received 

responses to our survey from 108 

hospitals. Using data on FTEs to allocate 

responding hospitals across strata 

(region of the country and urban/rural 

status), we calculated poststratification 

weights. Based on these weighted 

results, we determined that hospitals 

purchase, on average, the following 

portions of contracted professional 

services outside of their local labor 

market: 

• 34 percent of accounting and 

auditing services; 

• 30 percent of engineering services; 

• 33 percent of legal services; and 

• 42 percent of management 

consulting services. 

We applied each of these percentages 

to its respective Benchmark I–O cost 

category underlying the professional 

fees cost category. This is the 

methodology that we used to separate 

the FY 2006-based IPPS market basket 

professional fees category into 

professional fees: Labor-related and 

professional fees: Nonlabor-related cost 

categories. In addition to the 

professional services listed above, we 

also classified expenses under NAICS 

55, Management of Companies and 

Enterprises, into the professional fees 

cost category as was done in previous 

rebasings. The NAICS 55 data are 

mostly comprised of corporate, 

subsidiary, and regional managing 

offices, or otherwise referred to as home 

offices. Formerly, all of the expenses 

within this category were considered to 

vary with, or be influenced by, the local 

labor market and were thus included in 

the labor-related share. Because many 

hospitals are not located in the same 

geographic area as their home office, we 

analyzed data from a variety of sources 

in order to determine what proportion 

of these costs should be appropriately 

included in the labor-related share. 

Comment: Several commenters 

disagreed with the proposed 

methodology to apportion home offices 

costs into the labor-related share. 

Response: Our proposed methodology 

was primarily based on data from the 

Medicare cost reports, as well as a CMS 

database of Home Office Medicare 

Records (HOMER) (a database that 

provides city and state information 

(addresses) for home offices). The 

Medicare cost report requires hospitals 

to report their home office provider 

numbers. Using the HOMER database to 

determine the home office location for 

each home office provider number, we 

compared the location of the hospital 

with the location of the hospital’s home 

office. We then proposed to determine 

the proportion of costs that should be 

allocated to the labor-related share 

based on the percent of hospitals that 

had home offices located in their 

respective local labor markets—defined 

as being in the same MSA. Using this 

proposed methodology, we had 

determined that 27 percent of hospitals 

that had home offices had those home 

offices located in their respective local 

labor markets, and therefore, we 

proposed to allocate 27 percent of 

NAICS 55 expenses to the labor-related 

share. 

In response to the public comments 

submitted, we have revisited the home 

office cost allocation method and 

determined that a revision of the 

approach is appropriate. As an 

alternative to using provider counts 

(where each provider counts evenly) as 

the means by which home office costs 

are apportioned to the labor-related 

share, or deemed nonlabor-related, for 

this final rule, we are weighting the 

providers by home office compensation 

costs as reported in Worksheet S–3, part 

II, line 11 of the hospital MCR. (The 

Medicare cost report includes, but does 

not explicitly itemize, all home office 

costs. However, it does contain a line 

item for home office compensation 

costs.) We believe that this revised 

methodology of weighting the providers 

based on home office compensation 

costs provides a more technically 

appropriate estimate of the proportion 

of NAICS 55 expenses that should be 

allocated to the labor-related share. 

As proposed, we are still continuing 

to use the same data sources and 

methodology to determine whether a 

hospital’s home office is located in their 

respective MSA. Once we determined 

whether the hospital’s home office is 

located in their respective MSA, we 

used additional data on home office 

compensation costs from the Medicare 

cost report to assign weights to the 

providers. Using this revised 

methodology, we determined that 57 

percent of hospitals’ home office costs 

are paid into their respective local labor 

markets—defined as being in the same 

MSA. 

As was published in the FY 2010 

IPPS/RY 2010 LTCH PPS proposed rule 

(74 FR 24159 through 24161), below is 

a more detailed explanation on our 

methodology used to determine whether 

a hospital’s home office was located in 

their respective MSA. In addition to the 

number of providers that appeared in 

the proposed rule, we have also 

included our weighted results. 

The Medicare cost report requires 

hospitals to report their home office 

provider numbers. Using the HOMER 

database to determine the home office 

location for each home office provider 

number, we compared the location of 

the hospital with the location of the 

hospital’s home office. We then placed 

hospitals into one of the following three 

groups: 

• Group 1—Hospital and home office 

are located in different States; 

• Group 2—Hospital and home office 

are located in the same State and same 

city; and 

• Group 3—Hospital and home office 

are located in the same State and 

different city. 

We found that 59 percent of the 

hospitals with home offices (34 percent 

of total home office compensation costs 

for hospitals with home offices) were 

classified into Group 1 (that is, different 

State) and, thus, these hospitals were 

determined to not be located in the 

same local labor market as their home 

office. 

We found that 12 percent of all 

hospitals with home offices (35 percent 

of total home office compensation costs 

for hospitals with home offices) were 

classified into Group 2 (that is, same 

State and same city and, therefore, the 

same MSA). Consequently, these 

hospitals were determined to be located 

in the same local labor market as their 

home offices. 

We found that 29 percent of all 

hospitals with home offices (30 percent 

of total home office compensation costs 

for hospitals with home offices) were 

classified into Group 3 (that is, same 

State and different city). Using data 

from the Census Bureau to determine 

the specific MSA for both the hospital 

and its home office, we found that 16 

percent of all hospitals with home 

offices (22 percent of total home office 

compensation costs for hospitals with 

home offices) were identified as being in 

the same State, a different city, but the 

same MSA. 

Pooling these results, we were able to 

determine that approximately 28 

percent of hospitals with home offices 

(57 percent of total home office 

compensation costs for hospitals with 

home offices) had home offices located 

within their local labor market (that is, 

12 percent of hospitals with home 

offices (35 percent of total home office 

compensation costs for hospitals with 

home offices) had their home offices in 

the same State and city (and, thus, the 

same MSA), and 16 percent of hospitals 

with home offices (22 percent of total 


sroberts on DSKD5P82C1PROD with RULES
43852 Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 

home office compensation costs for 

hospitals with home offices) had their 

home offices in the same State, a 

different city, but the same MSA). We 

note that due to data anomalies 

associated with home office 

compensation cost data on the Medicare 

cost report, we trimmed the data and, 

thus, the number of providers classified 

in each of the groups is slightly different 

than we had published in the proposed 

regulation. The aforementioned trim 

resulted in excluding hospitals whose 

home office costs as a percent of total 

hospital costs were in the top and 

bottom five percent of that ratio. In the 

proposed rule, we had determined that 

27 percent of providers had a home 

office located in their respective MSA. 

Applying our trimming method resulted 

in 28 percent of providers having a 

home office located in their respective 

MSA. Therefore, using the results of our 

weighting methodology, we are 

classifying 57 percent of the NAICS 55 

costs into the professional fees: laborrelated cost category and the remaining 

43 percent into the professional fees: 

nonlabor-related cost category. 

Comment: Several commenters 

suggested that CMS maintain the laborrelated share from the FY 2002-based 

market basket (69.7 percent) for 

hospitals with an area wage index 

greater than 1.0 until a statistically valid 

approach for changing the labor-related 

share can be implemented. In addition, 

some commenters stated that, although 

CMS is required to rebase the hospital 

market basket, the proposal to revise the 

labor-related share is not required by 

statute and, thus, represents a 

discretionary decision by CMS. 

Response: As a matter of practice, 

CMS typically rebases and revises the 

market basket and the labor-related 

share simultaneously. We believe that 

doing so results in a more technically 

accurate market basket that has the 

effect of more precisely updating 

payments to Medicare’s providers. We 

believe that revising the labor-related 

share is based on empirical research and 

relies on more recent data, representing 

a technical improvement to the 

construction of the market basket. The 

methodology relies, in part, on the 

results of a survey of professional fees 

that was nationally representative and 

inclusive of large, urban-based hospitals 

and whose results were estimated using 

widely accepted survey estimation 

techniques. It also is dependent on data 

from the Medicare cost reports and the 

HOMER database that showed 43 

percent of total home office 

compensation costs for hospitals with 

home offices had home offices located 

in different MSAs. Therefore, we 

disagree with the commenter’s 

suggestion to continue to use a laborrelated share of 69.7 percent. 

Comment: Several commenters 

disagreed with the proposal to only 

allocate a portion of home office costs 

to the labor-related share based on 

whether these costs were incurred in the 

local labor market. One commenter 

stated that it is generally understood 

that there is a significant degree of 

correlation between the location of a 

multihospital system and the geographic 

locations of its member hospitals. All 

systems except the limited number of 

truly national hospital chains tend to be 

clustered in subareas of the country. 

Therefore, the commenters claimed that 

an assumption that 73 percent of home 

office labor costs more closely resemble 

national versus regional wage patterns is 

not necessarily supported by the 

methodology CMS proposed. Second, 

the commenter stated that it is generally 

the case that home office operations of 

multihospital systems and chains tend 

to be located in urban areas, even if the 

hospitals in the system or chain are 

nonurban or rural. The commenter 

further stated that this implies that 

average wage costs in these system 

headquarters may be systematically 

higher than the national average wage 

cost, making a national pricing proxy 

suspect in this case, as well. 

Response: In rebasing the laborrelated share, we have identified new 

methodologies and newly available 

empirical evidence to estimate the 

portion of the standardized payment 

amount that is subject to the hospital 

area wage index. In determining what 

proportion of that amount should be 

apportioned to the labor-related share 

and what proportion should be deemed 

nonlabor-related, we referenced the 

following: 

Section 1886(d)(3)(E)(i) of the Act 

states that ‘‘in general.—Except as 

provided in clause (ii), 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 

computed under subparagraph (D) 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.’’ 

Because the labor-related share 

determined through the market basket is 

linked to the hospital area wage index, 

for this rebasing, we have identified 

new methodologies and newly available 

empirical evidence to determine a laborrelated share that more precisely reflects 

the wage and wage-related proportion of 

activities purchased where the 

individual hospital is located. Services 

purchased beyond the boundaries of the 

local labor market of the individual 

hospital are thereby excluded from the 

labor-related share. 

In order to distribute the appropriate 

proportion of home office costs to the 

labor-related share, we constructed a 

methodology that is similar to that 

undertaken to determine the area wage 

index. That is, we analyzed the 

locations of the individual hospitals and 

their respective home offices (at the 

MSA-level) as well as the home office 

compensation costs of the individual 

hospitals. The proportion of home office 

costs that we do not include in the 

labor-related share was not based on 

assumption, but rather it was based on 

Medicare cost report data and the 

HOMER database. Those data showed 

43 percent of home office compensation 

costs were purchased from a different 

MSA than where the individual hospital 

is located and, thus, that proportion of 

home office costs are excluded from the 

labor-related share. The remaining 57 

percent of home office compensation 

costs were purchased in the same MSA 

as the hospital; therefore, that 

proportion of home office costs is 

included in the labor-related share. 

Based on data published by the BEA, 

we determined that the share of total 

hospital costs attributable to home office 

costs in 2006 was 5.8 percent. Applying 

the aforementioned shares to the 5.8 

percent figure, we determined that 2.494 

percentage points of total costs 

represent home office costs that are not 

incurred in the same local labor market 

as the hospital itself and, thus, are 

removed from the labor-related share. 

The remaining 3.306 percentage points 

remain in the labor-related share. 

Comment: Several commenters 

addressed the survey CMS conducted 

regarding certain professional fees 

purchased by hospitals, stating that 

CMS used this survey to impute a 2.631 

percentage point reduction in the laborrelated share. These commenters stated 

that CMS failed to share data on the 

characteristics of the hospitals that 

responded, possible selection bias, or 

survey methodology. They also cited 

that the survey only received 108 

respondents, which could lead to a high 

margin of error. The commenters stated 

that CMS provides no indication that it 

assessed for response bias in its survey 

nor did it explain how (or whether) it 

assured that the survey respondents 

were representative of all hospitals or of 

hospitals in wage areas greater than 1.0. 

Another commenter stated that the CMS 

survey assumed that such professional 


sroberts on DSKD5P82C1PROD with RULES
Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 43853 

services should be available in the local 

labor market and ignored some 

hospital’s unavoidable need to incur 

those costs in order to comply with 

Federal and State requirements. The 

commenters requested CMS not remove 

a portion of professional fees from the 

labor-related share based on the results 

of this survey. 

Response: We disagree with the 

commenters’ suggestion that we ignore 

the survey results and continue to 

assign 100 percent of nonmedical 

professional fees to the labor-related 

share, as has been done historically. We 

believe a method that distributes these 

fees based on empirical research and 

data represents a technical improvement 

to the construction of the market basket. 

Our intent to survey for this purpose 

was announced in the Federal Register 

on December 9, 2005 (70 FR 73250). We 

received no public comment at that 

time. 

Although several commenters 

indicated that the professional fees 

survey was used to decrease the laborrelated share by 2.631 percentage 

points, that indication is not correct. In 

the FY 2006-based IPPS market basket, 

nonmedical professional fees that were 

subject to allocation based on the survey 

results represent 2.114 percent of total 

costs (and are limited to those fees 

related to Accounting & Auditing, Legal, 

Engineering, and Management 

Consulting services). Based on our 

survey results, we are apportioning 

1.335 percentage points of the 2.114 

percentage point figure into the laborrelated share and designating the 

remaining 0.779 percentage point as 

nonlabor-related. 

The survey’s methods unfolded in the 

following manner: A small sample of 12 

hospitals was initially pre-tested in 

order to ensure the understandability of 

the survey questions. The survey 

prompted sample institutions to select 

from multiple choice answers the 

proportions of their professional fees 

that are purchased from firms located 

outside of their respective local labor 

market. The multiple choice answers for 

each type of professional service 

included the following options: 0 

percent of fees; 1–20 percent of fees; 21– 

40 percent of fees; 41–60 percent of fees; 

61–80 percent of fees; 81–99 percent of 

fees; and 100 percent of fees. All 

respondents were assured that the 

information they provided would be 

kept strictly confidential. 

Understanding that larger, urbanbased hospitals (and those located in 

areas with area wage indexes greater 

than 1.0) are most likely to be impacted 

by the survey’s results, we used data on 

full-time equivalents (FTEs) to represent 

the sizes of hospitals and selected 

hospitals with probability proportional 

to their sizes across strata when drawing 

the full sample. Strata were formed by 

Census Region and Urban/Rural Status. 

The distributions of the hospital 

population, as well as weighted 

distributions for the responders, by 

Urban/Rural Status (including data on 

hospital size) and Census Region were 

as follows: 

All hospitals percent distribution 

& average FTE 

size 

Responding hospitals percent 

distribution & average FTE size 

Total ................................................................................................................................................................. 100%/994 100%/1,156 

Total Rurals ..................................................................................................................................................... 30%/388 25%/449 

Total Urbans .................................................................................................................................................... 70%/1,255 75%/1,460 

Total Northeast Region .................................................................................................................................... 15%/1,442 20%/1,078 

Total Mid-West Region .................................................................................................................................... 23%/1,062 24%/1,656 

Total South Region .......................................................................................................................................... 42%/843 37%/944 

Total West Region ........................................................................................................................................... 20%/899 19%/1,081 

Sample weights were calculated as 

the inverse of the selection probability 

and were subsequently adjusted for 

nonresponse bias by strata and poststratified to derive final weights. This 

type of application represents a 

common survey approach and is based 

on valid and widely-accepted statistical 

techniques. 

For the estimates of the nationwide 

proportion of nonmedical professional 

services fees purchased outside of the 

local labor market, we first examined 

the data on multiple levels. First, we 

found that fewer than 30 percent of the 

responding hospitals paid 100 percent 

of their professional fees to vendors 

located within their local labor market. 

Conversely, we found that roughly 20 

percent of responding hospitals reported 

81 percent or more of their professional 

services fees are paid to vendors located 

outside of their local labor market. 

In determining the specific and 

appropriate proportions of professional 

fees to consider labor-related and 

nonlabor-related, we generated 

weighted averages from the data in the 

following manner: 

• For any multiple choice answer 

where the standard error associated 

with the weighted counts for that 

answer was less than 30 percent, we 

multiplied the weighted counts 

associated with that answer by the 

midpoint of the range within that 

answer. For example, for Accounting 

and Auditing services, if a weighted 

count of 500 hospitals responded that 

they pay ‘‘1 to 20 percent’’ of their 

professional fees for these services to 

firms located outside of their local labor 

market, we would multiply 500 times 10 

percent. We repeat this for each possible 

multiple choice answer. 

• For any multiple choice answer 

where the standard error associated 

with the weighted counts for that 

answer exceeded 30 percent, we 

multiplied the weighted hospital counts 

by the low point of the range. Using a 

similar example as above, if a weighted 

count of 300 hospitals responded that 

they pay ‘‘1 to 20 percent’’ of their 

professional fees for these services to 

firms located outside of their local labor 

market, and the standard error on that 

estimate was greater than 30 percent, we 

would multiply 300 times 1 percent. 

• After applying one of these two 

techniques to each answer, dependent 

on its associated standard error, we took 

a weighted average of the results to 

determine the final proportion to be 

excluded from the labor-related share 

for each of the four types of professional 

services surveyed. 

We do not assume that access to 

professional services such as those 

included in this survey should be 

available to all hospitals within their 

respective local labor market and we 

understand that, in some cases, 

hospitals may have to obtain these 

services from vendors beyond those 

boundaries. However, for purposes of 

estimating the labor-related share of the 

market basket, in accordance with the 


sroberts on DSKD5P82C1PROD with RULES
43854 Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 

aforementioned section 1886(d)(3)(E)(i) 

of the Act, we have used the newly 

available empirical evidence to 

determine the wage and wage-related 

costs in the labor-related share that are 

incurred within the geographic location 

of the hospital itself. 

Comment: Several commenters 

questioned why CMS chose to conduct 

a survey to determine which proportion 

of professional fees is purchased in the 

local labor market when they could 

have conducted a study of Medicare 

cost reports for hospitals which, on line 

22.01 of Worksheet S–3, part II, contains 

hospitals’ average annual wage for 

professional services. In addition, one 

commenter suggested that instead of a 

survey, CMS should have proposed a 

change to the cost report in order to 

collect accurate data for all facilities. 

Response: The Medicare cost report 

data do provide an average hourly wage 

for administrative and general (A&G) 

services (including those professional 

services included in the CMS survey) 

under contract. However, the data do 

not distinguish whether these services 

were purchased in the local labor 

market. In addition, a comparison of the 

average hourly wage for A&G services 

performed by hospital staff (as reported 

in line 22 of Worksheet S–3, part II) and 

the average hourly wage for A&G 

services under contract (as reported on 

line 22.01 of Worksheet S–3, part II) 

would not be sufficient to determine 

whether the contracted services were 

purchased in the local or national labor 

market. The reason for this is that the 

average A&G wages reported for hospital 

staff could represent a different 

occupational mix than the average A&G 

wages under contract. For example, a 

hospital could choose to employ staff to 

perform their bookkeeping and tax 

preparation services, but contract out 

their legal services. The higher average 

annual wage rate for the contracted A&G 

services compared to the in-house A&G 

services would not necessarily be a 

result of purchasing services in differing 

geographic areas, but rather a reflection 

of the different skill-mix represented in 

each group. 

At the time this survey was initiated, 

it was not a viable option to alter the 

Medicare cost report in such a way as 

to collect this information due to the 

long periods of time between when the 

Medicare cost report questions are 

updated. 

Comment: One commenter stated that 

it is inappropriate to restrict the wage 

index adjustment to labor-related costs 

that vary with the local labor market 

without recognizing that there are 

significant nonlabor costs that vary with 

the local market, of which professional 

liability insurance is but one obvious 

example. The commenter cited a 

regression analysis which showed that 

85 percent of the variation in the 

estimated total unit costs of Medicare 

fee-for-service cases was explained by 

local input prices. 

Response: For purposes of estimating 

the labor-related share of the market 

basket, in accordance with the 

aforementioned section 1886(d)(3)(E)(i) 

of the Act, we include only wage and 

wage-related costs in that proportion. 

The law does not call for the inclusion 

of nonlabor-related costs to be included 

in the labor-related share. 

As described in the FY 2006 IPPS 

final rule (70 FR 47394), we previously 

performed regression analyses to 

reevaluate the assumptions used in 

determining the labor-related share. 

Using several regression specifications, 

we attempted to determine the 

proportion of costs that are influenced 

by the area wage index. We note that the 

results obtained for the relevant 

coefficients (roughly equivalent to the 

labor share) using the various 

specifications were less than 85 percent. 

Comment: Many commenters 

disagreed with CMS removing any 

portion of professional fees from the 

labor-related share. The commenters 

stated that CMS did not appear to take 

into account the prevailing wages of 

areas from which hospitals typically 

purchase professional fees. They believe 

that it is uncommon for hospitals to 

purchase professional services from 

firms located in areas with lower 

prevailing wages than their own wage 

area. Therefore, they claimed that CMS 

failed to recognize the premium that 

hospitals must pay professionals from 

similar or higher prevailing wage areas. 

Several commenters also believed that 

CMS’ assertion that a portion of 

professional fees is nonlabor-related is 

invalid because professional fees do, in 

fact, vary across regions and localities. 

The commenters indicated that even if 

a professional services firm is not based 

in the local area, professional fees are 

modified in response to local market 

factors. They added that rates and fees 

are set in a competitive market and must 

reflect the conditions of that market. In 

addition, several commenters stated that 

professional services are highly laborintensive and constitute a necessary 

business expense. Finally, one 

commenter indicated that even though 

these services may be purchased from 

another entity, they represent 

substitutes for hospital-employed staff 

and, thus, should be regarded by CMS 

as labor-related. 

Response: We disagree with the 

commenters’ assertion that CMS should 

include all professional fees in the 

labor-related share. We recognize that 

hospitals may often purchase 

professional services from geographic 

areas with higher prevailing wages than 

their own. We further recognize that the 

prices for these services vary across 

regions and localities and that the 

services themselves are labor-intensive. 

However, because we now have 

empirical evidence we can use to 

establish what portion of these 

professional fees are actually incurred 

in the local labor market, in accordance 

with section 1886(d)(3)(E)(i) of the Act, 

we are including only such wage and 

wage-related costs in the labor-related 

share. To the extent the evidence shows 

that the fees paid do not vary with, or 

are not influenced by, the local labor 

market, we are not including them in 

the labor-related share and are not 

subjecting them to the wage index 

adjustment. 

Comment: Several commenters stated 

that the proposed change to the laborrelated share will only affect hospitals 

in areas with a wage index over 1.0. 

However, the commenters claimed that 

these higher-wage hospitals are much 

more likely to hire professional firms 

that are actually located in their local 

labor market and, thus, are paying 

higher wages. The commenters stated 

that most urban areas have an excellent 

supply of professional services firms, 

thereby enabling urban hospitals to 

purchase such services from a local or 

regional market rather than a national 

market. In addition, some commenters 

claimed that this proposal will have an 

adverse effect on urban hospitals in 

general. One commenter stated that the 

proposed labor-related share reduction 

would most seriously affect large urban 

teaching hospitals. 

One commenter stated that CMS’ 

proposed change to the labor-related 

share is counter-intuitive to CMS’s 

policy goal and would actually dampen 

the sensitivity of the IPPS payment 

methodology to area wage variations. 

The commenter cited that academic 

medical centers located in large urban 

markets are the most likely hospitals to 

be in markets with substantial local 

competition for professional services— 

markets in which professional services 

fees are most likely to be influenced by 

local labor market conditions. The 

commenter stated that the proposed 

methodology premised on the 

assumption that 73 percent of home 

office costs reflect national average wage 

patterns produces a substantial 

downward payment bias for teaching 

hospitals. Thus, the commenter urged 

CMS to only use more recent data and 

hold all other aspects constant, which 


sroberts on DSKD5P82C1PROD with RULES
Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 43855 

would result in a labor-related share of 

72.1 percent. The commenter stated 

that, at a minimum, the current laborrelated share of 69.7 percent should be 

retained, pending further study and 

analysis. 

Response: We recognize that many 

hospitals could be affected differently 

by a change in the labor-related share. 

However, we believe the law calls for 

this proportion to be based on a national 

average and does not distinguish 

between types of hospitals for purposes 

of estimating or applying the laborrelated share. 

We disagree with the suggestions that 

the FY 2006-based market basket’s 

labor-related share should be set to 72.1 

percent (as a result of holding all other 

aspects constant from the FY 2002- 

based market basket) or that it should be 

held to its current 69.7 percent level. 

We believe that incorporating more 

recent data, as well as the results of our 

research, represents a technical 

improvement to the accuracy of the 

market basket. 

Comment: One commenter stated that 

in order for hospitals to become more 

efficient and cost effective, they often 

use contract employees. The commenter 

further stated that in order to obtain the 

best price and service, these employees 

are located outside the local labor 

market. The commenter claimed that 

disallowing these services to be 

included in the wage index survey 

would reduce their labor-related 

payment rate and not adequately 

reimburse for care of Medicare patients. 

Response: We do include direct 

patient contract labor expenses in the 

labor-related share of the IPPS market 

basket. These costs are included in the 

Wages & Salaries and Benefits cost 

weights. We only exclude from the 

labor-related share those contract labor 

costs associated with professional fees 

and home office costs that were 

purchased outside of the local labor 

market. As stated previously, the 

purpose of the labor-related share is to 

determine which portion of the 

standardized payment amount that is 

subject to the hospital wage index. 

Therefore, we define the labor-related 

share as those expenses that are laborintensive and vary with, or are 

influenced by, the local labor market. 

Comment: One commenter stated that 

without survey detail, they were unsure 

of CMS’ treatment of professional fees 

paid for by a home office. The 

commenter stated that currently CMS 

excludes this expense for wage index 

purposes as the ‘‘home office cost center 

is not included in the current definition 

of contract services for the wage index.’’ 

The commenter believed that this 

created an inconsistency among the 

independent hospitals, which can 

include the professional fee costs/hours 

while health systems cannot. The 

commenter asked CMS to comment on 

its treatment of professional fees paid 

for by a home office and its use of such 

data in its survey. 

Response: The CMS survey asked the 

responding hospitals to share what 

proportion of their professional services 

were purchased from vendors located 

beyond their local labor market. We 

expected that, irrespective of the 

mechanism of the purchase (that is, 

purchased directly by the hospital or 

purchased by the hospital’s home office 

on the hospital’s behalf), the approach 

to answering the questions remains the 

same. Therefore, we believe 

independent hospitals, as well as 

hospital groups, were captured 

appropriately. 

Comment: One commenter questioned 

the conclusion from CMS’ methodology, 

which implicitly assumes that the labor 

costs associated with ‘‘non-local’’ 

services, or those that are not adjusted 

at all for area wage variations, more 

closely reflects the national average than 

labor market conditions in the local area 

of the hospital receiving the services. 

The commenter described the market for 

professional services provided to 

hospitals as those that can be divided 

into the following categories: (1) Truly 

local firms whose clientele is comprised 

of the hospitals in a specific geographic 

area; (2) local offices of regional or 

national firms that will staff local 

assignments with some mix of local and 

non-local professionals; (3) firms that 

are ‘‘regional’’ in the sense of serving 

multiple geographic markets from a 

centralized location; and (4) truly 

national firms that operate nationwide 

from a single headquarters office and 

that serve local hospitals without 

assistance from locally based 

practitioners. The commenter claimed 

that CMS implicitly assumed that any 

firm that does not fall into the first 

category would experience labor costs 

indistinguishable from those that fall in 

the last category. However, the 

commenter stated that, in reality all 

such firms compete against each other 

in each local market. Therefore, the 

commenter added, local labor market 

conditions drive the prices local 

hospitals will pay for professional 

services even if those services wind up 

being rendered by professionals from 

out of town. The commenter stated that 

there is substantial regional variation in 

salaries paid to entry-level and earlycareer professionals who represent the 

lion’s share of the cost that will be 

billed to hospitals. The commenter 

concluded that a payment methodology 

premised on the notion of a national 

professional services market with 

uniform prices fails to reflect the reality 

of what hospitals pay for professional 

services. The commenter also states that 

CMS did not disclose how professional 

services firms were identified as being 

‘‘national’’ firms in its survey. The 

commenter believed that determining 

the location of a contract based on the 

mailing address of the contractor could 

materially understate the volume of 

services rendered by national or 

regional firms with a local presence, 

which would be fully subject to local 

labor market conditions. Thus, the 

commenter concluded the effect of 

reducing the labor-related share would 

be to dampen the sensitivity of the IPPS 

payment methodology to area wage 

variations. 

Response: We recognize that fees paid 

for professional services provided by 

firms not located in the same local labor 

market as the hospital may be 

purchased in local labor markets and 

not always in a national market. 

However, given that we now have 

empirical evidence that can be used to 

estimate the portion of costs that varies 

based on the local labor market, we 

believe it is in keeping with section 

1886(d)(3)(E)(i) of the Act to only assign 

that portion that does vary to the laborrelated share. Section 1886(d)(3)(E)(i) of 

the Act states that ‘‘in general.—Except 

as provided in clause (ii), 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 

computed under subparagraph (D) 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.’’ 

Comment: One commenter stated that 

the treatment of contract labor has a 

direct influence on the labor-related 

share, which in turn affects the area 

wage index adjusted portion of the 

payments. Conversely, the commenter 

stated, because the labor-related share 

now includes accounting and auditing 

services, it is not clear whether the data 

currently used to develop the area wage 

index are inclusive of the costs for 

accounting and auditing because 

consideration of these costs for area 

wage index purposes is only a current 

CMS wage data policy convention. 

Therefore, the commenter added, there 

could be a mismatch between the data 

CMS is using for the labor-related share 


sroberts on DSKD5P82C1PROD with RULES
43856 Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 

determination and the data CMS utilizes 

for developing the area wage index. 

Response: We are not changing our 

methodology on how contract labor 

costs are included in the IPPS market 

basket. As has been done historically, 

the market basket includes all contract 

labor services purchased by the 

hospital. Direct patient contract labor 

costs are included in the Wage & 

Salaries and Benefits cost weights, 

whereas other nondirect patient contract 

labor costs are represented in the other 

cost weights. 

Also, we interpret the commenter’s 

statement to imply that accounting and 

auditing services were previously 

excluded from the labor-related share. 

Historically, 100 percent of the 

accounting and auditing services 

expenses were included in the laborrelated share. We proposed to only 

include 66 percent of the accounting 

and auditing costs in the labor-related 

share because the remaining 34 percent 

of these costs were determined to have 

been purchased outside of the local 

labor market. 

With respect to a possible mismatch 

between the labor-related share and the 

area wage index, data from Worksheet 

S–3, part II, of the Medicare cost report 

are used to estimate both. Those data 

provide information on wage and wagerelated costs incurred by the hospital 

but are not detailed enough to 

distinguish between costs incurred via 

purchase and costs incurred via direct 

hire. In estimating the labor-related 

share, we incorporate data from other 

data sources to supplement the 

Medicare cost report data to more 

accurately capture and apportion wage 

and wage-related costs that are 

purchased. 

Comment: One commenter questioned 

whether the proposed revision of the 

labor-related share of the operating IPPS 

rates would affect the capital IPPS 

geographic adjustment factor (GAF), 

which is derived from the hospital wage 

index. The commenter requested that 

CMS review whether the formula used 

to determine the capital GAF should be 

revised based on the update of the 

operating IPPS labor-related share. 

Response: In determining payments 

under the capital IPPS, the capital rate 

is adjusted for differences in local cost 

variations by a factor (the GAF) that is 

equal to the hospital’s applicable wage 

index raised to the 0.6848 power 

(§ 412.316(a) of our regulations). The 

formula for the GAF was developed 

using a regression analysis and the 

exponential form of this factor is used 

in order to apply a single factor to the 

entire capital rate rather than splitting 

the capital rate into labor-related share 

and nonlabor-related share (56 FR 

43375). The formula for the GAF is 

independent of the operating IPPS 

labor-related share and, therefore, 

requires no adjustment based on the 

revision of the operating IPPS laborrelate share. The GAF will continue to 

be computed as the hospital’s applicable 

wage index raised to the 0.6848 power. 

After consideration of the public 

comments received, in this final rule, 

we are revising our labor-related share 

that we proposed in the FY 2010 IPPS/ 

RY 2010 LTCH PPS proposed rule (74 

FR 24159–24161) to incorporate a 

revision to our methodology for 

allocating NAICS 55 expenses to the 

labor-related share. 

Below is a chart comparing the FY 

2006-based labor-related share and the 

FY 2002-based labor-related share. 

CHART 5—COMPARISON OF THE FY 2006-BASED LABOR-RELATED SHARE AND THE FY 2002-BASED LABOR-RELATED

SHARE

FY 2002-based 

market basket 

cost weights 

FY 2006-based 

market basket 

cost weights 

Wages and Salaries ........................................................................................................................................ 48.171 47.213 

Employee Benefits ........................................................................................................................................... 11.822 12.414 

Professional Fees: Labor-Related ................................................................................................................... 5.510 5.356 

Administrative and Business Support Services ............................................................................................... ............................ 0.626 

All Other: Labor-Related Services ................................................................................................................... 4.228 3.193 

Total Labor-Related Share ....................................................................................................................... 69.731 68.802 

Using the cost category weights from 

the FY 2006-based IPPS market basket, 

we calculated a labor-related share of 

68.802 percent, approximately 0.9 

percentage points lower than the current 

labor-related share of 69.731. 

We continue to believe, as we have 

stated in the past, that these operating 

cost categories are related to, influenced 

by, or vary with the local markets. 

Therefore, our definition of the laborrelated share continues to be consistent 

with section 1886(d)(3) of the Act. 

Using the cost category weights that 

we determined in section IV.B.1. of this 

preamble, we calculated a labor-related 

share of 68.802 percent, using the FY 

2006-based IPPS market basket. 

Accordingly, we are implementing a 

labor-related share of 68.8 percent for 

discharges occurring on or after October 

1, 2009. 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 laborrelated share unless this employment 

‘‘would result in lower payments than 

would otherwise be made.’’ 

As we proposed, we also are updating 

the labor-related share for Puerto Rico. 

Consistent with our methodology for 

determining the national labor-related 

share, we add the Puerto Rico-specific 

relative weights for wages and salaries, 

employee benefits, and contract labor. 

Because there are no Puerto Ricospecific relative weights for professional 

fees and labor intensive services, we use 

the national weights. 

Below is a chart comparing the FY 

2006-based Puerto Rico-specific laborrelated share and the FY 2002-based 

Puerto Rico-specific labor-related share. 


sroberts on DSKD5P82C1PROD with RULES
Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 43857 

CHART 6—COMPARISON OF THE FY 2006-BASED PUERTO RICO-SPECIFIC LABOR-RELATED SHARE AND FY 2002-BASED

PUERTO RICO-SPECIFIC LABOR-RELATED SHARE

FY 2002-based 

market basket 

cost weights 

FY 2006-based 

market basket 

cost weights 

Wages and Salaries ........................................................................................................................................ 40.201 44.221 

Benefits ............................................................................................................................................................ 8.782 8.691 

Professional Fees: Labor-Related ................................................................................................................... 5.510 5.356 

Administrative and Business Support Services ............................................................................................... ............................ 0.626 

All Other: Labor-Related Services ................................................................................................................... 4.228 3.193 

Total Labor-Related Share ....................................................................................................................... 58.721 62.087 

Using the FY 2006-based Puerto Rico 

cost category weights, we calculated a 

labor-related share of 62.087 percent, 

approximately 3.4 percentage points 

higher than the current Puerto-Rico 

specific labor-related share of 58.721. 

Accordingly, we are adopting an 

updated Puerto Rico labor-related share 

of 62.1 percent. 

C. Separate Market Basket for Certain 

Hospitals Presently Excluded from the 

IPPS 

In the FY 2006 IPPS final rule (70 FR 

47396), we adopted the use of the FY 

2002-based IPPS operating market 

basket to update the target amounts for 

children’s and cancer hospitals and 

religious nonmedical health care 

institutions (RNHCIs). Children’s and 

cancer hospitals and RNHCIs are still 

reimbursed solely under the reasonable 

cost-based system, subject to the rate-ofincrease limits. Under these limits, an 

annual target amount (expressed in 

terms of the inpatient operating cost per 

discharge) is set for each hospital based 

on the hospital’s own historical cost 

experience trended forward by the 

applicable rate-of-increase percentages. 

As we proposed (74 FR 24161), under 

the broad authority in sections 

1886(b)(3)(A) and (B), 1886(b)(3)(E), and 

1871 of the Act and section 4454 of the 

BBA, consistent with our use of the 

IPPS operating market basket percentage 

increase to update target amounts, we 

are using the FY 2006-based IPPS 

operating market basket percentage 

increase to update the target amounts 

for children’s and cancer hospitals and 

RNHCIs. 

Due to the small number of children’s 

and cancer hospitals and RNHCIs that 

receive, in total, less than 1 percent of 

all Medicare payments to hospitals and 

because these hospitals provide limited 

Medicare cost report data, we are unable 

to create a separate market basket 

specifically for these hospitals. Based on 

the limited data available, we believe 

that the FY 2006-based IPPS operating 

market basket most closely represents 

the cost structure of children’s and 

cancer hospitals and RNHCIs. Therefore, 

we believe that the percentage change in 

the FY 2006-based IPPS operating 

market basket is the best available 

measure of the average increase in the 

prices of the goods and services 

purchased by cancer and children’s 

hospitals and RNHCIs in order to 

provide care. 

We did not receive any public 

comments on the provisions of this 

section. 

D. Rebasing and Revising the Capital 

Input Price Index (CIPI) 

The CIPI was originally described in 

the FY 1993 IPPS final rule (57 FR 

40016). There have been subsequent 

discussions of the CIPI presented in the 

IPPS proposed and final payment rules. 

The FY 2006 IPPS final rule (70 FR 

47387) discussed the most recent 

rebasing and revision of the CIPI to a FY 

2002 base year, which reflected the 

capital cost structure of the hospital 

industry in that year. 

As we proposed in the FY 2010 IPPS/ 

RY 2010 LTCH PPS proposed rule (74 

FR 24161), we are rebasing and revising 

the CIPI to a FY 2006 base year to reflect 

the more current structure of capital 

costs in hospitals. As with the FY 2002- 

based index, we developed two sets of 

weights in order to calculate the FY 

2006-based CIPI. The first set of weights 

identifies the proportion of hospital 

capital expenditures attributable to each 

expenditure category, while the second 

set of weights is a set of relative vintage 

weights for depreciation and interest. 

The set of vintage weights is used to 

identify the proportion of capital 

expenditures within a cost category that 

is attributable to each year over the 

useful life of the capital assets in that 

category. A more thorough discussion of 

vintage weights is provided later in this 

section. 

Both sets of weights are developed 

using the best data sources available. In 

reviewing source data, we determined 

that the Medicare cost reports provided 

accurate data for all capital expenditure 

cost categories. We used the FY 2006 

Medicare cost reports for IPPS hospitals 

to determine weights for all three cost 

categories: depreciation, interest, and 

other capital expenses. 

Lease expenses are unique in that 

they are not broken out as a separate 

cost category in the CIPI, but rather are 

proportionally distributed among the 

cost categories of depreciation, interest, 

and other, reflecting the assumption that 

the underlying cost structure of leases is 

similar to that of capital costs in general. 

As was done in previous rebasings of 

the CIPI, we first assumed 10 percent of 

lease expenses represents overhead and 

assigned them to the other capital 

expenses cost category accordingly. The 

remaining lease expenses were 

distributed across the three cost 

categories based on the respective 

weights of depreciation, interest, and 

other capital not including lease 

expenses. 

Depreciation contains two 

subcategories: (1) Building and fixed 

equipment; and (2) movable equipment. 

The apportionment between building 

and fixed equipment and movable 

equipment was determined using the 

Medicare cost reports. This 

methodology was also used to compute 

the apportionment used in the FY 2002- 

based index. 

The total interest expense cost 

category is split between government/ 

nonprofit interest and for-profit interest. 

The FY 2002-based CIPI allocated 75 

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 25 percent of the interest cost 

weight was allocated to for-profit 

interest and was proxied by the average 

yield on Moody’s Aaa bonds (70 FR 

47387). 

For this rebasing, we derived the split 

using the relative FY 2006 Medicare 

cost report data on interest expenses for 

government/nonprofit and for-profit 

hospitals. Based on these data, we 

calculated an 85/15 split between 


sroberts on DSKD5P82C1PROD with RULES
43858 Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 

government/nonprofit and for-profit 

interest. We believe it is important that 

this split reflects the latest relative cost 

structure of interest expenses. 

Chart 7 presents a comparison of the 

FY 2006-based CIPI cost weights and the 

FY 2002-based CIPI cost weights. 

CHART 7—FY 2006-BASED CIPI COST CATEGORIES, WEIGHTS, AND PRICE PROXIES WITH FY 2002-BASED CIPI 

INCLUDED FOR COMPARISON

Cost categories FY 2002 

weights 

FY 2006 

weights Price proxy 

Total .................................................... 100 .00 100 .00 

Total depreciation ............................... 74 .583 75 .154 

Building and fixed equipment depreciation.36 .234 35 .789 BEA chained price index for nonresidential construction for hospitals and 

special care facilities—vintage weighted (25 years). 

Movable equipment depreciation ....... 38 .349 39 .365 PPI for machinery and equipment—vintage weighted (12 years). 

Total interest ....................................... 19 .863 17 .651 

Government/nonprofit interest ............ 14 .896 15 .076 Average yield on domestic municipal bonds (Bond Buyer 20 bonds)—vintage-weighted (25 years). 

For-profit interest ................................ 4 .967 2 .575 Average yield on Moody’s Aaa bonds—vintage-weighted (12 years). 

Other ................................................... 5 .554 7 .195 CPI–U for residential rent. 

Because capital is acquired and paid 

for over time, capital expenses in any 

given year are determined by both past 

and present purchases of physical and 

financial capital. The vintage-weighted 

CIPI is intended to capture the longterm consumption of capital, using 

vintage weights for depreciation 

(physical capital) and interest (financial 

capital). These vintage weights reflect 

the proportion of capital purchases 

attributable to each year of the expected 

life of building and fixed equipment, 

movable equipment, and interest. We 

used the vintage weights to compute 

vintage-weighted price changes 

associated with depreciation and 

interest expense. Following publication 

of the FY 2010 IPPS/RY 2010 LTCH PPS 

proposed rule, and in order to provide 

greater transparency, we posted on the 

CMS market basket Web page at: 

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

MedicareProgramRatesStats/ 

05_MarketBasketResearch 

.asp#TopOfPage an illustrative 

spreadsheet that contains an example of 

how the vintage-weighted price indexes 

are calculated. 

Vintage weights are an integral part of 

the CIPI. Capital costs are inherently 

complicated and are determined by 

complex capital purchasing decisions, 

over time, based on such factors as 

interest rates and debt financing. In 

addition, capital is depreciated over 

time instead of being consumed in the 

same period it is purchased. The CIPI 

accurately reflects the annual price 

changes associated with capital costs, 

and is a useful simplification of the 

actual capital investment process. By 

accounting for the vintage nature of 

capital, we are able to provide an 

accurate, stable annual measure of price 

changes. Annual nonvintage price 

changes for capital are unstable due to 

the volatility of interest rate changes 

and, therefore, do not reflect the actual 

annual price changes for Medicare 

capital-related costs. The CIPI reflects 

the underlying stability of the capital 

acquisition process and provides 

hospitals with the ability to plan for 

changes in capital payments. 

To calculate the vintage weights for 

depreciation and interest expenses, we 

needed a time series of capital 

purchases for building and fixed 

equipment and movable equipment. We 

found no single source that provides a 

uniquely best time series of capital 

purchases by hospitals for all of the 

above components of capital purchases. 

The early Medicare cost reports did not 

have sufficient capital data to meet this 

need. Data we obtained from the 

American Hospital Association (AHA) 

do not include annual capital 

purchases. However, AHA does provide 

a consistent database back to 1963. We 

used data from the AHA Panel Survey 

and the AHA Annual Survey to obtain 

a time series of total expenses for 

hospitals. We then used data from the 

AHA Panel Survey supplemented with 

the ratio of depreciation to total hospital 

expenses obtained from the Medicare 

cost reports to derive a trend of annual 

depreciation expenses for 1963 through 

2006. 

In order to estimate capital purchases 

using data on depreciation expenses, the 

expected life for each cost category 

(building and fixed equipment, movable 

equipment, and interest) is needed to 

calculate vintage weights. We used FY 

2006 Medicare cost reports to determine 

the expected life of building and fixed 

equipment and of movable equipment. 

The expected life of any piece of 

equipment can be determined by 

dividing the value of the asset 

(excluding fully depreciated assets) by 

its current year depreciation amount. 

This calculation yields the estimated 

useful life of an asset if depreciation 

were to continue at current year levels, 

assuming straight-line depreciation. 

From the FY 2006 Medicare cost 

reports, the expected life of building 

and fixed equipment was determined to 

be 25 years, and the expected life of 

movable equipment was determined to 

be 12 years. The FY 2002-based CIPI 

was based on an expected life of 

building and fixed equipment of 23 

years. It used 11 years as the expected 

life for movable equipment. 

As we proposed, we used the building 

and fixed equipment and movable 

equipment weights derived from FY 

2006 Medicare cost reports to separate 

the depreciation expenses into annual 

amounts of building and fixed 

equipment depreciation and movable 

equipment depreciation (74 FR 24162). 

Year-end asset costs for building and 

fixed equipment and movable 

equipment were determined by 

multiplying the annual depreciation 

amounts by the expected life 

calculations from the FY 2006 Medicare 

cost reports. We then calculated a time 

series back to 1963 of annual capital 

purchases by subtracting the previous 

year asset costs from the current year 

asset costs. From this capital purchase 

time series, we were able to calculate 

the vintage weights for building and 

fixed equipment and for movable 

equipment. Each of these sets of vintage 

weights is explained in more detail 

below. 

For building and fixed equipment 

vintage weights, we used the real annual 

capital purchase amounts for building 

and fixed equipment to capture the 

actual amount of the physical 

acquisition, net of the effect of price 

inflation. This real annual purchase 

amount for building and fixed 

equipment was produced by deflating 

the nominal annual purchase amount by 


sroberts on DSKD5P82C1PROD with RULES
Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 43859 

the building and fixed equipment price 

proxy, BEA’s chained price index for 

nonresidential construction for 

hospitals and special care facilities. 

Because building and fixed equipment 

have an expected life of 25 years, the 

vintage weights for building and fixed 

equipment are deemed to represent the 

average purchase pattern of building 

and fixed equipment over 25-year 

periods. With real building and fixed 

equipment purchase estimates available 

back to 1963, we averaged nineteen 25- 

year periods to determine the average 

vintage weights for building and fixed 

equipment that are representative of 

average building and fixed equipment 

purchase patterns over time. Vintage 

weights for each 25-year period are 

calculated by dividing the real building 

and fixed capital purchase amount in 

any given year by the total amount of 

purchases in the 25-year period. This 

calculation is done for each year in the 

25-year period, and for each of the 

nineteen 25-year periods. We used the 

average of each year across the nineteen 

25-year periods to determine the average 

building and fixed equipment vintage 

weights for the FY 2006-based CIPI. 

For movable equipment vintage 

weights, the real annual capital 

purchase amounts for movable 

equipment were used to capture the 

actual amount of the physical 

acquisition, net of price inflation. This 

real annual purchase amount for 

movable equipment was calculated by 

deflating the nominal annual purchase 

amounts by the movable equipment 

price proxy, the PPI for machinery and 

equipment. Based on our determination 

that movable equipment has an 

expected life of 12 years, the vintage 

weights for movable equipment 

represent the average expenditure for 

movable equipment over a 12-year 

period. With real movable equipment 

purchase estimates available back to 

1963, thirty-two 12-year periods were 

averaged to determine the average 

vintage weights for movable equipment 

that are representative of average 

movable equipment purchase patterns 

over time. Vintage weights for each 12- 

year period are calculated by dividing 

the real movable capital purchase 

amount for any given year by the total 

amount of purchases in the 12-year 

period. This calculation was done for 

each year in the 12-year period and for 

each of the thirty-two 12-year periods. 

We used the average of each year across 

the thirty-two 12-year periods to 

determine the average movable 

equipment vintage weights for the FY 

2006-based CIPI. 

For interest vintage weights, the 

nominal annual capital purchase 

amounts for total equipment (building 

and fixed, and movable) were used to 

capture the value of the debt 

instrument. Because we have 

determined that hospital debt 

instruments have an expected life of 25 

years, the vintage weights for interest 

are deemed to represent the average 

purchase pattern of total equipment 

over 25-year periods. With nominal total 

equipment purchase estimates available 

back to 1963, nineteen 25-year periods 

were averaged to determine the average 

vintage weights for interest that are 

representative of average capital 

purchase patterns over time. Vintage 

weights for each 25-year period are 

calculated by dividing the nominal total 

capital purchase amount for any given 

year by the total amount of purchases in 

the 25-year period. This calculation is 

done for each year in the 25-year period 

and for each of the nineteen 25-year 

periods. We used the average of each 

year across the nineteen 25-year periods 

to determine the average interest vintage 

weights for the FY 2006-based CIPI. 

The vintage weights for the FY 2002- 

based CIPI and the FY 2006-based CIPI 

are presented in Chart 8. 

CHART 8—FY 2002 VINTAGE WEIGHTS AND FY 2006 VINTAGE WEIGHTS FOR CAPITAL-RELATED PRICE PROXIES

Year 

Building and fixed equipment Movable equipment Interest 

FY 2002 

23 years 

FY 2006 

25 years 

FY 2002 

11 years 

FY 2006 

12 years 

FY 2002 

23 years 

FY 2006 

25 years 

1 ............................................................... 0.021 0.021 0.065 0.063 0.010 0.010 

2 ............................................................... 0.022 0.023 0.071 0.067 0.012 0.012 

3 ............................................................... 0.025 0.025 0.077 0.071 0.014 0.014 

4 ............................................................... 0.027 0.027 0.082 0.075 0.016 0.016 

5 ............................................................... 0.029 0.029 0.086 0.079 0.019 0.018 

6 ............................................................... 0.031 0.031 0.091 0.082 0.023 0.020 

7 ............................................................... 0.033 0.032 0.095 0.085 0.026 0.023 

8 ............................................................... 0.035 0.033 0.100 0.086 0.029 0.025 

9 ............................................................... 0.038 0.036 0.106 0.090 0.033 0.028 

10 ............................................................. 0.040 0.038 0.112 0.093 0.036 0.031 

11 ............................................................. 0.042 0.040 0.117 0.102 0.039 0.034 

12 ............................................................. 0.045 0.042 ........................ 0.106 0.043 0.038 

13 ............................................................. 0.047 0.044 ........................ ........................ 0.048 0.041 

14 ............................................................. 0.049 0.045 ........................ ........................ 0.053 0.044 

15 ............................................................. 0.051 0.046 ........................ ........................ 0.056 0.047 

16 ............................................................. 0.053 0.047 ........................ ........................ 0.059 0.050 

17 ............................................................. 0.056 0.048 ........................ ........................ 0.062 0.053 

18 ............................................................. 0.057 0.050 ........................ ........................ 0.064 0.057 

19 ............................................................. 0.058 0.050 ........................ ........................ 0.066 0.059 

20 ............................................................. 0.060 0.050 ........................ ........................ 0.070 0.060 

21 ............................................................. 0.060 0.048 ........................ ........................ 0.071 0.060 

22 ............................................................. 0.061 0.048 ........................ ........................ 0.074 0.062 

23 ............................................................. 0.061 0.047 ........................ ........................ 0.076 0.063 

24 ............................................................. ........................ 0.049 ........................ ........................ ........................ 0.068 

25 ............................................................. ........................ 0.048 ........................ ........................ ........................ 0.069 

Total .................................................. 1.000 1.000 1.000 1.000 1.000 1.000 

Note: Detail may not add to total due to rounding. 


sroberts on DSKD5P82C1PROD with RULES
43860 Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 

After the capital cost category weights 

were computed, it was necessary to 

select appropriate price proxies to 

reflect the rate-of-increase for each 

expenditure category. As we proposed, 

in this final rule, we used the same price 

proxies for the FY 2006-based CIPI that 

were used in the FY 2002-based CIPI, 

with the exception of the Boeckh 

Construction Index (74 FR 24164). We 

replaced the Boeckh Construction Index 

with BEA’s chained price index for 

nonresidential construction for 

hospitals and special care facilities. The 

BEA index represents construction of 

facilities such as hospitals, nursing 

homes, hospices, and rehabilitation 

centers. Although these price indices 

move similarly over time, we believe 

that it is more technically appropriate to 

use an index that is more specific to the 

hospital industry. We believe these are 

the most appropriate proxies for 

hospital capital costs that meet our 

selection criteria of relevance, 

timeliness, availability, and reliability. 

The rationale for selecting the price 

proxies, excluding the building and 

fixed equipment price proxy, was 

explained more fully in the FY 1997 

IPPS final rule (61 FR 46196). 

The price proxies are presented in 

Chart 7. 

Chart 9 below compares both the 

historical and forecasted percent 

changes in the FY 2002-based CIPI and 

the FY 2006-based CIPI. 

CHART 9—COMPARISON OF FY 2002- 

BASED AND FY 2006-BASED CAPITAL INPUT PRICE INDEX, PERCENT

CHANGE, FY 2004 THROUGH FY 

2012 

Fiscal year 

CIPI, 

FY 2002- 

based 

CIPI, 

FY 2006- 

based 

FY 2004 ................ 0.5 0.8 

FY 2005 ................ 0.6 0.9 

FY 2006 ................ 0.9 1.1 

FY 2007 ................ 1.2 1.3 

FY 2008 ................ 1.4 1.4 

Forecast: 

FY 2009 ............ 1.7 1.5 

FY 2010 ............ 1.5 1.2 

CHART 9—COMPARISON OF FY 2002- 

BASED AND FY 2006-BASED CAPITAL INPUT PRICE INDEX, PERCENT

CHANGE, FY 2004 THROUGH FY 

2012—Continued 

Fiscal year 

CIPI, 

FY 2002- 

based 

CIPI, 

FY 2006- 

based 

FY 2011 ................ 1.4 1.3 

FY 2012 ................ 1.6 1.4 

Average: 

FYs 2004–2008 0.9 1.1 

FYs 2009–2012 1.6 1.4 

Source: IHS Global Insight, Inc, 2nd Quarter 2009; USMACRO/CONTROL0609@

CISSIM/TL0509.SIM. 

IHS Global Insight, Inc. forecasts a 1.2 

percent increase in the FY 2006-based 

CIPI for FY 2010, as shown in Chart 9. 

The underlying vintage-weighted price 

increases for depreciation (including 

building and fixed equipment and 

movable equipment) and interest 

(including government/nonprofit and 

for-profit) are included in Chart 10. 

CHART 10—CMS CAPITAL INPUT PRICE INDEX PERCENT CHANGES, TOTAL AND DEPRECIATION AND INTEREST

COMPONENTS, FYS 2004 THROUGH 2012 

Fiscal year Total Depreciation Interest 

FY 2004 ....................................................................................................................................... 0.8 1.5 ¥2.6 

FY 2005 ....................................................................................................................................... 0.9 1.7 ¥3.1 

FY 2006 ....................................................................................................................................... 1.1 2.0 ¥3.2 

FY 2007 ....................................................................................................................................... 1.3 2.1 ¥3.4 

FY 2008 ....................................................................................................................................... 1.4 2.1 ¥2.6 

Forecast: 

FY 2009 ................................................................................................................................ 1.5 2.1 ¥2.0 

FY 2010 ................................................................................................................................ 1.2 1.8 ¥2.1 

FY 2011 ................................................................................................................................ 1.3 1.7 ¥1.4 

FY 2012 ................................................................................................................................ 1.4 1.7 ¥0.7 

Source:IHS Global Insight, Inc, 2nd Quarter 2009; USMACRO/CONTROL0609@CISSIM/TL0509.SIM. 

Rebasing the CIPI from FY 2002 to FY 

2006 decreased the percent change in 

the FY 2010 forecast by 0.3 percentage 

point, from 1.5 to 1.2, as shown in Chart 

9. The difference in the forecast of the 

FY 2010 market basket increase is 

primarily due to the proposed change in 

the price proxy for building and fixed 

equipment as well as the proposed 

change in the vintage weights applied to 

the price proxy for interest. As 

mentioned above, we are changing the 

price proxy used for building and fixed 

equipment to BEA’s chained price index 

for nonresidential construction for 

hospitals and special care facilities. We 

believe this change represents a 

technical improvement as the BEA price 

index is an index that is more 

representative of the hospital industry. 

For the FY 2010 update, the result of 

this change is a forecasted price change 

in total depreciation of 1.8 percent in 

the FY 2006-based CIPI compared to 2.0 

percent in the FY 2002-based CIPI. The 

other primary factor contributing to the 

difference is the change in the vintage 

weights used to calculate the vintageweighted price proxy for interest. The 

forecasted price change in total interest 

is ¥2.1 percent in the FY 2006-based 

CIPI compared to ¥1.5 percent in the 

FY 2002-based CIPI. This is a result of 

changing the expected life of hospital 

debt instruments from 23 years to 25 

years. We did not receive any public 

comments on our proposed 

methodological changes to the capital 

input price index published in the FY 

2010 IPPS/RY 2010 LTCH PPS proposed 

rule (74 FR 24154). Therefore, we are 

adopting as final, without modification, 

the proposed FY 2006-based CIPI for FY 

2010 in this final rule. 

V. Other Decisions and Changes to the 

IPPS for Operating Costs and GME 

Costs 

A. Reporting of Hospital Quality Data 

for Annual Hospital Payment Update 

1. Background 

a. Overview 

CMS is seeking to promote higher 

quality and more efficient health care 

for Medicare beneficiaries. This effort is 

supported by the adoption of an 

increasing number of widely-agreed 

upon quality measures. CMS has 

worked with relevant stakeholders to 

define measures of quality in almost 

every setting and currently measures 

some aspect of care for almost all 

Medicare beneficiaries. These measures 

assess structural aspects of care, clinical 

processes, patient experiences with 

care, and, increasingly, outcomes. 


sroberts on DSKD5P82C1PROD with RULES
Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 43861 

8 Institute of Medicine, ‘‘Performance 

Measurement: Accelerating Improvement,’’ 

December 1, 2005, available at: http:// 

www.iom.edu/CMS/3809/19805/31310.aspx. IOM 

set forth these baseline measures in a November 

2005 report. However, the IOM report was not 

released until December 1, 2005 on the IOM Web 

site. 

9Structural measures assess characteristics linked 

to the capacity of the provider to deliver quality 

healthcare. Institute of Medicine: Division of Health 

Care Services. Measuring the Quality of Health 

Care: A Statement by the National Roundtable on 

Healthcare Quality. National Academy Press; 

Washington, DC 1999. 

CMS has implemented quality 

measure reporting programs for multiple 

settings of care. The Reporting Hospital 

Quality Data for Annual Payment 

Update (RHQDAPU) program 

implements a quality reporting program 

for hospital inpatient services. In 

addition, CMS has implemented quality 

reporting programs for hospital 

outpatient services, the Hospital 

Outpatient Quality Data Reporting 

Program (HOP QDRP), and for 

physicians and other eligible 

professionals, the Physician Quality 

Reporting Initiative (PQRI). CMS has 

also implemented quality reporting 

programs for home health agencies and 

skilled nursing facilities that are based 

on conditions of participation, and an 

end-stage renal disease quality reporting 

program that is based on conditions for 

coverage. 

b. Hospital Quality Data Reporting 

Under Section 501(b) of Public Law 

108–173 

Section 501(b) of the Medicare 

Prescription Drug, Improvement, and 

Modernization Act of 2003 (MMA), 

Public Law 108–173, added section 

1886(b)(3)(B)(vii) to the Act. This 

section established the authority for the 

RHQDAPU program and revised the 

mechanism used to update the 

standardized payment amount for 

inpatient hospital operating costs. 

Specifically, section 1886(b)(3)(B)(vii)(I) 

of the Act, before it was amended by 

section 5001(a) of Public Law 109–171, 

provided for a reduction of 0.4 

percentage points to the update 

percentage increase (also known as the 

market basket update) for FY 2005 

through FY 2007 for any subsection (d) 

hospital that did not submit data on a 

set of 10 quality indicators established 

by the Secretary as of November 1, 2003. 

It also provides that any reduction 

would apply only to the fiscal year 

involved, and would not be taken into 

account in computing the applicable 

percentage increase for a subsequent 

fiscal year. The statute thereby 

established an incentive for IPPS 

hospitals to submit data on the quality 

measures established by the Secretary, 

and also built upon the previously 

established Voluntary Hospital Quality 

Data Reporting Program that we 

described in the FY 2009 IPPS final rule 

(73 FR 48598). 

We implemented section 

1886(b)(3)(B)(vii) of the Act in the FY 

2005 IPPS final rule (69 FR 49078) and 

codified the applicable percentage 

change in § 412.64(d) of our regulations. 

We adopted additional requirements 

under the RHQDAPU program in the FY 

2006 IPPS final rule (70 FR 47420). 

c. Hospital Quality Data Reporting 

under Section 5001(a) of Public Law 

109–171 

Section 5001(a) of the Deficit 

Reduction Act of 2005 (DRA), Public 

Law 109–171, further amended section 

1886(b)(3)(B) of the Act to revise the 

mechanism used to update the 

standardized payment amount for 

hospital inpatient operating costs, in 

particular, by adding new section 

1886(b)(3)(B)(viii) to the Act. 

Specifically, sections 

1886(b)(3)(B)(viii)(I) and (II) of the Act 

provide that the payment update for FY 

2007 and each subsequent fiscal year be 

reduced by 2.0 percentage points for any 

subsection (d) hospital that does not 

submit quality data in a form and 

manner, and at a time, specified by the 

Secretary. Section 1886(b)(3)(B)(viii)(I) 

of the Act also provides that any 

reduction in a hospital’s payment 

update will apply only with respect to 

the fiscal year involved, and will not be 

taken into account for computing the 

applicable percentage increase for a 

subsequent fiscal year. In the FY 2007 

IPPS final rule (71 FR 48045), we 

amended our regulations at 

§ 412.64(d)(2) to reflect the 2.0 

percentage point reduction in the 

payment update for FY 2007 and 

subsequent fiscal years for subsection 

(d) hospitals that do not comply with 

requirements for reporting quality data, 

as provided for under section 

1886(b)(3)(B)(viii) of the Act. 

(1) Quality Measures 

Section 1886(b)(3)(B)(viii)(III) of the 

Act requires that the Secretary expand 

the ‘‘starter set’’ of 10 quality measures 

that was established by the Secretary as 

of November 1, 2003, as the Secretary 

determines to be appropriate for the 

measurement of the quality of care 

furnished by a hospital in inpatient 

settings. In expanding this set of 

measures, section 1886(b)(3)(B)(viii)(IV) 

of the Act requires that, effective for 

payments beginning with FY 2007, the 

Secretary begin to adopt the baseline set 

of performance measures as set forth in 

a report issued by the Institute of 

Medicine (IOM) of the National 

Academy of Sciences under section 

238(b) of Public Law 108–173.8

The IOM measures include: 21 

Hospital Quality Alliance (HQA) quality 

measures (including the ‘‘starter set’’ of 

10 quality measures); the Hospital 

Consumer Assessment of Health 

Providers and Systems (HCAHPS) 

patient experience of care survey; and 3 

structural measures.9 The structural 

measures are: (1) Adoption of 

computerized provider order entry for 

prescriptions; (2) staffing of intensive 

care units with intensivists; and (3) 

evidence-based hospital referrals. These 

structural measures constitute the 

Leapfrog Group’s original ‘‘three leaps,’’ 

and are part of the National Quality 

Forum’s (NQF’s) 30 Safe Practices for 

Better Healthcare. The HCAHPS survey 

is part of the Consumer Assessment of 

Healthcare Providers and Systems 

(CAHPS) program, which develops and 

supports the use of a comprehensive 

and evolving family of standardized 

surveys that ask consumers and patients 

to report on and evaluate their 

experiences with health care. These 

surveys cover topics that are important 

to consumers, such as the 

communication skills of providers and 

the accessibility of services. CAHPS 

originally stood for the Consumer 

Assessment of Health Plans Study, but 

as the products have evolved beyond 

health plans, the name has evolved as 

well to capture the full range of survey 

products and tools. 

Section 1886(b)(3)(B)(viii)(V) of the 

Act requires that, effective for payments 

beginning with FY 2008, the Secretary 

add other quality measures that reflect 

consensus among affected parties, and 

to the extent feasible and practicable, 

have been set forth by one or more 

national consensus building entities. 

The NQF is a voluntary consensus 

standard-setting organization with a 

diverse representation of consumer, 

purchaser, provider, academic, clinical, 

and other health care stakeholder 

organizations. The NQF was established 

to standardize health care quality 

measurement and reporting through its 

consensus development process. We 

have generally adopted NQF-endorsed 

measures. However, we believe that 

consensus among affected parties also 

can be reflected by other means, 

including consensus achieved during 

the measure development process, 

consensus shown through broad 

acceptance and use of measures, and 

consensus through public comment. 

Section 1886(b)(3)(B)(viii)(VI) of the 

Act authorizes the Secretary to replace 

any quality measures or indicators in 


sroberts on DSKD5P82C1PROD with RULES
43862 Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 

appropriate cases, such as where all 

hospitals are effectively in compliance 

with a measure, or the measures or 

indicators have been subsequently 

shown to not represent the best clinical 

practice. Thus, the Secretary is granted 

broad discretion to replace measures 

that are no longer appropriate for the 

RHQDAPU program. 

In the FY 2007 IPPS final rule, we 

began to expand the RHQDAPU 

program measures by adding 11 quality 

measures to the 10-measure starter set to 

establish an expanded set of 21 quality 

measures for the FY 2007 payment 

determination (71 FR 48033 through 

48037, 48045). 

In the CY 2007 OPPS/ASC final rule 

(71 FR 68201), we adopted six 

additional quality measures for the FY 

2008 payment determination, for a total 

of 27 measures. Two of these measures 

(30–Day Risk Standardized Mortality 

Rates for Heart Failure and 30–Day Risk 

Standardized Mortality Rates for AMI) 

were calculated using existing 

administrative Medicare claims data; 

thus, no additional data submission by 

hospitals was required for these two 

measures. The measures used for the FY 

2008 payment determination included, 

for the first time, the HCAHPS patient 

experience of care survey. 

In the FY 2008 IPPS final rule (72 FR 

47348 through 47358) and the CY 2008 

OPPS/ASC final rule with comment 

period (72 FR 66875 through 66877), we 

added three additional process 

measures to the RHQDAPU program 

measure set. (These three measures are 

SCIP-Infection-4: Cardiac Surgery 

Patients with Controlled 6AM 

Postoperative Serum Glucose, SCIPInfection-6: Surgery Patients with 

Appropriate Hair Removal, and 

Pneumonia 30-day mortality (Medicare 

patients).) The addition of these 3 

measures brought the total number of 

RHQDAPU program measures to be 

used for the FY 2009 payment 

determination to 30 (72 FR 66876). The 

30 measures used for the FY 2009 

annual payment determination are 

listed in the FY 2009 IPPS final rule (73 

FR 48600 through 48601). 

For the FY 2010 payment 

determination, we added 15 new 

measures to the RHQDAPU program 

measure set and retired one. Of the new 

measures, 13 were adopted in the FY 

2009 IPPS final rule (73 FR 48602 

through 48611) and two additional 

measures were finalized in the CY 2009 

OPPS/ASC final rule with comment 

period (73 FR 68780 through 68781). 

This resulted in an expansion of the 

RHQDAPU program measures from 30 

measures for the FY 2009 payment 

determination to 44 measures for the FY 

2010 payment determination. The 

RHQDAPU program measures for the FY 

2010 payment determination consist of: 

26 chart-abstracted process measures, 

which measure care provided for Acute 

Myocardial Infarction (AMI), Heart 

Failure (HF), Pneumonia (PN), or 

Surgical Care Improvement (SCIP); 6 

claims-based measures, which evaluate 

30-day mortality or 30-day readmission 

rates for AMI, HF, or PN; 9 AHRQ 

claims-based patient safety/inpatient 

quality indicator measures; 1 claimsbased nursing sensitive measure; 1 

structural measure that assesses 

participation in a systematic database 

for cardiac surgery; and the HCAHPS 

patient experience of care survey. The 

measures are listed below. 

Topic RHQDAPU program quality measures for the FY 2010 payment 

determination 

Acute Myocardial Infarction (AMI) ............................................................ • AMI–1 Aspirin at arrival. 

• AMI–2 Aspirin prescribed at discharge. 

• AMI–3 Angiotensin Converting Enzyme Inhibitor (ACE–I) or 

Angiotensin II Receptor Blocker (ARB) for left ventricular systolic 

dysfunction. 

• AMI–4 Adult smoking cessation advice/counseling. 

• AMI–5 Beta blocker prescribed at discharge. 

• AMI–6 Beta blocker at arrival. 

• AMI–7a Fibrinolytic (thrombolytic) agent received within 30 minutes 

of hospital arrival. 

• AMI–8a Timing of Receipt of Primary Percutaneous Coronary Intervention (PCI). 

Heart Failure (HF) .................................................................................... • HF–1 Discharge instructions. 

• HF–2 Left ventricular function assessment. 

• HF–3 Angiotensin Converting Enzyme Inhibitor (ACE–I) or 

Angiotensin II Receptor Blocker (ARB) for left ventricular systolic 

dysfunction. 

• HF–4 Adult smoking cessation advice/counseling. 

Pneumonia (PN) ....................................................................................... • PN–2 Pneumococcal vaccination status. 

• PN–3b Blood culture performed before first antibiotic received in hospital. 

• PN–4 Adult smoking cessation advice/counseling. 

• PN–5c Timing of receipt of initial antibiotic following hospital arrival. 

• PN–6 Appropriate initial antibiotic selection. 

• PN–7 Influenza vaccination status. 

Surgical Care Improvement Project (SCIP) ............................................. • SCIP–1 Prophylactic antibiotic received within 1 hour prior to surgical 

incision. 

• SCIP–3 Prophylactic antibiotics discontinued within 24 hours after 

surgery end time. 

• SCIP–VTE–1: Venous thromboembolism (VTE) prophylaxis ordered 

for surgery patients. 

• SCIP–VTE–2: VTE prophylaxis within 24 hours pre/post surgery. 

• SCIP–Infection-2: Prophylactic antibiotic selection for surgical patients. 

• SCIP–Infection-4: Cardiac Surgery Patients with Controlled 6AM 

Postoperative Serum Glucose. 

• SCIP–Infection-6: Surgery Patients with Appropriate Hair Removal. 


sroberts on DSKD5P82C1PROD with RULES
Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 43863 

Topic RHQDAPU program quality measures for the FY 2010 payment 

determination 

• SCIP–Cardiovascular-2: Surgery Patients on a Beta Blocker Prior to 

Arrival Who Received a Beta Blocker During the Perioperative Period. 

Mortality Measures (Medicare Patients) ................................................... • MORT–30–AMI: Acute Myocardial Infarction 30-day mortality–Medicare patients. 

• MORT–30–HF: Heart Failure 30-day mortality—Medicare patients. 

• MORT–30–PN: Pneumonia 30-day mortality —Medicare patients. 

Patients’ Experience of Care .................................................................... • HCAHPS survey. 

Readmission Measures (Medicare Patients) ........................................... • READ–30–HF: Heart Failure 30-Day Risk Standardized Readmission 

Measure (Medicare patients). 

• READ–30–AMI: Acute Myocardial Infarction 30-Day Risk Standardized Readmission Measure (Medicare patients). 

• READ–30–PN: Pneumonia 30-Day Risk Standardized Readmission 

Measure (Medicare patients). 

AHRQ Patient Safety Indicators (PSIs), Inpatient Quality Indicators 

(IQIs) and Composite Measures.

• PSI 04: Death among surgical patients with treatable serious complications. 

• PSI 06: Iatrogenic pneumothorax, adult. 

• 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. 

• Mortality for selected surgical procedures (composite). 

• Complication/patient safety for selected indicators (composite). 

• Mortality for selected medical conditions (composite). 

Nursing Sensitive ...................................................................................... • Failure to Rescue (Medicare claims only). 

Cardiac Surgery ........................................................................................ • Participation in a Systematic Database for Cardiac Surgery. 

On December 31, 2008, CMS advised 

hospitals that they would no longer be 

required to submit data for the 

RHQDAPU program measure AMI–6– 

Beta blocker at arrival, beginning with 

discharges occurring on April 1, 2009. 

This change was based on the evolving 

evidence regarding AMI patient care, as 

well as changes in the American College 

of Cardiology/American Heart 

Association (ACC/AHA) practice 

guidelines for ST-segment elevation 

myocardial infarction and non-ST 

segment elevation myocardial 

infarction, upon which AMI–6 is based. 

The new guideline recommends that 

early intravenous beta-blockers 

specifically should be avoided in certain 

patient populations due to increased 

mortality risk. These patients are 

identified by a complex set of 

contraindications that we believe would 

make revision of the measure 

impractical and might result in 

unintended consequences, including 

harm to patients based on 

misinterpretation of an overly complex 

measure in the clinical setting. Based on 

the new studies, the ACC/AHA Task 

Force on Performance Measures 

removed this measure from the set of 

AMI performance measures as of 

November 10, 2008, and did not replace 

the measure. CMS took action to remove 

the measure from reporting initiatives 

based on the lack of support by the 

measure developer and the 

considerations identified above. 

We discussed considerations relating 

to retiring or replacing measures in the 

FY 2008 IPPS final rule with comment 

period and the FY 2009 IPPS final rule, 

including the ‘‘topping out’’ of 

hospitals’ performance under a measure 

(72 FR 47358 through 47359 and 73 FR 

48603 through 48604, respectively). 

However, in this instance, the measure 

no longer ‘‘represent[s] the best clinical 

practice,’’ an additional basis under 

section 1886(b)(3)(B)(viii)(VI) of the Act 

for retiring a measure. For the FY 2010 

payment determination and subsequent 

payment determinations, we have 

formally retired the AMI–6 measure 

from the RHQDAPU program. Therefore, 

hospitals participating in the RHQDAPU 

program are not required to submit data 

on the AMI–6 measure beginning with 

discharges occurring on April 1, 2009. 

However, in the FY 2010 IPPS/RY 2010 

LTCH PPS proposed rule (74 FR 24167), 

we sought public comment on the 

retirement of the AMI–6 measure. 

Comment: Many commenters 

supported immediate retirement of 

quality measures, including AMI–6, for 

which evolving clinical evidence 

suggests potential patient safety 

concerns. Other commenters suggested 

that CMS seek public input when it is 

considering immediate retirement of a 

measure. These commenters also 

indicated that measure retirement for 

other reasons should be conducted 

through the rulemaking process. One 

commenter indicated that formal 

retirement through rulemaking 

following immediate retirement is 

confusing. 

Response: We believe that immediate 

retirement of quality measures should 

occur when the clinical evidence 

suggests that continued collection of the 

data may result in harm to patients. 

Under such circumstances, we may not 

be able to wait until the annual 

rulemaking cycle or until we have had 

the opportunity to obtain input from the 

public to retire the measure because of 

the necessity to discourage potentially 

harmful practices which may result 

from continued collection of the 

measure. We agree with the commenters 

that retirement of measures for reasons 

other than potential patient safety 

concerns should occur through the 

rulemaking process allowing for public 

comment. Because we generally adopt 

and retire RHQDAPU program quality 

measures through the rulemaking 

process (except for the immediate 

retirement exception we are adopting in 

this final rule), we believe that it is 

appropriate to use the rulemaking 

process to confirm the retirement of 

measures that were the subject of recent 

immediate retirement activity. 

(2) Maintenance of Technical 

Specifications for Quality Measures 

The technical specifications for each 

RHQDAPU program measure are listed 

in the CMS/The Joint Commission 

Specifications Manual for National 

Hospital Inpatient Quality Measures 

(Specifications Manual). This 


sroberts on DSKD5P82C1PROD with RULES
43864 Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 

Specifications Manual is posted on the 

CMS QualityNet Web site at https:// 

www.QualityNet.org/. We maintain the 

technical specifications by updating this 

Specifications Manual semiannually, or 

more frequently in unusual cases, and 

include detailed instructions and 

calculation algorithms for hospitals to 

use when collecting and submitting data 

on required measures. In the FY 2010 

IPPS/RY 2010 LTCH PPS proposed rule 

(74 FR 24167), we invited public 

comment on our process of notifying the 

public about the technical specifications 

for RHQDAPU program quality 

measures and whether it can be 

improved to enable more meaningful 

public comment on our proposed 

measures. We also invited public 

comment on whether the information 

posted on the https:// 

www.QualityNet.org Web site, including 

the frequency with which this 

information is updated, provides 

hospitals enough information and time 

to implement the collection of data 

necessary for these required quality 

measures. 

Comment: Commenters agreed that 

timely updates to quality measures are 

necessary for maintaining comparable 

and credible measurement results and 

supported our process for posting 

changes to the Specifications Manual on 

the QualityNet Web site, and issuing 

notifications regarding updates issued. 

Some commenters suggested adding 

other methods to notify stakeholders as 

to technical specifications updates. 

These suggestions included utilizing a 

Real Simple Syndication (RSS) to send 

e-mail alerts to stakeholders, providing 

links to specifications not on the 

QualityNet Web site, listserv 

notifications, sharing the draft technical 

specifications with hospitals and data 

vendors 30 days prior to their release so 

that errors and omissions can be 

identified and corrected before the final 

version of the specifications is released, 

and not releasing the Specifications 

Manual until all revisions and updates 

are complete, thereby reducing the 

number of addenda. One commenter 

requested that the Specifications 

Manual be released with all relevant 

changes once a year. 

Response: We will consider these 

suggestions for other methods to notify 

stakeholders as to technical 

specifications updates. The 

Specifications Manual is updated in two 

scheduled releases a year occurring at 6 

month intervals in order to incorporate 

updates to the code sets used in the 

measure specifications, add or remove 

measures, and to provide vendors with 

adequate notice of changes. The 

Specifications Manual contains 

specifications for measures that have 

been adopted into the RHQDAPU 

program. However, we may include 

specifications for some of the proposed 

measures or measures under 

consideration for preview purposes 

only. Specifications for measures that 

are under development are not included 

in the Specifications Manual. 

(3) Public Display of Quality Measures 

Section 1886(b)(3)(B)(viii)(VII) of the 

Act requires that the Secretary establish 

procedures for making quality data 

available to the public after ensuring 

that a hospital has the opportunity to 

review its data before these data are 

made public. Data from the RHQDAPU 

program are included on the Hospital 

Compare Web site, https:// 

www.hospitalcompare.hhs.gov. The 

RHQDAPU program currently includes 

process of care measures, risk adjusted 

outcome measures, the HCAHPS patient 

experience of care survey, and a 

structural measure regarding cardiac 

surgery registry participation. This Web 

site assists beneficiaries and the general 

public by providing information on 

hospital quality of care to consumers 

who need to select a hospital. It further 

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 

improve the quality of care that they 

furnish. 

Comment: Several commenters 

submitted suggestions for improving 

public reporting of RHQDAPU program 

measures on the Hospital Compare Web 

site. A number of commenters stated 

that the Hospital Compare Web site is 

cumbersome to navigate and that data 

are displayed in a rigid fashion. The 

commenters suggested that CMS give 

end users the flexibility to create 

customized reports or tailor the data 

display to the end user’s needs. Some 

commenters also suggested that 

hospitals would benefit from examining 

how well they are performing if they 

had access to reports that show 

performance on the care processes that 

take place during discharge. Other 

commenters stated that the display of 

data on the Hospital Compare Web site 

for the public may be interpreted as 

encouraging performance at 100 percent 

on the measures even though lower 

levels of performance on measures may 

be appropriate, and requested that CMS 

remove the current wording under the 

‘‘Learn how to use the information from 

this site’’ link on the Hospital Compare 

Web site because it misrepresents to the 

public what the appropriate quality 

benchmarks are for certain measures. 

Several commenters supported the 

adoption of a more consumer-friendly 

star rating system for hospitals that 

would allow consumers to make 

decisions about where to receive care 

based on a composite ‘‘score’’ for the 

facility, rather than minor performance 

differences on individual measures. 

Another commenter disagreed with 

posting results on the Hospital Compare 

Web site when a hospital has fewer than 

25 eligible cases in a reporting period 

for a measure, stating that the results 

may not be statistically valid or 

understood by most health care 

consumers. Another commenter stated 

that all reporting formats should be 

tested with consumers before being 

publicly displayed. 

Response: Section 

1886(b)(3)(B)(viii)(VII) of the Act 

requires that the Secretary establish 

procedures for making the data reported 

under the RHQDAPU program available 

to the public. We appreciate these 

suggestions regarding potential 

improvements to the Hospital Compare 

Web site. We continue to conduct 

consumer focus groups and work to 

identify areas for improvement, and will 

make changes that we believe are 

beneficial. In terms of a report that 

focuses upon care provided at 

discharge, hospitals can use their 

quarterly Hospital Compare preview 

reports, the downloadable Hospital 

Compare data sets, and other QualityNet 

reports to examine their performance on 

measures that relate to care provided at 

discharge. Although we do not believe 

that the current wording in the ‘‘Learn 

how to use the information from this 

site’’ is misleading, we will re-examine 

the language and determine whether it 

would be appropriate to make changes. 

We are also working on conditionspecific (AMI, HF, PN, SCIP and 

HCAHPS) composites for the Hospital 

Compare Web site in the future to make 

it more consumer-friendly. 

On the Hospital Compare Web site, 

we employ a footnote for rates based 

upon fewer than 25 cases: ‘‘The number 

of cases is too small (<25) to reliably tell 

how well a hospital is performing,’’ but 

display the rate so that consumers can 

decide whether and how to consider the 

information. 

2. Retirement of RHQDAPU Program 

Measures 

As stated above, we retired the AMI– 

6 measure from the RHQDAPU program 

measure set beginning with discharges 

occurring on April 1, 2009, because we 

believed, based on new evidence, that 

the continued use of the measure raised 

specific patient safety concerns. In 

situations such as this, we do not 


sroberts on DSKD5P82C1PROD with RULES
Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 43865 

believe that it is appropriate to wait for 

the annual rulemaking cycle. Rather, in 

the FY 2010 IPPS/RY 2010 LTCH PPS 

proposed rule (74 FR 24168), we 

proposed to promptly retire the measure 

and notify hospitals and the public of 

the retirement of the measure and the 

reasons for its retirement through the 

usual hospital and QIO communication 

channels used for the RHQDAPU 

program, which include e-mail blasts to 

hospitals and the dissemination of 

Standard Data Processing System 

(SDPS) memoranda to QIOs, as well as 

posting the information on the 

QualityNet Web site. We proposed to 

confirm the retirement of the measure in 

the next IPPS rulemaking. In other 

circumstances where we do not believe 

that continued use of a measure raises 

specific patient safety concerns, we 

intend to use the regular rulemaking 

process to retire a measure. 

We invited public comment on 

whether any other RHQDAPU program 

measures should be retired from the 

RHQDAPU program, as well as on the 

criteria that should be used in retiring 

measures. To the extent that 

performance has improved because of 

the collection and public display of 

quality measures, we also invited public 

comment on how performance could be 

maintained on the ‘‘topped out’’ 

measures once they are retired. We note 

that many of the measures in the 

existing program have experienced 

improved performance rates over the 

years. On our Web site, https:// 

www.cms.hhs.gov/HospitalQualityInits/, 

we have posted the performance rates 

for the existing measures over the years 

that they have been collected through 

the RHQDAPU program. However, thus 

far, only one measure, the pneumonia 

oxygenation assessment measure, has 

reached such a high level of compliance 

(nearly 100 percent for the vast majority 

of hospitals) that we retired the 

measure. 

Comment: Some commenters 

recommended 11 measures for 

retirement for varying reasons. Seven of 

these measures were recommended for 

retirement based on their performance 

being uniformly high nationwide, with 

little variability among hospitals. These 

seven measures are: 

• AMI–1 Aspirin at arrival 

• AMI–3 ACEI/ARB for left 

ventricular systolic dysfunction 

• AMI–4 Adult smoking cessation 

advice/counseling 

• AMI–5 Beta-blocker prescribed at 

discharge 

• HF–4 Adult smoking cessation 

advice/counseling 

• PN–4 Adult smoking cessation 

advice/counseling 

• SCIP–Infection-6: Surgery patients 

with appropriate hair removal 

Commenters also recommended that 

CMS implement an ongoing 

surveillance mechanism for measures 

that are retired due to unvarying high 

performance rates nationwide in order 

to prevent deterioration of performance. 

Four of the 11 measures 

recommended for retirement from the 

RHQDAPU program were recommended 

for reasons other than high unvarying 

performance. These four measures are: 

• HF–1 Discharge instructions 

• PN–3b Blood culture performed 

before first antibiotic received in 

hospital 

• SCIP–Infection-2: Prophylactic 

antibiotic selection for surgical patients 

• SCIP–Infection-4: Cardiac Surgery 

Patients with Controlled 6AM 

Postoperative Serum Glucose 

With regard to the HF–1 Discharge 

instructions measure, a commenter 

stated that while high quality discharge 

instructions are important for better 

outcomes, this measure neither 

measures nor affects the quality of the 

discharge instruction. Another 

commenter stated that the complexity of 

the data collection guidelines for this 

measure outweighs its value. 

Several commenters recommended 

retirement of measure PN–3b, Blood 

culture performed before first antibiotic 

received in hospital, because they 

believe that it does not align with 

current clinical guidelines. 

Some commenters also suggested 

retirement of the SCIP–Infection-2: 

Prophylactic antibiotic selection for 

surgical patients measure because the 

measure is overly complicated and 

confusing, and the SCIP–Infection-4: 

Cardiac Surgery Patients with 

Controlled 6AM Postoperative Serum 

Glucose measure because of a perceived 

risk of complications due to extended 

insulin drips. Several commenters 

suggested that CMS develop a process 

for determining when process measures 

should be retired to accommodate the 

inclusion of broad outcome measures on 

a topic, and that CMS retire measures 

when negative unintended 

consequences result. 

Response: We will consider these 

suggestions for measures to retire in a 

future rulemaking. We note that we will 

continue to retire measures based on 

reasons other than potential harm to 

patients by using the rulemaking 

process, and we believe it is important 

to weigh all relevant factors and 

consequences related to retirement of a 

measure with affected parties before 

proposing retirement. We agree that 

high levels of unvarying performance 

across hospitals should be among the 

factors considered in measure 

retirement. Such measures do not afford 

opportunities for improvements in care, 

nor do they allow consumers to discern 

meaningful differences in performance 

among hospitals. 

We currently do not have mechanisms 

available to conduct continued 

surveillance of retired measures, but 

will explore options for monitoring 

whether the performance on retired 

measures deteriorates following their 

retirement. We also agree that quality 

measures should relate to high quality 

care processes, should be related to 

better patient outcomes, should align 

with current clinical guidelines when 

possible, and should not be overly 

burdensome to collect. We will consider 

these factors when evaluating current 

RHQDAPU program measures for 

retirement. We agree that outcome 

measures are useful indicators of 

quality, and in recent years have added 

outcome measures for mortality, 

readmission, and patient safety 

indicators to the RHQDAPU program. 

However, we do not believe that 

outcome measures necessarily render 

process measures incompatible or 

redundant. 

Also, we agree that measures should 

be evaluated for negative unintended 

consequences, and that this should be a 

consideration for measure retirement. 

We strive to stay informed about 

measure support in current scientific 

literature, the continuing ability of 

measures to assess quality of care, and 

evolving unintended consequences. 

Some negative unintended 

consequences (such as patient harm) 

may warrant immediate action while 

other consequences (such as increased 

burden on the hospital) may need to be 

weighed against the utility of continuing 

to collect and publicly post the measure. 

Comment: One commenter indicated 

that there are no further measures that 

needed to be retired because there are 

no other ‘‘topped out’’ measures. 

Response: We have observed and 

other commenters have pointed out that 

there may be a number of RHQDAPU 

program measures that have high levels 

of unvarying performance. However, as 

we stated in the response to a previous 

comment, we also believe that there are 

other criteria that we must additionally 

consider before we propose to retire a 

measure from the RHQDAPU program. 


sroberts on DSKD5P82C1PROD with RULES
43866 Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 

10A registry is a collection of clinical data for 

purposes of assessing clinical performance, quality 

of care, and opportunities for quality improvement. 

3. Quality Measures for the FY 2011 

Payment Determination and Subsequent 

Years 

a. Considerations in Expanding and 

Updating Quality Measures Under the 

RHQDAPU Program 

In the FY 2009 IPPS proposed rule, 

we solicited public comment on several 

considerations related to expanding and 

updating quality measures, including 

how to reduce the burden on the 

hospitals participating in the RHQDAPU 

program and which approaches to 

measurement and collection would be 

most useful while minimizing burden 

(73 FR 23653 through 23654). 

In the FY 2009 IPPS final rule, we 

responded to the public comments we 

received on these issues (73 FR 48613 

through 48616). We also stated that in 

future expansions and updates to the 

RHQDAPU program measure set, we 

would be taking into consideration 

several important goals. These goals 

include: (a) Expanding the types of 

measures beyond process of care 

measures to include an increased 

number of outcome measures, efficiency 

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

of hospital services to which the 

measures apply; (c) considering the 

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

measures used in the RHQDAPU 

program with other CMS quality 

programs to align incentives and 

promote coordinated efforts to improve 

quality; (e) seeking to use measures 

based on alternative sources of data that 

do not require chart abstraction or that 

utilize data already being reported by 

many hospitals, such as data that 

hospitals report to clinical data 

registries, or all-payer claims data bases; 

and (f) weighing the relevance and 

utility of the measures compared to the 

burden on hospitals in submitting data 

under the RHQDAPU program. 

Specifically, we give priority to quality 

measures that assess performance on: (a) 

Conditions that result in the greatest 

mortality and morbidity in the Medicare 

population; (b) conditions that are high 

volume and high cost for the Medicare 

program; and (c) conditions for which 

wide cost and treatment variations have 

been reported, despite established 

clinical guidelines. We have used and 

continue to use these criteria to guide 

our decisions regarding what measures 

to add to the RHQDAPU program 

measure set. 

Although RHQDAPU program 

payment decisions were initially based 

solely on a hospital’s submission of 

chart-abstracted quality measure data, in 

recent years we have adopted measures, 

including structural and claims-based 

quality measures that do not require a 

hospital to submit chart-abstracted 

clinical data. This supports our stated 

goal to expand the measures for the 

RHQDAPU program while minimizing 

the burden on hospitals and, in 

particular, without significantly 

increasing the chart abstraction burden. 

In addition to claims-based measures, 

we are considering registries 10 and 

electronic health records (EHRs) as 

alternative ways to collect data from 

hospitals. Many hospitals submit data to 

and participate in existing registries. In 

addition, registries often capture 

outcome information and provide 

ongoing quality improvement feedback 

to registry participants. Instead of 

requiring hospitals to submit the same 

data to CMS that they are already 

submitting to registries, we believe that 

we could collect the data directly from 

the registries, thereby enabling us to 

expand the RHQDAPU program 

measure set without increasing the 

burden of data collection for those 

hospitals participating in the registries. 

Examples of registries actively used by 

hospitals include the Society of 

Thoracic Surgeons (STS) Cardiac 

Surgery Registry (with approximately 90 

percent participation by cardiac surgery 

programs), the AHA Stroke Registry 

(with approximately 1200 hospitals 

participating), and the American 

Nursing Association (ANA) Nursing 

Sensitive Measures Registry (with 

approximately 1400 hospitals 

participating). In the FY 2009 IPPS final 

rule (73 FR 48608 through 48609), we 

adopted the first RHQDAPU program 

measure related to registries: 

Participation in a Systematic Database 

for Cardiac Surgery. We continue to 

evaluate whether it is feasible to adopt 

measures that rely on one or more 

registries as a source for data collection. 

We also stated our intention to 

explore mechanisms for data 

submission using EHRs (73 FR 48614). 

Establishing such a system will require 

interoperability between EHRs and CMS 

data collection systems, additional 

infrastructure development on the part 

of hospitals and CMS, and the adoption 

of standards for the capturing, 

formatting, and transmission of data 

elements that make up the measures. 

However, once these activities are 

accomplished, the adoption of measures 

that rely on data obtained directly from 

EHRs will enable us to expand the 

RHQDAPU program measure set with 

less cost and burden to hospitals. 

In the FY 2009 IPPS final rule, we 

adopted nine AHRQ measures for the 

RHQDAPU program. Although we 

stated that we would initially calculate 

the measures using Medicare claims 

data (73 FR 48608), we also stated that 

we remained interested in using allpayer claims data to calculate them and 

that we might propose to collect such 

data in the future. In the FY 2010 IPPS/ 

RY 2010 LTCH PPS proposed rule (74 

FR 24169), we invited input and 

suggestions on how all-payer claims 

data can be collected and used by CMS 

to calculate these measures, as well as 

on additional AHRQ measures that we 

should consider adopting for future 

RHQDAPU program payment 

determinations. 

We noted that we continue to use 

these criteria to guide our decisions on 

what measures to propose for the 

RHQDAPU program measure set. 

Therefore, we invited comments on the 

new quality measures we have proposed 

to include in future payment years and 

on the criteria we should use to retire 

measures. 

Comment: Several commenters 

supported the concept of EHR-based 

data collection. One commenter 

expressed concern that the process to 

implement electronic data collection 

may delay the adoption of measures, in 

particular the stroke measures, for the 

RHQDAPU program. Another 

commenter applauded CMS for 

considering EHRs as an alternative way 

to collect data, but suggested that no 

new quality measures be introduced for 

2 years while the industry implements 

EHRs, and that some consideration be 

given to small rural hospitals that may 

not be able to adopt EHRs as soon as 

larger urban hospitals. One commenter 

believed that infrastructure 

development for establishing 

interoperability will be challenging and 

asked that CMS consider a phase-in 

period of 5 years, with reasonable 

benchmarks for every 6 months to 1 

year. 

Response: We appreciate these 

supportive comments regarding EHRbased data collection as an alternative 

data source for quality measures. We 

encourage adoption of EHRs, and we 

also acknowledge the challenges that 

must be met both by hospitals and CMS 

to establish the infrastructure and 

interoperability necessary to collect data 

on quality measures via EHRs. In 

determining whether to adopt new 

quality measures for the RHQDAPU 

program, we weigh the potential benefit 

of improvement that would result from 

reporting a given measure against the 

potential resource burden associated 

with reporting a measure. For purposes 


sroberts on DSKD5P82C1PROD with RULES
Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 43867 

of the RHQDAPU program, EHR-based 

data submission may provide an 

alternative means of submitting quality 

data that would benefit hospitals by 

reducing their chart abstraction burden. 

However, because of the challenges 

noted above, we do not plan to make 

EHR-based data submission the only 

means by which hospitals can submit 

quality data for the RHQDAPU program 

in the near future. 

Comment: Several commenters 

opposed the direct collection of data 

from EHRs for quality measures, stating 

that quality data produced in this 

manner is unlikely to be useful or valid 

either for quality measurement or for 

research, and that programming 

software is incapable of interpreting and 

deciding between discrepant 

documentation in a single medical 

record. 

Response: We disagree with the 

comment that quality data produced 

from EHRs is not likely to be useful for 

quality measurement and research. The 

data collected from the EHR would 

essentially be the same data that 

hospitals would otherwise have to 

manually abstract from a medical chart. 

These data are what we currently use for 

quality measure reporting and for 

research. We acknowledge that 

additional programming work may need 

to be completed to enable current EHR 

systems to collect and submit quality 

measure data. We are currently working 

with the Healthcare Information 

Technology Standards Panel (HITSP), a 

public-private partnership working to 

establish Health IT interoperability 

standards under contract to the DHHS 

Office of the National Coordinator on 

Health IT, to standardize the 

specifications of data elements used in 

stroke, VTE, and emergency department 

measures so that they may be collected 

and reported via EHRs. Standardization 

of the specifications allows software to 

convert clinical data of different types 

into a form that can be analyzed for 

quality measurement. We encourage 

collaboration between standards setting 

organizations and measure developers 

on the creation of standards for 

electronic collection of data elements 

for other quality measures as well, 

particularly those used in our quality 

data reporting programs. 

Comment: A number of commenters 

supported the use of registries as an 

alternative source of hospital-specific 

data on quality measures and as a means 

to reduce hospital burden. Several 

commenters indicated that the use of 

registries to collect hospital-level data 

would reduce administrative burden 

and ensure appropriate risk-adjustment 

for quality improvement and public 

reporting purposes, as well as other 

benefits, including the identification of 

opportunities for quality improvement, 

improvements in patient safety practices 

and coordination of care, and improved 

patient outcomes. 

However, several commenters 

expressed concern regarding the 

possibility that they may be required to 

participate in proprietary registries in 

the future, and requested clarity 

regarding alternatives for data 

submission should some hospitals (for 

example, small hospitals, rural 

hospitals) not have the resources to 

participate in registry-based data 

collection initiatives. These commenters 

saw registry-based data collection as 

costly and labor intensive because many 

registries require chart abstraction. 

Other commenters saw registries as 

useful for monitoring quality, but 

indicated that many data fields 

collected by registries are not related to 

quality measures, and preferred that if 

such a mechanism were to be used for 

data collection, CMS only receive data 

relevant to the quality measures of 

interest, and that the data be limited to 

the Medicare population only. 

Response: We are interested in 

reducing the burden associated with 

quality measurement. If hospitals are 

participating in registries and submit 

the same data to those registries that 

they would otherwise have to submit for 

measures that are part of the RHQDAPU 

program, we believe that the registry 

data would be an efficient alternative 

source from which to collect the data, 

and that this would prevent the hospital 

from having to report the same data 

twice. Many hospitals are currently 

participating in a number of registries 

that collect data on quality measures 

that are topics of interest to us. 

However, we acknowledge the 

commenters’ concern regarding the cost 

associated with participation in certain 

registries which may make this 

alternative mechanism for data 

submission less feasible for some 

hospitals. We anticipate that registrybased data collection may be one means, 

but not an exclusive means, of 

submitting data for quality measures. 

We will take these considerations into 

account when selecting measures and 

potential data submission mechanisms 

for those measures for the RHQDAPU 

program in the future. 

Comment: A number of commenters 

indicated that it would not be feasible 

for hospitals to implement all-payer 

claims reporting for the AHRQ measures 

while trying to adopt a standardized 

EHR at the same time. Another 

commenter indicated that, for all-payer 

data to be transmitted to the QIO 

Clinical Warehouse, data vendors that 

currently collect and submit most of the 

clinical data for the RHQDAPU program 

would need to develop the capability to 

process and submit all-payer 

administrative data to the QIO Clinical 

Warehouse, and that the current CMS 

Abstraction & Reporting Tool (CART) 

would need to be modified to collect 

these additional data. One commenter 

urged CMS to develop a national allpayer claims database. 

Response: We thank the commenters 

for these comments. While we are 

interested in collecting all-payer claims 

data from hospitals in the future, we 

currently do not have a data collection 

mechanism in place to receive these 

claims. We will continue to explore the 

feasibility of collecting all-payer claims 

data in the future. 

Comment: Several commenters 

encouraged CMS to look to the National 

Priorities Partnership goals as a 

framework for the types of measures 

that should be included in the 

RHQDAPU program. Some commenters 

believe that some of the measures 

proposed are not NQF-endorsed. Some 

commenters suggested that CMS 

consider adopting the criteria for 

measure selection developed by The 

Joint Commission. 

Response: The National Priorities 

Partnership is a 28 member organization 

convened by the NQF for the purpose of 

identifying improvement goals and 

action steps for the U.S. healthcare 

system. We are a member of the 

National Priorities Partnership and 

participate in its framework-setting 

activity. Our measure selection activity 

for the RHQDAPU program is informed 

by this framework. The SCIP—Infection9 and -10 measures and the two 

measures of registry participation 

included in the proposed rule address 

the National Priorities Partnership goals 

of increasing patient safety and 

population health. The proposed SCIP— 

Infection-9 and -10 measures are NQFendorsed, and the two structural 

measures regarding registry 

participation are inpatient applications 

of an NQF-endorsed measure of registry 

participation (NQF #0493). We regularly 

communicate with The Joint 

Commission regarding the aligned 

measures and participate in measure 

maintenance workgroups with The Joint 

Commission. 

Comment: Several commenters stated 

that measures selected for the 

RHQDAPU program should be both 

endorsed by the NQF and adopted by 

the HQA. Some commenters suggested 

that these steps were required by the 

DRA. One commenter stated that the 

standard for consensus for selection of 


sroberts on DSKD5P82C1PROD with RULES
43868 Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 

quality measures should be consistent 

with the National Technology Transfer 

and Advancement Act of 1995 (Pub. L. 

104–113) (NTTAA) standards. 

Response: Section 

1886(b)(3)(B)(viii)(V) of the Act requires, 

effective for payments beginning with 

FY 2008, that the Secretary add quality 

measures that reflect consensus among 

affected parties and, to the extent 

feasible and practicable, have been set 

forth by one or more national consensus 

building entities. This provision does 

not require that the measures we adopt 

for the RHQDAPU program be endorsed 

by any particular entity, and we believe 

that consensus among affected parties 

can be reflected by means other than 

endorsement by a voluntary consensus 

organization, including consensus 

achieved during the measure 

development process, consensus shown 

through broad acceptance and use of 

measures, and consensus through public 

comment (74 FR 24165 through 24166). 

Nevertheless, we have stated on 

numerous occasions that we prefer to 

adopt quality measures that have been 

endorsed by the NQF. The NQF uses a 

formal consensus development process. 

As the NQF notes on its Web site at: 

http://www.qualityforum.org/ 

Measuring_Performance/ 

Consensus_Development_Process.aspx, 

it has been recognized as a voluntary 

consensus standards-setting 

organization as defined by the NTTAA 

and Office of Management and Budget 

Circular A–119. 

In contrast, the HQA has a limited 

membership and its current policy is to 

limit measures that it selects for 

adoption to a subset of NQF-endorsed 

measures. In selecting measures for the 

RHQDAPU program we consider a 

variety of factors that we have discussed 

both in this final rule and in previous 

final rules and take into consideration 

input received from the public 

including but not limited to members of 

the HQA. 

Comment: One commenter supported 

the measure selection criteria that CMS 

stated in the proposed rule and 

suggested that emphasis in measure 

selection be placed upon the following: 

results of cost-benefit analyses; 

opportunities to leverage data reported 

to State health agencies and State 

hospital associations; alignment of 

measures and incentives across 

providers and settings through the 

application of care coordination 

measures and measures of quality across 

episodes of care that increase providers’ 

clinical and financial accountability; 

and measurement of ambulatory care 

sensitive and preventable hospital 

admissions and readmissions for 

beneficiaries with chronic conditions. 

The commenter also suggested that CMS 

avoid selecting measures that allow 

hospitals to be rewarded for providing 

marginally effective care or care that is 

already routinely furnished. 

Response: We thank the commenter 

for these suggestions. In general, we 

agree with these suggested 

considerations for measure selection. 

We adopt measures of high relevance to 

the Medicare population for which the 

benefit of public reporting and 

improvement justifies the collection 

burden, and intend to reduce the 

collection burden by utilizing data 

sources such as administrative data, 

registries, and EHRs. We strive to align 

measures across settings whenever 

possible and will continue to do so. The 

current and proposed RHQDAPU 

program measure set contains measures 

of readmission for beneficiaries with 

certain acute and chronic conditions, 

and we intend to expand measurement 

in this area. We also intend to adopt 

measures of care coordination suitable 

for inclusion in the RHQDAPU program 

when such measures are developed. We 

also agree with the commenter that 

quality measures should emphasize 

effective care for which there is 

evidence of wide variability despite the 

presence of established guidelines. With 

regard to measurement of quality across 

episodes of care, the current RHQDAPU 

program process measures focus on 

topics of acute care quality. However, 

we believe that the 30-day mortality and 

30-day readmission measures adopted 

for the RHQDAPU program also touch 

on the issue of quality across the 

continuum of care because other 

providers in the larger community share 

responsibility with the hospital for 

mortality and readmission during the 

30-day period measured, as the quality 

of ambulatory follow up care or 

postacute care after discharge affects the 

likelihood of these events occurring. 

Comment: Two commenters 

supported the RHQDAPU program in 

general. One of these commenters 

attributed great improvements in 

performance and benefits to patients to 

the reporting of quality data and 

indicated that the reporting program 

allows hospitals to see comparative 

information that they otherwise might 

not see. 

Response: We agree with and 

appreciate these supportive comments. 

Comment: One commenter opposed 

quality data reporting and stated that 

decreasing payments via incentive 

programs leads to decreases in quality 

and safety of care for patients. 

Response: We disagree with this 

statement. The IOM, in its 2005 volume 

titled Performance Measurement: 

Accelerating Improvement (part of the 

IOM series on ‘‘Pathways to Quality 

Health Care’’) credits performance 

measurement as the cornerstone of 

quality improvement in healthcare. 

Analyses of Hospital Compare data over 

time indicates improvement trends in 

most of the measures since reporting 

began in 2004. 

In summary, we will continue to 

pursue goals regarding the expansion 

and updating of quality measures under 

the RHQDAPU program while 

minimizing burden. We will take into 

account the public comments we 

received on the possible uses of EHRs, 

registries, and all-payer claims data in 

the RHQDAPU program. We also will 

consider the measure selection criteria 

suggested by various commenters in 

prioritizing and selecting quality 

measures for the future. 

b. RHQDAPU Program Quality Measures 

for the FY 2011 Payment Determination 

(1) Retention of Existing RHQDAPU 

Program Quality Measures 

For the FY 2011 payment 

determination, in the FY 2010 IPPS/RY 

2010 LTCH PPS proposed rule (74 FR 

24169), we proposed to retain 41 

RHQDAPU program quality measures 

that we are using for the FY 2010 

payment determination. We refer 

readers to the table in the proposed rule 

(74 FR 24169 through 24170) for a 

complete list of the measures we 

proposed to retain. 

As we discussed in section V.A.1.c.(1) 

of this final rule, we retired the 

AMI–6 Beta blocker at arrival measure 

from the RHQDAPU program measure 

set for the FY 2010 payment 

determination and subsequent years. 

We discussed above the public 

comments we received regarding the 

retirement of measures that are 

proposed for the FY 2011 payment 

determination. We did not receive any 

other public comments regarding our 

proposal to retain for the FY 2011 

payment determination the 41 measures 

that we are using for the FY 2010 

payment determination. Therefore, we 

are adopting as final, without change, 

our proposal to retain the 41 quality 

measures used for the FY 2010 payment 

update. 

(2) NQF Harmonization of Two Existing 

RHQDAPU Program Measures 

In May 2008, the NQF reviewed the 

specifications for two of the RHQDAPU 

program measures that we adopted for 

the FY 2010 payment determination: 

PSI 04—Death among surgical patients 

with treatable serious complications; 


sroberts on DSKD5P82C1PROD with RULES
Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 43869 

11U.S. Government Accountability Office. 

Health-Care Associated Infections in Hospitals: An 

Overview of State Reporting Programs and 

Individual Hospital Initiatives to Reduce Certain 

Infections. September 2008. 

and Nursing Sensitive—Failure to 

rescue (Medicare claims only). This was 

part of an NQF project titled ‘‘National 

Voluntary Consensus Standards for 

Hospital Care 2007: Performance 

Measures.’’ As a result of this project by 

the NQF, these two measures now have 

the same name: ‘‘Death among surgical 

inpatients with serious, treatable 

complications’’ and share a single set of 

measure specifications. 

In order to maintain consistency with 

national voluntary consensus standards 

with respect to referencing the measure, 

in the FY 2010 IPPS/RY 2010 LTCH PPS 

proposed rule (74 FR 24170), we 

proposed to combine PSI 04—Death 

among surgical patients with treatable 

serious complications; and Nursing 

Sensitive—Failure to rescue (Medicare 

claims only) into a single measure, 

Death among surgical inpatients with 

serious, treatable complications, and to 

list the measure under proposed topic 

name—AHRQ PSI and Nursing 

Sensitive Care. This measure, as well as 

its specifications, would replace, for 

purposes of hospital reporting, the two 

RHQDAPU program measures that we 

adopted for the FY 2010 payment 

determination: PSI 04: Death among 

surgical patients with treatable serious 

complications; and Nursing Sensitive— 

Failure to rescue (Medicare claims 

only). However, we indicated that we 

may continue to publicly report the 

measure in two different topics areas on 

the Hospital Compare Web site— 

Nursing Sensitive Care and AHRQ PSIs, 

IQIs and Composite Measures. We 

invited public comment on this 

proposal. 

Comment: Several commenters 

supported harmonization of the Failure 

to Rescue measure and PSI 04: Death 

among surgical inpatients with serious, 

treatable complication in accordance 

with consensus standards. However, a 

number of commenters questioned the 

possible display of the harmonized 

measure in more than one topic area on 

the Hospital Compare Web site, stating 

this may be unnecessary, redundant, 

and result in confusion. One commenter 

indicated that continuing to report the 

measure under the two separate topic 

areas is beneficial. 

Response: We thank the commenters 

for their support of our use of the single 

harmonized measure and measure 

specification for the RHQDAPU 

program. The harmonized measure 

addresses two areas of topical 

significance, patient safety and nursing 

sensitive care. Therefore, we believe 

that publicly displaying the measure 

results in more than one topic area on 

the Hospital Compare Web site will give 

end-users a richer picture of a hospital’s 

performance in both of these topic areas. 

We will conduct consumer testing to 

ensure that display of the measure on 

the Hospital Compare Web site does not 

appear redundant or confusing to 

consumers. 

After consideration of the public 

comments we received, we have 

decided to adopt as final our proposal 

to harmonize these two measures for the 

FY 2011 payment determination. 

(3) New Chart-Abstracted Measures 

For the FY 2011 payment 

determination, in the FY 2010 IPPS/RY 

2010 LTCH PPS proposed rule (74 FR 

24170), we proposed to add two new 

chart-abstracted measures. These 

proposed new measures, SCIP– 

Infection-9 Postoperative Urinary 

Catheter Removal on Post Operative Day 

1 or 2 and SCIP–Infection-10: 

Perioperative Temperature 

Management, are additions to the 

existing SCIP measure set. The SCIP 

Infection measures are designed to 

assess practices that reduce the risk of 

infections that surgical patients could 

acquire in the hospital. They have high 

relevance to the Medicare population, 

and address the growing concern 

regarding hospital-acquired infections.11

Although these two measures require 

that hospitals abstract data from medical 

records, they add to the scope of the 

existing SCIP measure set. Hospitals 

currently collect and report data 

elements for eight SCIP measures. 

Additional data elements required for 

these two proposed new SCIP measures 

are minimal, and would be abstracted 

from the same records hospitals use to 

abstract data for the other SCIP 

measures. Therefore, we expect the 

additional burden on hospitals to be 

minimal. The two measures are NQFendorsed. We invited public comment 

on our proposal to include SCIP– 

Infection-9 and SCIP–Infection-10 as 

RHQDAPU program measures to be 

used for the FY 2011 payment 

determination. 

Comment: Several commenters 

supported CMS’ recognition of the 

burden associated with collection of 

chart-abstracted measures and limiting 

the number of chart-abstracted measures 

proposed this year. 

Response: We appreciate these 

comments and will continue to carefully 

consider the potential burden associated 

with the collection of chart-abstracted 

measures for the RHQDAPU program 

relative to potential benefit of public 

reporting and quality improvement. 

Comment: Several commenters 

supported the two proposed new chartabstracted measures. The commenters 

indicated that these measures have the 

potential to reduce hospital-acquired 

infections while minimizing burden, as 

the data elements would come from the 

same records hospitals are using to 

abstract data for the other SCIP 

measures. 

Response: We appreciate these 

supportive comments. We believe that 

these measures address areas of topical 

importance to the Medicare program 

because they measure quality of surgical 

care and practices associated with 

reduction of hospital-acquired 

infections, and thus, ensure better 

patient outcomes. 

Comment: A few commenters 

opposed the inclusion of both SCIP– 

Infection-9 and SCIP–Infection-10 in the 

RHQDAPU program solely because they 

are not HQA adopted. 

Response: As we discussed more fully 

in our response to a prior comment, we 

do not believe that HQA endorsement is 

a required prerequisite for quality 

measure selection under the RHQDAPU 

program. 

Comment: One commenter expected a 

moderate increase in the administrative 

burden related to abstraction. Another 

commenter asked CMS to consider 

whether it should adopt SCIP–Infection9 if it is considering implementing the 

Nursing Sensitive/HAI measure, 

Catheter Associated Urinary Tract 

Infection (CA UTI), in FY 2012. The 

commenter stated that the two measures 

work toward the same goal of reduced 

UTIs, and ultimately, a broader outcome 

measure should supplant the related 

process measure that is more likely to 

become outdated as science evolves. 

Response: Both SCIP–Infection-9 and 

SCIP–Infection-10 impose minimal 

additional abstraction burden as they 

build upon an existing measurement set 

for a population for which charts are 

already being pulled for abstraction. We 

acknowledge that the process measured 

by SCIP–Infection-9 is related to the 

outcome measured by the CA UTI 

measure being considered among 

measures for future adoption in FY 2012 

and beyond. Though CA UTI is being 

considered for the future, SCIP– 

Infection-9 was proposed for the FY 

2011 payment determination because 

there is widespread variation in practice 

for the processes measured, and the 

practices associated with the measure 

improve patient outcomes. The 

processes measured in SCIP–Infection-9 

may be related to the CA UTI measure, 

but the process measure is not 


sroberts on DSKD5P82C1PROD with RULES
43870 Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 

12Examples of registries that we are aware of that 

are being actively used by hospitals include the 

Society of Thoracic Surgeons (STS) Cardiac Surgery 

Registry (with approximately 90 percent 

participation by cardiac surgery programs), the 

AHA Stroke Registry (with approximately 1200 

hospitals participating), and the American Nursing 

Association (ANA) Nursing Sensitive Measures 

Registry (with approximately 1400 hospitals 

participating). 

supplanted by the outcome measure. 

The processes SCIP–Infection-9 is 

intended to measure are of clinical 

relevance to the Medicare population 

and have the potential to improve 

patient care outcomes. 

After consideration of the public 

comments we received, we have 

decided to finalize our proposal, 

without change, to adopt SCIP– 

Infection-9: Postoperative Urinary 

Catheter Removal on Post Operative Day 

1 or 2 and SCIP–Infection-10: 

Perioperative Temperature Management 

as quality measures under the 

RHQDAPU program for the FY 2011 

payment determination. As we stated in 

the proposed rule, the collection of the 

new chart-abstracted measures for the 

FY 2011 payment determination will 

begin with 1st calendar quarter 2010 

discharges, for which the submission 

deadline will be August 15, 2010. 

(4) New Structural Measures 

In the FY 2010 IPPS/RY 2010 LTCH 

PPS proposed rule (74 FR 24170), we 

also proposed to adopt two additional 

structural measures for the FY 2011 

payment determination. Structural 

measures assess the characteristics and 

capacity of the provider to deliver 

quality health care. We proposed to add 

two additional registry participation 

measures. The two structural measures 

are: (1) Participation in a Systematic 

Clinical Database Registry for Stroke 

Care; and (2) Participation in a 

Systematic Clinical Database Registry 

for Nursing Sensitive Care. These 

measures are specific applications for 

the inpatient setting of a structural 

measure entitled ‘‘Participation by a 

physician or other clinician in a 

systematic clinical database registry that 

includes consensus endorsed 

measures,’’ which received NQF 

endorsement under a project titled 

‘‘National Voluntary Consensus 

Standards for Health IT: Structural 

Measures 2008.’’ The proposed 

measures are appropriate applications of 

the NQF-endorsed measure because the 

NQF has endorsed measures for Stroke 

Care and Nursing Sensitive Care which 

are currently being collected by widely 

used stroke and nursing sensitive care 

registries. Therefore, we believe that the 

proposed Stroke Registry Participation 

structural measure and Nursing 

Sensitive Care Registry Participation 

structural measure meet the consensus 

requirement in section 

1886(b)(3)(B)(viii)(V) of the Act. 

As we have previously stated, we also 

believe that participation in registries 

reflects a commitment to assessing the 

quality of care provided and identifying 

opportunities for improvement. Many 

registries also collect outcome data and 

provide feedback to hospitals about 

their performance. Moreover, registries 

offer a potential future data source from 

which we can collect quality data. 

The Participation in a Systematic 

Clinical Database Registry for Stroke 

structural measure would require each 

hospital that participates in the 

RHQDAPU program to indicate whether 

it is participating in a systematic 

qualified clinical database registry for 

inpatient stroke care and, if so, to 

identify the registry. 

The Participation in a Systematic 

Clinical Database Registry for Nursing 

Sensitive Care structural measure would 

similarly require each hospital 

participating in the RHQDAPU program 

to indicate whether it is participating in 

a systematic qualified clinical database 

registry measuring nursing sensitive 

care quality for inpatient care and, if so, 

to identify the registry. 

We solicited public comment on these 

registry structural measures. 

Specifically, we invited public comment 

on whether ‘‘systematic qualified 

clinical database registry’’ is adequately 

defined and, if not, how it should be 

defined. In defining ‘‘systematic 

qualified clinical database registry,’’ 

should registries that do not collect 

outcome measures and/or do not 

provide feedback to hospitals about 

their performance be excluded? Are 

there other registries that we should 

consider in future rulemakings, beyond 

stroke and nursing sensitive registries, 

particularly for conditions where there 

is high mortality/morbidity in the 

Medicare population, high cost to the 

health care system, and widespread 

treatment variations despite established 

clinical guidelines? Finally, we 

welcomed more precise data on what 

percentage of hospitals already 

participate in a stroke registry or a 

nursing sensitive registry.12 Because we 

also retire measures when performance 

has reached a sufficiently high level, we 

invited public comment on whether 

reporting on stroke registry and nursing 

sensitive care registry structural 

measures has sufficient relevance and 

utility to justify the reporting burden, if 

a substantial proportion of hospitals 

already participate in these registries. 

Both proposed structural measures 

can be submitted using a Web-based 

collection tool that we will make 

available on the QualityNet Web site. 

We invited public comment on our 

proposal to adopt these two structural 

measures for the FY 2011 payment 

determination. 

Comment: Several commenters 

indicated that the two structural 

measures of clinical registry 

participation should not be included in 

the RHQDAPU program. They indicated 

that the measures had not been 

endorsed by the NQF or adopted by the 

HQA and there appears to be no 

established connection between 

whether a hospital answers ‘‘yes’’ or 

‘‘no’’ to the registry participation 

measures and the quality of the care that 

hospital provides. Some commenters 

expressed concern that these measures 

contain an implicit encouragement by 

the Medicare program for hospitals to 

participate in clinical data registries 

designed and operated by external 

organizations, which can be costly. 

Others commenters applauded the use 

of registries to promote quality 

improvement. 

Response: The proposed structural 

measures are specific applications for 

the inpatient setting of NQF-endorsed 

measure ‘‘participation by a physician 

or other clinician in a systematic 

clinical database registry that includes 

consensus endorsed measures.’’ 

Therefore, we believe that they meet the 

requirement for consensus in section 

1886(b)(3)(B)(viii)(V) of the Act. The 

measure as endorsed by the NQF is an 

indicator of quality, because it measures 

adoption of technology that has the 

capacity to improve quality of care. We 

believe that registries can play an 

important role in providing hospitals 

with information and services for 

internal quality improvement by 

providing performance benchmarking 

information, continuous feedback, and 

opportunities to learn best practices. 

Our intent with these structural 

measures is to assess the degree of 

current participation in registries 

collecting NQF-endorsed measures on 

the topics of stroke and nursing 

sensitive quality measures among 

hospitals participating in the RHQDAPU 

program. We note that hospitals are not 

required to actually participate in the 

registries in order to meet the 

RHQDAPU program requirements. We 

also note that in the public comments 

we received, many hospitals indicated 

that registry participation afforded them 

with valuable insights for improving 

quality and patient outcomes. 

Comment: Several commenters 

supported the structural measure 

‘‘Participation in a systematic clinical 

database registry for stroke.’’ The 


sroberts on DSKD5P82C1PROD with RULES
Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 43871 

commenters agreed that stroke 

measurement should be a priority for 

the RHQDAPU program because strokes 

cause significant mortality and 

morbidity in the Medicare population, 

and are treated with wide variation 

despite established guidelines. The 

commenters also stated that 

participation in such registries has 

resulted in improvements in the quality 

of care delivered to stroke patients. 

Commenters recommended that the 

Massachusetts Department of Public 

Health’s acute stroke registry, the 

American Stroke Association (ASA) Get 

With the Guidelines-Stroke registry, and 

the CDC Paul Coverdell stroke registry 

should be recognized as qualifying 

registries for the Systematic Clinical 

Database Registry for Stroke measures. 

A few commenters indicated that 

quarterly submission of registry 

participation, while not overly 

burdensome, is unnecessary because 

hospitals tend to participate for an 

entire year, and not on an intermittent 

basis. 

Response: We agree that strokes cause 

high morbidity and mortality in the 

Medicare population, and we believe 

that stroke registries can play an 

important role in providing hospitals 

with information and services for 

internal quality improvement by 

providing performance benchmarking 

information, continuous feedback, and 

opportunities to learn best practices. We 

understand that hospitals that 

participate in registries tend to 

participate continuously for an entire 

year, rather than intermittently. Based 

on the feedback, we are modifying our 

proposal to require that hospitals only 

report whether they participate in a 

stroke and/or nursing sensitive care 

registry once annually. We also are 

modifying our submission requirement 

with respect to the cardiac surgery 

registry participaton measure to be 

consistent with the annual submisssion 

requirement for the stroke and nursing 

sensitive care registry participation 

measures. 

Comment: A number of commenters 

indicated that participation in stroke 

registries should not be mandated due 

to perceived burden, and that hospitals 

should be allowed to report the 

measures to CMS without a vendor. One 

commenter asked whether and how 

CMS would determine volume 

thresholds for participation in a stroke 

registry, and specifically whether there 

would be an expectation that hospitals 

having a low volume of stroke cases 

participate in a registry. 

Response: We acknowledge that 

registry participation may be 

burdensome for some hospitals, and we 

note that the proposed structural 

measures do not mandate that hospitals 

actually participate in either a stroke or 

nursing sensitive care registry. We also 

note that there is no requirement under 

the RHQDAPU program that hospitals 

use a vendor to report measures to the 

QIO Clinical Warehouse, the structural 

measures can be reported directly by 

hospitals using a Web-based tool. 

Comment: Commenters suggested 

criteria for a qualified systematic 

clinical database registry for stroke care. 

One commenter suggested a data 

collection system that supports realtime data collection concurrent with 

patient care, that collects at a minimum 

all data required to support the NQFendorsed stroke measures, and that uses 

the data to guide improvement in stroke 

care within an organized program of 

quality improvement. Another 

commenter suggested that registries 

should be required to include the 

following services and information: (1) 

A feedback component; (2) the intended 

use (that is, plan of action/care) of the 

information; (3) potential intervention 

actions; (4) evaluation; and (5) the 

outcome measure intended to impact 

(this could be either a process-outcome 

link supported by literature, 

intermediate outcome, or long-term 

outcome). Commenters also suggested 

that the risk adjustment methodologies 

employed must be explained if a 

hospital is collecting outcome data, and 

the feedback provided should be 

‘‘systematic,’’ which requires 

coordination of the feedback and 

dissemination of that feedback to the 

defined stroke team (not just the 

statement feedback to hospital). 

Response: We appreciate these 

suggestions and will consider these for 

future measure refinement. We note that 

the current NQF-endorsed measure 

#0493, upon which the stroke and 

nursing sensitive registry participation 

structural measures are based, contains 

the following definition for systematic 

clinical database registry: 

‘‘c. Registry measures shall include at 

least two (2) representative NQF 

consensus endorsed measures for 

registry’s clinical topic(s) and report on 

all patients eligible for the selected 

measures. 

‘‘d. Registry provides calculated 

measures results, benchmarking, and 

quality improvement information to 

individual physicians and clinicians. 

‘‘e. Registry must receive data from 

more than 5 separate practices and may 

not be located (warehoused) at an 

individual group’s practice. 

Participation in a national or state-wide 

registry is encouraged for this measure. 

‘‘f. Registry may provide feedback 

directly to the provider’s local registry 

if one exists.’’ 

This definition of systematic clinical 

database registry is part of the 

specification for measure #0493 shown 

in NQF’s 2008 Consensus Report 

regarding National Voluntary Consensus 

Standards for Health Information 

Technology. We will modify this 

definition to apply to inpatient 

hospitals, and to the specific topics of 

stroke and nursing sensitive care 

registries. 

Comment: Some commenters 

supported the structural measure for 

‘‘Participation in a Systematic Clinical 

Database Registry for Nursing Sensitive 

Care.’’ One commenter suggested that 

the Patients First nursing sensitive 

measure project be recognized as a 

qualifying registry under the measure. 

Another commenter suggested that the 

National Database of Nursing Quality 

Indicators (NDNQI) be considered a 

qualifying registry. 

Response: We appreciate these 

supportive comments. Participation in a 

particular registry is not required in 

order for a hospital to properly report 

the Participation in a Systematic 

Clinical Database Registry for Nursing 

Sensitive Care measure, or any of the 

other structural measures we have, to 

date, adopted for the RHQDAPU 

program. A hospital can successfully 

report this structural measure simply by 

indicating whether they participate in a 

systematic clinical database registry for 

nursing sensitive care and, if so, which 

registry. 

Comment: A number of commenters 

indicated that participation in a nursing 

sensitive care registry, though currently 

widespread, may not be feasible for 

smaller hospitals due to the cost and the 

need for additional staff for data 

abstraction and reporting. 

Response: We understand the cost 

implications of participating in such 

registries. However, as we have stated 

above, actual participation in a nursing 

sensitive care registry is not required 

under the RHQDAPU program. 

Comment: Commenters suggested that 

CMS consider three additional registry 

topics for measuring hospital 

participation: 

• Sepsis Survival 

• Surgical Quality Improvement 

• Healthcare Safety and Healthcare 

Acquired Infections 

Response: We thank the commenters 

for these suggestions and will consider 

these registry topics in the future. 

After consideration of the public 

comments we received, we are adopting 

as final the two proposed structural 

measures: Participation in a Systematic 


sroberts on DSKD5P82C1PROD with RULES
43872 Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 

Clinical Database Registry for Stroke 

Care; and Participation in a Systematic 

Clinical Database Registry for Nursing 

Sensitive Care under the RHQDAPU 

program for the FY 2011 payment 

determination. Based on public 

comments, we will collect these 

structural measures once annually 

rather than quarterly as originally 

proposed. Annual data submission for 

these structural measures via a Webbased collection tool will begin in July 

2010 with respect to the time period 

January 1, 2010, through June 30, 2010. 

In summary, after consideration of the 

public comments we received, for the 

FY 2011 payment determination, we are 

adopting as final our proposals to retain 

41 of the measures we adopted for the 

FY 2010 payment determination. In 

addition, we are adopting as final our 

proposal to harmonize an AHRQ 

measure and a Nursing Sensitive 

measure by combining these measures 

into a single measure entitled Death 

among surgical inpatients with serious, 

treatable complications for the 

RHQDAPU program measure set for FY 

2011 payment determination. Finally, 

we are adopting as final our proposal to 

add an additional four measures to the 

RHQDAPU program measure set for the 

FY 2011 payment determination: SCIP– 

Infection-9: Postoperative Urinary 

Catheter Removal on Post Operative Day 

1 or 2; SCIP–Infection-10: Perioperative 

Temperature Management; Participation 

in a Systematic Clinical Database 

Registry for Stroke Care; and 

Participation in a Systematic Clinical 

Database Registry for Nursing Sensitive 

Care. 

Set out below are the 46 RHQDAPU 

program quality measures we are 

adopting for the FY 2011 payment 

determination: 

Topic RHQDAPU Program quality measures for the FY 2011 payment 

determination 

Acute Myocardial Infarction (AMI) ............................................................ • AMI–1 Aspirin at arrival. 

• AMI–2 Aspirin prescribed at discharge. 

• AMI–3 Angiotensin Converting Enzyme Inhibitor (ACE–I) or 

Angiotensin II Receptor Blocker (ARB) for left ventricular systolic 

dysfunction. 

• AMI–4 Adult smoking cessation advice/counseling. 

• AMI–5 Beta blocker prescribed at discharge. 

• AMI–7a Fibrinolytic (thrombolytic) agent received within 30 minutes 

of hospital arrival. 

• AMI–8a Timing of Receipt of Primary Percutaneous Coronary Intervention (PCI). 

Heart Failure (HF) .................................................................................... • HF–1 Discharge instructions. 

• HF–2 Left ventricular function assessment. 

• HF–3 Angiotensin Converting Enzyme Inhibitor (ACE–I) or 

Angiotensin II Receptor Blocker (ARB) for left ventricular systolic 

dysfunction. 

• HF–4 Adult smoking cessation advice/counseling. 

Pneumonia (PN) ....................................................................................... • PN–2 Pneumococcal vaccination status. 

• PN–3b Blood culture performed before first antibiotic received in hospital. 

• PN–4 Adult smoking cessation advice/counseling. 

• PN–5c Timing of receipt of initial antibiotic following hospital arrival. 

• PN–6 Appropriate initial antibiotic selection. 

• PN–7 Influenza vaccination status. 

Surgical Care Improvement Project (SCIP) ............................................. • SCIP–1 Prophylactic antibiotic received within 1 hour prior to surgical 

incision. 

• SCIP–3 Prophylactic antibiotics discontinued within 24 hours after 

surgery end time. 

• SCIP–VTE–1: Venous thromboembolism (VTE) prophylaxis ordered 

for surgery patients. 

• SCIP–VTE–2: VTE prophylaxis within 24 hours pre/post surgery. 

• SCIP–Infection-2: Prophylactic antibiotic selection for surgical patients. 

• SCIP–Infection-4: Cardiac Surgery Patients with Controlled 6AM 

Postoperative Serum Glucose. 

• SCIP–Infection-6: Surgery Patients with Appropriate Hair Removal. 

• SCIP–Infection-9: Postoperative Urinary Catheter Removal on Post 

Operative Day 1 or 2 *. 

• SCIP–Infection-10: Perioperative Temperature Management *. 

• SCIP–Cardiovascular-2: Surgery Patients on a Beta Blocker Prior to 

Arrival Who Received a Beta Blocker During the Perioperative Period. 

Mortality Measures (Medicare Patients) ................................................... • MORT–30–AMI: Acute Myocardial Infarction 30-day mortality –Medicare patients. 

• MORT–30–HF: Heart Failure 30-day mortality Medicare patients. 

• MORT–30–PN: Pneumonia 30-day mortality –Medicare patients. 

Patients’ Experience of Care .................................................................... • HCAHPS survey. 

Readmission Measure (Medicare Patients) ............................................. • READ–30–HF: Heart Failure 30-Day Risk Standardized Readmission 

Measure (Medicare patients). 

• READ–30–AMI: Acute Myocardial Infarction 30-Day Risk Standardized Readmission Measure (Medicare patients). 

• READ–30–PN: Pneumonia 30-Day Risk Standardized Readmission 

Measure (Medicare patients). 

AHRQ Patient Safety Indicators (PSIs), Inpatient Quality Indicators 

(IQIs) and Composite Measures.

• PSI 06: Iatrogenic pneumothorax, adult. 


sroberts on DSKD5P82C1PROD with RULES
Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 43873 

Topic RHQDAPU Program quality measures for the FY 2011 payment 

determination 

• 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. 

• Mortality for selected surgical procedures (composite). 

• Complication/patient safety for selected indicators (composite). 

• Mortality for selected medical conditions (composite). 

AHRQ PSI and Nursing Sensitive Care ** ............................................... • Death among surgical inpatients with serious, treatable complications. 

Cardiac Surgery ........................................................................................ • Participation in a Systematic Database for Cardiac Surgery. 

Stroke Care .............................................................................................. • Participation in a Systematic Clinical Database Registry for Stroke 

Care *. 

Nursing Sensitive Care ............................................................................. • Participation in a Systematic Clinical Database Registry for Nursing 

Sensitive Care *. 

* New measure for FY 2011 payment determination. 

** Harmonized measure. This measure may be publicly reported under two topics—the AHRQ PSIs and the Nursing Sensitive Care topic. 

4. Possible New Quality Measures for 

the FY 2012 Payment Determination 

and Subsequent Years 

In the FY 2010 IPPS/RY 2010 LTCH 

PPS proposed rule (74 FR 24172), we 

invited public comment on the 

following quality measures and topics 

that we might consider adopting 

beginning with the FY 2012 payment 

determination. We also sought 

suggestions and rationales to support 

the adoption of measures and topics for 

the RHQDAPU program that are not 

included in this list. 

Measure topic Measure description 

AMI ........................................................................................................... Statin at discharge. 

ED—Throughput ....................................................................................... Median time from admit decision time to time of departure from the 

emergency department for emergency department patients admitted 

to inpatient status. 

ED—Throughput ....................................................................................... Median time from emergency department arrival to time of departure 

from the emergency room for patients admitted to the facility from 

the emergency department. 

Complications ........................................................................................... Lower Extremity Bypass Complications. 

Complications ........................................................................................... Comorbidity Adjusted Complication Index. 

PCI ............................................................................................................ PCI mortality rate for patients without ST segment elevation myocardial 

infarction (STEMI) and without cardiogenic shock. 

Stroke ....................................................................................................... Patients with an ischemic stroke or a hemorrhagic stroke and who are 

non-ambulatory should start receiving DVT prophylaxis by end of 

hospital day two. 

Stroke ....................................................................................................... Patients with an ischemic stroke prescribed antithrombotic therapy at 

discharge. 

Stroke ....................................................................................................... Patients with an ischemic stroke with atrial fibrillation discharged on 

anticoagulation therapy. 

Stroke ....................................................................................................... Acute ischemic stroke patients who arrive at the hospital within 120 

minutes (2 hours) of time last known well and for whom IV t-PA was 

initiated at this hospital within 180 minutes (3 hours) of time last 

known well. 

Stroke ....................................................................................................... Patients with ischemic stroke who receive antithrombotic therapy by 

the end of hospital day two. 

Stroke ....................................................................................................... Ischemic stroke patients with LDL >/= 100 mg/dL, or LDL not measured, or, who were on cholesterol reducing therapy prior to hospitalization are discharged on a statin medication. 

Stroke ....................................................................................................... Patients with ischemic or hemorrhagic stroke or their caregivers who 

were given education or educational materials during the hospital 

stay addressing all of the following: personal risk factors for stroke, 

warning signs for stroke, activation of emergency. 

Stroke ....................................................................................................... Patients with an ischemic stroke or hemorrhagic stroke who were assessed for rehabilitation services. 

VTE ........................................................................................................... This measure assesses the number of patients that receive VTE prophylaxis or have documentation why no VTE prophylaxis was given 

within 24 hours after the initial admission (or transfer) to the Intensive Care Unit (ICU) or surgery end time. 

VTE ........................................................................................................... Patients who received parenteral and warfarin therapy (overlap therapy): (1) For at least 5 days, with an INR greater than or equal to 2 

prior to discontinuation of parenteral therapy OR (2) For more than 5 

days, with an INR less than 2, but were discharged on overlap therapy OR (3) Who were discharged in less than five days on overlap 

therapy. 


sroberts on DSKD5P82C1PROD with RULES
43874 Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 

Measure topic Measure description 

VTE ........................................................................................................... This measure assesses the number of patients receiving intravenous 

(IV) UFH therapy with documentation that the dosages and platelet 

counts are monitored by protocol (or nomogram). 

VTE ........................................................................................................... This measure assesses the number of VTE patients that are discharged home, home care, or home hospice on warfarin with written 

discharge instructions that addresses all four criteria: Follow-up Monitoring; Compliance Issues; Dietary Restrictions; and, Potential for 

Adverse Drug Reactions/Interactions. 

VTE ........................................................................................................... This measure assesses the number of patients that were diagnosed 

with VTE during hospitalization (not present at admission) that did 

not receive VTE prophylaxis. 

Cardiac Surgery ........................................................................................ Post-operative Renal Failure. 

Cardiac Surgery ........................................................................................ Surgical Re-exploration.

Cardiac Surgery ........................................................................................ Anti-Platelet Medication at Discharge. 

Cardiac Surgery ........................................................................................ Beta Blockade at Discharge. 

Cardiac Surgery ........................................................................................ Anti-Lipid Treatment Discharge. 

Cardiac Surgery ........................................................................................ Risk-Adjusted Operative Mortality for Coronary Artery Bypass Graft 

CABG. 

Cardiac Surgery ........................................................................................ Risk-Adjusted Operative Mortality for Aortic Valve Replacement (AVR). 

Cardiac Surgery ........................................................................................ Risk-Adjusted Operative Mortality for Mitral Valve Replacement/Repair 

(MVR). 

Cardiac Surgery ........................................................................................ Risk-Adjusted Operative Mortality MVR+CABG Surgery. 

Cardiac Surgery ........................................................................................ Risk-Adjusted Operative Mortality for AVR+CABG. 

Cardiac Surgery ........................................................................................ Pre-Operative Beta Blockade. 

Cardiac Surgery ........................................................................................ Duration of Prophylaxis for Cardiac Surgery Patients. 

Cardiac Surgery ........................................................................................ Prolonged Intubation (ventilation). 

Cardiac Surgery ........................................................................................ Deep Sternal Wound Infection Rate. 

Cardiac Surgery ........................................................................................ Stroke/Cerebrovascular Accident. 

Nursing Sensitive ...................................................................................... Patient Falls: All documented falls with or without injury, experienced 

by patients on an eligible unit in a calendar month. 

Nursing Sensitive ...................................................................................... Falls with Injury: All documented patient falls with an injury level of 

minor or greater. 

Nursing Sensitive/HAI ............................................................................... Catheter Associated Urinary Tract Infection. 

Nursing Sensitive/HAI ............................................................................... Central Line Associated Blood Stream Infection in the ICU and high 

risk neonatal intensive care unit. 

Nursing Sensitive/HAI ............................................................................... Ventilator Associated Pneumonia in the ICU. 

Nursing Sensitive ...................................................................................... Pressure Ulcer Prevalence. 

Nursing Sensitive ...................................................................................... Restraint Prevalence (vest and limb). 

Nursing Sensitive ...................................................................................... Skill Mix: Percentage of hours worked by: RN, LPN/LVN, UAP, Contract/Agency. 

Nursing Sensitive ...................................................................................... Hours per patient day worked by RN, LPN, and UAP. 

Nursing Sensitive ...................................................................................... Practice Environment Scale-Nursing Work Index. 

Nursing Sensitive ...................................................................................... Voluntary turnover for RN, APN, LPN, UAP. 

Outcomes ................................................................................................. PSI 03: Decubitus Ulcer. 

Outcomes ................................................................................................. PSI 07: Infection Due to Medical Care. 

Outcomes ................................................................................................. PSI 08: Post Operative Hip Fracture. 

Outcomes ................................................................................................. PSI 09: Post Operative Hemorrhage or Hematoma *. 

Outcomes ................................................................................................. PSI 10: Post Operative Physiologic Metabolic Derangement *. 

Outcomes ................................................................................................. PSI 11: Post Operative Respiratory Failure. 

Outcomes ................................................................................................. PSI 12: Post Operative PE or DVT. 

Outcomes ................................................................................................. PSI 13: Post Operative Sepsis. 

Outcomes ................................................................................................. IQI 08: In-hospital Mortality for Esophageal Resection. 

Outcomes ................................................................................................. IQI 09: In-hospital Mortality for Pancreatic Resection. 

Outcomes ................................................................................................. IQI 12: In-hospital Mortality for Coronary Artery Bypass Graft CABG. 

Outcomes ................................................................................................. IQI 13: In-hospital Mortality for Craniotomy *. 

Outcomes ................................................................................................. IQI 14: In-hospital Mortality for Hip Replacement. 

Outcomes ................................................................................................. IQI 15: In-hospital Mortality for AMI. 

Outcomes ................................................................................................. IQI 16: In-hospital Mortality for CHF. 

Outcomes ................................................................................................. IQI 17: In-hospital Mortality for Stroke. 

Outcomes ................................................................................................. IQI 18: In-hospital Mortality for GI Hemorrhage *. 

Outcomes ................................................................................................. IQI 20: In-hospital Mortality for Pneumonia. 

SCIP ......................................................................................................... Short Half-Life prophylactic administered preoperatively redosed within 

4 hours after preoperative dose. 

PCI Readmission ...................................................................................... Hospital-specific 30-day risk-standardized readmission rate following 

Percutaneous Coronary Intervention (PCI) among patients aged 18 

years or older. 

PCI Mortality ............................................................................................. PCI Mortality for STEMI/shock patients: Hospital-specific 30-day allcause risk-standardized mortality rate following Percutaneous Coronary Intervention (PCI) among patients aged 18 years or older with 

ST segment elevation myocardial infarction (STEMI) or cardiogenic 

shock at the time of procedure. 


sroberts on DSKD5P82C1PROD with RULES
Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 43875 

Measure topic Measure description 

PCI Mortality for non-STEMI/non-shock patients: Hospital-specific 30- 

day all-cause risk-standardized mortality rate following Percutaneous 

Coronary Intervention (PCI) among patients aged 18 years or older 

without ST segment elevation myocardial infarction (STEMI) and 

without cardiogenic shock at the time of procedure. 

ICD Complications .................................................................................... Hospital-specific risk-standardized complication rate following 

implantable cardioverter defibrillator (ICD) implantation among patients aged 18 years or older. 

Hospital Acquired Infections ..................................................................... Methicillin-Resistant Staphylococcus Aureus (MRSA). 

Hospital Acquired Infections ..................................................................... Clostridium Difficile Associated Diseases (CDAD). 

* AHRQ is currently working with to improve and refine these measures, after which they will be updated to reflect the most current evidence 

learned as a result of validation efforts and empirical analyses. 

We invited public comment on these 

measures for potential future use in the 

RHQDAPU program, as well as 

suggestions and supporting rationales 

for additional measures to consider 

using in the program at a future time. 

• General Comments 

Comment: Several commenters 

expressed concern over the number of 

measures listed as being under 

consideration for FY 2012 and 

subsequent years in the proposed rule. 

Commenters believed that a large 

increase in measures in future years 

would compete with other critical 

initiatives that would be occurring (such 

as HIT adoption for incentive payments 

and transitioning to ICD–10–CM and 

ICD–10–PCS implementation). The 

commenters recommended that CMS 

give consideration to the number and 

burden associated with the measures 

particularly as many are not EHR-based 

or registry-based measures. The 

commenters also suggested that CMS 

prioritize the measures, avoid 

redundancy by adopting measures that 

add information not captured in other 

measures, and consider measures that 

are closest in relation to desired 

outcomes for patients. One commenter 

also suggested that CMS assess the 

feasibility of constructing measures 

from data contained in the typical 

hospital electronic health record. 

Response: We listed an array of 

measures that we are considering for the 

future. We will carefully weigh the 

burden associated with the adoption of 

measures against the benefit of publicly 

reporting that data. We anticipate 

limited adoption of chart-abstracted 

measures in the future because we wish 

to minimize the burden associated with 

quality measurement during a time 

when hospitals will be implementing 

new technologies and systems. We also 

will continue to assess the feasibility of 

alternative data sources for measures, 

such as registries and EHRs. 

Comment: Commenters recommended 

that CMS provide clarity on the status 

of the proposed measures regarding 

NQF endorsement, information about 

the data abstraction burden, and a 

central location for specifications for 

measures under consideration. Another 

commenter also suggested that for 

measures under consideration, CMS 

provide information on benchmarking, 

potential use, affect on patient care, and 

development. 

Response: We understand the 

commenters’ desire to have more 

information about the measures being 

considered for the future. We provide 

some additional information in our 

responses to comments below, and we 

will endeavor to provide more detailed 

information about measures under 

consideration in the future. 

• Comment on Measure Topic: AMI 

Comment: One commenter indicated 

that the Statin at Discharge measure for 

AMI would be better suited as a 

physician measure rather than a 

hospital measure. 

Response: We will take this into 

consideration in determining whether to 

adopt this measure for the RHQDAPU 

program in the future. However 

discharge medications, such as aspirin 

at discharge, form the basis for other 

measures which we have implemented 

in the RHQDAPU program. 

• Comments on Measure Topic: ED– 

Throughput 

Comment: Several commenters 

supported the concept of the ED– 

Throughput measures. Some 

commenters made suggestions for 

refinements to the specifications for 

‘‘Median time from admit decision time 

to time of departure from the emergency 

room for patients admitted to the facility 

from the ED’’ measure. They suggested 

using the time when an admit order is 

written, and the time of departure from 

the emergency department to calculate 

the median times for this measure. 

Other commenters suggested 

stratification by population type. 

Response: We appreciate the 

supportive comments. These 

suggestions are in keeping with the 

current measure specifications as 

endorsed by NQF. These ED– 

Throughput measure specifications are 

available in the Specifications Manual 

on http://www.QualityNet.org. 

Comment: One commenter opposed 

the ED–Throughput measures because 

the commenter believed that they 

measured utilization. 

Response: The ED–Throughput 

measures are NQF-endorsed quality 

measures. The ED–Throughput 

measures reflect not only the processes 

of care that occur while the patient is in 

the emergency department, but also 

reflect the coordination of care, 

communication, and efficiency of 

service provision beyond the walls of 

the emergency department. They 

address ED overcrowding, which has 

been identified as a major quality issue 

by the IOM. 

• Comment on Measure Topic: 

Complications 

Comment: One commenter stated that 

global measures such the Comorbidity 

Adjusted Complication Index are useful 

to hospitals in quality improvement 

efforts. 

Response: We agree that global 

measures can provide useful quality 

improvement information to hospitals. 

We also believe that the topic of 

complications is an important one for 

consumers. This measure is currently 

undergoing evaluation as part of the 

NQF consensus development project 

entitled Hospital Care: Outcomes and 

Efficiency Measures Phase II. We will 

take this comment into consideration in 

determining whether to adopt such 

measures in the future. 

• Comments on Measure Topic: Stroke 

Comment: Numerous commenters 

encouraged CMS to adopt the stroke 

measures, which they see as evidencebased measures that accurately measure 

evidence-based care of the stroke patient 

to minimize secondary strokes and other 

complications, have been thoroughly 

researched, and are widely recognized. 

Several commenters cited firsthand 


sroberts on DSKD5P82C1PROD with RULES
43876 Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 

experience with dramatic quality 

improvements resulting from the 

collection and reporting of these 

measures to a registry. 

Response: We appreciate and agree 

with these supportive statements. Stroke 

is a topic of great relevance to the 

Medicare population due to its impact 

on morbidity and mortality, and an area 

of great potential improvement for 

hospitals. 

Comment: Two commenters 

supported the stroke measures under 

consideration but recommended 

limiting the measures in scope to 

‘‘Certified Stroke Centers’’ in order to 

minimize the possibility that patients 

will suffer from unintended 

consequences due to a provider’s lack of 

expertise with stroke. One commenter 

supported all but the STK–10 Assessed 

for Rehabilitation stroke measure and 

recommended that CMS establish 

eligibility criteria for the Assessment of 

Rehabilitation measure instead of 

including the entire stroke population 

as currently defined in the 

Specifications Manual. 

Response: We will consider these 

comments in deciding whether to adopt 

these measures in the future. We note 

that we adopt measures for the 

RHQDAPU program that are broadly 

applicable to all participating hospitals, 

and that acute care for stroke is not 

given only by hospitals that have 

attained specific certifications. 

Regarding the measure on stroke 

assessment, the scope of the NQFendorsed measure includes the entire 

stoke population. However, the measure 

allows for variation in the extent/degree 

of the assessment based on clinical 

indications. Specifications for the stroke 

measures are available in the 

Specifications Manual at https:// 

www.QualityNet.org. 

Comment: Several commenters 

generally opposed the future adoption 

of one or more of the stroke measures 

into the RHQDAPU program. One 

commenter stated that the abstraction 

rules for stroke are in need of greater 

refinement as they currently allow too 

much room for subjective interpretation. 

One commenter had concerns regarding 

inclusion of the anticoagulation 

measure because falls in the elderly 

population can be a significant problem 

with the risk of intracranial bleeding 

surpassing the benefit of anticoagulation 

therapy for atrial fibrillation. A few 

commenters opposed ‘‘Thrombolysis 

therapy’’ for stroke, stating that this 

therapy is not yet the standard of care 

for community or rural hospitals and 

that administering thrombolytic therapy 

to stroke patients has a high risk of 

complications. 

Response: We appreciate these 

comments and will take them into 

consideration. Most of the comments we 

received overwhelmingly supported the 

adoption of these measures for the 

RHQDAPU program in the future. We 

believe that the stroke topic is of great 

clinical relevance to the Medicare 

population because of its impact on 

morbidity and mortality, as well a 

stroke’s debilitating effect on the quality 

of life among Medicare beneficiaries. All 

of the measures in the stroke set under 

consideration are important to the 

overall outcome of the patient. The 

stroke measures are based on current 

AHA and ASA guidelines. We believe 

that current guidelines for stroke care 

apply across hospital types. The 

measure ‘‘Patients with an ischemic 

stroke with atrial fibrillation discharged 

on anticoagulation therapy’’ currently 

excludes patients for whom risks 

associated with treatment with an 

anticoagulant would outweigh potential 

benefits. Providing timely thrombolytic 

therapy has shown to greatly reduce 

complications, mortality and morbidity 

related to stroke. The measures are 

intended for public reporting, and are 

not intended to encourage a particular 

treatment when it is not warranted. 

• Comments on Measure Topic: VTE 

Comment: Two commenters 

supported CMS adding measures VTE– 

1, –2 and –3 as shown in the inpatient 

measure specification manual in FY 

2012, but did not support measures 

VTE–4, –5, and –6. The commenters 

stated that the measures shown in the 

table do not seem to align with the VTE 

measures included in the Specifications 

Manual effective with October 1, 2009 

discharges. The commenters also 

recommended that the measure ‘‘VTE– 

1: prophylaxis in medical and nonSCIP–VTE surgical patients’’, which we 

proposed in the FY 2009 IPPS proposed 

rule (73 FR 23648) but did not adopt, be 

considered for future adoption into the 

RHQDAPU program. 

Response: The VTE measures we 

listed in the FY 2010 IPPS/RY 2010 

LTCH PPS proposed rule are the same 

as the VTE measures in the aligned 

Specifications Manual. VTE–1 appears 

in the aligned Specifications Manual, 

and we will include VTE–1 on the list 

of measures to be considered for FY 

2012 and beyond. 

Comment: One commenter supported 

all but VTE–3 and –4 as shown in the 

inpatient measure specification manual, 

and suggested that the measure 

descriptions be clarified. 

Response: The formal specifications 

can be found in the aligned 

Specifications Manual on the 

QualityNet Web site: https:// 

www.QualityNet.org. 

• Comments on Measure Topic: Cardiac 

Surgery 

Comment: One commenter supported 

adopting the Cardiac Surgery measures 

for the RHQDAPU program because 

these measures are appropriate and 

useful for quality improvement and 

public reporting purposes. Another 

commenter indicated that the data 

element specifications for the Cardiac 

Surgery topic need more rigor and 

standardization. 

Response: Cardiac surgery is a topic of 

high relevance to the Medicare program 

because of its high volume among 

Medicare beneficiaries. We note that the 

cardiac surgery measures that are under 

consideration for adoption in future 

years, as well as their specifications, are 

NQF-endorsed and are available at 

http://www.qualityforum.org/. 

• Comments on Measure Topics: 

Nursing Sensitive and Nursing 

Sensitive/HAI 

Comment: Several commenters 

supported the Central Line [catheter] 

Associated Blood Stream Infection in 

the ICU and high risk neonatal intensive 

care unit measure, and the CA UTI 

infection measure. Several commenters 

urged CMS to consider adopting a 

Center for Disease Control measure of 

Surgical Site Infection that is not listed 

in the table of measures under 

consideration for future years (Table— 

above) but which was listed in the 

future measure table in the 2009 IPPS 

rule at 73 FR 48611. The commenters 

stated that the Central Line Associated 

Blood Stream Infection, Catheter 

Associated Urinary Tract Infection, and 

Surgical Site Infection measures are 

thoroughly specified, are currently used 

in other reporting initiatives, are 

relevant to consumers, and reveal 

important information that hospitals can 

use for their quality improvement 

programs. One commenter supported 

adoption of these measures if hospitals 

do not have to join a registry to report 

the information. 

Response: We thank the commenters 

for these suggestions and will add 

Surgical Site Infection to the list of 

measures being considered for FY 2012 

and beyond because it addresses the 

high priority topical area of hospitalacquired infections. The Central Line 

[catheter] Associated Blood Stream 

Infection in the ICU and high risk 

neonatal intensive care unit measure 

and the Catheter Associated UTI 

measure are currently being collected by 

the CDC’s National Healthcare Safety 

Network (NHSN) database as 


sroberts on DSKD5P82C1PROD with RULES
Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 43877 

surveillance measures. We are 

supportive of these measures as they 

address hospital-acquired infections. 

We are exploring the possibility of 

receiving data, with permission from 

participating hospitals, from the CDC to 

avoid duplicative reporting of 

information by hospitals that participate 

in NHSN. Furthermore, we are 

exploring the development of electronic 

specifications for the collection of these 

measures from EHRs. 

Comment: Several commenters 

indicated that more specificity, 

information, and clear expectations are 

needed for the following Nursing 

Sensitive measures: Patient Falls: All 

documented falls with or without 

injury, experienced by patients on an 

eligible unit in a calendar month; Falls 

with Injury: All documented patient 

falls with an injury level of minor or 

greater; CA UTI; Pressure Ulcer 

Prevalence; and Restraint Prevalence 

(vest and limb). In particular, the 

commenters believe that definitions for 

falls and CA UTI are needed. Two 

commenters indicated that the Pressure 

Ulcer Prevalence measure needs more 

specificity regarding the stage of the 

ulcer and whether the pressure ulcer 

was present on admission or hospitalacquired. One commenter indicated 

that, at times, pressure ulcers may not 

be preventable (for example, cases 

where patients experience multisystem 

organ failure, malnutrition, when 

vasopressors or fluid resuscitation have 

been employed, or when the patient 

cannot be turned due to traumas 

requiring surgery to be performed). 

Response: The Nursing Sensitive 

measures are currently the subject of an 

NQF reevaluation project. We anticipate 

that considerations such as these will be 

brought forth and addressed as 

necessary during the reevaluation 

process prior to the time we would 

propose to adopt the measures. 

Comment: A few commenters 

indicated that they would not be able to 

calculate the voluntary turnover 

measure unless this was manually 

tracked, making the collection of data 

necessary for this measure resource 

intensive. Another commenter indicated 

that the measures in the Nursing 

Sensitive measure set that rely on 

administrative data (such as voluntary 

turnover and skill mix) are of 

questionable validity for quality 

improvement. 

Response: We appreciate these 

comments and will take them into 

consideration in deciding whether to 

adopt these measures in the future. Our 

understanding is that most hospitals are 

currently collecting the data elements 

for the voluntary turnover and skill mix 

measures. Registries of Nursing 

Sensitive Care quality measures 

currently feature these administrativebased measures in hospital feedback 

reports for quality improvement 

purposes. 

Comment: Two commenters criticized 

the Ventilator Associated Pneumonia 

[VAP] in the ICU measure. One 

commenter noted that a recent HHS 

National Action Plan to Prevent 

Healthcare-Associated Infections 

indicated that ‘‘no valid outcome or 

process metric had been identified for 

VAP.’’ Another commenter indicated 

that, while VAP in the ICU is frequently 

tracked for State reporting purposes, it 

is a poor measure for quality 

improvement or for external comparison 

because of the challenges with diagnosis 

and definitions. 

Response: Healthcare-associated 

infections are a high priority area for us 

because they increase complications 

and treatment costs, and we are looking 

to this as an area for future 

measurement. We agree that the 

definition of VAP should undergo 

further standardization. Therefore, we 

will not consider adopting this measure 

for the RHQDAPU program until such a 

definition has been determined. 

• Comments on Measure Topic: 

Outcomes 

Comment: Several commenters 

supported adoption of the AHRQ 

patient safety indicators and inpatient 

quality indicators, but many 

commenters suggested limiting adoption 

to two or three AHRQ measures 

annually because collection of more 

than three may present a burden to 

hospitals. A few commenters suggested 

reporting one or more of the AHRQ 

indicators separately from the 

composite measures. 

Response: We agree that these are 

important patient safety and outcome 

measures for the inpatient setting. These 

would be claims-based measures. 

Therefore, because we currently 

calculate claims-based measures using 

only Medicare claims, there would be 

no additional reporting burden 

associated with these measures. To the 

extent that the measures focus on 

quality of care issues, we believe that 

hospitals will benefit from the 

information these measures reveal. We 

will consider the suggestion for separate 

public reporting of selected indicators. 

However, if any of these individual 

measures are adopted, we will engage in 

consumer testing regarding how best to 

display the measures on the Hospital 

Compare Web site. The measure 

specifications for the AHRQ inpatient 

quality indicators and patient safety 

indicators are available at http:// 

www.qualityindicators.ahrq.gov/. 

Comment: One commenter stated that, 

while AHRQ patient safety measures 

may have value to hospitals for internal 

quality improvement purposes, they 

currently lack the sensitivity and 

specificity required for use as 

comparative, publicly reported 

measures, especially the researchoriented PSI measures. Because they are 

derived from administrative data, one 

commenter suggested that they are less 

sensitive than measures derived from 

clinical chart abstraction at identifying 

relevant patients and excluding other 

patients. One commenter indicated that 

some of the AHRQ indicators have very 

high false positive rates and that 

extensive field testing and 

respecification would be needed. One 

commenter suggested that the risk 

adjustment seems unfairly advantageous 

to larger volume hospitals. 

Response: We appreciate these 

comments and will take them into 

consideration in determining which 

measures to adopt for the RHQDAPU 

program in the future. We are aware of 

and encourage current validation 

projects involving positive predictive 

value and sensitivity being performed 

on these measures as they will lead to 

improvements in the measure 

specifications. 

Comment: One commenter expressed 

concern that traditional risk adjustment 

would not be appropriate for IQI 17: Inhospital Mortality for Stroke. The 

commenter suggested that a proper risk 

adjustment model for in-hospital stroke 

mortality should account for stroke 

severity on presentation and stroke type 

(hemorrhagic versus ischemic stroke). 

The commenter suggested stratification 

of stroke mortality by type and 

suggested use of a well-established 

stroke severity scale in risk adjustment 

models for stroke mortality. 

Response: We appreciate this 

suggestion. However, we note that the 

current risk adjustment model for the 

in-hospital stroke mortality measure has 

been endorsed by the NQF as 

appropriate for this measure, and we 

also believe the model is appropriate 

because it underwent a rigorous 

consensus development process. 

• Comments on Measure Topics: PCI 

Readmission and PCI Mortality 

Comment: Two commenters 

supported the PCI 30-day mortality and 

30-day readmission rates and requested 

that CMS consider adopting the PCI 

measure set for FY 2011 payment 

determination. One commenter also 

stated that it is imperative that the 

outcome findings are drilled down far 


sroberts on DSKD5P82C1PROD with RULES
43878 Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 

enough that hospital-specific results can 

be obtained and patients can view 

hospital results based upon the 

condition or procedure they are 

undergoing. One commenter 

recommended that that the PCI 

Readmission and PCI Mortality measure 

related to STEMI/Shock be defined to 

include the base population as defined 

in the AMI Core Measure in order to 

reduce additional abstraction burden in 

identifying and defining shock. 

Response: We thank the commenters 

for their support for the PCI mortality 

and readmission measures and will 

consider adopting these measures for 

the RHQDAPU program. Before we add 

them to the RHQDAPU program 

measure set, however, we will propose 

to adopt them as part of the rulemaking 

process. The current outcomes and 

readmissions measures are all 

calculated at the hospital level for 

various conditions, allowing patients to 

view hospital level results. Future 

outcomes and readmission measures, 

including the PCI 30-day mortality and 

30-day readmission rates, if adopted for 

the RHQDAPU program, would be 

calculated in this manner as well. These 

measures are specified as claims-based 

measures for which there is no chart 

abstraction. These measures are 

currently undergoing evaluation as part 

of an NQF consensus development 

project entitled Hospital Care: Outcomes 

and Efficiency Measures Phase II. 

• Comment on Measure Topic: ICD 

Complications 

Comment: One commenter 

recommended that CMS follow 

definitions established by the ICD 

Registry to assure standardization of the 

ICD Complications measure. 

Response: We intend to use 

standardized measure specifications for 

measures that are adopted into the 

RHQDAPU program and seek to adopt 

measures that have been endorsed by 

the NQF. Therefore, when available, we 

adopt NQF-endorsed measures for a 

particular topic and utilize the measure 

specifications that were endorsed by the 

NQF. 

• Comment on Measure Topic: 

Hospital-Acquired Infections 

Comment: One commenter indicated 

that, because of increased screening, 

there is a need to distinguish between 

healthcare-acquired MRSA infections 

and community-associated infections, 

and that all multi-drug resistant 

infections should be reported in order to 

focus efforts on reducing these 

infections, rather than one in particular. 

Response: We agree that the 

distinction between the sources of 

MRSA infections is important. The 

MRSA measure under consideration for 

the RHQDAPU program focuses only on 

hospital-acquired infections. As for the 

reporting of other multi-drug resistant 

infections, we will take this comment 

into account as we develop future 

measures. 

• Comments on Measure Topic: Topics 

and Measures Suggested by Commenters 

Comment: Commenters suggested 

seven additional topics and measures to 

consider for future adoption into the 

RHQDAPU program: 

• Surgical site infection rate 

• Dysphagia screening for stroke 

• Pediatric Quality Indicators 

• Chronic Obstructive Pulmonary 

Disease (COPD) 

• Inpatient Resource Use and 

Efficiency 

• Global smoking cessation measure 

• Inpatient Psychiatric Measures 

Commenters noted that two of these 

topics (Surgical Site Infection and 

Chronic Obstructive Pulmonary Disease 

(COPD) were discussed in the future 

measure section of the FY 2009 IPPS 

proposed rule but not in the current 

proposed rule for FY 2010. 

Response: We will consider these 

suggestions when selecting measures for 

the RHQDAPU program in the future. 

We agree that surgical site infection, 

dysphagia screening for stroke, and 

COPD are appropriate areas for the 

RHQDAPU program because they 

address conditions that are of high 

prevalence and cost to the Medicare 

program. 

CMS currently includes several 

indicators of Pediatric Quality on the 

Hospital Compare Web site based on the 

submission of the data as part of other 

voluntary quality reporting initiatives. 

While we publicly report these 

measures, we are not currently 

considering requiring these indicators or 

other Pediatric Quality indicators for the 

RHQDAPU program because pediatric 

conditions affect a very small number of 

Medicare beneficiaries. 

In summary, we appreciate the public 

comments we received and will 

consider them as we develop proposals 

for new quality measures for the FY 

2012 payment determination and 

subsequent years. 

5. Form, Manner, and Timing of Quality 

Data Submission 

Section 1886(b)(3)(B)(viii)(I) of the 

Act requires that subsection (d) 

hospitals submit data on measures 

selected under that clause with respect 

to the applicable fiscal year. In addition, 

section 1886(b)(3)(B)(viii)(II) of the Act 

requires that each subsection (d) 

hospital submit data on measures 

selected under that clause to the 

Secretary in a form and manner, and at 

a time, specified by the Secretary. The 

data submission requirements, 

Specifications Manual, and submission 

deadlines are posted on the QualityNet 

Web site at: https://www.QualityNet.org. 

CMS requires that hospitals submit data 

in accordance with the specifications for 

the appropriate discharge periods. 

Hospitals submit quality data through 

the secure portion of the QualityNet 

Web site (formerly known as QualityNet 

Exchange) (https://www.QualityNet.org). 

This Web site meets or exceeds all 

current Health Insurance Portability and 

Accountability Act requirements for 

security of protected health information. 

a. RHQDAPU Program Procedures for 

the FY 2011 Payment Determination 

For the FY 2011 payment 

determination, in the FY 2010 IPPS/RY 

2010 LTCH PPS proposed rule (74 FR 

24174), we proposed that the following 

procedures would apply to hospitals 

participating in the RHQDAPU program. 

These procedures are, for the most part, 

the same as the procedures that apply to 

the FY 2010 payment determination. We 

identify below where we proposed to 

modify a procedure. 

• Register with QualityNet, before 

participating hospitals initially begin 

reporting data, regardless of the method 

used for submitting data. 

• Identify a QualityNet Administrator 

who follows the registration process 

located on the QualityNet Web site 

(https://www.QualityNet.org). 

• Notice of Participation. New 

subsection (d) hospitals and existing 

hospitals that wish to participate in the 

RHQDAPU program for the first time 

must complete a revised ‘‘Reporting 

Hospital Quality Data for Annual 

Payment Update Notice of 

Participation’’ form (Notice of 

Participation form) that includes the 

name and address of each hospital 

campus that shares the same CMS 

Certification Number (CCN). 

We proposed that any hospital that 

receives a new CCN on or after October 

15, 2009 (including new subsection (d) 

hospitals and hospitals that have 

merged) that wishes to participate in the 

RHQDAPU program and has not 

otherwise submitted a Notice of 

Participation form using that CCN must 

submit a completed Notice of 

Participation form no later than 180 

days from the date identified as the 

open date (that is, the Medicare 

acceptance date) on the approved CMS 

Online System Certification and 

Reporting (OSCAR) system. We believe 

that this deadline will give these 


sroberts on DSKD5P82C1PROD with RULES
Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 43879 

hospitals a sufficient amount of time to 

get their operations up and running 

while simultaneously providing CMS 

with clarity regarding whether they 

intend to participate in the RHQDAPU 

program for FY 2011. 

We also proposed that hospitals 

having an open date (or Medicare 

acceptance date) (as noted on the 

approved CMS OSCAR system) before 

October 15, 2009, that did not 

participate in the RHQDAPU program in 

FY 2010 but that wish to participate in 

the RHQDAPU program for the FY 2011 

payment determination must submit 

completed Notice of Participation forms 

to CMS on or before December 31, 2009. 

These hospitals, unlike hospitals that 

receive a new CCN, do not need to get 

their operations up and running. 

Therefore, we believe this is a 

reasonable deadline that will enable 

these hospitals to decide whether they 

want to participate in the RHQDAPU 

program while also enabling CMS to 

collect enough data from them to make 

an accurate FY 2011 payment 

determination. 

We note that under our current 

requirements, hospitals must begin 

submitting RHQDAPU program data 

starting with the first day of the quarter 

following the date when the hospital 

registers to participate in the program. 

For purposes of meeting this 

requirement, we interpret the 

registration date to be the date that the 

hospital submits a completed Notice of 

Participation form. As proposed 

previously in this section, hospitals 

must also register with QualityNet and 

identify a QualityNet Administrator 

who follows the QualityNet registration 

process before submitting RHQDAPU 

program data. 

• Collect and report data for each of 

the quality measures under the topic 

areas that require chart abstraction. For 

the FY 2011 payment determination, 

these topic areas are AMI, HF, PN, and 

SCIP. Hospitals must report these data 

by each quarterly deadline. Hospitals 

must submit the data to the QIO Clinical 

Warehouse using the CART, The Joint 

Commission ORYX ® Core Measures 

Performance Measurement System, or 

another third-party vendor tool that 

meets the measurement specification 

requirements for data transmission to 

QualityNet. All submissions will be 

executed through My QualityNet, the 

secure part of the QualityNet Web site. 

Because the information in the QIO 

Clinical Warehouse is considered QIO 

information, it is subject to the stringent 

QIO confidentiality regulations in 42 

CFR part 480. The QIO Clinical 

Warehouse will submit the data to CMS 

on behalf of the hospitals. 

• Submit complete data for each 

quality measure that requires chart 

abstraction in accordance with the joint 

CMS/The Joint Commission sampling 

requirements located on the QualityNet 

Web site. These requirements specify 

that hospitals must submit a random 

sample or complete population of cases 

for each of the topics covered by the 

quality measures. Hospitals must meet 

the sampling requirements for these 

quality measures for discharges in each 

quarter. 

• Submit to CMS on a quarterly basis 

aggregate population and sample size 

counts for Medicare and non-Medicare 

discharges for the topic areas for which 

chart-abstracted data must be submitted 

(currently AMI, HF, PN, and SCIP). 

However, in order to reduce the burden 

on hospitals that treat a low number of 

patients in a RHQDAPU program topic 

area, a hospital that has five or fewer 

discharges (Medicare and non-Medicare 

combined) in a topic area during a 

quarter in which data must be submitted 

is not required to submit patient-level 

data for that topic area for the quarter. 

The hospital must still submit its 

aggregate population and sample size 

counts for Medicare and non-Medicare 

discharges for the four topic areas each 

quarter. We also note that hospitals 

meeting the five or fewer patient 

discharge exception may voluntarily 

submit these data. 

• Continuously collect and submit 

HCAHPS data in accordance with the 

HCAHPS Quality Assurance Guidelines, 

V4.0 (the most current version of the 

guidelines), located at the Web site 

http://www.hcahpsonline.org. The QIO 

Clinical Warehouse will accept zero 

HCAHPS-eligible discharges. However, 

in order to reduce the burden on 

hospitals that treat a low number of 

patients that would be otherwise 

covered by the HCAHPS submission 

requirements, a hospital that has five or 

fewer HCAHPS-eligible discharges 

during a month is not required to 

submit HCAHPS surveys for that month. 

However, hospitals that meet this 

exception may voluntarily submit this 

data. The hospital must still submit its 

total number of HCAHPS-eligible cases 

for that month as part of its quarterly 

HCAHPS data submission. 

• The quarterly data submission 

deadline for hospitals to submit patient 

level data for the proposed measures 

that require chart abstraction is 4 

months following the last discharge date 

in the calendar quarter. CMS will post 

the quarterly submission deadline 

schedule on the QualityNet Web site 

(https://www.QualityNet.org). The 

collection of new chart-abstracted 

measures for the FY 2011 payment 

determination would begin with 1st 

calendar quarter 2010 discharges, for 

which the submission deadline would 

be August 15, 2010. 

• The data submission deadline for 

hospitals to submit aggregate population 

and sample size count data for the 

measures requiring chart abstraction is 

four months following the last discharge 

date in the calendar quarter. This 

requirement allows CMS to advise 

hospitals regarding their submission 

status in enough time for them to make 

appropriate revisions before the data 

submission deadline. We will post the 

aggregate population and sample size 

count data submission deadlines on the 

QualityNet Web site (https:// 

www.QualityNet.org). 

• CMS strongly recommends that 

hospitals review the QIO Clinical 

Warehouse Feedback Reports and the 

RHQDAPU Program Provider 

Participation Reports that are available 

after patient level data are submitted to 

the QIO Clinical Warehouse. CMS 

generally updates these reports on a 

daily basis to provide accurate 

information to hospitals about their 

submissions. These reports enable 

hospitals to ensure that their data were 

submitted on time and accepted into the 

QIO Clinical Warehouse. 

Hospitals are encouraged to regularly 

check the QualityNet Web site, https:// 

www.QualityNet.org, for program 

updates and information. 

• We also proposed that the following 

RHQDAPU program claims-based 

measures would be calculated using 

Medicare claims: 

Topic FY 2011 payment determination: proposed claims-based quality measures 

(no hospital data submission required) 

Mortality Measures (Medicare Patients) 

• MORT–30–AMI Acute Myocardial Infarction 30-day mortality—Medicare patients. 

• MORT–30–HF Heart Failure 30-day mortality—Medicare patients. 


sroberts on DSKD5P82C1PROD with RULES
43880 Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 

Topic FY 2011 payment determination: proposed claims-based quality measures 

(no hospital data submission required) 

• MORT–30–PN Pneumonia 30-day mortality—Medicare patients. 

Readmission Measures (Medicare Patients) 

• READ–30–HF Heart Failure (HF) 30-Day Risk Standardized Readmission Measure (Medicare patients). 

• READ–30–AMI Acute Myocardial Infarction (AMI) 30-Day Risk Standardized Readmission Measure (Medicare patients). 

• READ–30–PN Pneumonia (PN) 30-Day Risk Standardized Readmission Measure (Medicare patients). 

AHRQ Patient Safety Indicators (PSIs), Inpatient Quality Indicators (IQIs) and Composite Measures 

• PSI 06: Iatrogenic pneumothorax, adult. 

• 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. 

• Mortality for selected surgical procedures (composite). 

• Complication/patient safety for selected indicators (composite). 

• Mortality for selected medical conditions (composite). 

AHRQ Patient Safety Indicator (PSI) and Nursing Sensitive Care 

• Death among surgical inpatients with serious, treatable complications. 

For the claims-based RHQDAPU 

program measures listed in the table 

above, hospitals are not required to 

submit the data to the QIO Clinical 

Warehouse. CMS uses the existing 

Medicare fee-for-service claims to 

calculate the measures. For the FY 2011 

payment determination, CMS will use 3 

years of discharges from July 1, 2006, 

through June 30, 2009, for the 30-day 

mortality and 30-day readmission 

measures. For the AHRQ PSI, IQI and 

Composite measures (including the 

AHRQ PSI and Nursing Sensitive Care 

measure, Death among surgical 

inpatients with serious, treatable 

complications), we will use 1 year of 

claims from July 1, 2008, through June 

30, 2009, to calculate these measures. 

• We proposed that hospitals report 

the information needed to calculate the 

three proposed structural measures 

directly onto the QualityNet Web site on 

a quarterly basis starting with 1st 

calendar quarter 2010. The quarterly 

submission deadline for reporting these 

measures will be 41⁄2 months following 

the last date in the quarter covered by 

the data report. For example, the 

reporting deadline for these structural 

measures covering 1st calendar quarter 

2010 is August 15, 2010. The 41⁄2 month 

lag between the end of the quarter and 

the reporting deadline is intended to 

provide hospitals with sufficient time to 

collect the information needed to 

accurately report the proposed 

structural measures, and aligns with the 

quarterly submission deadlines for the 

measures for which chart-abstraction is 

required. As noted above in section 

V.A.3.b.(4). of this final rule, after 

consideration and review of public 

comments, we are modifying our 

proposal that the two new structural 

measures be reported quarterly and 

instead, we are finalizing a requirement 

that hospitals report these data 

annually. We also are requiring annual 

reporting for the existing cardiac surgery 

structural requirement for the FY 2011 

payment determination. Annual data 

submission for the structural measures 

via a Web-based collection tool will 

begin in July 2010 with respect to the 

time period of January 1, 2010 through 

June 30, 2010. 

Below is the list of three structural 

measures we are adopting for the FY 

2011 payment determination: 

Topic FY 2011 payment determination: structural measures 

Cardiac Surgery 

∑ Participation in a Systematic Database for Cardiac Surgery. 

Stroke Care 

• Participation in a Systematic Clinical Database Registry for Stroke Care. 

Nursing Sensitive Care 

• Participation in a Systematic Clinical Database Registry for Nursing Sensitive Care. 

We indicated that we would add a 

link on the QualityNet Web site to the 

Web page(s) that hospitals can use to 

report the structural measures after we 

issued this final rule. 

Comment: Several commenters 

supported our proposal to allow 

hospitals with five or fewer heart 

failure, pneumonia, or surgical care 

patients in a calendar quarter to not 

submit quality measure data for that 

quarter. However, the commenters 

suggested that should a hospital wish to 

voluntarily report such data, it should 

be permitted to do so. This will reduce 

the burden on small hospitals with a 

very small number of cases. 

Response: We currently allow 

hospitals treating five or fewer patients 

in a calendar quarter in a topic area that 

do not otherwise have to submit data for 

that topic area to voluntarily report data 

for that topic. We believe that this 


sroberts on DSKD5P82C1PROD with RULES
Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 43881 

allowance is consistent with the intent 

of the RHQDAPU program to promote 

public reporting and hospital quality 

improvement through measuring quality 

of care. Currently, many hospitals to 

which the RHQDAPU program does not 

apply (including CAHs and hospitals 

located in Maryland and Puerto Rico) 

report these data on a voluntary basis as 

part of their quality improvement 

efforts. 

We note that we will publicly report 

the measure rates for all data submitted 

by RHQDAPU program participating 

hospitals, including data voluntarily 

reported by RHQDAPU program 

participating hospitals treating five or 

fewer cases in a topic in a calendar 

quarter, because we expect that a 

portion of these hospitals will have 

variable quarterly caseloads and will 

submit data on a sufficient number of 

cases (that is, more than 25) across all 

four posted quarters to make their 

overall measure rates generally reliable. 

However, we also will continue to 

include a footnote on the Hospital 

Compare Web site in the event that 

some of these hospitals do not have data 

for at least 25 cases combined over the 

four quarters. That footnote states that 

‘‘The number of cases is too small (<25) 

to reliably tell how well a hospital is 

performing.’’ We believe that this 

footnote adequately addresses hospital 

concerns about data reliability. 

Comment: One commenter stated that 

the proposed rule does not address the 

issue of data resubmission when a 

hospital or its vendor becomes aware of 

an error in the data that was sent for 

posting on the Hospital Compare Web 

site. The commenter urged immediate 

adoption of an effective mechanism that 

allows hospitals and their vendors to 

resubmit quality measure data if they 

discover an error. The commenter stated 

that the point of public reporting is to 

put accurate and useful information into 

the hands of the public, and this is 

facilitated by allowing known mistakes 

to be corrected. 

Response: Although we understand 

the commenter’s concern, the quarterly 

validation sample selection is reliant on 

a locked final data file of hospital 

submitted cases. Allowing resubmission 

after the quarterly deadline would delay 

the final lockdown date of the quarterly 

data file, and CMS would have to delay 

the validation process or simply not 

validate resubmitted data. We believe 

that both of these options would 

adversely impact data quality. 

We remind the commenter that 

hospitals can correct information and 

resubmit cases until the quarterly 

submission deadline, which generally 

occurs 41⁄2; months following the last 

discharge date in a calendar quarter. We 

also encourage hospitals to submit data 

early in the submission schedule, so 

that they can identify errors and 

resubmit data before the quarterly 

submission deadline. Generally, 

hospitals can submit cases from the first 

discharge date in a quarter until the 

quarterly submission deadline. 

After consideration of the public 

comments we received, we are adopting 

as final our proposals regarding 

RHQDAPU program procedures for the 

FY 2011 payment determination. 

b. RHQDAPU Program Disaster 

Extensions and Waivers 

In the FY 2010 IPPS/RY 2010 LTCH 

PPS proposed rule (74 FR 24176), we 

solicited public comment about rules 

we could adopt that would enable 

hospitals to request either an extension 

or a waiver of various RHQDAPU 

program requirements in the event of a 

disaster (such as a hurricane that 

damages or destroys the hospital). 

Specifically, we welcomed public 

comment on the following issues: 

• Recommendations for rules that we 

could follow when considering whether 

to grant an extension or waiver of 

RHQDAPU program requirements in the 

event of a disaster, including suggested 

criteria that we should take into account 

(for example, specific hospital 

infrastructure damage, hospital closure 

time period, degree of destruction of 

medical records, impact on data 

vendors, and long-term evacuation of 

discharged patients impacting HCAHPS 

survey participation). 

• The role that QIOs and QIO support 

contractors should play in the event of 

a disaster, including communicating 

with affected hospitals, communicating 

with State hospital associations, and 

collecting information directly from 

hospitals. 

• How CMS extension or waiver 

decisions should be communicated to 

affected hospitals. 

• Any other issues commenters deem 

relevant to a hospital’s request for an 

extension or waiver of RHQDAPU 

program requirements in the event of a 

disaster. 

Comment: One commenter 

appreciated CMS recognizing that 

hospitals facing certain disasters, such 

as a hurricane, should be granted an 

extension or waiver of the RHQDAPU 

program requirements. Commenters 

suggested that, although the decision to 

grant an extension or waiver is best 

made on a case-by-case basis depending 

on each hospital’s unique situation, 

CMS develop some general criteria for 

when such extensions or waivers would 

be granted. Commenters reminded CMS 

that when a hospital is damaged or 

destroyed, CMS’ usual means of 

communicating to the hospital, such as 

by QualityNet or the mail, may be 

impossible. Commenters urged CMS to 

develop a creative and flexible approach 

to communicating with hospitals in 

these situations to ensure that such 

hospitals are aware that they may 

receive waivers during difficult times. 

Response: We will consider these 

comments as we develop program 

procedures for disaster extensions or 

waivers. We are mindful that many 

hospitals operating in these adverse 

situations cannot access the Internet or 

mail service. We note that we currently 

use a variety of means to communicate 

with hospitals in these circumstances, 

including utilizing our State QIOs and 

national/state hospital associations, and 

we will continue to do so. 

Comment: One commenter supported 

CMS and QIOs contacting both hospitals 

in affected areas and their data vendors 

in the event of disaster. The commenter 

also supported using e-mail first to 

communicate this information, followed 

by a phone call (if phone service is 

available) from a QIO, then a follow-up 

letter to the hospital administrator and 

hospital QualityNet Administrator. The 

commenter believed that the reasons for 

providing a waiver as outlined in the 

proposed rule were fair, but suggested 

that when a hospital response is 

requested by State or local government 

for any reason, then a waiver or 

extension should also be considered. 

The commenter recommended that, if a 

vendor is impacted, that should be 

should also be grounds for a hospital 

extension or waiver. 

Response: We will consider these 

recommendations when considering 

disaster extension/waiver 

communications and reasons for 

granting extensions or waivers. We 

interpret the comment about ‘‘when a 

hospital response is requested by a State 

or local government’’ to mean that the 

governmental entity has asked the 

hospital to continue or cease certain 

operations. Since hospital resources 

might be redirected from activities 

related to hospital quality data reporting 

to providing critical services in disaster 

situations, we will also consider State 

and local government requirements for 

hospitals providing critical services to 

the public while continuing to operate 

in disaster situations. We believe that if 

a hospital is required to provide critical 

public health services during a disaster 

or pandemic, this should be a factor that 

we consider when deciding whether to 

grant a waiver or extension. We will 

also consider the impact a disaster 


sroberts on DSKD5P82C1PROD with RULES
43882 Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 

might have had on a vendor when 

developing our policy on this issue. 

Comment: One commenter supported 

granting extensions and waivers of 

RHQDAPU program requirements in the 

event of a disaster and agreed with some 

of the criteria we requested comment on 

in the proposed rule. The commenter 

also supported CMS’ interest in the role 

that QIOs would play in the event of a 

disaster and believes that they should be 

as proactive as possible in providing 

support to hospitals. 

Response: We thank the commenter 

for the feedback as we further develop 

our policy for disaster extensions/ 

waivers. We also acknowledge the 

important service that QIOs provide to 

hospitals in their support of inpatient 

quality data reporting and will 

incorporate this comment into our 

future plans for operating the 

RHQDAPU program. 

c. HCAHPS Requirements for the FY 

2011 Payment Determination 

In the FY 2010 IPPS/RY 2010 LTCH 

PPS proposed rule (74 FR 24176), we 

proposed that, for the FY 2011 payment 

determination, the RHQDAPU program 

HCAHPS requirements we adopted for 

FY 2010 would continue to apply. 

Under these requirements, a hospital 

must continuously collect and submit 

HCAHPS data in accordance with the 

current HCAHPS Quality Assurance 

Guidelines and the quarterly data 

submission deadlines, both of which are 

posted at http://www.hcahpsonline.org. 

In order for a hospital to participate in 

the collection of HCAHPS data, a 

hospital must either: (1) Contract with 

an approved HCAHPS survey vendor 

that will conduct the survey and submit 

data on the hospital’s behalf to the QIO 

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

survey vendor provided that the 

hospital attends HCAHPS training and 

meets Minimum Survey Requirements 

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

www.hcahpsonline.org. A current list of 

approved HCAHPS survey vendors can 

be found on the HCAHPS Web site at: 

https://www.hcahpsonline.org. 

Every hospital choosing to contract 

with a survey vendor should provide 

the sample frame of HCAHPS-eligible 

discharges to its survey vendor with 

sufficient time to allow the survey 

vendor to begin contacting each 

sampled patient within 6 weeks of 

discharge from the hospital. (We refer 

readers to the Quality Assurance 

Guidelines located at https:// 

www.hcahpsonline.org for details about 

HCAHPS eligibility and sample frame 

creation.) In addition, the hospital must 

authorize the survey vendor to submit 

data via My QualityNet, the secure part 

of the QualityNet Web site, on the 

hospital’s behalf. 

After the survey vendor submits the 

data to the QIO Clinical Warehouse, we 

strongly recommend that hospitals 

employing a survey vendor promptly 

review the two HCAHPS Feedback 

Reports (the Provider Survey Status 

Summary Report and the Data 

Submission Detail Report) that are 

available. These reports enable a 

hospital to ensure that its survey vendor 

has submitted the data on time and the 

data has been accepted into the QIO 

Clinical Warehouse. 

As we stated above, any hospital that 

has five or fewer HCAHPS-eligible 

discharges in any month is no longer 

required to submit HCAHPS surveys for 

that month, although the hospital may 

voluntarily choose to submit these data. 

However, the hospital must still submit 

its total number of HCAHPS-eligible 

cases for that month as part of its 

quarterly HCAHPS data submission. 

In order to ensure compliance with 

HCAHPS survey and administration 

protocols, hospitals and survey vendors 

must participate in all oversight 

activities. As part of the oversight 

process, during the onsite visits or 

conference calls, the HCAHPS Project 

Team will review the hospital’s or 

survey vendor’s survey systems and 

assess protocols based upon the most 

recent HCAHPS Quality Assurance 

Guidelines. All materials relevant to 

survey administration will be subject to 

review. The systems and program 

review includes, but is not limited to: 

(a) Survey management and data 

systems; (b) printing and mailing 

materials and facilities; (c) telephone 

and IVR materials and facilities; (d) data 

receipt, entry and storage facilities; and 

(e) written documentation of survey 

processes. Organizations will be given a 

defined time period in which to correct 

any problems and provide follow-up 

documentation of corrections for 

review. As needed, hospitals and survey 

vendors will be subject to follow-up site 

visits or conference calls. If CMS 

determines that a hospital is not 

compliant with HCAHPS program 

requirements, CMS may determine that 

the hospital is not submitting HCAHPS 

data that meet the requirements of the 

RHQDAPU program. 

We continue to strongly recommend 

that each new hospital participate in an 

HCAHPS dry run, if feasible, prior to 

beginning to collect HCAHPS data on an 

ongoing basis to meet RHQDAPU 

program requirements. New hospitals 

can conduct a dry run in the last month 

of a calendar quarter. We refer readers 

to the Web site at https:// 

www.hcahpsonline.org for a schedule of 

upcoming dry runs. 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 data and 

submit the data to My QualityNet, the 

secure portion of QualityNet. 

For FY 2011, we are again 

encouraging hospitals to regularly check 

the HCAHPS Web site at https:// 

www.hcahpsonline.org for program 

updates and information. 

We did not receive any public 

comments regarding our HCAHPS 

proposals. Therefore, we are adopting as 

final our proposals regarding HCAHPS 

requirements for the FY 2011 payment 

determination. 

6. Chart Validation Requirements 

a. Chart Validation Requirements and 

Methods for the FY 2011 Payment 

Determination 

For the FY 2011 payment 

determination, in the FY 2010 IPPS/RY 

2010 LTCH PPS proposed rule (74 FR 

24177), we proposed to generally 

continue using the following existing 

requirements implemented in previous 

years. We note below where we 

proposed to modify a requirement. 

These requirements, as well as 

additional information on these 

requirements, will be posted on the 

QualityNet Web site after we issue this 

FY 2010 IPPS final rule. 

• The Clinical Data Abstraction 

Center (CDAC) contractor will, each 

quarter, ask every participating hospital 

to submit five randomly selected 

medical charts from which the hospital 

previously abstracted and submitted 

data to the QIO Clinical Warehouse. 

We proposed the following timeline 

with respect to CDAC contractor 

requests for paper medical records for 

the purpose of validating RHQDAPU 

program data. Beginning with CDAC 

contractor requests for second calendar 

quarter 2009 paper medical records, the 

CDAC contractor will request paper 

copies of the randomly selected medical 

charts from each hospital via certified 

mail, and the hospital will have 45 days 

from the date of the request (as 

documented on the request letter) to 

submit the requested records to the 

CDAC contractor. If the hospital does 

not comply within 30 days, the CDAC 

contractor will send a second certified 

letter to the hospital, reminding the 

hospital that it must return paper copies 


sroberts on DSKD5P82C1PROD with RULES
Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 43883 

of the requested medical records within 

45 calendar days following the date of 

the initial CDAC contractor medical 

record request. If the hospital still does 

not comply, then the CDAC contractor 

will assign a ‘‘zero’’ score to each data 

element in each missing record. 

We proposed this timeline to provide 

hospitals with transparent and 

documented correspondence about 

RHQDAPU program validation paper 

medical record requests. Hospitals have 

submitted numerous questions to CMS 

about this process, and we believe this 

timeline will provide hospitals with 

adequate notice and time to submit 

paper copies of requested medical 

records to the CDAC contractor. We also 

believe that this timeline does not 

unduly burden hospitals. We remind 

hospitals that CMS reimburses up to 12 

cents per copied page to copy the 

requested medical records, and CMS 

also pays United States Postal Service 

fees for hospitals to mail back a paper 

copy of the requested medical records. 

• Once the CDAC contractor receives 

the charts, it will re-abstract the same 

data submitted by the hospitals and 

calculate the percentage of matching 

RHQDAPU program data element values 

for all of that data. 

• The hospital must pass our 

validation requirement of a minimum of 

80 percent reliability. We use 

appropriate confidence intervals to 

determine if a hospital has achieved 80 

percent reliability. The use of 

confidence intervals allows us to 

establish an appropriate range below the 

80 percent reliability threshold that 

demonstrates a sufficient level of 

reliability to allow the data to still be 

considered validated. We estimate the 

percent reliability based upon a review 

of the sampled charts, and then 

calculate the upper 95 percent 

confidence limit for that estimate. If this 

upper limit is above the required 80 

percent reliability, the hospital data are 

considered validated. 

• We will pool the quarterly 

validation estimates for the four most 

recently validated quarters (except for 

the SCIP–Cardiovascular-2 measure 

discussed below). For the FY 2011 

payment update, we proposed to 

validate 4th quarter CY 2008 through 

3rd quarter 2009 discharge data for the 

following measures: 

Topic Quality measures validated using data from 4th quarter CY 2008 through 3rd 

quarter CY 2009 discharges Measure ID No. 

AMI (Acute Myocardial Infarction) ............ Aspirin at Arrival ........................................................................................................ AMI–1. 

Aspirin Prescribed at Discharge ................................................................................ AMI–2. 

ACEI or ARB for LVSD ............................................................................................. AMI–3. 

Adult Smoking Cessation Advice/Counseling ........................................................... AMI–4. 

Beta-Blocker Prescribed at Discharge ...................................................................... AMI–5. 

Fibrinolytic Therapy Received Within 30 Minutes of Hospital Arrival ....................... AMI–7a. 

Primary PCI Received Within 90 Minutes of Hospital Arrival ................................... AMI–8a. 

HF (Heart Failure) .................................... Discharge Instructions ............................................................................................... HF–1. 

Evaluation of LVS Function ....................................................................................... HF–2. 

ACEI or ARB for LVSD ............................................................................................. HF–3. 

Adult Smoking Cessation Advice/Counseling ........................................................... HF–4. 

PN (Pneumonia) ....................................... Pneumococcal Vaccination ....................................................................................... PN–2. 

Blood Cultures Performed in the Emergency Department Prior to Initial Antibiotic 

Received in Hospital.

PN–3b. 

Adult Smoking Cessation Advice/Counseling ........................................................... PN–4. 

Initial Antibiotic Received Within 6 Hours of Hospital Arrival ................................... PN–5c. 

Initial Antibiotic Selection for Community-Acquired Pneumonia (CAP) in 

Immunocompetent Patients.

PN–6. 

Influenza Vaccination ................................................................................................ PN–7. 

SCIP (Surgical Care Improvement 

Project)—named SIP for discharges 

prior to July 2006 (3Q06).

Prophylactic Antibiotic Received Within One Hour Prior to Surgical Incision .......... SCIP–Inf-1. 

Prophylactic Antibiotic Selection for Surgical Patients .............................................. SCIP–Inf-2. 

Prophylactic Antibiotics Discontinued Within 24 Hours After Surgery End Time ..... SCIP–Inf-3. 

Cardiac Surgery Patients With Controlled 6 A.M. Postoperative Blood Glucose ..... SCIP–Inf-4. 

Surgery Patients with Appropriate Hair Removal ..................................................... SCIP–Inf-6. 

Surgery Patients with Recommended Venous Thromboembolism Prophylaxis Ordered.SCIP–VTE–1. 

Surgery Patients Who Received Appropriate Venous Thromboembolism Prophylaxis Within 24 Hours Prior to Surgery to 24 Hours After Surgery.SCIP–VTE–2. 

• SCIP–Cardiovascular-2 will be 

validated using data from 2nd and 3rd 

calendar quarter 2009 discharges. CMS 

adopted this measure in the FY 2009 

IPPS final rule and hospitals began 

submitting data for this measure starting 

with 1st calendar quarter 2009 

discharges (73 FR 48605). However, 

because we generally strive to provide 

hospitals with ample notice before we 

add a new measure to the list of 

measures for which we will validate 

data, we believe that 2nd quarter 

discharge data is an appropriate 

validation starting point for this 

measure (these data are not due to the 

QIO Clinical Warehouse until November 

15, 2009). 

• We will continue using the designspecific estimate of the variance for the 

confidence interval calculation, which, 

in this case, is a stratified single stage 

cluster sample, with unequal cluster 

sizes. (For reference, see Cochran, 

William G.: Sampling Techniques, John 

Wiley & Sons, New York, chapter 3, 

section 3.12 (1977); and Kish, Leslie: 

Survey Sampling, John Wiley & Sons, 

New York, chapter 3, section 3.3 

(1964).) Each quarter is treated as a 

stratum for variance estimation 

purposes. 

Comment: Several commenters 

supported CMS’ proposal to document 

the validation contact process. 

Specifically, the commenters supported 

CMS’ plans to send two certified letter 

requests for medical records for data 

validation in case the hospital does not 

receive the first letter. The commenters 

suggested that CMS contractors also 

place phone calls to any hospital that 

does not respond to the first letter to 

ensure that every effort is made to 


sroberts on DSKD5P82C1PROD with RULES
43884 Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 

communicate the request to the 

appropriate staff in the hospital. 

Response: We thank the commenters 

and agree that certified letters provide 

hospitals with multiple written 

documented notification and reminder 

attempts. We did not propose 

supplementing this notification with 

telephone calls because the CDAC 

contractor already attempts to call 

hospitals as current practice at least 

three times about 30 calendar days after 

it sends the initial medical record 

request. As a practice, we intend to 

continue attempting to call hospitals at 

least three times around the 30th 

calendar day following the initial 

request, in addition to sending written 

certified letters. We believe that these 

attempted calls at different time periods 

around the 30th calendar day following 

the initial request demonstrate our 

commitment to notify hospitals using 

multiple communication modes. 

Comment: Two commenters indicated 

that under the current process, the 

validation does not incorporate skip 

logic, despite The Joint Commission and 

CMS measure specifications and 

algorithms that clearly call for skip 

logic. The commenters stated that as a 

result, charts that are appropriately 

abstracted do not pass validation with 

the contractor. The commenters noted 

that this can be a challenge for some 

hospitals because the CDAC contractor’s 

decision could affect the cumulative 

annual results and cause a hospital to 

fail the validation requirement for the 

year. 

Response: The Specifications Manual 

contains instructions regarding the use 

of skip logic by hospitals. Starting with 

discharges on or after April 1, 2008, and 

continuing to the most current update of 

the Specifications Manual, CMS and 

The Joint Commission have included 

the following text in the Missing and 

Invalid Data appendix of the 

Specifications Manual (currently under 

the heading ‘‘Abstraction Software Skip 

Logic and Missing Data’’): 

‘‘Skip logic allows hospitals and 

vendors to minimize abstraction burden 

by using vendor software edit logic to 

bypass abstraction of data elements not 

utilized in the measure algorithm. 

However, these bypassed elements also 

negatively impact data quality and the 

hospital’s CMS chart audit validation 

results when elements are incorrectly 

abstracted and subsequent data 

elements are bypassed and left blank.’’ 

‘‘The use of skip logic by hospitals 

and ORYX vendors is optional and not 

required by CMS and The Joint 

Commission. Hospitals should be aware 

of the potential impact of skip logic on 

data quality, abstraction burden, and 

CMS chart audit validation scores. 

Vendors and hospitals utilizing skip 

logic should closely monitor the 

accuracy rate of abstracted data 

elements, particularly data elements 

placed higher in the algorithm flow (for 

example, Comfort Measures data 

element).’’ 

‘‘Historically, CMS chart audit 

validation results have been used in 

previous payment years as one of many 

requirements in the Reporting Hospital 

Quality for Annual Payment Update 

(RHQDAPU) program. We refer readers 

to the Federal Register and the 

QualityNet Web site for the current 

payment year’s proposed and final 

requirements for acute care IPPS 

hospitals.’’ 

The CDAC contractor abstracts all 

data elements necessary to calculate a 

sampled case’s measure status. The 

CDAC contractor uses skip logic only 

when it abstracts a data element value 

resulting in no additional data necessary 

to calculate a measure status. When it 

re-abstracts the data elements, the CDAC 

contractor also uses the CART tool 

provided by CMS free of charge to 

hospitals. Under the current validation 

process, hospitals are at risk when 

utilizing skip logic, if they incorrectly 

abstract data elements and do not 

abstract subsequent data elements for 

the measure. 

We do recognize that the use of skip 

logic has been an issue for some 

hospitals, and we believe that our 

proposal for FY 2012 to change the 

methodology for calculating the 

validation score from data element 

counts to a measure match basis will 

reduce the likelihood that the use of 

skip logic will create validation 

problems for hospitals. 

After consideration of the public 

comments we received, we have 

decided to adopt as final, without 

change, our proposals regarding chart 

validation requirements and methods 

for the FY 2011 payment determination. 

b. Chart Validation Requirements and 

Methods for the FY 2012 Payment 

Determination and Subsequent Years 

RHQDAPU program data are currently 

validated by re-abstracting on a 

quarterly basis a random sample of five 

medical records for each hospital. This 

quarterly sample generally results in an 

annual combined sample of 20 patient 

records across four calendar quarters per 

hospital, but because each sample is 

random, it might not include medical 

records from each of the measure topics 

(for example, AMI, SCIP, etc.). As a 

result, data submitted by a hospital for 

one or more measure topics might not 

be validated for a given quarter or, in 

some cases, for an entire year or longer. 

In the FY 2009 IPPS proposed rule (73 

FR 23658), we solicited public 

comments on the impact of adding 

measures to the validation process, as 

well as on modifications to the current 

validation process that could improve 

the reliability and validity of the 

methodology. We specifically requested 

input concerning the following: 

• Which of the measures or measure 

sets should be included in the chart 

validation process for subsequent years? 

• What validation challenges are 

posed by the RHQDAPU program 

measures and measure sets? What 

improvements could be made to 

validation or reporting that might offset 

or otherwise address those challenges? 

• Should CMS switch from its current 

quarterly validation sample of five 

charts per hospital to randomly 

selecting a sample of hospitals, and 

selecting more charts on an annual basis 

to improve the reliability of hospital 

level validation estimates? 

• Should CMS select the validation 

sample by clinical topic to ensure that 

all publicly reported measures are 

covered by the validation sample? 

In the FY 2009 IPPS final rule, we 

summarized and responded to 

commenters’ views on these issues and 

stated that we will consider the issues 

raised by these commenters if we decide 

to make changes to the RHQDAPU 

program chart validation methodology. 

Our objective is to validate the 

accuracy of RHQDAPU program data 

collected by hospitals using medical 

record abstraction. Accurate data 

provide consumers with objective 

publicly reported information about 

hospital quality for more informed 

decision making. Consistent with the 

public comments we received in 

response to the FY 2009 IPPS proposed 

rule (73 FR 23658–9) and discussed in 

the FY 2009 IPPS final rule (73 FR 

48623), we believe that the methodology 

recommended in the CMS Hospital 

Value-Based Purchasing Report to 

Congress is a promising approach worth 

consideration in the RHQDAPU 

program. This approach is designed to 

validate the accuracy of hospital 

reported quality measure data, and is 

also directly applicable to validating 

RHQDAPU program chart-abstracted 

quality data. 

We recognize that hospitals need 

ample notification regarding proposed 

changes to the current RHQDAPU 

program validation process. We believe 

that the FY 2012 RHQDAPU program 

annual payment determination is the 

earliest opportunity to make significant 

modifications to our validation process. 

Therefore, in the FY 2010 IPPS/RY 

2010 LTCH PPS proposed rule (74 FR 


sroberts on DSKD5P82C1PROD with RULES
Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 43885 

24178), we proposed modifications to 

the RHQDAPU program validation 

methodology beginning with the FY 

2012 payment determination. 

Specifically, we proposed to do the 

following: 

• Randomly select on an annual basis 

800 participating hospitals that 

submitted chart-abstracted data for at 

least 100 discharges combined in the 

measure topics to be validated. To 

determine whether a hospital meets this 

‘‘100-case threshold,’’ we will look to 

the discharge data submitted by the 

hospital during the calendar year three 

years prior to the fiscal year of the 

relevant payment determination. For 

example, if the 100-case threshold 

applied for the FY 2011 payment 

determination (which it will not), the 

applicable measure topics would be 

AMI, HF, PN, and SCIP, and we would 

choose 800 hospitals that submitted 

discharge data for at least 100 cases 

combined in these topics during 

calendar year 2008. If a hospital did not 

submit discharge data for at least 100 

cases in these topics during CY 2008, 

we would not select the hospital for 

validation. We will announce the topic 

areas that apply for the FY 2012 

payment determination at a later date, 

and we plan to select the first 800 

hospitals in July 2010. We will select 

hospitals for the FY 2012 validation if 

they meet the 100-case threshold during 

CY 2009. We have proposed this 100- 

case threshold because we believe that 

it strikes the appropriate balance 

between ensuring that the selected 

hospitals have a large enough patient 

population to be able to submit 

sufficient data to allow us to complete 

an accurate validation, while not 

requiring validation for hospitals with a 

low number of submitted quarterly 

cases and relatively unreliable measure 

estimates. Based on previously 

submitted data, we estimate that 98 

percent of participating RHQDAPU 

program hospitals will meet this 

threshold and, thus, be eligible for 

validation. As noted below, we solicited 

comments and suggestions on how we 

might be able to target the remaining 2 

percent of hospitals for validation. 

• We validate for each of the 800 

hospitals a randomly selected stratified 

sample for each quarter of the validation 

period. Each quarterly sample will 

include 12 cases, with at least one but 

no more than three cases per topic for 

which chart-abstracted data was 

submitted by the hospital. However, we 

recognize that some selected hospitals 

might not have enough cases in all of 

the applicable topics to submit data (for 

example, if they have 5 or fewer 

discharges in a topic area in a quarter). 

For those hospitals, we would validate 

measures in only those topic areas for 

which they have submitted data. For the 

FY 2012 payment determination, we 

will validate 1st calendar quarter 2010 

through 3rd calendar quarter 2010 

discharge data. We proposed to validate 

3 quarters of data for FY 2012 in order 

to provide hospitals with enough time 

to assess their medical record 

documentation and abstraction 

practices, and to take necessary 

corrective actions to improve these 

practices, before documenting their 1st 

calendar quarter 2010 discharges into 

medical records that may be sampled as 

part of this proposed validation process. 

Beginning with the FY 2013 payment 

determination, we proposed to validate 

data submitted by hospitals during the 

four quarters that make up the fiscal 

year that occurs two years prior to the 

year that applies to the payment 

determination. For example, for FY 

2013, we would validate 4th calendar 

quarter 2010 through 3rd quarter 2011 

discharge data. This lag between the 

time a hospital submits data and the 

time we can validate that data is 

necessary because data is not due to the 

QIO Clinical Warehouse until 4c months 

after the end of each quarter, and we 

need additional time to select hospitals 

and complete the validation process. 

• We proposed that the CDAC 

contractor will, each quarter that applies 

to the validation, ask each of the 800 

selected hospitals to submit 12 

randomly selected medical charts from 

which data was abstracted and 

submitted by the hospital to the QIO 

Clinical Warehouse. We note that, under 

our current requirements, hospitals 

must begin submitting RHQDAPU 

program data starting with the first day 

of the quarter following the date when 

the hospital registers to participate in 

the program. For purposes of meeting 

this requirement, we interpret the 

registration date to be the date that the 

hospital submits a completed Notice of 

Participation form. As proposed 

previously in this section, hospitals 

must also register with QualityNet and 

identify a QualityNet Administrator 

who follows the QualityNet registration 

process before submitting RHQDAPU 

program data. 

In addition, we proposed to continue 

the following timeline with respect to 

CDAC contractor requests for paper 

medical records for the purpose of 

validating RHQDAPU program data. 

Beginning with CDAC contractor 

requests for second calendar quarter 

2009 paper medical records, the CDAC 

contractor will request paper copies of 

the randomly selected medical charts 

from each hospital via certified mail, 

and the hospital will have 45 days from 

the date of the request (as documented 

on the request letter) to submit the 

requested records to the CDAC 

contractor. If the hospital does not 

comply within 30 days, the CDAC 

contractor will send a second certified 

letter to the hospital, reminding the 

hospital that it must return paper copies 

of the requested medical records within 

45 calendar days following the date of 

the initial CDAC contractor medical 

record request. If the hospital still does 

not comply, then the CDAC contractor 

will assign a ‘‘zero’’ score to each 

measure in each missing record. 

• Once the CDAC contractor receives 

the charts, it will re-abstract the same 

data submitted by the hospitals and 

calculate the percentage of matching 

RHQDAPU program measure 

numerators and denominators for each 

measure within each chart submitted by 

the hospital. Specifically, we will 

estimate the accuracy by calculating a 

match rate percent agreement for all of 

the variables submitted in all of the 

charts. For any selected record, a 

measure’s numerator and denominator 

can have two possible states, included 

or excluded, depending on whether the 

hospital accurately included the cases 

in the measure numerator(s) and 

denominator(s). We will count each 

measure in a selected record as a match 

if the hospital-submitted measure 

numerator and denominator sets match 

the measure numerator and 

denominator states independently 

abstracted by our contractor. For 

example, one heart failure case from 

which data has been abstracted for four 

RHQDAPU program chart-abstracted 

measures (that is, HF–1, HF–2, HF–3, 

and HF–4) would receive a 75 percent 

match if three out of four of the 

hospital-reported heart failure measure 

numerator and denominator states 

matched the re-abstracted numerator 

and denominator states. This proposed 

scoring approach is the same as 

recommended in the CMS Hospital 

Value-Based Purchasing Report to 

Congress, and is illustrated in further 

detail using an example in pages 83–84 

of the report which can be found on our 

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

AcuteInpatientPPS/downloads/ 

HospitalVBPPl

anRTCFINALSUBMITTED2007.pdf. We 

believe that this approach is 

appropriate, and was supported by 

many commenters when we requested 

comment in the FY 2009 IPPS final rule 

for input about the RHQDAPU program 

validation process (73 FR 48622 and 

48623). 

• Use, as we currently do, each 

selected case as a cluster comprising 


sroberts on DSKD5P82C1PROD with RULES
43886 Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 

one or multiple measures utilized in a 

validation score estimate. Each selected 

case will have multiple measures 

included in the validation score (for 

example, for the FY 2011 payment 

determination, a heart failure record 

will include 4 heart failure measures). 

Specifically, we propose to continue 

using the design-specific estimate of the 

variance for the confidence interval 

calculation, which, in this case, is a 

stratified single-stage cluster sample, 

with unequal cluster sizes. (For 

reference, see Cochran, William G.: 

Sampling Techniques, John Wiley & 

Sons, New York, chapter 3, section 3.12 

(1977); and Kish, Leslie: Survey 

Sampling, John Wiley & Sons, New 

York, chapter 3, section 3.3 (1964).) 

Each quarter and clinical topic is treated 

as a stratum for variance estimation 

purposes. 

In the proposed rule, we indicated 

that we believe that the proposed 

clustering approach is a statistically 

appropriate technique for calculating 

the annual validation confidence 

interval. Because CMS will not be 

validating all hospital records, we need 

to calculate a confidence interval that 

incorporates a potential sampling error. 

Our clustering approach incorporates 

the degree of correlation at the 

individual data record level, because 

our previous validation experience 

indicates that hospital data mismatch 

errors tend to be clustered in individual 

data records. We have used this 

clustering since the inception of the 

RHQDAPU program validation 

requirement to calculate variability 

estimates needed for calculating 

confidence intervals (70 FR 47423). 

• Use the upper bound of a one-tailed 

95 percent confidence interval to 

estimate the validation score; and 

• Require all RHQDAPU program 

participating hospitals selected for 

validation to attain at least a 75 percent 

validation score per quarter to pass the 

validation requirement. 

We believe that this proposal 

incorporates many of the principles 

supported by the vast majority of 

commenters in response to our 

solicitation for public comments in the 

FY 2009 IPPS proposed rule (73 FR 

23658 through 23659). Specifically, we 

believe that the increased annual 

sample size per hospital will provide 

more reliable estimates of validation 

accuracy. The proposed sample size of 

12 records per quarter would provide a 

total of 36 records across the three 

sampled quarters for the FY 2012 

payment determination, and 48 records 

in subsequent years. This estimate 

would improve the reliability of our 

validation estimate, as compared to the 

current RHQDAPU program annual 

validation sample of 20 cases per year. 

We also believe that modifying the 

validation score to reflect measure 

numerator and denominator accuracy 

will ensure that accurate data are posted 

on the Hospital Compare Web site. 

In addition, we believe that stratified 

quarterly samples by topic will improve 

the feedback provided to hospitals. CMS 

would provide validation feedback to 

hospitals about all sampled topics 

submitted by the hospitals each quarter. 

Because all relevant data elements 

submitted by the hospital must match 

the independently re-abstracted data 

elements to count as a match, we have 

proposed to reduce the passing 

threshold from 80 percent to 75 percent. 

We proposed to use an one-tail 

confidence interval to calculate the 

validation score because we strongly 

believe that a one-tail test most 

appropriately reflects the pass or fail 

dichotomous nature of the statistical test 

regarding whether the confidence 

interval includes or is completely above 

the 75 percent passing validation score. 

We also proposed to continue to allow 

hospitals that fail to meet the passing 

threshold for the quarterly validation an 

opportunity to appeal the validation 

results to their State QIO. QIOs are 

currently tasked by CMS to provide 

education and technical assistance 

about RHQDAPU program data 

abstraction and measures to hospitals, 

and the quarterly validation appeals 

process will provide hospitals with an 

opportunity to both appeal their 

quarterly results and receive education 

free of charge from their State QIO. This 

State QIO quarterly validation appeals 

process is independent of the proposed 

RHQDAPU program reconsideration 

procedures for hospital reconsideration 

requests involving validation for the FY 

2010 payment update proposed below 

in section V.A.9. of this final rule. 

Comment: Several commenters 

supported setting a slightly lower 

validation threshold for the beginning 

years of the new validation process as 

hospitals and CMS gain experience with 

the new system. These commenters 

were generally pleased with CMS’ 

proposal for the changes to the data 

validation process and urged CMS to 

continue to refine the plan put forward 

in the proposed rule. 

Response: We agree with the 

commenters that the proposed 75 

percent threshold provides a reasonable 

passing threshold for the proposed 

validation process. We will evaluate the 

new validation process after initial 

implementation through data analysis of 

validation results. Based on the results 

of this data analysis, we may consider 

proposing modifications in future years 

to further refine the validation process. 

Comment: Several commenters stated 

that the burden to hospitals will be 

reduced if they do not have to submit 

records for validation every year. 

However, because hospitals will be 

selected at random each year and there 

is no guarantee that a hospital selected 

in one year will not be selected in the 

following year as well, some 

commenters urged CMS to refine the 

validation selection process so that 

hospitals selected for validation in one 

year are not eligible for selection again 

until 2 years later. Alternatively, the 

commenters suggested that CMS could 

ensure that no hospital is selected more 

than two times within a 5-year period, 

arguing that this would help guarantee 

that a particular hospital is not 

disproportionately burdened by the 

selection process. In addition, the 

commenters suggested that CMS should 

consider allowing hospitals that pass 

validation with a very high score to 

receive a ‘‘pass’’ from the validation 

process for several years. The 

commenters believed that such a policy 

would encourage hospitals to ensure 

their data are as accurate as possible and 

reward those hospitals with high 

accuracy rates. 

Response: We appreciate these 

comments and understand the concern 

about being selected multiple times 

during a short timeframe. We also 

appreciate the recommendation that 

hospitals receiving a high validation 

score be exempt from validation for two 

years. We must weigh this burden 

relative to the policy objective to ensure 

that we receive accurate data, and 

believe that using a truly random 

selection process strikes the appropriate 

balance. We considered options such as 

providing hospitals achieving high 

validation scores with a ‘‘free pass’’ for 

a certain period, and using a 4 to 5 year 

rotating panel of hospitals to lessen 

burden. However, we believe that using 

a truly random sample on an annual 

basis is fair to all hospitals included in 

the sample and will encourage all 

hospitals to take steps to ensure that 

their data are consistently accurate. We 

believe that providing hospitals with 

automatic exemptions from our 

validation requirement could detract 

from this policy objective, because 

hospitals receiving these exemptions 

would know in advance of data 

abstraction that CMS would not be 

validating their data. 

Comment: Commenters agreed that it 

is appropriate to focus on the hospital’s 

measure rate, as opposed to individual 

data elements, because the measure rate 

captures the information that is 


sroberts on DSKD5P82C1PROD with RULES
Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 43887 

important to patient care. Commenters 

noted that for data validation in the 

current program, there have been 

several instances in which a mismatch 

between single data elements unrelated 

to the quality of care provided by a 

hospital, such as the patient’s birth date, 

has caused hospitals to fail validation. 

Comments believe that validating the 

hospital’s measure rate should eliminate 

these unfortunate incidents. 

Response: The proposed validation 

process focuses on validating whether 

hospital abstracted data results in 

accurate measure rates and denominator 

inclusion. We wish to clarify that the 

proposed validation process would 

measure the accuracy of each measure 

rate and measure denominator count 

posted on the Hospital Compare Web 

site. We will continue to use the data 

elements used in the current validation 

process to calculate the validation 

scores. We also note that all data used 

as part of the validation process (both 

the current process and the process 

proposed for FY 2012 and beyond) is 

protected under the Business Associate 

provisions of HIPAA and the QIO 

regulations. 

Comment: Commenters stated that 

CMS’ proposed process for validating 

hospitals’ quality data beginning in FY 

2012 holds promise as a reasonable 

approach to ensure the accuracy of the 

quality data and improve upon the 

deficiencies in the current validation 

process. 

Response: We agree with the 

commenters that the proposed new 

validation process is an improved 

approach for the validation process. We 

will evaluate the new validation process 

after initial implementation and may 

consider proposing modifications in 

future years to further refine it. 

Comment: Several commenters stated 

that the current CMS validation sample 

of five charts per quarter does not 

provide a reliable estimate and 

advocated increasing the sample size. 

Response: We agree that the proposed 

requirement to increase the quarterly 

sample size from 5 records to 12 records 

will provide a more reliable annual 

validation estimate. 

Comment: One commenter objected to 

the proposal to randomly sample 

hospitals in the proposed validation 

process, as all hospitals would not be 

held equally accountable via a valid 

sample across all measures. 

Response: We believe that the 

proposed approach is equitable because 

all hospitals meeting the 100-case 

threshold will have an equal probability 

of being selected in the random sample. 

As we stated in the proposed rule (74 

FR 24180), we are considering ways to 

include hospitals that do not meet the 

100 case threshold in the validation 

process, such as by developing targeting 

criteria that would focus on these 

hospitals. 

Comment: One commenter asked for 

clarity on how CMS plans to address 

validation for hospitals with low 

numbers. While the commenter agreed 

that it is appropriate to ease the burden 

on hospitals with a very small number 

of cases, the commenter also believed 

that hospitals should always be able to 

voluntarily report on quality measures if 

they wish and should be held equally 

accountable for their participation and 

reported data. 

Response: As we stated in the 

proposed rule (74 FR 24180), we are 

considering ways to include hospitals 

that do not meet the 100-case threshold 

in the validation process, such as by 

developing targeting criteria that would 

focus on these hospitals. One possible 

approach would be to randomly sample 

these hospitals as part of the targeted 

sample, thereby ensuring that data from 

some of these hospitals also would be 

validated. 

Comment: One commenter urged that 

State QIOs be supportive not only 

during the validation appeals process 

but also proactively during data 

collection and reporting. 

Response: We agree with the 

commenter. CMS currently requires 

QIOs under their contract to improve or 

maintain consistently high levels of 

RHQDAPU program participation to 

meet all RHQDAPU program 

requirements, not solely validation 

appeals. 

Comment: Several commenters asked 

CMS to consider sending formal 

notification to hospitals not selected as 

part of the random sample. The 

commenters believe that this 

notification will aid hospitals with 

recordkeeping and internal operating 

procedures. The commenters were 

concerned that the lack of a consistent 

validation could cause internal 

processes within the hospitals to break 

down in the event that a hospital is not 

selected as part of the data validation 

sample for multiple years. 

Response: We will consider this 

comment and will consider using our 

QIOs to provide outreach to both 

selected and non-selected hospitals. We 

understand that hospitals must receive 

ample and clear communication about 

the requirements, and we recognize that 

the absence of quarterly medical record 

requests for all hospitals under the 

proposed validation process could affect 

the hospital’s knowledge and ability to 

efficiently comply with the validation 

requirement. 

Comment: One commenter supported 

keeping validation standardized to a 

quarterly process that includes all 

hospitals. The commenter objected to 

excluding hospitals submitting fewer 

than 100 records. 

Response: We appreciate the 

comment but believe that the improved 

reliability of the validation estimate 

under the proposed new validation 

process will outweigh the benefit of 

validating a smaller number of records 

for all hospitals. As hospitals have 

improved their abstraction methods 

over time, we believe that the benefit of 

every hospital receiving quarterly 

feedback on their hospital’s data has 

lessened over time. Regardless of 

whether a hospital was included in our 

annual validation sample, we plan to 

continue providing validation feedback 

on highly mismatching data elements 

and measures to all hospitals by 

providing aggregate validation 

information to all hospitals that submit 

quality data. 

Comment: Commenters stated that the 

lack of timely quarterly validation 

feedback is a huge problem. Some 

commenters did not believe that the 

2,500 hospitals not selected for annual 

validation under the proposed new 

validation process would incorporate 

feedback provided to other selected 

hospitals, and data errors would 

increase over time due to the lack of 

hospital-specific feedback. 

Response: We interpret the comment 

to mean that hospitals that are not 

selected under the proposed, new 

validation process would not 

incorporate aggregate feedback 

information because they would not 

believe that the aggregate information 

would be relevant to them; and that 

their failure to incorporate supplied 

feedback would cause these hospitals’ 

data errors to increase over time. 

However, we believe that the improved 

reliability of the validation estimate 

under the proposed new validation 

process will outweigh the benefit of 

validating a smaller number of records 

for all hospitals. As hospitals have 

improved their abstraction over time, 

we believe that the benefit of every 

hospital receiving quarterly feedback 

has lessened over time. As we noted in 

an earlier response, we plan to continue 

providing aggregate validation feedback 

at a State and national level on highly 

mismatching data elements and 

measures to all hospitals regardless of 

whether they were included in the 

annual validation sample. 

Comment: One commenter requested 

that CMS clarify that, under the 

proposed validation process, only those 

hospitals that are selected for validation 


sroberts on DSKD5P82C1PROD with RULES
43888 Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 

would have their payment at risk, and 

that the remaining hospitals would not 

be affected in any way by the validation 

results of the selected hospitals for that 

given year. 

Response: Only hospitals randomly 

selected for the proposed new annual 

validation process would have to meet 

the validation requirement for the 

applicable payment year. We note, 

however, that hospitals that are not 

selected for validation in a given year 

may nonetheless not receive the full 

annual payment update if they fail to 

meet other RHQDAPU program 

requirements, or if they withdraw from 

the program. 

Comment: One commenter supported 

a randomized selection of 200 hospitals 

per quarter for validation with a 

minimum number of 20 charts 

reviewed. The commenter believes that 

hospitals should not be selected for 

validation any more frequently than one 

time per year. The commenter expressed 

concern that if validation occurred more 

than one time per year, hospitals may 

become complacent in their validation 

processes and this may lead to issues 

with data integrity. The commenter 

urged CMS to reduce the current 

administrative burden of quarterly 

validation and supported random 

selection of hospitals one per quarter 

per year with more charts reviewed. 

Response: We appreciate the 

commenter’s concern and the suggestion 

to reduce the burden on the hospitals 

through validating one quarter of data 

per year. However, we believe that our 

proposed approach will enable hospitals 

to incorporate feedback learned earlier 

in the year and make improvements if 

necessary. The increased annual sample 

size from the current 20 records per year 

to 48 records per year also provides a 

more reliable validation estimate for 

sampled hospitals. 

Comment: One commenter urged 

continued attention to the data element 

level in order to increase the 

denominator and minimize the impact 

of a small number of errors. 

Response: We understand this 

comment and remind hospitals that they 

must continue to monitor their data 

element level validation processes 

because we use individual data 

elements as a combined set to calculate 

quality measures. The proposed 

validation score serves as a composite 

score of all data elements used to 

calculate quality measures, so it is 

critical that hospitals continue to ensure 

that data elements are abstracted 

accurately because inaccurately 

abstracted data elements can result in 

inaccurate measure rates and 

denominators. 

Comment: One commenter urged 

CMS to extend the turnaround time for 

chart selection to 60 days. The 

commenter suggested that CMS give 

hospitals the option to submit 

validation cases electronically rather 

than by mailing printed copies because 

such submissions would avoid shipping 

delays and allow faster turn around 

time. 

Response: We understand the 

commenter’s concern about the deadline 

for hospitals to return requested medical 

records but note that under the current 

quarterly validation process, it takes 5 to 

6 months from the initial medical record 

request until the CDAC contractor 

completes the validation process each 

quarter and the QIO completes its 

review of an appeal (if so requested by 

the hospital). We are concerned that 

adding time to this process would 

adversely impact hospitals’ ability to 

incorporate validation feedback into 

future abstraction work. 

We will consider accepting electronic 

submission of validation cases using 

compact disc and electronic health 

record submission in future years. We 

must consider both the cost to accept 

and review these submissions, and the 

added benefit to the hospitals using 

electronic methods to store medical 

record information. 

Comment: Several commenters 

recommended that any changes to the 

validation process be tested before CMS 

imposes a payment penalty against the 

hospitals. These commenters also 

recommended that no hospital be 

penalized in terms of its annual 

payment update if it fails the validation 

requirement for only a single quarter. 

Response: We believe that the 

proposed changes represent a small 

relative change to the overall validation 

process. We have assessed the impact by 

calculating revised scores using the 

proposed new validation method. 

Preliminary results indicate that our 

proposal would not adversely impact 

the number of hospitals failing to meet 

our annual validation requirement. We 

will continue to assess the impact of 

this change in the near future, and 

consider changes in future years. 

Comment: One commenter 

recommended allowing all hospitals 

passing quarterly validation to appeal 

individual mismatches and adjust the 

score on a quarterly basis based upon a 

successful appeal. 

Response: Our proposal, which we 

discuss below, to require all hospitals 

failing our annual validation 

requirement to submit all mismatched 

data elements partially addresses this 

concern because hospitals failing our 

annual validation requirement would be 

able to appeal all data elements 

classified as mismatches by the CDAC 

contractor. We understand the desire of 

the commenter to correct mismatches on 

a quarterly basis; however, we do not 

currently have a mechanism in place to 

accommodate this need. We will 

investigate a possible solution to 

addrress mismatches on a quarterly 

basis for the future. 

Comment: One commenter suggested 

that CMS and CMS contractors return 

case detail reports in Excel file format 

rather than using portable document 

format (pdf). 

Response: We believe that this is an 

excellent suggestion, and we will 

consider the feasibility of implementing 

this suggestion for future years. 

Comment: One commenter asked 

whether hospitals would be selected 

from each State. 

Response: In order to maximize the 

overall sampling efficiency, the random 

sample would not be stratified by State. 

The intent of the random sample is to 

provide all participating hospitals that 

meet the 100-case threshold with an 

equal probability of selection. 

Comment: Commenters asked 

whether hospitals not selected for 

validation would be considered for VBP. 

Commenters stated that hospitals use 

the validation process to learn and 

educate their staff about abstraction and 

documentation in the medical record. 

Response: We interpret the comment 

‘‘considered for VBP’’ to mean eligible 

to receive payment under a proposed 

VBP methodology, as outlined in the 

2007 CMS Hospital Value-Based 

Purchasing Report to Congress. As of the 

date of this final rule, value-based 

purchasing for hospitals has not been 

legislatively authorized. The proposed 

validation requirements would apply 

only for purposes of the RHQDAPU 

program. 

Comment: Commenters asked what 

would be the incentive for hospitals 

submitting fewer than 100 cases to 

continue abstracting and reporting data. 

Response: We remind the commenter 

that all RHQDAPU program 

participating hospitals must continue to 

meet the data submission and other 

requirements. We also note that we are 

considering developing targeting criteria 

that would enable us to also validate 

data submitted by hospitals that do not 

meet the 100-case threshold. 

Comment: Commenters noted that 

both hospitals and QIOs will have 

difficulty allocating resources for 

staffing when they do not know, from 

year to year, what hospitals will be 

selected for validation. 

Response: We understand that 

hospitals selected for validation will 


sroberts on DSKD5P82C1PROD with RULES
Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 43889 

need to allocate staffing for this effort 

and that hospitals that are not selected 

will not need to do so. However, the 

additional, minimal burden would be to 

submit the documentation for the 

requested medical records; a maximum 

of 12 records 4 times spaced over a year. 

Therefore, we do not believe that there 

will be a need for a large allocation of 

resources to meet this validation 

requirement. 

Comment: One commenter asked how 

CMS can compare all hospitals when 

different measure evaluations are being 

used, if some hospitals are using the 

new validation process and their 

measure score is based on this process. 

Response: We interpret the comment 

to be asking how we would validate all 

publicly reported data through a 

random sample of hospitals. We believe 

that a random sample of 800 hospitals 

provides a reliable estimate of accuracy 

for both sampled hospitals and national 

measure rates, since the sample is 

random and of sufficient size. We 

proposed stratifying the validation 

sample to ensure that all hospitalsubmitted data are validated for selected 

hospitals. The validation sample for all 

sampled hospitals would be similar in 

sample size by clinical topic to ensure 

that the sample is representative of each 

hospital’s population of submitted 

cases. 

After consideration of the public 

comments we received, we have 

decided to adopt as final our proposal 

regarding chart validation requirements 

and methods for the FY 2012 payment 

determination and subsequent years. 

c. Possible Supplements to the Chart 

Validation Process for the FY 2013 

Payment Determination and Subsequent 

Years 

In the FY 2010 IPPS/RY 2010 LTCH 

PPS proposed rule (74 FR 24180), we 

also solicited public comment about 

criteria we could use to target hospitals 

for validation in the future. These 

targeting criteria could include 

abnormal data patterns identified by 

analyzing hospital-submitted measure 

rates and counts for RHQDAPU program 

measures. For example: 

• A high number of years a hospital 

was not randomly selected for annual 

validation (for example, at least 5 years); 

• Consistently high measure 

denominator exclusion rates resulting in 

unexpectedly low denominator counts; 

• Consistently high measure rates, 

relative to national averages; 

• Small annual submission in the 

number of cases in previous years 

resulting in hospital exclusion from 

RHQDAPU program validation sample. 

Comment: One commenter 

recommended that CMS not implement 

targeting criteria for the FY 2013 

validation. The commenter indicated 

that it does not appear to be random, 

and CMS would not provide all 

hospitals with feedback on their 

abstraction accuracy. The commenter 

believed that because hospitals widely 

vary in their abstraction accuracy, 

feedback to all hospitals is more 

important than lessening burden 

through targeted validation. 

Response: We recognize that 

providing feedback to hospitals is an 

important part of the validation process. 

We will continue to work with State 

QIOs to provide data element and 

measure-specific feedback to all 

participating hospitals, regardless of 

inclusion in the random sample. 

Additionally, our targeting criteria 

would not be random; they would be 

designed to select hospitals based on 

specific criteria. The increased annual 

sample size and stratification is 

designed to provide hospitals selected 

for validation with reliable information 

about all of their abstracted data. 

Comment: With regard to the 

reconsideration process, several 

commenters supported CMS’ proposal 

to require hospitals to submit their 

paper medical records for re-abstraction 

when they submit a request for 

reconsideration involving data 

validation. The commenters believe that 

this process will give hospitals that 

believe the results of their data 

validation testing were inaccurate an 

opportunity to have their data reabstracted. 

Response: We agree with the 

commenters that hospitals should be 

able to seek reconsideration of all 

validation mismatched data elements 

and measures throughout the year if the 

hospital fails to meet the annual 

validation requirement. 

Comment: Some commenters 

recommended continuing with the 

process of random selection of five 

charts per quarter for hospitals having 

fewer than 100 discharges. 

Response: We appreciate the 

recommendation that we continue 

validating hospital data for hospitals 

having fewer than 100 discharges. As 

we discussed above, we are considering 

developing targeting criteria that would 

focus on these hospitals. 

We appreciate the public comments 

we received and will take them into 

consideration as we consider possible 

supplements to the chart validation 

process for the FY 2013 payment 

determination and subsequent years. 

Specifically, CMS plans to propose the 

following targeting criteria for FY 2013: 

• Validating hospital data when the 

hospital failed the previous year’s 

RHQDAPU program validation; 

• Validating a sample of hospitals not 

included in the previous year’s 

RHQDAPU program validation random 

sample for submitting fewer than 100 

cases; and 

• Validating hospital data when the 

hospital was not selected in 3 previous 

years’ RHQDAPU program random 

validation samples. 

We will also consider other targeting 

criteria for FY 2013 and future years. 

7. Data Accuracy and Completeness 

Acknowledgement Requirements for the 

FY 2011 Payment Determination and 

Subsequent Years 

For the FY 2011 payment 

determination and subsequent years, in 

the FY 2010 IPPS/RY 2010 LTCH PPS 

proposed rule (74 FR 24180), we 

proposed to require hospitals to 

electronically acknowledge on an 

annual basis the completeness and 

accuracy of the data submitted for the 

RHQDAPU program payment 

determination. Hospitals will be able to 

submit this acknowledgement on the 

same Web page that they use to submit 

data necessary to calculate the structural 

measures, and we believe that this Web 

page will provide a secure vehicle for 

hospitals to directly acknowledge that 

their information is complete and 

accurate to the best of their knowledge. 

A single annual electronic 

acknowledgement will provide us with 

explicit documentation acknowledging 

that the hospital’s data is accurate and 

complete, but will not unduly burden 

hospitals. We noted that commenters 

generally supported the idea of 

electronic attestation in the FY 2009 

IPPS final rule (73 FR 48625) at the 

point of data submission to the QIO 

Clinical Warehouse. 

In addition, the Government 

Accountability Office (GAO) 

recommended in a 2006 report (GAO– 

06–54) that hospitals self-report that 

their data are complete and accurate. 

Therefore, for the FY 2011 payment 

determination, we proposed to require 

hospitals to electronically acknowledge 

their data accuracy and completeness 

once between January 1, 2010, and 

August 15, 2010. Hospitals will 

acknowledge that all information that is, 

or will be, submitted as required by the 

RHQDAPU program for the FY 2011 

payment determination is complete and 

accurate to the best of their knowledge. 

Comment: Several commenters 

commended CMS for proposing to 

collect data accuracy and completeness 

acknowledgements using an electronic 

method. 


sroberts on DSKD5P82C1PROD with RULES
43890 Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 

Response: We thank the commenters, 

and believe that this proposed 

requirement imposes a minimal burden 

for hospitals. 

Comment: A number of commenters 

questioned the benefit of the proposed 

electronic data accuracy and 

completeness acknowledgement, and 

believed that data quality would not be 

improved. The commenters believed 

that requiring hospitals to attest to the 

accuracy of their data will not increase 

the reliability of the data collected for 

the RHQDAPU program and noted that 

historically, almost all hospitals have 

passed the data validation requirements, 

meaning that their data are found to be 

accurate and complete. 

Response: We believe that this 

proposed requirement will ensure that 

hospitals continue implementing 

procedures for ensuring data 

completeness and accuracy. This 

proposed requirement is intended to 

supplement our existing submission and 

validation requirements. 

After consideration of the public 

comments we received, we are adopting 

as final, without modification, our 

proposal to require hospitals to 

electronically acknowledge on an 

annual basis the completeness and 

accuracy of the data submitted for the 

RHQDAPU program payment 

determination. 

8. Public Display Requirements for the 

FY 2011 Payment Determination and 

Subsequent Years 

For the FY 2011 payment 

determination, in the FY 2010 IPPS/RY 

2010 LTCH PPS proposed rule (74 FR 

24180), we proposed to generally 

continue using the following existing 

requirements implemented in previous 

years. Our continued goal for the chart 

validation requirements is to validate 

the reliability of RHQDAPU program 

chart-abstracted data. Accurate data are 

needed to calculate accurate publicly 

reported quality measures that are 

posted on the Hospital Compare Web 

site. We added the validation 

requirement in the FY 2006 IPPS final 

rule (70 FR 47421 through 47422) to 

ensure that hospitals submit reliable 

data for RHQDAPU program chartabstracted measures, based on our 

experience in FY 2005 that hospitals 

vastly differed in their data reliability. 

We modified the validation 

requirements in the FY 2008 IPPS final 

rule with comment period (72 FR 47366 

and 47367) to update the RHQDAPU 

program list of validated measures for 

FY 2008, and pooled multiple quarterly 

validation estimates into a single annual 

estimate to improve reliability. We 

modified these requirements to reflect 

the changing RHQDAPU program list of 

chart-abstracted measures and validate 

all available RHQDAPU program data. 

We proposed to update the list of 

validated RHQDAPU program measures 

for the FY 2011 payment determination 

to incorporate changes to our list of 

required chart-abstracted RHQDAPU 

program measures for CY 2009 

discharges. These requirements, as well 

as additional information on these 

requirements, will be posted on the 

QualityNet Web site after we issue this 

final rule. 

Section 1886(b)(3)(B)(viii)(VII) of the 

Act provides that the Secretary shall 

establish procedures for making data 

submitted under the RHQDAPU 

program available to the public. The 

RHQDAPU program quality measures 

are posted on the Hospital Compare 

Web site (https:// 

www.hospitalcompare.hhs.gov). We 

require that hospitals sign a Notice of 

Participation form when they first 

register to participate in the RHQDAPU 

program. Once a hospital has submitted 

a form, the hospital is considered to be 

an active RHQDAPU program 

participant until such time as the 

hospital submits a withdrawal form to 

CMS (72 FR 47360). Hospitals signing 

this form agree that they will allow CMS 

to publicly report the quality measures 

included in the RHQDAPU program. 

We will continue to display quality 

information for public viewing as 

required by section 

1886(b)(3)(B)(viii)(VII) of the Act. Before 

we display this information, hospitals 

will be permitted to review their 

information as recorded in the QIO 

Clinical Warehouse. 

Currently, hospital campuses that 

share the same CCN must combine data 

collection and submission across their 

multiple campuses (for both clinical 

measures and HCAHPS). These 

measures are then publicly reported on 

the Hospital Compare Web site as if 

they apply to a single hospital. We 

estimate that approximately 5 to 10 

percent of the hospitals reported on the 

Hospital Compare Web site share CCNs. 

To increase transparency in public 

reporting and improve the usefulness of 

the Hospital Compare Web site, we plan 

to note on the Web site instances where 

publicly reported measures combine 

results from two or more hospitals. 

We did not receive any public 

comments on our proposals and are 

adopting them as final in this final rule. 

9. Reconsideration and Appeal 

Procedures for the FY 2010 Payment 

Determination 

The general deadline for submitting a 

request for reconsideration in 

connection with the FY 2010 payment 

determination is November 1, 2009. As 

discussed more fully below, in the FY 

2010 IPPS/RY 2010 LTCH PPS proposed 

rule (74 FR 24181), we proposed that all 

hospitals submit a request for 

reconsideration and receive a decision 

on that request before they can file an 

appeal with the Provider 

Reimbursement Review Board (PRRB). 

For the FY 2010 payment 

determination, in the FY 2010 IPPS/RY 

2010 LTCH PPS proposed rule (74 FR 

24181), we proposed to continue 

utilizing most of the same procedures 

that we utilized in FY 2009. Under these 

proposed procedures, the hospital 

must— 

• Submit to CMS, via QualityNet, a 

Reconsideration Request form (available 

on the QualityNet Web site) containing 

the following information: 

—Hospital CMS Certification number 

(CCN). 

—Hospital Name. 

—CMS-identified reason for failure (as 

provided in the CMS notification of 

failure letter to the hospital). 

—Hospital basis for requesting 

reconsideration. This must identify 

the hospital’s specific reason(s) for 

believing it met the RHQDAPU 

program requirements and should 

receive the full FY 2010 IPPS annual 

payment update. 

—CEO contact information, including 

name, e-mail address, telephone 

number, and mailing address (must 

include the physical address, not just 

the post office box). We proposed to 

no longer require that the hospital’s 

CEO sign the RHQDAPU program 

reconsideration request. We have 

found that this requirement increases 

the burden for hospitals because it 

prevents them from electronically 

submitting the RHQDAPU program 

reconsideration request forms. In 

addition, to the extent that a hospital 

can submit a request for 

reconsideration on-line, the burden 

on our staff is reduced and, as a 

result, we can more quickly review 

the request. 

—QualityNet System Administrator 

contact information, including name, 

e-mail address, telephone number, 

and mailing address (must include the 

physical address, not just the post 

office box). 

—Paper medical record requirement for 

reconsideration requests involving 

validation. We proposed that if a 

hospital asks us to reconsider an 

adverse RHQDAPU program payment 

decision made because the hospital 

failed the validation requirement, the 

hospital must submit paper copies of 

all the medical records that it 


sroberts on DSKD5P82C1PROD with RULES
Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 43891 

submitted to the CDAC contractor 

each quarter for purposes of the 

validation. Hospitals must submit this 

documentation to a CMS contractor, 

which will redact all patient 

identifying information and forward 

the redacted copies to CMS. The 

contractor will be a QIO support 

contractor, which has authority to 

review patient level information 

under 42 CFR part 480. We will post 

the address where hospitals can ship 

the paper charts on the QualityNet 

Web site after we issue the FY 2010 

IPPS/RY 2010 LTCH PPS final rule. 

Hospitals submitting a RHQDAPU 

program validation reconsideration 

request will have all mismatched data 

reviewed by CMS, and not their State 

QIO. (As discussed in section V.A.6.b. 

of this final rule, the State QIO is 

available to conduct a quarterly 

validation appeal if so requested by a 

hospital.) 

For the FY 2010 payment 

determination, the RHQDAPU program 

data that will be validated is 4th 

calendar quarter 2007 through 3rd 

quarter calendar year 2008 discharge 

data, except for SCIP-Infection-4 and 

Infection-6, which will be validated 

using 2nd and 3rd calendar quarter 2008 

discharges (73 FR 48621 through 

48622). Hospitals must provide a 

written justification for each appealed 

data element classified during the 

validation process as a mismatch. We 

will review the data elements that were 

labeled as mismatched, as well as the 

written justifications provided by the 

hospitals, and make a decision on the 

reconsideration request. As we 

mentioned above, we proposed that all 

hospitals submit a reconsideration 

request to CMS and receive a decision 

on that request prior to submitting a 

PRRB appeal. We believe that the 

reconsideration process is less costly for 

both CMS and hospitals, and that this 

requirement will decrease the number of 

PRRB appeals by resolving issues earlier 

in the appeals process. 

Following receipt of a request for 

reconsideration, we will— 

• Provide an e-mail 

acknowledgement, using the contact 

information provided in the 

reconsideration request, to the CEO and 

the QualityNet Administrator that the 

request has been received. 

• Provide written notification to the 

hospital CEO, using the contact 

information provided in the 

reconsideration request, regarding our 

decision. We expect the process to take 

approximately 60 to 90 days from the 

reconsideration request due date of 

November 1, 2009. 

If a hospital is dissatisfied with the 

result of a RHQDAPU program 

reconsideration decision, the hospital 

may file a claim under 42 CFR part 405, 

Subpart R (a PRRB appeal). We solicited 

public comments on the extent to which 

these proposed procedures will be less 

costly for hospitals, and whether they 

will lead to fewer PRRB appeals. 

Comment: One commenter agreed that 

CMS should no longer require the CEO 

to sign the RHQDAPU program 

reconsideration request so that the 

request does not get held up for a 

signature, and can be submitted 

electronically. The commenter believed 

that use of the PRRB is less cost 

efficient, and should be the last resort. 

The commenter requested that the 

reconsideration process provide both 

written notification to the hospital CEO 

and QualityNet notification to the 

QualityNet Administrator working at 

the hospital. 

Response: We appreciate the 

comment and recognize the additional 

burden to hospitals associated with the 

requirement of a CEO signature. 

Comment: Several commenters 

supported CMS’ proposal to require 

hospitals to submit their paper medical 

records for re-abstraction when they 

submit an appeal involving data 

validation. The commenters indicated 

that this process will give hospitals that 

believe the results of the data validation 

were inaccurate an opportunity to have 

their data re-abstracted again as part of 

the reconsideration process. 

Response: In the proposed rule, we 

proposed that hospitals must provide a 

written justification for each appealed 

data element classified during the 

validation process as a mismatch. We 

stated that we would review the data 

elements that were labeled as 

mismatched, as well as the written 

justifications provided by the hospitals, 

and make a decision on the 

reconsideration request. However, we 

wish to clarify that this would not be a 

re-abstraction, but a review of the 

hospital’s justification and the medical 

record for each appealed mismatching 

data element. The intent of this proposal 

is for us to have all of the information 

necessary to review a request for 

reconsideration based on the hospital’s 

validation results. 

Comment: One commenter asked for 

clarification about two possible 

situations that could arise under CMS’ 

proposal to review paper medical 

records as part of the reconsideration 

process (when the issue is validation): 

1. Hospital fails to return one or more 

medical records to the CDAC contractor 

for the quarterly validation request 

within the 45 calendar day timeframe. 

There are no CDAC contractorabstracted data elements for the 

reconsideration contractor to review, 

except for medical records returned 

after the 45 calendar day deadline. 

Would the hospital be allowed to 

submit medical records during 

reconsideration to receive credit for 

information submitted to the CDAC 

contractor after the quarterly validation 

45 day deadline? If not, would the 

reconsideration contractor’s review be 

limited in scope to the CDAC 

contractor’s original documentation that 

verifies contact with the hospital as 

outlined in this regulation, and 

documents that the CDAC contractor 

did not receive the requested medical 

records in the required timeframe (for 

example, reconsideration limited to data 

and hospital receipt of CDAC 

contractor’s request for medical records, 

written reminder notes, and CDAC 

contractor’s non-receipt of medical 

records). 

2. Hospital receives one or more 

‘‘invalid record selection’’ zero scores 

for failing to provide the correct medical 

record for the requested episode of care. 

Invalid record selections occur when 

the hospital submits medical record(s) 

that do not match the requested patient 

episode of care’s admission date, 

discharge date, name or other hospital 

submitted identification information, 

and/or birthdate/birth year. Would the 

reconsideration contractor abstract 

medical records for these ‘‘invalid 

records,’’ or would the reconsideration 

contractor and CMS simply review the 

electronic submitted data, relative to the 

hospital submitted data to the CDAC 

contractor in response to the original 

medical record request? 

In both scenarios, the commenter 

argued that hospitals would attempt to 

circumvent the CDAC contractor 

validation process and submit medical 

records to the reconsideration process. 

The commenter recommended that CMS 

limit the scope of RHQDAPU program 

reconsideration review for validation to 

verification of CDAC contractor 

processing, and not circumventing the 

validation process to allow 

reconsideration contractor abstraction of 

these nonreturned and ‘‘invalid record 

selection’’ cases that receive zero 

validation scores. The commenter 

indicated that CMS should spend its 

dollars wisely and create processes that 

do not allow hospitals to bypass existing 

and expensive quarterly validation 

processes. 

Response: We appreciate the 

comment. Our intent is to provide 

hospitals a process to request our 

reconsideration review of mismatched 

data elements abstracted by the CDAC 


sroberts on DSKD5P82C1PROD with RULES
43892 Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 

contractor affecting the hospitals’ 

validation scores. Hospitals must submit 

a copy of the entire requested medical 

record to the CDAC contractor during 

the quarterly validation process for the 

requested case to be eligible for 

reconsideration of mismatched data 

elements. Our review of medical records 

that we classify as not matching what 

was requested by the CDAC contractor 

(called ‘‘invalid record selections’’) will 

initially be limited to ascertaining 

whether the copy of the record 

submitted to the CDAC contractor was 

actually an entire copy of the requested 

medical record. If we determine during 

reconsideration that the hospital did 

submit the entire copy of the requested 

medical record to the CDAC contractor, 

then we would abstract data elements 

from the medical record submitted by 

the hospital along with its 

reconsideration request. 

We would also review the hospital’s 

justification for medical records not 

returned in a timely manner to ascertain 

whether the CDAC contractor received 

the requested record within 45 calendar 

days, and whether the hospital received 

the initial medical record request and 

reminder notice as specified in this 

regulation. If we determine during 

reconsideration that the CDAC 

contractor did receive a paper copy of 

the requested medical record within 45 

calendar days, then we would abstract 

data elements from the medical record 

submitted by the hospital along with its 

reconsideration request. 

After reviewing the public comments 

we received, we are adopting as final 

the proposed RHQDAPU program 

reconsideration requirements for FY 

2010. However, we wish to clarify the 

following regarding the scope of our 

review when a hospital requests 

reconsideration because it failed our 

validation requirements: 

1. Hospital requests reconsideration 

for CDAC contractor-abstracted data 

elements classified as mismatches 

affecting validation scores. Hospitals 

must timely submit a copy of the entire 

requested medical record to the CDAC 

contractor during the quarterly 

validation process for the requested case 

to be eligible to request reconsideration 

of mismatched data elements. 

2. Hospital requests reconsideration 

for medical record copies submitted 

during the quarterly validation process 

and classified as invalid record 

selections. Invalid record selections are 

defined as medical records submitted by 

hospitals during the quarterly validation 

process that do not match the patient’s 

episode of care information as 

determined by the CDAC contractor (in 

other words, the contractor determines 

that the hospital returned a medical 

record that is different from that which 

was requested). If the CDAC contractor 

determines that the hospital has 

submitted an invalid record selection 

case, it awards a zero validation score 

for the case because the hospital did not 

submit the entire copy of the medical 

record for that requested case. During 

the reconsideration process, our review 

of invalid record selections will initially 

be limited to determining whether the 

record submitted to the CDAC 

contractor was actually an entire copy of 

the requested medical record. If we 

determine during reconsideration that 

the hospital did submit the entire copy 

of the requested medical record, then 

we would abstract data elements from 

the medical record submitted by the 

hospital along with its reconsideration 

request. 

3. Hospital requests reconsideration 

for medical records not submitted to the 

CDAC contractor within the 45 calendar 

day deadline. Our review will initially 

be limited to determining whether the 

CDAC contractor received the requested 

record within 45 calendar days, and 

whether the hospital received the initial 

medical record request and reminder 

notice as specified in this regulation. If 

we determine during reconsideration 

that the CDAC contractor did receive a 

paper copy of the requested medical 

record within 45 calendar days, then we 

would abstract data elements from the 

medical record submitted by the 

hospital along with its reconsideration 

request. 

In sum, we are initially limiting the 

scope of our reconsideration reviews 

involving validation to information 

already submitted by the hospital 

during the quarterly validation process, 

and we will not abstract medical records 

that were not submitted to the CDAC 

contractor during the quarterly 

validation process. We will expand the 

scope of our review only if we find 

during the initial review that the 

hospital correctly and timely submitted 

the requested medical records. In that 

case, then we would abstract data 

elements from the medical record 

submitted by the hospital along with its 

reconsideration request. 

After consideration of the public 

comments we received, we are adopting 

as final, with the clarifications outlined 

in this final rule, our proposals 

regarding reconsideration and appeals 

procedures for the FY 2010 payment 

determination. 

10. RHQDAPU Program Withdrawal 

Deadlines 

In the FY 2010 IPPS/RY 2010 LTCH 

PPS proposed rule (74 FR 24181), we 

proposed to accept RHQDAPU program 

withdrawal forms for the FY 2011 

payment determination from hospitals 

until August 15, 2010. We proposed this 

deadline so that we would have 

sufficient time to update the FY 2011 

payment to hospitals starting on October 

1, 2010. If a hospital withdraws from the 

program for the FY 2011 payment 

determination, it will receive a 2.0 

percentage point reduction in its FY 

2011 annual payment update. We noted 

that once a hospital has submitted a 

Notice of Participation form, it is 

considered to be an active RHQDAPU 

program participant until such time as 

the hospital submits a withdrawal form 

to CMS. 

We did not receive any public 

comments about our proposal. 

Therefore, we are adopting as final our 

proposal to accept RHQDAPU program 

withdrawal forms for the FY 2011 

payment determination from hospitals 

until August 15, 2010. 

11. Electronic Health Records 

a. Background 

Starting with the FY 2006 IPPS final 

rule, we have encouraged hospitals to 

take steps toward the adoption of EHRs 

(also referred to in previous rulemaking 

documents as electronic medical 

records) that will allow for reporting of 

clinical quality data from the EHRs 

directly to a CMS data repository (70 FR 

47420 through 47421). We encouraged 

hospitals that are implementing, 

upgrading, or developing EHR systems 

to ensure that the technology obtained, 

upgraded, or developed conforms to 

standards adopted by HHS. We 

suggested that hospitals also take due 

care and diligence to ensure that the 

EHR systems accurately capture quality 

data and that, ideally, such systems 

provide point-of-care decision support 

that promotes optimal levels of clinical 

performance. 

In the FY 2008 IPPS final rule with 

comment period (72 FR 47366), we 

responded to comments we received on 

EHRs and noted that CMS planned to 

continue participating in the American 

Health Information Community (which 

has now sunset and is replaced by the 

National eHealth Collaborative) and 

other entities to explore processes 

through which an EHR could speed the 

collection of data and minimize the 

resources necessary for quality 

reporting. 

Recently, we initiated work directed 

toward enabling EHR submission of 

quality measures through EHR 

standards development and adoption. 

We are working under an inter-agency 

agreement between CMS and the Office 


sroberts on DSKD5P82C1PROD with RULES
Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 43893 

of the National Coordinator for 

Healthcare Information Technology 

(ONC) to identify and harmonize 

standards for the EHR-based submission 

of Emergency Department Throughput 

measures, Stroke measures, and Venous 

Thromboembolism measures. These 

measures have received NQF 

endorsement and are potential measures 

for future inclusion in the RHQDAPU 

program. Pursuant to this agreement, the 

Healthcare Information Technology 

Standards Panel (HITSP) has been 

tasked with harmonizing the EHR data 

element standards for the measure sets. 

The work for these three measure sets 

began in September 2008 and is due to 

be completed in a little more than 1 

year. It is expected that interoperable 

standards will be developed and fully 

vetted by October 2009. When HITSP 

posts the standards, we anticipate that 

EHR vendors will be able to code their 

EHR systems with the new 

specifications and begin collecting this 

data electronically. We expect that these 

standards will be provided to its 

Certification Commission for Healthcare 

Information Technology (CCHIT) for 

inclusion in the criteria for certification 

of inpatient EHRs. 

b. EHR Testing of Quality Measures 

Submission 

As we have previously stated, we are 

interested in the reporting of quality 

measures using EHRs, and we continue 

to encourage hospitals to adopt and use 

EHRs that conform to industry 

standards. We believe that the testing of 

EHR submission is an important and 

necessary step to establish the ability of 

EHRs to report clinical quality measures 

and the capacity of CMS to receive such 

data. 

Through CMS’ interagency agreement 

with ONC previously described, the 

interoperable standards for EHR-based 

submission of the Emergency 

Department (ED) Throughput, Stroke, 

and Venous Thromboembolism (VTE) 

measures are scheduled to be finalized 

in late 2009 and will be available for 

review and testing. We anticipate testing 

the components required for the 

submission of clinical quality data 

extracted from EHRs for these measures, 

and are exploring different mechanisms 

and formats that will aid the submission 

process, as well as ensure that the 

summary measure results extracted from 

the EHRs are reliable. When the 

interoperable EHR-based submission 

standards become available, EHR 

vendors will be able to employ them in 

EHR systems and begin testing how they 

facilitate the electronic collection of 

these data. We intend to follow similar 

processes and procedures to those we 

are using for the PQRI EHR testing being 

conducted as described in the CY 2009 

Medicare Physician Fee Schedule final 

rule with comment period (73 FR 69828 

through 69830). 

We anticipate moving forward with 

testing CMS’ technical ability to accept 

data from EHRs for the ED, Stroke, and 

VTE measures as early as July 1, 2010. 

Pursuant to the Paperwork Reduction 

Act, prior to the beginning of testing 

EHR-based data submission, we will 

publish a Federal Register notice 

seeking public comments on the process 

we intend to follow to select EHR 

vendors/hospitals and the methodology 

we plan to use for testing EHR-based 

data submissions. 

The test measures described above are 

not currently required under the 

RHQDAPU program. As long as that 

remains the case, EHR test data that is 

received for these measures will not be 

used to make RHQDAPU program 

payment decisions. In addition, the 

posting of the electronic specifications 

for any particular measure should not be 

interpreted as a signal that we intend to 

select the measure for inclusion in the 

RHQDAPU program measure set. 

We intend to select several EHR 

vendors/hospitals to develop and test 

EHR clinical quality data submission. 

EHR vendors/hospitals that wish to 

participate in the development and 

testing process will be able to selfnominate by sending a letter of interest 

to: ‘‘RHQDAPU Program IT Testing 

Nomination’’, Centers for Medicare and 

Medicaid Services, Office of Clinical 

Standards and Quality, Quality 

Measurement and Health Assessment 

Group, 7500 Security Boulevard, Mail 

Stop S3–02–01, Baltimore, MD 21244– 

8532. The letter must be received by 

CMS by 6 p.m., E.S.T. on December 31, 

2009. Vendors/hospitals will be selected 

based on the following criteria: (1) They 

are able to submit clinical EHR data 

using interoperability standards such as 

Cross Document Sharing (XDS), Cross 

Community Access (XCA), Clinical Data 

Architecture (CDA), and Health Level 7 

Version 3 to a CMS-designated clinical 

data repository; and (2) they have 

established or have applied for a 

QualityNet account. More information 

regarding these capabilities will be 

made available on the Hospital Quality 

Initiative section of the CMS Web site 

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

HospitalQualityInits/. Preference may 

be given to EHR vendors/hospitals that 

utilize EHRs that are currently certified 

by the CCHIT, use the National Health 

Information Network (NHIN), and/or 

utilize Health Information Technology 

Standards Panel (HITSP)/Integrating the 

Healthcare Environment (IHE) 

standards. 

EHR vendors/hospitals that would 

like to test the submission of inpatient 

EHR data to the CMS-designated clinical 

data repository should update their EHR 

products or otherwise ensure that those 

products can capture and submit the 

necessary data elements identified for 

an EHR-based submission once the 

standardized format has been 

determined. We suggest that these 

entities begin submitting EHR data 

promptly after CMS announces that the 

clinical data repository is ready to 

accept such data so that problems that 

may complicate or preclude a successful 

quality measure data submission can be 

corrected. 

In the FY 2010 IPPS/RY 2010 LTCH 

PPS proposed rule (74 FR 24182), we 

welcomed comments on this discussion 

of EHR-based data submission testing. 

Comment: A number of commenters 

supported voluntary EHR testing, the 

creation of uniform data content 

standards, and the concept of reducing 

the burden to hospitals through 

automated data transmission via EHR 

products. The commenters applauded 

CMS for EHR testing and for working to 

expand quality data submission to 

include electronic formats. The 

commenters also commended CMS for 

working with ONC to establish 

electronic standards for ED, Stroke and 

VTE quality measures. The commenters 

urged CMS to ensure the scientific 

integrity of the electronic standards and 

resulting measures, and encouraged 

CMS to work closely with NQF’s Health 

IT Expert Panel (HITEP) and to 

incorporate HITSP standards for 

measures. Some commenters urged CMS 

to conduct EHR testing for measures 

that have already been adopted into the 

RHQDAPU program as well. However, 

one commenter stated that the timelines 

suggested in the proposed rule do not 

take into account the realities faced by 

hospitals. 

Response: We appreciate these 

supportive comments regarding 

voluntary EHR testing, and acknowledge 

the challenges faced by many hospitals 

in adopting EHRs at this time. We will 

continue to work with standard setting 

organizations toward standardization of 

data elements for quality measures in 

EHRs. A voluntary EHR-based data 

submission testing process would be 

initiated at such time as CMS systems 

are able to support it. Hospitals would 

not be required to participate in this 

testing process, but would do so 

voluntarily. We decided to begin EHR 

testing with non-implemented 

measures. However, we plan to create 

electronic formats for measures already 


sroberts on DSKD5P82C1PROD with RULES
43894 Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 

adopted for the RHQDAPU program as 

well. 

We thank the commenters for their 

suggestions and will take these 

comments into consideration as we 

move forward with voluntary EHR 

testing. We will announce further 

details regarding this voluntary testing 

program in a separate Federal Register 

notice. 

c. HITECH Act EHR Provisions 

On February 17, 2009, the President 

signed into law the ARRA, Public Law 

111–5. 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 the 

following three requirements: 

Meaningful use of certified EHR 

technology; electronic exchange of 

health information; and reporting on 

measures using certified EHR 

technology (provided the Secretary has 

the capacity to receive such information 

electronically). With respect to this 

requirement, under section 

1886(n)(3)(A)(ii) of the Act, as added by 

section 4102 of the HITECH Act, the 

Secretary shall select measures, 

including clinical quality measures, that 

hospitals must provide to CMS in order 

to be eligible for the EHR incentive 

payments. With respect to the clinical 

quality measures, section 

1886(n)(3)(B)(i) of the Act requires the 

Secretary to give preference to those 

clinical quality measures that have been 

selected for the RHQDAPU program 

under section 1886(b)(3)(B)(viii) of the 

Act or that have been endorsed by the 

entity with a contract with the Secretary 

under section 1890(a) of the Act. Any 

measures must be proposed for public 

comment prior to their selection, except 

in the case of measures previously 

selected for the RHQDAPU program 

under section 1886(b)(3)(B)(viii) of the 

Act. 

Thus, the RHQDAPU program and the 

HITECH Act have important areas of 

overlap and synergy with respect to the 

reporting of quality measures using 

EHRs. We believe the financial 

incentives under the HITECH Act for 

the adoption and meaningful use of 

certified EHR technology by hospitals 

will encourage the adoption and use of 

certified EHRs for the reporting of 

clinical quality measures under the 

RHQDAPU program. Further, these 

efforts to test the submission of quality 

data through EHRs may provide a 

foundation for establishing the capacity 

of hospitals to send, and for CMS to 

receive, quality measures via hospital 

EHRs for future RHQDAPU program 

measures. We again note that the 

provisions in this final rule do not 

implicate or implement any HITECH 

statutory provisions. Those provisions 

will be implemented in a future 

rulemaking. 

B. Medicare-Dependent, Small Rural 

Hospitals (MDHs): Budget Neutrality 

Adjustment Factors for FY 2002-Based 

Hospital-Specific Rate (§ 412.79(i)) 

1. Background 

Under the IPPS, special payment 

protections are provided to a sole 

community hospital (SCH). Section 

1886(d)(5)(D)(iii) of the Act defines an 

SCH as a hospital 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 inpatient hospital services 

reasonably available to Medicare 

beneficiaries. The regulations that set 

forth the criteria that a hospital must 

meet to be classified as an SCH are 

located at 42 CFR 412.92. Section 

1886(d)(5)(D)(iii)(III) of the Act and the 

regulations at § 412.109 also provide 

that certain essential access community 

hospitals (EACHs) will be treated as an 

SCH for payment purposes under the 

IPPS. 

Under the IPPS, separate special 

payment protections also are provided 

to a Medicare-dependent, small rural 

hospital (MDH). Section 

1886(d)(5)(G)(iv) of the Act defines an 

MDH as a hospital that is located in a 

rural area, has not more than 100 beds, 

is not an SCH, and has a high 

percentage of Medicare discharges (not 

less than 60 percent of its inpatient days 

or discharges in its 1987 cost reporting 

year or in two of its most recent three 

settled Medicare cost reporting years). 

The regulations that set forth the criteria 

that a hospital must meet to be 

classified as an MDH are located at 42 

CFR 412.108. 

Although SCHs and MDHs are paid 

under special payment methodologies, 

they are still paid under section 1886(d) 

of the Act. Like all IPPS hospitals paid 

under section 1886(d) of the Act, SCHs 

and MDHs are paid for their discharges 

based on the DRG weights calculated 

under section 1886(d)(4) of the Act. 

For SCHs, effective with hospital cost 

reporting periods beginning prior to 

January 1, 2009, section 1886(d)(5)(D)(i) 

of the Act (as amended by section 

6003(e) of Public Law 101–239 (OBRA 

1989)) and section 1886(b)(3)(I) of the 

Act (as added by section 405 of Public 

Law 106–113 (BBRA 1999) and further 

amended by section 213 of Public Law 

106–554 (BIPA 2000) provide that SCHs 

are paid based on whichever of four 

statutorily specified rates (listed below) 

yields the greatest aggregate payment to 

the hospital for the cost reporting 

period. For cost reporting periods 

beginning on or after January 1, 2009, 

section 122 of Public Law 110–275 

(MIPPA 2008) further amended the Act 

to specify that SCHs will be paid based 

on a FY 2006 hospital-specific rate (that 

is, based on their updated costs per 

discharge from their 12-month cost 

reporting period beginning during 

Federal fiscal year 2006), if this results 

in the greatest payment to the SCH. 

Therefore, currently, SCHs are paid 

based on whichever of the following 

rates yields the greatest aggregate 

payment to the hospital for the cost 

reporting period: 

• The Federal rate applicable to the 

hospital; 

• 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. 

For purposes of payment to SCHs for 

which the FY 1996 hospital-specific rate 

yields the greatest aggregate payment, 

payments for discharges during FYs 

2001, 2002, and 2003 were based on a 

blend of the FY 1996 hospital-specific 

rate and the greater of the Federal rate 

or the updated FY 1982 or FY 1987 

hospital-specific rate. For discharges 

during FY 2004 and subsequent fiscal 

years, payments based on the FY 1996 

hospital-specific rate are based on 100 

percent of the updated FY 1996 

hospital-specific rate. 

Through and including FY 2006, 

under section 1886(d)(5)(G) of the Act, 

MDHs are paid based on the Federal rate 

or, if higher, the Federal rate plus 50 

percent of the amount by which the 

Federal rate is exceeded by the updated 

hospital-specific rates based on FY 1982 

or FY 1987 costs per discharge, 

whichever of these hospital-specific 

rates is higher. Section 5003(b) of Public 

Law 109–171 (DRA 2005) amended 

section 1886(d)(5)(G) of the Act to 

provide that, for discharges occurring on 

or after October 1, 2006, MDHs are paid 

based on the Federal rate or, if higher, 

the Federal rate plus 75 percent of the 

amount by which the Federal rate is 

exceeded by the updated hospitalspecific rate based on FY 1982, FY 1987, 

or FY 2002 costs per discharge, 

whichever of these hospital-specific 

rates is the highest. Unlike SCHs, MDHs 


sroberts on DSKD5P82C1PROD with RULES
Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 43895 

do not have the option to use their FY 

1996 hospital-specific rate. 

For each cost reporting period, the 

fiscal intermediary or MAC determines 

which of the payment options will yield 

the highest aggregate payment. Interim 

payments are automatically made at the 

highest rate using the best data available 

at the time the fiscal intermediary or 

MAC makes the determination. 

However, it may not be possible for the 

fiscal intermediary or MAC to determine 

in advance precisely which of the rates 

will yield the highest aggregate payment 

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

not possible to forecast the outlier 

payments, or the amount of the DSH 

adjustment or the IME adjustment, all of 

which are applicable only to payments 

based on the Federal rate and not to 

payments based on the hospital-specific 

rate. The fiscal intermediary or MAC 

makes a final adjustment at the close of 

the cost reporting period after it 

determines precisely which of the 

payment rates would yield the highest 

aggregate payment to the hospital. 

If a hospital disagrees with the fiscal 

intermediary’s or the MAC’s 

determination regarding the final 

amount of program payment to which it 

is entitled, it has the right to appeal the 

fiscal intermediary’s or the MAC’s 

decision in accordance with the 

procedures set forth in 42 CFR part 405, 

Subpart R, which govern provider 

payment determinations and appeals. 

2. FY 2002-Based Hospital-Specific Rate 

Acute care hospitals, including MDHs 

and SCHs, are subsection (d) hospitals 

paid under the IPPS. As mentioned 

earlier, under the special payment 

methodologies for MDHs and SCHs, 

Medicare payments per discharge are 

made based on DRG weights, as with all 

other acute care hospitals paid under 

the IPPS. (We note that effective 

beginning in FY 2008, the MS–DRGs are 

used under the IPPS.) As discussed 

above, although the specific payment 

formulas for MDHs and SCHs differ, it 

is common to both types of hospitals 

that they may be paid based on an 

updated hospital-specific rate 

determined from their costs per 

discharge in a specified base year. 

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

requires that aggregate IPPS payments 

be projected to neither increase nor 

decrease as a result of the annual 

changes to the DRG classifications and 

weighting factors. Beginning in FY 

1994, in applying the current year’s 

budget neutrality adjustment factor to 

both the standard Federal rate and 

hospital-specific rates, we do not 

remove the prior years’ budget 

neutrality adjustment factors when 

applying the current year budget 

neutrality adjustment factor to assure 

that estimated aggregate payments after 

the DRG changes are equal to estimated 

aggregate payments prior to the changes 

(48 FR 46345). If we were to remove the 

prior year adjustment(s), we would not 

satisfy this requirement. As we have 

previously explained (for example, in 

the FY 2006 IPPS final rule (70 FR 

47429)), all section 1886(d) hospitals, 

including hospitals that are paid based 

on a hospital-specific rate, are subject to 

a DRG budget neutrality adjustment 

factor. As is the case for all other IPPS 

hospitals, these hospitals are paid based 

on DRG classifications and weighting 

factors that must be considered when 

we determine whether aggregate IPPS 

payments are projected to increase or 

decrease as a result of the annual 

changes to the DRG classifications and 

weighting factors. 

In order to comply with the statutory 

requirement that the DRG changes be 

budget neutral, we compute a budget 

neutrality adjustment factor based on a 

comparison of estimated aggregate 

payments using the current year’s 

relative weights and factors to aggregate 

payments using the prior year’s relative 

weights and factors. This budget 

neutrality adjustment factor is then 

applied to the standardized per 

discharge payment amounts (that is, the 

Federal rates and the hospital-specific 

rates). Cumulative budget neutrality 

factors, beginning with the adjustment 

factor for FY 1993, apply to all hospitalspecific rates including rebased 

hospital-specific rate amounts derived 

from base years later than FY 1993. As 

discussed in the FY 2001 IPPS proposed 

rule (55 FR 19466), in setting updated 

DRG weights, each year we normalize 

DRG weights by an adjustment factor in 

order to first ensure that the average 

case weight after recalibration is equal 

to the average case weight prior to 

recalibration. While this adjustment is 

intended to ensure that recalibration 

does not affect total payments to 

hospitals under section 1886(d) of the 

Act, our analysis has indicated that the 

normalization adjustment does not 

usually achieve budget neutrality with 

respect to aggregate payments to 

hospitals under section 1886(d) of the 

Act. Thus, in order to comply with the 

requirement of section 1886(d)(4)(C)(iii) 

of the Act that the annual DRG 

reclassification changes and 

recalibration of the relative weights be 

budget neutral, we also compute a 

budget neutrality adjustment factor that 

is applied to both the standardized 

amounts and the hospital-specific rates. 

This budget neutrality adjustment 

ensures that the recalibration process 

neither increases nor decreases total 

payments to hospitals. If we were to 

remove this budget neutrality 

adjustment factor for years prior to the 

base year, the normalized DRG weights 

applied to the hospital-specific amounts 

would result in higher aggregate 

payments than permitted under the 

statute. 

Section 1886(b)(3)(I) of the Act (as 

added by section 405 of Public Law 

106–113 (BBRA 1999) and further 

amended by section 213 of Public Law 

106–554 (BIPA 2000)) contains a 

provision for SCHs to rebase their 

hospital-specific rate using the 

hospital’s FY 1996 cost per discharge 

data. Specifically, beginning in FY 2001, 

SCHs can also use their reasonable and 

allowable FY 1996 operating costs for 

inpatient hospital services as the basis 

for their hospital-specific rate rather 

than only their FY 1982 or FY 1987 

costs, if using FY 1996 costs would 

result in higher payments. Effective for 

cost reporting periods beginning on or 

after January 1, 2009, SCHs will be paid 

based on their hospital-specific rate 

using FY 2006 costs, if this rate yields 

higher payments (as provided for under 

section 122 of Public Law 110–275 

(MIPPA 2008)). For the reasons 

explained above, the instructions for 

implementing both the FY 1996 and FY 

2006 SCH rebasing provisions direct the 

fiscal intermediary or MAC to apply 

cumulative budget neutrality 

adjustment factors to account for DRG 

changes since FY 1993 in determining 

an SCH’s hospital-specific rate based on 

either FY 1996 or FY 2006 cost data. 

(The FY 1996 SCH rebasing provision 

was implemented in Transmittal A–00– 

66 (Change Request 1331) dated 

September 18, 2000, and the FY 2006 

SCH rebasing provision was 

implemented in a Joint Signature 

Memorandum (JSM/TDL–09052), dated 

November 17, 2008.) 

As stated previously, section 5003(b) 

of Public Law 109–171 (DRA 2005) 

allows MDHs to use the hospital’s FY 

2002 costs per discharge (that is, the FY 

2002 updated hospital-specific rate) for 

discharges occurring on or after October 

1, 2006, if that results in a higher 

payment. As we discussed in the FY 

2010 IPPS/RY 2010 LTCH PPS proposed 

rule (74 FR 24183 through 24185), to 

implement this provision, CMS issued 

Transmittal 1067 (Change Request 5276 

dated September 25, 2006) with 

instructions to fiscal intermediaries to 

determine and update the FY 2002 

hospital-specific rate for qualifying 

MDHs. To calculate an MDH’s FY 2002 

hospital-specific rate and update it to 

FY 2007, the instructions directed fiscal 


sroberts on DSKD5P82C1PROD with RULES
43896 Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 

intermediaries to apply cumulative 

budget adjustment factors for FYs 2003 

through 2007. However, the instructions 

did not include the cumulative budget 

neutrality adjustment factor to account 

for changes in the DRGs from FYs 1993 

through 2002. As a result, effective 

beginning in FY 2007, any MDH that 

was paid based on its FY 2002 hospitalspecific rate (calculated in accordance 

with the instructions provided in 

Transmittal 1067) has been paid based 

on a hospital-specific rate that failed to 

include a cumulative budget neutrality 

adjustment factor to account for DRG 

changes from FYs 1993 through 2002 (a 

cumulative budget neutrality 

adjustment factor of 0.982557 (or about 

-1.74 percent)), in addition to the 

cumulative budget neutrality 

adjustment factors applied for FYs 2003 

through 2007 that have already been 

applied as specified in the 

implementing instructions. As we 

discussed in the FY 2010 IPPS/RY 2010 

LTCH PPS proposed rule, in order to 

conduct a meaningful comparison 

between payments under the Federal 

rate, which is adjusted by the 

cumulative budget neutrality factor, and 

payments based on the hospital-specific 

rate, consistent with our established 

policy of applying a cumulative budget 

neutrality adjustment factor to account 

for DRG changes since FY 1993, for 

discharges beginning on or after October 

1, 2009, we stated our intention to 

include the cumulative budget 

neutrality adjustment factors for the 

DRG changes from FYs 1993 through 

2002, in addition to the cumulative 

budget neutrality adjustment factors for 

FYs 2003 forward. The cumulative 

budget neutrality adjustment factor of 

0.982557 is calculated as the product of 

the following budget neutrality 

adjustment factors to account for DRG 

changes from FYs 1993 through 2002: 

0.999851 for FY 1993; 0.999003 for FY 

1994; 0.998050 for FY 1995; 0.999306 

for FY 1996; 0.998703 for FY 1997; 

0.997731 for FY 1998; 0.998978 for FY 

1999; 0.997808 for FY 2000; 0.997174 

for FY 2001; and 0.995821 for FY 2002. 

We considered applying a factor of 

0.982557 to any MDH’s FY 2002 

hospital-specific rate to account for the 

cumulative budget neutrality 

adjustment for DRG changes from FYs 

1993 through 2002, either effective for 

discharges occurring on or after October 

1, 2006 (the initial effective date of the 

FY 2002 rebasing) or, alternatively, 

effective upon the issuance of the 

correction. However, consistent with the 

prospective nature of the rates under the 

IPPS, we are applying the adjustment on 

a prospective basis only, effective for 

discharges occurring on or after October 

1, 2009 (FY 2010). This effective date 

would give affected MDHs sufficient 

notice of the change to their hospitalspecific rate. We estimate that 

approximately 50 MDHs will be affected 

by the application of the cumulative 

budget neutrality adjustment for DRG 

changes from FYs 1993 through 2002. 

Based on the current cumulative budget 

neutrality adjustment factor of 0.982557 

to account for DRG changes from FYs 

1993 through 2002, we estimate that, in 

some instances, application of the 

cumulative budget neutrality 

adjustment factor will lower the 

hospital-specific rate to the point that 

the Federal rate would result in higher 

payments. 

Comment: Some commenters asserted 

that the application of a cumulative 

budget neutrality adjustment factor for 

the DRG changes from FYs 1993 through 

2002 doubles the impact of this 

adjustment on the hospital-specific 

rates. The commenters believed that the 

average case weight from FYs 1993 

through 2002 increased and that the 

cumulative budget neutrality 

adjustment built into the Federal rates 

and hospital-specific rates for this time 

period offsets this average case weight 

increase. The commenters believed, 

therefore, that this budget neutrality 

adjustment is already being accounted 

for when the fiscal intermediary divides 

the MDH’s FY 2002 average cost per 

discharge by the hospital’s case mix 

index for FY 2002, because the case-mix 

index reflects the higher average case 

weight increase. 

Response: As described in section 

II.H. of the preamble of this final rule, 

the recalibrated DRG weights are 

normalized each year by an adjustment 

factor so that the national average case 

weight after DRG recalibration is equal 

to the national average case weight 

before recalibration. The normalization 

process is designed to offset any 

increase or decrease in the national 

average case weight due to recalibration. 

Because the weights are normalized, 

they do not reflect national average case 

weight change due to recalibration. 

Therefore, the hospital’s case-mix index 

for FY 2002, which is calculated using 

DRG weights after normalization, do not 

reflect national average case weight 

change. We disagree with commenter’s 

assertions that the average case weight 

from FYs 1993 through 2002 increased 

due to recalibration and that the 

cumulative budget neutrality 

adjustment built into the Federal rates 

and hospital specific rates for this time 

period offsets an average case weight 

increase due to recalibration. The 

cumulative budget neutrality 

adjustment is not already being 

accounted for when the fiscal 

intermediary divides the FY 2002 

average cost per discharge for a hospital 

by the hospital’s case-mix index for FY 

2002. 

Comment: One commenter stated that 

even if a cumulative budget neutrality 

factor should be applied, it is wrongly 

calculated, pointing to a change made 

by CMS, effective FY 2006 and forward, 

to no longer apply the wage index 

budget neutrality adjustment factor to 

the hospital-specific rate of SCHs and 

MDHs, but rather only a DRG 

recalibration budget neutrality 

adjustment factor (70 FR 47430). The 

budget neutrality adjustment factor 

applied to the hospital-specific rate 

prior to FY 2006 was a composite of 

both the budget neutrality adjustment to 

account for redistribution of cases 

among DRGs and the budget neutrality 

adjustment to account for changes to the 

wage index. The commenter took issue 

that the cumulative budget neutrality 

adjustment factor continues to include 

factors that adjust for wage index 

changes prior to FY 2006, and stated 

that the adjustment factors prior to FY 

2006 that are included in the 

cumulative budget neutrality factor 

should be only the DRG recalibration 

budget neutrality adjustment factors, 

consistent with the change made for FY 

2006 forward. 

Response: Regarding the application 

of combined wage index and DRG 

recalibration budget neutrality 

adjustment factors for FYs 1993 through 

2005, in the FY 2006 IPPS final rule (70 

FR 47430), we stated that we believe 

that our former policy of applying both 

a combined wage and DRG budget 

neutrality adjustment factor is still 

valid. Therefore, we do not believe it is 

necessary or appropriate to change the 

applicable budget neutrality adjustment 

factors to only DRG recalibration budget 

neutrality adjustment factors for that 

period. We also note that those factors, 

the cumulative budget neutrality 

adjustment factors for the hospitalspecific rates, which included both the 

wage index and DRG recalibration 

budget neutrality adjustment factors for 

FYs 1993 through 2005, were 

established as a result of a notice-andcomment rulemaking process, and we 

would not retroactively recalculate 

these factors. 

Comment: One commenter stated that 

the cumulative budget neutrality 

adjustment factor for FYs 1993 through 

2005 is incorrect because two factors 

within it, the FY 1999 and the FY 2003 

budget neutrality adjustment factors, are 

incorrect; that is, they are not those 


sroberts on DSKD5P82C1PROD with RULES
Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 43897 

presented in the applicable Federal 

Register notice. 

Response: Although the FY 1999 

budget neutrality adjustment factor was 

initially published in the FY 1999 IPPS 

final rule, in the February 25, 1999 final 

notice (64 FR 9381), the budget 

neutrality adjustment factor for FY 1999 

was subsequently revised to 0.998978, 

in conjunction with subsequent 

revisions to the wage index, effective 

March 1, 1999 through September 30, 

1999. Consistent with our policy of 

applying DRG budget neutrality in a 

cumulative manner, the revised factor is 

carried permanently in both the 

standardized rate and the hospitalspecific rates. 

Similarly, for FY 2003, the original 

budget neutrality adjustment factor 

initially published in the FY 2003 IPPS 

final rule was subsequently revised. In 

conjunction with the implementation of 

the temporary equalization of the IPPS 

standardized amounts required by 

section 402(b) of Public Law 108–7, the 

budget neutrality adjustment factor was 

again revised based on wage index 

corrections. 

We note that we received a number of 

public comments of issues that were 

outside of the scope of the provisions of 

the proposed rule, and therefore, we are 

not responding to them in this final 

rule. These public comments related to 

the SCH FY 2006 hospital-specific rate, 

the SCH volume decrease adjustment, 

and the application of DSH payments to 

the hospital-specific rate. 

After considering the public 

comments we received and our findings 

regarding those comments, we are 

finalizing the policy discussed in the 

proposed rule to apply a cumulative 

budget neutrality adjustment factor to 

MDHs’ FY 2002 hospital-specific rates 

to adjust for each fiscal year from 1993 

forward, as is done for the Federal rate. 

C. Rural Referral Centers (RRCs) 

(§ 412.96) 

Under the authority of section 

1886(d)(5)(C)(i) of the Act, the 

regulations at § 412.96 set forth the 

criteria that a hospital must meet in 

order to qualify under the IPPS as an 

RRC. For discharges that occurred 

before October 1, 1994, RRCs received 

the benefit of payment based on the 

other urban standardized amount rather 

than the rural standardized amount (as 

discussed in the FY 1993 IPPS final rule 

(59 FR 45404 through 45409). Although 

the other urban and rural standardized 

amounts are the same for discharges 

occurring on or after October 1, 1994, 

RRCs continue to receive special 

treatment under both the DSH payment 

adjustment and the criteria for 

geographic reclassification. 

Section 402 of Public Law 108–173 

raised the DSH adjustment for RRCs 

such that they are not subject to the 12- 

percent cap on DSH payments 

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 (§ 412.96(b)(1)(ii)). A rural hospital 

that does not meet the bed size 

requirement can qualify as an RRC if the 

hospital meets two mandatory 

prerequisites (a minimum CMI and a 

minimum number of discharges), and at 

least one of three optional criteria 

(relating to specialty composition of 

medical staff, source of inpatients, or 

referral volume). (We refer readers to 

§ 412.96(c)(1) through (c)(5) and the 

September 30, 1988 Federal Register (53 

FR 38513).) With respect to the two 

mandatory prerequisites, a hospital may 

be classified as an RRC if— 

• The hospital’s CMI is at least equal 

to the lower of the median CMI for 

urban hospitals in its census region, 

excluding hospitals with approved 

teaching programs, or the median CMI 

for all urban hospitals nationally; and 

• The hospital’s number of discharges 

is at least 5,000 per year, or, if fewer, the 

median number of discharges for urban 

hospitals in the census region in which 

the hospital is located. (The number of 

discharges criterion for an osteopathic 

hospital is at least 3,000 discharges per 

year, as specified in section 

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

1. Case-Mix Index (CMI) 

Section 412.96(c)(1) provides that 

CMS establish updated national and 

regional CMI values in each year’s 

annual notice of prospective payment 

rates for purposes of determining RRC 

status. The methodology we used to 

determine the national and regional CMI 

values is set forth in the regulations at 

§ 412.96(c)(1)(ii). The national median 

CMI value for FY 2010 includes data 

from all urban hospitals nationwide, 

and the regional values for FY 2010 are 

the median CMI values of urban 

hospitals within each census region, 

excluding those hospitals with 

approved teaching programs (that is, 

those hospitals that train residents in an 

approved GME program as provided in 

§ 413.75). These values are based on 

discharges occurring during FY 2008 

(October 1, 2007 through September 30, 

2008), and include bills posted to CMS’ 

records through March 2009. 

In the FY 2010 IPPS/RY 2010 LTCH 

PPS proposed rule (74 FR 24185), 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, 

2009, they must have a CMI value for 

FY 2008 that is at least— 

• 1.4667; or 

• The median CMI value (not 

transfer-adjusted) for urban hospitals 

(excluding hospitals with approved 

teaching programs as identified in 

§ 413.75) calculated by CMS for the 

census region in which the hospital is 

located. 

Based on the latest available data (FY 

2008 bills received through March 

2009), 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, 2009, 

they must have a CMI value for FY 2008 

that is at least— 

• 1.4669; or 

• The median CMI value (not 

transfer-adjusted) for urban hospitals 

(excluding hospitals with approved 

teaching programs as identified in 

§ 413.75) calculated by CMS for the 

census region in which the hospital is 

located. 


sroberts on DSKD5P82C1PROD with RULES
43898 Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 

The final median CMI values by 

region are set forth in the following 

table: 

Region Case-mix 

index value 

1. New England (CT, ME, MA, 

NH, RI, VT) ........................... 1.2612 

2. Middle Atlantic (PA, NJ, NY) 1.3011 

3. South Atlantic (DE, DC, FL, 

GA, MD, NC, SC, VA, WV) .. 1.4212 

4. East North Central (IL, IN, 

MI, OH, WI) ........................... 1.3994 

5. East South Central (AL, KY, 

MS, TN) ................................. 1.3311 

6. West North Central (IA, KS, 

MN, MO, NE, ND, SD) .......... 1.4045 

7. West South Central (AR, LA, 

OK, TX) ................................. 1.4692 

8. Mountain (AZ, CO, ID, MT, 

NV, NM, UT, WY) ................. 1.5217 

9. Pacific (AK, CA, HI, OR, 

WA) ....................................... 1.4298 

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. In 

the FY 2010 IPPS/RY 2010 LTCH PPS 

proposed rule (74 FR 24186) we 

proposed to update the regional 

standards based on discharges for urban 

hospitals’ cost reporting periods that 

began during FY 2007 (that is, October 

1, 2006 through September 30, 2007), 

which were the latest cost report data 

available at the time the proposed rule 

was developed. 

Therefore, in the FY 2010 IPPS/RY 

2010 LTCH PPS proposed rule, 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, 2009, must have as the 

number of discharges for its cost 

reporting period that began during FY 

2007 a figure that is 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 2010 IPPS/RY 2010 LTCH PPS 

proposed rule at 74 FR 24186.) 

Based on the latest discharge data 

available at this time, that is, for cost 

reporting periods that began during FY 

2007, the final median number of 

discharges for urban hospitals by census 

region are set forth in the following 

table. 

Region Number of 

Discharges 

1. New England (CT, ME, MA, 

NH, RI, VT) ........................... 8,347 

2. Middle Atlantic (PA, NJ, NY) 10,729 

3. South Atlantic (DE, DC, FL, 

GA, MD, NC, SC, VA, WV) .. 10,725 

4. East North Central (IL, IN, 

MI, OH, WI) ........................... 9,282 

5. East South Central (AL, KY, 

MS, TN) ................................. 7,281 

6. West North Central (IA, KS, 

MN, MO, NE, ND, SD) .......... 8,636 

7. West South Central (AR, LA, 

OK, TX) ................................. 7,254 

8. Mountain (AZ, CO, ID, MT, 

NV, NM, UT, WY) ................. 9,823 

9. Pacific (AK, CA, HI, OR, 

WA) ....................................... 8,715 

We note that the median number of 

discharges for hospitals in each census 

region is greater than the national 

standard of 5,000 discharges. Therefore, 

5,000 discharges is the minimum 

criterion for all hospitals. 

We reiterate that, if an osteopathic 

hospital is to qualify for RRC status for 

cost reporting periods beginning on or 

after October 1, 2009, the hospital 

would be required to have at least 3,000 

discharges for its cost reporting period 

that began during FY 2007. 

D. Indirect Medical Education (IME) 

Adjustment (§ 412.105) 

1. Background 

Section 1886(d)(5)(B) of the Act 

provides for an additional payment 

amount under the IPPS for hospitals 

that have residents in an approved 

graduate medical education (GME) 

program in order to reflect the higher 

indirect patient care costs of teaching 

hospitals relative to nonteaching 

hospitals. The regulations regarding the 

calculation of this additional payment, 

known as the indirect medical 

education (IME) adjustment, are located 

at § 412.105. 

Public Law 105–33 (BBA 1987) 

established a limit on the number of 

allopathic and osteopathic residents that 

a hospital may include in its full-time 

equivalent (FTE) resident count for 

direct GME and IME payment purposes. 

Under section 1886(h)(4)(F) of the Act, 

for cost reporting periods beginning on 

or after October 1, 1997, a hospital’s 

unweighted FTE count of residents for 

purposes of direct GME may not exceed 

the hospital’s unweighted FTE count for 

its most recent cost reporting period 

ending on or before December 31, 1996. 

Under section 1886(d)(5)(B)(v) of the 

Act, a similar limit on the FTE resident 

count for IME purposes is effective for 

discharges occurring on or after October 

1, 1997. 

2. IME Adjustment Factor for FY 2010 

The IME adjustment to the MS–DRG 

payment is based in part on the 

applicable IME adjustment factor. The 

IME adjustment factor is calculated by 

using a hospital’s ratio of residents to 

beds, which is represented as r, and a 

formula multiplier, which is 

represented as c, in the following 

equation: c × [{1 + r} .405¥1]. The 

formula is traditionally described in 

terms of a certain percentage increase in 

payment for every 10-percent increase 

in the resident-to-bed ratio. 

Section 502(a) of Public Law 108–173 

modified the formula multiplier (c) to be 

used in the calculation of the IME 

adjustment. Prior to the enactment of 

Public Law 108–173, the formula 

multiplier was fixed at 1.35 for 

discharges occurring during FY 2003 

and thereafter. In the FY 2005 IPPS final 

rule, we announced the schedule of 

formula multipliers to be used in the 

calculation of the IME adjustment and 

incorporated the schedule in our 

regulations at § 412.105(d)(3)(viii) 

through (d)(3)(xii). Section 502(a) 

modified the formula multiplier 

beginning midway through FY 2004 and 

provided for a new schedule of formula 

multipliers for FYs 2005 and thereafter 

as follows: 

• For discharges occurring on or after 

April 1, 2004, and before October 1, 

2004, the formula multiplier is 1.47. 

• For discharges occurring during FY 

2005, the formula multiplier is 1.42. 

• For discharges occurring during FY 

2006, the formula multiplier is 1.37. 

• For discharges occurring during FY 

2007, the formula multiplier is 1.32. 

• For discharges occurring during FY 

2008 and fiscal years thereafter, the 

formula multiplier is 1.35. 

Accordingly, for discharges occurring 

during FY 2010, the formula multiplier 

is 1.35. We estimate that application of 

this formula multiplier for the FY 2010 

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. 

We did not receive any public 

comments specifically on the IME 

adjustment factor. 


sroberts on DSKD5P82C1PROD with RULES
Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 43899 

3. IME-Related Changes in Other 

Sections of This Final Rule 

We refer readers to section V.E.2. and 

4. of the preamble of this final rule for 

a discussion of changes to the policies 

for counting beds and patient days in 

relation to the calculations for the IME 

adjustment at § 412.105(b) and the DSH 

payment adjustment at 

§ 412.106(a)(1)(ii). We also address the 

public comments we received in section 

V.E.2. and 4. of this preamble. The 

regulations relating to the DSH payment 

adjustment at § 412.106(a)(1)(i) crossreference the IME regulation at 

§ 412.105(b), which specifies how the 

number of beds in a hospital is 

determined for purposes of calculating a 

teaching hospital’s IME adjustment. 

Specifically, as we proposed, we are 

changing our policies with respect to 

counting bed days for patients receiving 

observation services. 

We also refer readers to section V.G.2. 

of the preamble of this final rule for a 

discussion of our clarification of the 

definition of a new medical residency 

training program for purposes of 

Medicare direct GME payment and the 

public comments that we received on 

our proposed clarification and our 

responses. This clarification also will 

apply for purposes of IME payment and 

could affect IME FTE resident cap 

adjustments for new medical residency 

training programs. We also address any 

public comments that we received on 

this clarification in section V.G.2. of this 

preamble. 

E. Payment Adjustment for Medicare 

Disproportionate Share Hospitals 

(DSHs) (§ 412.106) 

1. Background 

Section 1886(d)(5)(F) of the Act 

provides for additional Medicare 

payments to subsection (d) hospitals 

that serve a significant disproportionate 

number of low-income patients. The Act 

specifies two methods by which a 

hospital may qualify for the Medicare 

disproportionate share hospital (DSH) 

adjustment. Under the first method, 

hospitals that are located in an urban 

area and have 100 or more beds may 

receive a Medicare DSH payment 

adjustment if the hospital can 

demonstrate that, during its cost 

reporting period, more than 30 percent 

of its net inpatient care revenues are 

derived from State and local 

government payments for care furnished 

to needy patients with low incomes. 

This method is commonly referred to as 

the ‘‘Pickle method.’’ The second 

method for qualifying for the DSH 

adjustment, which is the most common, 

is based on a complex statutory formula 

under which the DSH payment 

adjustment is based on the hospital’s 

geographic designation, the number of 

beds in the hospital, and the level of the 

hospital’s disproportionate patient 

percentage (DPP). A hospital’s DPP is 

the sum of two fractions: The ‘‘Medicare 

fraction’’ and the ‘‘Medicaid fraction.’’ 

The Medicare fraction is computed by 

dividing the number of the hospital’s 

inpatient days that are furnished to 

patients who were entitled to both 

Medicare Part A (including patients 

who are enrolled in a Medicare 

Advantage (Part C) plan) and 

Supplemental Security Income (SSI) 

benefits by the hospital’s total number 

of patient days furnished to patients 

entitled to benefits under Medicare Part 

A (including patients who are enrolled 

in a Medicare Advantage (Part C) plan). 

The Medicaid fraction is computed by 

dividing the hospital’s number of 

inpatient days furnished to patients 

who, for such days, were eligible for 

Medicaid, but were not entitled to 

benefits under Medicare Part A, by the 

hospital’s total number of inpatient days 

in the same period. 

Because the DSH payment adjustment 

is part of the IPPS, the DSH statutory 

references (under section 1886(d)(5)(F) 

of the Act) to ‘‘days’’ apply only to 

inpatient days. Regulations located at 42 

CFR 412.106 govern the Medicare DSH 

payment adjustment and specify how 

the DPP is calculated as well as how 

beds and patient days are counted in 

determining the Medicare DSH payment 

adjustment. Under § 412.106(a)(1)(i), the 

number of beds for the Medicare DSH 

payment adjustment is determined in 

accordance with bed counting rules for 

the IME adjustment under § 412.105(b). 

In section V.E.4. of this preamble, we 

are combining our discussion of changes 

to the policies for counting beds in 

relation to the calculations for the IME 

adjustment at § 412.105(b) and the DSH 

payment adjustment at § 412.106(a)(1) 

because the underlying concepts are 

similar and we believe they should 

generally be interpreted in a consistent 

manner for both purposes. Specifically, 

as we proposed, we are changing our 

Medicare DSH policies with respect to 

counting patient days and bed days, as 

well as IME bed counting policy, for 

patients receiving observation services. 

2. Policy Change Relating to the 

Inclusion of Labor and Delivery Patient 

Days in the Medicare DSH Calculation 

a. Background 

As discussed in the FY 2004 IPPS 

final rule (68 FR 45419 through 45420), 

prior to December 1991, Medicare’s 

policy on counting days for purposes of 

allocating costs on the cost report and 

for purposes of the DSH payment 

adjustment for maternity patients was to 

count an inpatient day for an admitted 

maternity patient in a labor and delivery 

room at the census-taking hour. This 

pre-December 1991 policy is consistent 

with current Medicare policy for 

counting days for admitted patients in 

any other ancillary department at the 

census-taking hour. However, based on 

decisions in a number of Federal Courts 

of Appeal, including the United States 

Court of Appeals for the District of 

Columbia Circuit, relating to Medicare’s 

policy for allocating costs, the policy 

regarding the counting of inpatient days 

for maternity patients was revised to 

reflect our existing policy for purposes 

of both cost allocation and the DSH 

calculation. 

Under the existing regulations at 

§ 412.106(a)(1)(ii)(B), patient days 

associated with beds used for ancillary 

labor and delivery are excluded from 

the Medicare DSH calculation. This 

policy, in part, is based on cost 

allocation rules (that is, rules for 

counting days for admitted patients in 

ancillary and routine cost centers for 

purposes of allocating costs on the 

Medicare cost report). In particular, 

section 2205.2 of the Provider 

Reimbursement Manual (PRM) provides 

the following: ‘‘A maternity patient in 

the labor/delivery room ancillary area at 

midnight is included in the census of 

the inpatient routine (general or 

intensive) care area only if the patient 

has occupied an inpatient routine bed at 

some time since admission. No days of 

inpatient routine care are counted for a 

maternity inpatient who is discharged 

(or dies) without ever occupying an 

inpatient routine bed. However, once a 

maternity patient has occupied an 

inpatient routine bed, at each 

subsequent census the patient is 

included in the census of the inpatient 

routine care area to which assigned even 

if the patient is located in an ancillary 

area (labor/delivery room or another 

ancillary area) at midnight. In some 

cases, a maternity patient may occupy 

an inpatient bed only on the day of 

discharge, where the day of discharge 

differs from the day of admission. For 

purposes of apportioning the cost of 

inpatient routine care, this single day of 

routine care is counted as the day of 

admission (to routine care) and 

discharge and, therefore, is counted as 

one day of inpatient routine care.’’ 

In applying the rules discussed above, 

if, for example, a Medicaid patient is in 

the labor room at the census-taking hour 

and has not yet occupied a routine 

inpatient bed, the day would not be 

counted as an inpatient day in the 


sroberts on DSKD5P82C1PROD with RULES
43900 Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 

numerator or the denominator of the 

Medicaid fraction of the Medicare DPP. 

If, instead, the same patient were in the 

labor room at the census-taking hour, 

but had first occupied a routine 

inpatient bed, the day would be counted 

as an inpatient patient day in both the 

numerator and the denominator of the 

Medicaid fraction of the Medicare DPP 

for purposes of the DSH payment 

adjustment (and for apportioning the 

cost of routine care on the Medicare cost 

report). 

We further clarified this policy in the 

FY 2004 IPPS final rule (68 FR 45419 

through 45420), given that hospitals had 

increasingly begun redesigning their 

maternity areas from separate labor and 

delivery rooms and postpartum rooms 

to single multipurpose labor, delivery, 

and postpartum (LDP) rooms. In order to 

appropriately track the days and costs 

associated with LDP rooms under our 

existing Medicare DSH policy, we stated 

that it was necessary to apportion them 

between the labor and delivery cost 

center, which is an ancillary cost center, 

and the routine adults and pediatrics 

cost center (68 FR 45420). This is done 

by determining the proportion of a 

patient’s stay in the LDP room that is 

associated with the patient receiving 

ancillary services (labor and delivery), 

as opposed to routine adult and 

pediatric services (postpartum). 

Therefore, under the current policy, 

days associated with labor and delivery 

services furnished to patients who did 

not occupy a routine bed prior to 

occupying an ancillary labor and 

delivery bed before the census-taking 

hour are not included as inpatient days 

for purposes of the DSH calculation. 

This policy is applicable whether the 

hospital maintains separate labor and 

delivery rooms and postpartum rooms, 

or whether it maintains ‘‘maternity 

suites’’ in which labor, delivery, and 

postpartum services all occur in the 

same bed. However, in the latter case, 

patient days are 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.) 

b. Proposed and Final Policy Change 

As we indicated in the FY 2010 IPPS/ 

RY 2010 LTCH PPS proposed rule (74 

FR 24188), upon further examination of 

our existing policy on counting patient 

days, we no longer believe that it is 

appropriate to apply the cost allocation 

rules for purposes of counting labor and 

delivery patient days in the Medicare 

DSH calculation. That is, we believe 

that even if a particular labor and 

delivery patient day is not included in 

the inpatient routine care census-taking 

for purposes of apportioning routine 

costs, it may still reasonably be 

considered to be an inpatient day for 

purposes of determining the DPP, 

provided that the unit or ward in which 

the labor and delivery bed is located is 

generally providing services that are 

payable under the IPPS. In general, we 

believe the costs associated with labor 

and delivery patient days (regardless of 

whether they are associated with 

patients who occupied a routine bed 

prior to occupying an ancillary labor 

and delivery bed) are generally payable 

under the IPPS. Therefore, we believe 

that such patient days should be 

included in the DPP as inpatient days 

once the patient has been admitted to 

the hospital an as inpatient. 

Accordingly, in the FY 2010 IPPS/RY 

2010 LTCH PPS proposed rule, for cost 

reporting periods beginning on or after 

October 1, 2009, we proposed to change 

our existing policy regarding patient 

days to include, in the DPP calculation, 

patient days associated with maternity 

patients who were admitted as 

inpatients and were receiving ancillary 

labor and delivery services at the time 

the inpatient routine census is taken, 

regardless of whether the patient 

occupied a routine bed prior to 

occupying a bed in a distinct ancillary 

labor and delivery room and regardless 

of whether the patient occupied a 

routine bed prior to occupying an 

ancillary labor and delivery bed and 

regardless of whether the patient 

occupies a ‘‘maternity suite’’ in which 

labor, delivery, recovery, and 

postpartum care all take place in the 

same room. We believed that this 

proposed policy would be consistent 

with our existing policy under section 

2205 of the PRM–I regarding counting 

patient days associated with other 

ancillary areas (such as surgery and 

postanesthesia). 

We note that we did not propose to 

change our policy on patient days for 

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 Medicare DSH 

calculation. That is, because the patient 

would be considered an outpatient, the 

day (or days) associated with the 

hospital visit would not be counted for 

purposes of the Medicare DSH 

calculation because such days would 

not be considered inpatient days. In 

addition, we indicated that the 

proposed policy would not affect 

existing policies relating to the 

allocation of costs for Medicare cost 

reporting purposes or for determining 

the number of available beds under 

§ 412.105(b)(4) or § 412.106(a)(1)(i). In 

other words, our hospital instructions in 

the PRM–I for those purposes remain 

unchanged and unaffected by the 

proposed policy. 

Comment: Several commenters 

supported the proposal. Specifically, the 

commenters asserted that they agreed 

with CMS’ statement that, because 

inpatient labor and delivery days are 

generally payable under the IPPS, they 

should be included in the DSH 

calculation. Some commenters 

commended CMS for revisiting its 

policy. 

Response: We thank the commenters 

for their support. 

Comment: One commenter opposed 

the proposal. The commenter stated that 

CMS should continue to exclude labor 

and delivery patient days associated 

with patients who did not occupy a 

routine bed prior to occupying a labor 

and delivery bed. The commenter 

asserted that ‘‘historical litigation has 

already resulted in a conclusion that 

labor and delivery days should be 

excluded from the cost allocation rules 

[and that] this recognition of the 

different nature of labor and delivery 

days is inconsistent with CMS’ proposal 

to now treat those days exactly the same 

as routine days for all patients who are 

admitted.’’ 

Response: As we stated in the 

proposed rule (74 FR 24188), upon 

further examination of our existing 

policy on counting patient days, we no 

longer believe that it is appropriate to 

apply the cost allocation rules for 

purposes of counting labor and delivery 

patient days in the Medicare DSH 

calculation. That is, we believe that 

even if a particular labor and delivery 

patient day is not included in the 

inpatient routine care census-taking for 

purposes of apportioning routine costs, 

it may still reasonably be considered to 

be an inpatient day for purposes of 

determining the DPP, provided that the 

unit or ward in which the labor and 

delivery bed is located is generally 

providing services that are payable 

under the IPPS. We disagree that the 

rules for patient days included for 

purposes of cost allocation must mirror 

those included for purposes of Medicare 

DSH. We note that we did not propose 

to change the cost allocation rules and 

that to the extent that labor and delivery 

patient days are excluded for cost 


sroberts on DSKD5P82C1PROD with RULES
Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 43901 

allocation purposes, that policy is 

unaffected by our proposed policy for 

Medicare DSH purposes. 

Comment: One commenter requested 

clarification that labor and delivery 

patient days will be counted only for 

DSH purposes and not for other patient 

day allocation purposes. The 

commenter asked that CMS confirm that 

a separate line would be added to 

Worksheet S–3 of the Medicare cost 

report to accommodate the reporting. 

Response: As we indicated in the 

proposed rule, the proposed policy 

would not change existing underlying 

policies relating to the allocation of 

costs for Medicare cost reporting 

purposes. We will provide cost 

reporting instructions (at a later time) to 

reflect the revised policy. 

Comment: Several commenters 

requested additional clarification of 

how the proposed policy would be 

applied. Specifically, the commenters 

asked how cost reports that had 

appealed the exclusion of labor and 

delivery days and cost reports that were 

either still open or ‘‘reopenable’’ would 

be treated. Some commenters referenced 

a recent Administrator’s decision (‘‘QRS 

CHW DSH Labor Room Days Groups vs. 

Blue Cross Blue Shield Association/ 

United Government Services LLC–CA’’ 

signed April 13, 2009) that allowed the 

inclusion of patient days associated 

with labor, delivery, and postpartum 

beds for a group of hospitals located in 

the Ninth Circuit Court of Appeals for 

fiscal years prior to FY 2004. One 

commenter asked whether hospitals 

located in the Ninth Circuit would be 

treated differently with respect to the 

inclusion of labor and delivery days for 

periods prior to October 1, 2009. Other 

commenters noted that there were 

several appeals pending on the issue of 

the exclusion of labor and delivery days 

currently pending at the Provider 

Review and Reimbursement Board 

(PRRB) and stated that it would be 

equitable to allow all hospitals with 

open cost reports and or appeals on this 

issue to count all labor and delivery 

inpatient days because it would be 

CMS’ policy to include the days going 

forward. One commenter noted that, in 

the FY 2004 IPPS final rule, when CMS 

provided guidance for apportioning day 

in labor-delivery-postpartum rooms, the 

policy was applied to all currently open 

and future cost reports and suggested 

that the FY 2010 proposed policy also 

be applied to all open cost reports. 

Response: In response to the 

commenters who asked how the 

proposed policy would affect previous 

cost reporting periods, our proposal to 

include labor and delivery days in the 

DSH calculation for cost reporting 

periods beginning on or after October 1, 

2009, is a change in policy that 

stemmed from a reevaluation of the 

existing policy. We believe that both the 

existing policy and the proposed new 

policy, although different, are 

permissible and reasonable 

interpretations of the law. Accordingly, 

we are applying the new policy 

prospectively to future cost reporting 

periods. Prior cost reporting periods 

would be covered under the policies 

that existed in those corresponding 

periods. With regard to the abovereferenced Administrator’s decision, we 

believe it is beyond the scope of this 

rule, as the decision was not based on 

the underlying labor and delivery policy 

but turned instead upon the 9th 

Circuit’s interpretation of the regulation 

governing the counting of patient days 

prior to 2004. Consequently, that 

decision addresses only cost reporting 

years prior to 2004 for hospitals located 

in the 9th Circuit. Therefore, the 

Administrator’s decision does not affect 

the proposed policy that we are 

adopting in this final rule. In response 

to the comment regarding hospitals that 

filed appeals on the exclusion of labor 

and delivery patient days, we note that 

such cases will continue to be handled 

through the administrative appeals 

process. 

In response to the commenters who 

suggested that the proposed policy 

apply to all open cost reports, similar to 

the FY 2004 final IPPS policy relating to 

labor-delivery-postpartum rooms (68 FR 

45420), we remind the commenter that 

the FY 2004 policy was a clarification 

of existing policy; whereas this year’s 

proposed policy is a new policy. 

Accordingly, we cannot apply a new 

policy to prior cost reporting periods. 

Comment: One commenter noted that 

the proposed policy would continue to 

apply only to individuals who were 

admitted as inpatients. The commenter 

asked whether a patient who was not 

admitted as an inpatient at the time she 

began receiving labor and delivery 

ancillary services, but was later 

admitted as an inpatient, would have all 

days counted for purposes of the 

Medicare DSH adjustment or only the 

days subsequent to the admission as an 

inpatient. The commenter also noted 

that some hospitals use the term 

‘‘admitted’’ loosely and sometimes 

consider any patient that presents to the 

hospital to be admitted either as an 

inpatient or an outpatient; the 

commenter asked whether CMS could 

develop a specific definition of when a 

patient is admitted. 

Response: Because the Medicare DSH 

adjustment is an add-on payment to the 

IPPS payment rate, only the days for 

individuals who are admitted as 

inpatients may be included in the DSH 

calculation. Days prior to admission as 

an inpatient may not be included. We 

note that standards for inpatient 

admission already exist, but that the 

determination to admit a patient is 

made by the physician who signs the 

admitting orders. We do not believe it 

is necessary to create a new standard for 

inpatient admissions. 

Comment: One commenter stated that 

CMS posited a link between available 

days for determining the IME payment 

adjustment and days that are used for 

calculation the disproportionate patient 

percentage for DSH. The commenter 

stated that available days used to 

calculate IME payment adjustments are 

unrelated to the Medicare statute that 

discusses days for DSH purposes and 

asked that CMS clarify how days for the 

IME and DSH calculations are related. 

Response: We note that the Medicare 

DSH proposal relating to patient days 

associated with labor and delivery 

services specifically referenced patient 

days and that the IME adjustment was 

not mentioned in the context of this 

proposal. The IME adjustment was 

addressed, however, in the Medicare 

DSH proposal related to available bed 

days (and patient days) associated with 

observation services. As we have noted, 

under § 412,106(a)(1)(i), the number of 

beds for the Medicare DSH payment 

adjustment is determined in accordance 

with bed counting rules for the IME 

adjustment under § 412.105(b). 

Accordingly, we combined our 

discussion of proposed changes to the 

policies for counting beds with regard to 

observation services for both the IME 

and DSH payment adjustments. Both 

IME and DSH adjustments are 

additional payments under the IPPS 

system. Therefore, to the extent that 

both adjustments include available bed 

day counts, we believe that the available 

bed day count generally should be 

consistent for both adjustments. 

After consideration of the public 

comments received, we are finalizing 

our proposed policy, without 

modification, to include patient days 

associated with patients occupying 

labor and delivery beds in the 

disproportionate patient percentage of 

the Medicare DSH adjustment for cost 

reporting periods beginning on or after 

October 1, 2009, under 

§ 412.106(a)(1)(ii). 


sroberts on DSKD5P82C1PROD with RULES
43902 Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 

3. Policy Change Relating to Calculation 

of Inpatient Days in the Medicaid 

Fraction in the Medicare DSH 

Calculation 

a. Background 

As stated under section V.E.1. of this 

preamble, a hospital can qualify for the 

Medicare DSH payment adjustment 

based on its Medicare DPP, which is 

equal to the sum of the percentage of 

total Medicare inpatient days 

attributable to patients entitled to both 

Medicare Part A (including patients 

enrolled in Medicare Advantage (Part 

C)) and SSI and the percentage of total 

inpatient days attributable to patients 

eligible for Medicaid, but not entitled 

for Medicare Part A. 

Disproportionate

Patient Percentage (DPP)

Medicare, SSI Day = s

Total Medicare Days

Medicaid, Non-Medicare Days

Total Pat

+

ient Days

Our existing policy of aggregating 

days for the Medicare fraction of the 

DSH calculation is to count days by the 

date of discharge. This policy, which is 

specified in the regulations at 

§ 412.106(b)(2)(i)(A), applies to how 

days are counted in both the numerator 

and denominator of the Medicare 

fraction. 

Under the existing Medicare DSH 

payment adjustment policy, a hospital is 

required to report its Medicaid inpatient 

days (that is, the ‘‘numerator’’ of the 

Medicaid fraction) in the cost reporting 

period in which the patient was 

discharged. However, despite our 

existing policy to count the days in the 

numerator of the Medicaid fraction 

based on the date of discharge, we 

believe that there may have been 

confusion about the existing policy that 

may have led hospitals to vary in the 

methodology they use to aggregate days 

in the numerator of the Medicaid 

fraction for patients who were eligible 

for Medicaid. In many cases, we have 

found that hospitals are reporting these 

days to their fiscal intermediary or MAC 

based on the method by which their 

respective State Medicaid agencies have 

chosen to collect and report Medicaideligible days to the hospital. We 

understand that State Medicaid agencies 

differ in how they collect and report 

Medicaid-eligible days. As a result, 

hospitals may be counting Medicaideligible days in the numerator of the 

Medicaid fraction of the DPP based on 

one of several possible methodologies, 

rather than consistently counting days 

based on the date of discharge, as 

required under the existing policy. The 

various methodologies being used by 

State Medicaid agencies include date of 

discharge, date of admission, date of 

Medicaid payment, and dates of service. 

As we indicated in the FY 2010 IPPS/ 

RY 2010 LTCH PPS proposed rule (74 

FR 24188 through 24189), with the 

exception of the methodology that 

accumulates days in the numerator of 

the Medicaid fraction by the date of 

Medicaid payment, we believe that any 

of these methodologies could 

appropriately capture all inpatient days 

in which an individual was Medicaideligible for a hospital for the purpose of 

counting days in the numerator of the 

Medicaid fraction used in the DPP. We 

do not believe that the date of Medicaid 

payment is appropriate because our 

policy is to include inpatient days for 

which the patient was eligible for 

Medicaid, regardless of whether 

Medicaid paid for the days. Therefore, 

we believe that the date of Medicaid 

payment methodology may not capture 

all of the days that a hospital would be 

allowed to include in the numerator of 

its Medicaid fraction. With respect to 

the other possible alternatives to 

counting days in the numerator of the 

Medicaid fraction, we believe that it 

becomes problematic when hospitals 

change the methodology they use to 

count days in the numerator of the 

Medicaid fraction from one cost 

reporting period to the next. Such 

changes in the methodology of counting 

days may result in ‘‘double counting’’ of 

the same patient days in more than one 

cost reporting period for a hospital. 

b. Proposed and Final Policy Change 

To address the issue of hospitals 

reporting days in the numerator for the 

Medicaid fraction of the DPP in the 

Medicare DSH calculation based on data 

they receive from their respective State 

Medicaid agency and the fact that the 

State Medicaid agency may report such 

days based on one of several different 

methodologies, in the FY 2010 IPPS/RY 

2010 LTCH PPS proposed rule (74 FR 

24188 through 24189), we proposed to 

revise our existing policy by adding a 

new paragraph (iv) to § 412.106(b)(4) to 

allow hospitals to report days in the 

numerator of the Medicaid fraction of 

the DPP based on one of three 

methodologies. Specifically, we 

proposed that, effective for cost 

reporting periods beginning on or after 

October 1, 2009, a hospital may report 

Medicaid-eligible days in the numerator 

of the Medicaid fraction of the DPP of 

a cost reporting period based on date of 

admission, date of discharge, or dates of 

service. However, we indicated that 

under the proposed revised policy, a 

hospital would be required to notify 

CMS (through the fiscal intermediary or 

MAC) in writing if the hospital chooses 

to change its methodology of counting 

days in the numerator of the Medicaid 

fraction of the DPP. We proposed to 

require that the written notification be 

submitted at least 30 days prior to the 

beginning of the cost reporting period to 

which the requested change would 

apply. The written notification must 

specify the changed methodology the 

hospital wishes to use and the cost 

reporting period to which the requested 

change would apply. We proposed that 

a hospital would only be able to make 

such a change effective on the first day 

of the beginning of a cost reporting 

period and the change would have to be 

effective for the entire cost reporting 

period; that is, a hospital would not be 

permitted to change its methodology in 

the middle of a cost reporting period. 

This change would also be effective for 

all subsequent cost reporting periods 

unless the hospital submits a 

subsequent notification to change its 

methodology for a future cost reporting 

period. We noted that we would expect 

that a hospital would rarely decide to 

change the methodology it uses to count 

days in the numerator of the Medicaid 

fraction of the DPP and that such a 

change would be prompted out of 

necessity (for example, the State 

Medicaid agency changes the 

methodology it uses to provide patient 

Medicaid eligibility information to 

hospitals). In addition, we proposed that 

if a hospital changes its methodology for 

counting days in the numerator of the 

Medicaid fraction, CMS, or the fiscal 

intermediary or MAC, would have the 

authority to adjust the inpatient days 

reported by the hospital in a cost 

reporting period to prevent ‘‘double 

counting’’ of days in the numerator of 

the Medicaid fraction of the DPP of the 

Medicare DSH calculation reported in 

another cost reporting period. 

Comment: Several commenters 

supported the proposed change to allow 


sroberts on DSKD5P82C1PROD with RULESER27AU09.191</MATH>
Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 43903 

hospitals to choose one of three 

methodologies to report Medicaideligible days in the numerator of the 

Medicaid fraction of the DPP. The 

commenters stated that they supported 

the flexibility that the proposed change 

afforded to hospitals. They noted that a 

rigid methodology of aggregating 

inpatient days is an administrative 

burden for hospitals if the methodology 

differs from that used by the hospital’s 

State Medicaid agency to verify 

Medicaid eligibility. The commenters 

stated that the proposal could alleviate 

the administrative burden on hospitals. 

Response: We thank the commenters 

for their support. 

Comment: Several commenters 

requested that CMS confirm that the 

choice of methodology as addressed by 

the proposed change to 

§ 412.106(b)(4)(iv) is determined by the 

hospitals and not the fiscal Intermediary 

and/or MAC. One commenter asked that 

CMS modify the proposed regulatory 

text to say that the choice of 

methodology for accumulating inpatient 

days be ‘‘at the hospital’s discretion.’’ 

Another commenter stated that, under 

the existing policy, ‘‘there have been 

instances in which the hospital has 

reported Medicaid inpatient days based 

on discharge but the FI/MAC changed 

that method to reflect days on and 

admission basis upon audit’’ and asked 

that CMS clarify that date of discharge 

be used for prior periods, consistent 

with existing Medicare policy. The 

commenter also stated that the choice of 

methodology is ‘‘not a change that can 

be made by the FI/MAC upon 

settlement.’’ 

Response: We reiterate and confirm 

that the proposed policy would allow 

hospitals to report Medicaid-eligible 

days in the numerator of the Medicaid 

fraction of the DPP of a cost reporting 

period based on date of admission, date 

of discharge, or dates of service, 

effective for cost reporting periods 

beginning on or after October 1, 2009. 

We disagree that additional regulatory 

language is needed to clarify this 

provision. 

The proposed policy also provides 

CMS and the fiscal intermediary or 

MAC the authority to adjust the 

inpatient days reported by the hospital 

in a cost reporting period to prevent 

‘‘double counting’’ of days in the 

numerator of the Medicaid fraction of 

the DPP of the Medicare DSH 

calculation reported in another cost 

reporting period if a hospital changes its 

methodology. In response to the request 

for clarification that the choice of 

methodology is to be made by the 

hospital, not the fiscal intermediary or 

MAC, we reiterate that under the 

proposed policy, the provider may 

choose one of the three methodologies 

proposed. The fiscal intermediary or 

MAC would not choose a methodology 

for the hospital, but would have the 

authority to make an adjustment to 

ensure that no inpatient days are 

counted more than once in any cost 

reporting period. This adjustment 

would not affect the methodology 

chosen by the hospital for that or any 

subsequent cost reporting periods. 

In response to the commenters 

question about existing Medicare policy 

with respect to aggregating inpatient 

days for the numerator of the Medicaid 

fraction of the DPP, we agree with the 

commenters’ statement that the fiscal 

intermediary or MAC should not revise 

cost reports to reflect any methodology 

other than date of discharge under the 

existing policy. 

Comment: Several commenters 

expressed concern that ‘‘hospitals 

would be allowed to manipulate 

calculations from year to year’’ and that 

there was a need to ‘‘avoid hospitals 

‘gaming’ the system.’’ These 

commenters stressed the importance of 

consistency in the calculations over 

time. One commenter suggested that 

CMS should not allow hospitals to 

change methodologies, but insist that 

hospitals make a one-time election of 

methodology. Another commenter 

recommended that, instead of allowing 

hospitals to choose a methodology, CMS 

should select the methodology that 

hospitals should use to accumulate 

inpatient days in the numerator of the 

Medicaid fraction of the DPP of the 

Medicare DSH calculation. Another 

comment recommended that CMS 

should require hospitals to follow its 

State Medicaid agency’s methodology. 

The commenter stated that this would 

be ‘‘easier in terms of administration 

and verification of days,’’ particularly 

for hospitals that serve Medicaid patient 

populations from multiple States. 

Another commenter suggested that CMS 

ask hospitals to submit their choice of 

methodology each year with the 

rationale for their choice to ensure that 

the decision to change their 

methodology is based on necessity. In 

addition, they asserted that the onus 

should rest on the hospitals to ensure 

that they are not ‘‘double counting’’ or 

claiming days to which they are not 

entitled. 

Response: We agree that consistency 

in the calculations so that no ‘‘double 

counting’’ of days occurs from one cost 

reporting period to the next is 

important. In light of public comments 

supporting our proposal, we disagree 

that CMS should select the methodology 

for counting days in the numerator of 

the Medicaid fraction of the DPP, or 

require a hospital to follow its State 

Medicaid agency’s methodology, or only 

allow hospitals to make a one-time 

election. We continue to believe in the 

appropriateness of providing hospitals 

with the flexibility to report Medicaideligible days in the numerator of the 

Medicaid fraction of the DPP of a cost 

reporting period based on date of 

admission, date of discharge, or dates of 

service, effective for cost reporting 

periods beginning on or after October 1, 

2009. For example, if CMS were to 

select a methodology that differed from 

a hospital’s current methodology and 

there was no ‘‘double counting’’ by the 

hospital because it had been using one 

methodology consistently, this would 

not improve the accuracy of the patient 

days reported in the numerator of the 

Medicaid fraction of the DPP but could 

potentially introduce an administrative 

burden on the hospital. Another 

example relates to if a State Medicaid 

agency were to change the method of 

verification they currently use. If CMS 

were to require a hospital to make a onetime election, and the hospital made an 

election that was identical to the State 

Medicaid agency’s methodology, and 

the State Medicaid agency changed its 

methodology, the hospital would no 

longer have the flexibility to accumulate 

these days based on the State Medicaid 

agency’s methodology to ensure the 

accuracy of the Medicaid fraction of the 

DPP calculation. We reaffirm that, under 

the proposed policy, hospitals would be 

permitted to change the methodology 

they employ from one cost reporting 

period to the next, to be effective on the 

first day of their cost reporting period 

for the entire period, so long as they 

notify the fiscal intermediary or MAC in 

writing at least 30 days before the 

beginning of their cost reporting period 

for which the change would take effect. 

We note that other commenters 

supported the proposed policy in that it 

would provide hospitals with the 

flexibility to choose one of three 

methodologies to report Medicaideligible days. Allowing hospitals the 

flexibility to use date of discharge, date 

of admission, or dates of service but 

precluding ‘‘double counting’’ of days 

from year to year should a hospital 

choose to change methodologies will 

assure accuracy in the calculation. This 

would allow hospitals the ability to 

accommodate a State Medicaid agency’s 

methodology but not necessarily require 

them to change their current 

methodology. The burden to report the 

correct number of patient days on its 

cost report remains with the hospital. In 

addition, under § 412.106(b)(4)(iii) of 


sroberts on DSKD5P82C1PROD with RULES
43904 Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 

the regulations, we specify that, with 

respect to the Medicaid fraction, ‘‘the 

hospital has the burden of furnishing 

data adequate to prove eligibility for 

each Medicaid patient day claimed 

under this paragraph, and of verifying 

with the State that a patient was eligible 

for Medicaid during each claimed 

patient hospital day.’’ This 

responsibility for verification exists 

without regard to how a State Medicaid 

agency may accumulate information. In 

other words, if a hospital were to accept 

its State Medicaid agency’s 

methodology, it would still be required 

to verify with the State the patient’s 

eligibility during each claimed patient 

day. Finally, while we agree that there 

could be merit to collecting information 

from hospitals regarding their choice of 

methodology and rationale for such 

choice, we seek to be reasonable about 

the administrative burden placed on 

both hospitals and the fiscal 

intermediaries or MACs. 

As we indicated in the FY 2010 IPPS/ 

RY 2010 LTCH PPS proposed rule (74 

FR 24188 through 24189), we believe 

that date of discharge, date of 

admission, or date of service will 

appropriately capture all inpatient days 

in which an individual was Medicaideligible for a hospital for the purpose of 

counting days in the numerator of the 

Medicaid fraction used in the DPP. 

Because we believe all three 

methodologies could appropriately 

capture all relevant days, and our focus 

is generally only when ‘‘doublecounting’’ occurs because hospitals 

change the methodology they use to 

count days in the numerator of the 

Medicaid fraction from one cost 

reporting period to the next, we do not 

believe that it is necessary for hospitals 

to submit to CMS the rationale for their 

change should they change 

methodologies. 

We also agree that the burden remains 

on the hospital to ensure that the 

hospital is not ‘‘double counting’’ days 

and reporting the correct number of 

patient days on their cost report. We 

believe that ensuring that hospitals are 

not double counting days should they 

choose to change methodologies is 

supported by existing DSH regulations 

as well as cost reporting requirements 

which state that hospitals must attest to 

the accuracy of the data that they submit 

on the cost report. However, we reiterate 

that the fiscal intermediary or MAC still 

has the authority to make any necessary 

adjustments to the number of days that 

the hospitals submitted on its cost 

report, to the extent that such days were 

already counted in another cost 

reporting period. Because existing 

policy with respect to accumulating 

days in the numerator of the Medicaid 

fraction of the DPP requires that the 

days be accumulated based on the date 

of discharge, if a hospital does not send 

the fiscal intermediary or MAC a written 

notice at least 30 days prior to the start 

of its next cost reporting period, CMS 

and the fiscal intermediary or MAC may 

presume that the hospital will 

accumulate inpatient days in the 

numerator of the Medicaid proxy of the 

Medicare DPP using the date of 

discharge. 

Comment: Several commenters asked 

for clarification about when a hospital 

must notify CMS and what the hospital 

must provide in that notification. In 

particular, one commenter noted that, in 

a May 6, 2009 Hospital Open Door 

Forum, it was stated that hospitals 

should provide notification to CMS if 

they used a methodology other than 

date of discharge. 

Response: We reiterate that our 

proposed policy would require hospitals 

to submit the written notification to the 

fiscal intermediary or MAC at least 30 

days prior to the beginning of the cost 

reporting period in which the requested 

change would apply. If a hospital is not 

changing the methodology that it uses, 

it is not required to notify the fiscal 

intermediary or MAC. Should a hospital 

choose to change its methodology, we 

require the hospital to provide written 

notification that specifies the new 

methodology the hospital wishes to use 

and the cost reporting period to which 

the requested change would apply. 

Because our current policy is that 

hospitals must report these days in the 

numerator of the Medicaid fraction by 

date of discharge, in the absence of such 

written notification, the fiscal 

intermediary or MAC may determine 

that the hospital is reporting these days 

using date of discharge and act 

accordingly to ensure that Medicaid 

patient days are not ‘‘double counted’’ 

in the numerator of the Medicaid 

fraction of the DPP for cost reporting 

periods beginning on or after October 1, 

2009. 

Comment: Some commenters asked 

that CMS further clarify the 

methodology for determining total 

patient days in the denominator of the 

Medicaid proxy for the Medicare DSH 

calculation. 

Response: Our proposal made no 

changes to the way in which CMS 

requires hospitals to accumulate total 

patient days for the denominator of the 

Medicaid fraction of the DPP for the 

Medicare DSH calculation. 

After consideration of the public 

comments we received, we are 

finalizing, without modification, our 

proposal to revise our existing policy by 

adding a new paragraph (iv) to 

§ 412.106(b)(4) to allow hospitals to 

report days in the numerator of the 

Medicaid fraction of the DPP of the 

Medicare DSH calculation based on one 

of three methodologies. Specifically, we 

are finalizing our proposal that a 

hospital may report Medicaid-eligible 

days in the numerator of the Medicaid 

fraction of the DPP of a cost reporting 

period based on date of admission, date 

of discharge, or dates of service. The 

policy change is effective for cost 

reporting periods beginning on or after 

October 1, 2009. A hospital is required 

to notify CMS (through the fiscal 

intermediary or MAC) in writing if the 

hospital chooses to change its 

methodology of counting days in the 

numerator of the Medicaid fraction of 

the DPP of the Medicare DSH 

calculation and must submit its written 

notification at least 30 days prior to the 

beginning of the cost reporting period to 

which the requested change would 

apply. The written notification must 

specify the changed methodology the 

hospital wishes to use and the cost 

reporting period to which the requested 

change would apply. As of the effective 

date of this policy, in the absence of 

such written notification, we clarify that 

CMS, the fiscal intermediary, or the 

MAC will determine a hospital to be 

using date of discharge and act 

accordingly to ensure that Medicaid 

patient days are not ‘double counted’ in 

the numerator of the Medicaid fraction 

of the DPP for cost reporting periods 

beginning on or after October 1, 2009. In 

addition, we proposed that if a hospital 

changes its methodology for counting 

days in the numerator of the Medicaid 

fraction, CMS, or the fiscal intermediary 

or MAC, would have the authority to 

adjust the inpatient days reported by the 

hospital in a cost reporting period to 

prevent ‘‘double counting’’ of days in 

the numerator of the Medicaid fraction 

of the DPP of the Medicare DSH 

calculation reported in another cost 

reporting period. Further, we are 

finalizing our proposed policy that a 

hospital would only be permitted to 

make such a change effective on the first 

day of the beginning of a cost reporting 

period and the change would be 

effective for the entire cost reporting 

period; that is, a hospital would not be 

permitted to change its methodology in 

the middle of a cost reporting period. 

This change would also be effective for 

all subsequent cost reporting periods 

unless the hospital submits a 

subsequent notification to change its 

methodology for a future cost reporting 

period following the procedures 

discussed above. 


sroberts on DSKD5P82C1PROD with RULES
Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 43905 

4. Policy Change Relating to the 

Exclusion of Observation Beds and 

Patient Days From the Medicare DSH 

Calculation 

a. Background 

Observation services are defined in 

the Medicare Benefit Policy Manual 

(Publication No. 100–02, Chapter 6, 

section 20.6A) as a ‘‘well-defined set of 

specific, clinically appropriate services, 

which include ongoing short-term 

treatment, assessment, and reassessment 

before a decision can be made regarding 

whether patients will require further 

treatment.’’ Observation services are 

furnished by a hospital and include the 

use of a bed and periodic monitoring by 

a hospital’s nursing or other staff in 

order to evaluate an outpatient’s 

condition and/or to determine the need 

for a possible admission to the hospital 

as an inpatient. As discussed in section 

20.6A of the Medicare Benefit Policy 

Manual, when a physician orders that a 

patient be placed under observation care 

but has not formally admitted him or 

her as an inpatient, the patient initially 

is treated as an outpatient. 

Consequently, the costs incurred for 

patients receiving observation services 

are not generally recognized under the 

IPPS as part of the inpatient operating 

costs of the hospital. In some 

circumstances, observation services, 

although furnished to outpatients, are 

paid as part of an MS–DRG under the 

IPPS. In particular, section 1886(d) of 

the Act sets forth the payment system, 

based on prospectively determined 

rates, for the operating costs of inpatient 

hospital services, which are defined 

under section 1886(a)(4) of the Act to 

include ‘‘the costs of all services for 

which payment may be made under this 

title that are provided by the hospital (or 

by an entity wholly owned or operated 

by the hospital) to the patient during the 

3 days immediately preceding the date 

of the patient’s admission if such 

services are diagnostic services 

(including clinical diagnostic laboratory 

tests) or are other services related to the 

admission (as defined by the 

Secretary).’’ As further explained in 

section 40.3 of Chapter 3 of the 

Medicare Claims Processing Manual 

(Publication 100–04), if a hospital 

outpatient receives diagnostic 

preadmission services that are related to 

a patient’s hospital admission such that 

there is an exact match between the 

principal diagnosis for both the hospital 

outpatient claim and the inpatient stay, 

there is no payment for the diagnostic 

preadmission services under the 

hospital OPPS. Rather, these 

preadmission outpatient services are 

rolled into the particular MS–DRG and 

paid under the IPPS. 

Our policy prior to October 1, 2003, 

as discussed in the FY 2004 IPPS final 

rule (68 FR 45418), had been to exclude 

all observation days from the available 

bed and the patient day counts. CMS 

clarified that if a hospital provides 

observation services in beds that are 

generally used to provide hospital 

inpatient services, the days that those 

beds are used for observation services 

are to be excluded from the bed day 

count (even if the patient is ultimately 

admitted as an acute inpatient). 

In the FY 2004 IPPS proposed rule (68 

FR 27205 through 27206), we also 

proposed to amend our policy with 

respect to observation days for patients 

who are ultimately admitted for 

inpatient acute care. Specifically, we 

proposed that if a patient is admitted as 

an acute inpatient subsequent to 

receiving outpatient observation 

services, the days associated with the 

observation services would be included 

in the available bed and patient day 

counts. We did not finalize this policy 

until the FY 2005 IPPS final rule (69 FR 

49096 through 49098) when we revised 

our regulations at § 412.105(b)(4) and 

§ 412.106(a)(1)(ii) to specify that 

observation days are to be excluded 

from the counts of both available beds 

and patient days, unless a patient who 

receives outpatient observation services 

is ultimately admitted for acute 

inpatient care, in which case the bed 

days and patient days would be 

included in those counts. In 

implementing this policy, we revised 

Worksheet S–3, Part I of the Medicare 

hospital cost report by subscripting 

columns 5 and 6 to create columns 5.01 

and 5.02, and 6.01 and 6.02, to allow for 

separate reporting of observation days 

for patients who are subsequently 

admitted as inpatients and a separate 

line for observation days for patients not 

admitted. This policy change applied to 

all cost reporting periods beginning on 

or after October 1, 2004. 

b. Proposed and Final Policy Change 

As we previously indicated, a patient 

who is receiving observation services is 

a hospital outpatient, and the costs 

associated with those services are paid 

under the OPPS in most circumstances. 

If, however, a patient receives 

observation services from a hospital and 

the outpatient observation care that he 

or she receives is related to the 

admission such that there is an exact 

match between the principal diagnosis 

for both the hospital outpatient claim 

and the inpatient stay, a payment is not 

made to the hospital under the OPPS, as 

explained in section 40.3–C of Chapter 

3 of the Medicare Claims Processing 

Manual. According to section 40.3–C of 

the Medicare Claims Processing Manual, 

these preadmission outpatient 

diagnostic and nondiagnostic services 

are ‘‘deemed to be inpatient services, 

and included in the inpatient payment, 

unless there is no Part A coverage.’’ By 

this, we mean that such preadmission 

services are considered operating costs 

of hospital inpatient services for 

payment purposes only, as described in 

section 1886(a)(4) of the Act. That is to 

say, payment for these preadmission 

services, which can include services 

furnished while a hospital outpatient is 

under observation who is later admitted 

as an inpatient, is included within the 

per case inpatient payment if the 

services meet the statutory criteria 

described in section 1886(a)(4) of the 

Act. However, these services are still 

services furnished to patients who are 

outpatients of the hospital at the time 

those services are furnished. We note 

that although these preadmission 

services may be considered operating 

costs for hospital inpatient services for 

payment purposes, such services are not 

furnished to an inpatient because these 

services are furnished prior to the 

patient being formally admitted and, 

therefore, the associated day is not 

considered to be an inpatient day. Thus, 

even if payment for these preadmission 

services is included in the inpatient 

payment, the admission date for the 

inpatient stay begins when the patient is 

formally admitted. Because observation 

services are services furnished to 

outpatients of the hospital, in the FY 

2010 IPPS/RY 2010 LTCH PPS proposed 

rule (74 FR 24189 through 24191), we 

proposed that the patient days during 

which observation services are 

furnished are not included in the DSH 

calculation, regardless of whether the 

patients under observation are later 

admitted. We believe that patient days 

during which observation services are 

furnished, like the days during which 

preadmission diagnostic and 

nondiagnostic services are furnished, 

are not inpatient days and, therefore, we 

proposed to exclude such patient days 

from the DPP of the Medicare DSH 

calculation. 

In accordance with section 1812(a) of 

the Act, for a patient day to be 

considered part of a beneficiary’s spell 

of illness, the patient must have had 

‘‘inpatient hospital services furnished to 

him during such spell.’’ In addition, 

section 1861(a) of the Act defines a 

‘‘spell of illness’’ as beginning on the 

first day on which such ‘‘individual is 

furnished inpatient hospital services.’’ 

Section 1861(b) of the Act defines 


sroberts on DSKD5P82C1PROD with RULES
43906 Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 

‘‘inpatient hospital services’’ as 

‘‘services furnished to an inpatient of 

the hospital.’’ Thus, with respect to a 

spell of illness, even if observation 

services are eventually bundled into the 

inpatient payment, the patient is not 

admitted as an inpatient while he or she 

remains under observation and the days 

under observation are not considered to 

be inpatient days that count toward a 

beneficiary’s spell of illness. In 

addition, with respect to the 3-day 

inpatient stay requirement for patients 

to secure Medicare coverage of SNF 

benefits, section 20.1 of Chapter 8 of the 

Medicare Benefit Policy Manual 

(Publication No. 100–02) states: ‘‘Time 

spent in observation status or in the 

emergency room prior to (or in lieu of) 

an inpatient admission to the hospital 

does not count toward the 3-day 

qualifying inpatient hospital stay, as a 

person who appears at a hospital’s 

emergency room seeking examination or 

treatment or is placed on observation 

has not been admitted to the hospital as 

an inpatient; instead, the person 

receives outpatient services. For 

purposes of the SNF benefit’s qualifying 

hospital stay requirement, inpatient 

status commences with the calendar day 

of hospital admission.’’ Other Medicare 

policies do not consider observation 

days to be inpatient days because 

observation services are outpatient 

services furnished to outpatients of the 

hospital. While other Medicare policies 

do not necessarily dictate how we treat 

patient days for DSH payment purposes, 

we believe it is important that patient 

days be treated consistently among the 

various Medicare policies. As we stated 

in the proposed rule, we believe that 

because observation days are not 

considered inpatient days for a 

beneficiary’s spell of illness or for 

qualifying for SNF benefits, this policy 

provides additional support for our 

proposal to no longer include any 

observation day as an inpatient day in 

the calculation of the DPP of the 

Medicare DSH calculation, nor should 

the associated observation bed days be 

included in determining the number of 

available inpatient beds used for 

purposes of determining a hospital’s 

IME and DSH payment adjustments. 

As we indicated above, the DSH 

regulations at § 412.106 explain how the 

DPP is calculated. Specifically, the DPP 

is based on the hospital’s patient days 

where patient days apply only to 

inpatient days. Because a patient under 

observation in the hospital is considered 

to be an outpatient of the hospital and 

receives services prior to being admitted 

as an inpatient, we believe that 

observation days, even for a patient who 

is subsequently admitted, should not be 

considered inpatient days. Accordingly, 

in the FY 2010 IPPS/RY 2010 LTCH PPS 

proposed rule (74 FR 24190), we 

proposed to revise the regulations at 

§ 412.106(a)(1)(ii) to exclude patient 

days associated with beds used for 

outpatient observation services, even if 

the patient is later admitted as an 

inpatient. We proposed to exclude all 

observation patient days from the DPP 

of the Medicare DSH calculation. We 

proposed that this proposed provision 

would be effective for cost reporting 

periods beginning on or after October 1, 

2009. 

For the same reasons, we also 

proposed to eliminate counting 

observation bed days for patients who 

are subsequently admitted as inpatients 

for purposes of both the DSH payment 

adjustment and the IME payment 

adjustment. The rules for counting 

hospital beds for the purposes of the 

IME payment adjustment are codified in 

the IME regulations at § 412.105(b), 

which is cross-referenced in 

§ 412.106(a)(1)(i) for purposes of the 

DSH payment adjustment. We believe it 

is important to apply a consistent 

definition for counting bed days for both 

the IME and DSH payment adjustments. 

Therefore, we proposed to revise 

§ 412.105(b)(4) to state that observation 

days are excluded from the counts of 

available beds, regardless of whether or 

not the patient under observation is 

ultimately admitted for acute inpatient 

care. 

As we stated earlier, when we 

implemented the policy to include 

observation days for admitted patients 

for DSH payment adjustment purposes 

for FY 2005, we revised the Medicare 

hospital cost report to include columns 

for hospitals to report their observation 

days for patients admitted as inpatients 

and observation days for patients not 

admitted. Under the proposal in the 

proposed rule, hospitals would no 

longer be required to distinguish on the 

cost report between observation bed 

days and patient days for patients who 

are ultimately admitted and observation 

bed days and patient days for patients 

who are not admitted because none of 

these bed days and patient days would 

be included in the DSH payment 

adjustment. We proposed that, effective 

for cost reporting periods beginning on 

or after October 1, 2009, hospitals 

would be required to report their total 

observation bed days so that the total 

observation bed days can be deducted 

from the total bed day count for IME 

and DSH payment adjustment purposes. 

In summary, we proposed to exclude 

observation patient days for admitted 

patients from the patient day count in 

§ 412.106(a)(1)(ii) (for DSH) and the bed 

day count at § 412.105(b) (for IME), as 

a cross-reference at § 412.106(a)(1)(i) (for 

DSH), because observation services are 

defined as outpatient services furnished 

to outpatients of the hospital, regardless 

of whether or not the patient under 

observation is subsequently admitted. 

Comment: Several commenters 

opposed the proposal to exclude 

observation patient days for admitted 

patients from the DSH adjustment and 

observation bed days for admitted 

patients from the DSH and IME 

adjustment. Some commenters argued 

that because observation services for 

admitted patients are payable as part of 

the IPPS bundle, these observation 

patient days are part of the IPPS 

payment system and should be counted 

in the DSH adjustment. Some 

commenters contended that ‘‘inpatient 

observation days are currently payable 

as part of the IPPS bundle, irrespective 

of whether the observation stay was 

immediately preceding the nonobservation patient stay.’’ Some 

commenters also believed that all 

observation days, regardless of whether 

the observation stay precedes an 

inpatient admission, should be included 

in the DSH adjustment. In addition, 

some commenters disagreed with CMS’ 

reliance on other Medicare policies (for 

example, SNF 3-day stay, spell of 

illness) to justify excluding observation 

days from the DSH adjustment. Rather, 

they asserted that CMS should rely on 

the inpatient payment rules to 

determine whether days associated with 

observation services should be included 

in the DSH adjustment. 

Another commenter disagreed with 

the proposal to exclude observation 

days and beds for admitted patient from 

the DSH adjustment, citing that it goes 

against Congressional intent. The 

commenter asserted that when Congress 

developed the Medicaid ratio for DSH, 

there was no distinction of observation 

days. Rather, according to the 

commenter, all days were considered 

inpatient days although the services the 

patient received were what we now 

consider to be observation services. The 

commenter believed that the proposal to 

exclude observation days for admitted 

patients from the DSH adjustment will 

discourage the use of observation 

services, which the commenter believed 

is an effective and efficient way to 

deliver health care. 

One commenter believed that the 

proposal to exclude observation days 

from the DSH adjustment was 

contradictory. The commenter 

contended that it is a contradiction that 

observation services furnished prior to 

admission can be considered as 


sroberts on DSKD5P82C1PROD with RULES
Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 43907 

inpatient operating costs for payment 

purposes, but the observation days and 

beds are not considered an inpatient day 

or available inpatient bed for the 

purposes of IME or DSH payment 

adjustment. 

Response: We disagree with the 

commenters that patient days and beds 

associated with observation services 

should continue to be included in the 

Medicare DSH adjustment. According to 

the DSH regulations at § 412.106, the 

DPP is based on the hospital’s inpatient 

days. Observation services, as described 

above, are, by definition, outpatient 

services. Because a patient under 

observation in the hospital is considered 

to be an outpatient of the hospital and 

can receive services prior to being 

admitted as an inpatient, we believe that 

observation days, even for a patient who 

is subsequently admitted, should not be 

considered inpatient days and should 

not be included in the DPP. 

Our policy to exclude observation 

patient days and observation bed days 

from the DSH adjustment is not 

intended to discourage the use of 

observation services. Rather, it is to 

ensure that our DSH adjustments are 

appropriately including only inpatient 

days and inpatient beds. Because DSH 

and IME policies use the same 

methodologies and reference the same 

regulation to count beds (§ 412.105(b)), 

and because we are excluding all 

observation beds from the DSH 

adjustment, they would be excluded 

from the IME adjustment. We do not 

believe that excluding observation bed 

days and observation patient days from 

the DSH adjustment (and, because of the 

cross-referencing of § 412.105(b) under 

§ 412.106(a)(1)(i), excluding observation 

bed days from the IME payment 

adjustment) goes against Congressional 

intent. Because the DSH payment 

adjustment is part of the IPPS, it is our 

interpretation that under section 

1886(d)(5)(F) of the Act, DSH statutory 

references of ‘‘days’’ apply only to 

inpatient days. Thus, we do not believe 

that patient days associated with 

observation services, defined as 

outpatient services, should be counted 

as an inpatient day and included in the 

DPP of the Medicare DSH calculation. 

Furthermore, we generally treat 

inpatient bed days in the DSH 

adjustment and the IME adjustment 

consistently; therefore, because we are 

excluding observation bed days from the 

DSH adjustment, we are excluding 

observation bed days from the IME 

adjustment. 

We also disagree with the 

commenters’ assertion that the proposal 

to exclude observation patient days and 

bed days from the DSH adjustment has 

solely been based on the treatment of 

observation days under other Medicare 

payment policies. In our discussion in 

the proposed rule that we believed 

patient days associated with observation 

services were not inpatient days for 

purposes of the Medicare DSH 

adjustment, we found that other 

Medicare policies also did not treat days 

associated with observation services as 

inpatient days. Specifically, we found 

that a Medicare beneficiary’s ‘‘spell of 

illness’’ is defined under section 1812(a) 

of the Act as beginning on the first day 

on which such ‘‘individual is furnished 

inpatient hospital services’’ and days 

under observation do not count towards 

a beneficiary’s spell of illness. In 

addition, days associated with patients 

who are under observation do not count 

toward the 3-day inpatient stay 

requirement for patients to secure 

Medicare coverage of SNF benefits as 

described in this preamble. We did not 

solely rely on these other Medicare 

policies to determine that observation 

days are not inpatient days, but we 

believe that patient days should 

generally be treated consistently across 

Medicare payment policies when 

possible and appropriate. 

Finally, we do not believe it is 

contradictory that observation services 

can be bundled in the IPPS payment 

while the patient days associated with 

observation services are not considered 

inpatient days. As described above, the 

patient receiving the observation 

services (which are not unlike any other 

preadmission service) is receiving an 

outpatient service and, therefore, the 

patient is considered an outpatient of 

the hospital. Accordingly, given that the 

patient days associated with such 

observation services (or any 

preadmission service) are not 

considered inpatient days, we now 

believe that such days should not be 

included in the Medicare DSH 

adjustment. 

Comment: Several commenters 

supported the proposal to exclude 

observation patient days and bed days 

from the DSH adjustment and 

observation bed days from the IME 

payment adjustment. One commenter 

supported the proposal because the 

commenter believed that patients who 

receive observation services are hospital 

outpatients, and therefore their patient 

days should not be included in the DSH 

payment adjustment. Other commenters 

expressed support of the proposal 

because it would simplify reporting for 

hospitals. 

Response: We thank the commenters 

for their support of our proposal. We 

agree that patients receiving observation 

services, which occur prior to the 

patient being admitted as an inpatient to 

the hospital, are outpatients of the 

hospital, and therefore, we now believe 

that these patient days should not be 

considered inpatient days and included 

in the DSH payment adjustment. We are 

finalizing our policy to exclude all 

observation patient days and bed days 

from the DSH adjustment and 

observation bed days from the IME 

adjustment as proposed, without 

modification. 

Comment: One commenter supported 

the proposal to exclude observation 

beds and patient days for admitted 

patients from the Medicare DSH 

calculation because reporting the data 

was burdensome on hospitals. The 

commenter recommended that CMS 

apply this policy change to prior years. 

Response: We thank the commenter 

for its support of our proposal to no 

longer include observation patient days 

and bed days for admitted patients from 

the DSH payment adjustment 

calculation. We cannot apply this policy 

change to prior years because we do not 

apply policy changes retroactively. The 

effective date of the policy change is for 

cost reporting periods beginning on or 

after October 1, 2009. 

Comment: One commenter questioned 

how the observation beds and patient 

days would be excluded from the IME 

and DSH payment adjustment 

calculations. The commenter cited the 

proposed rule in which we stated: ‘‘We 

are proposing that, effective for cost 

reporting periods beginning on or after 

October 1, 2009, hospitals would be 

required to report their observation bed 

days so that total observation days can 

be deducted from the bed day count for 

IME and DSH payment adjustment 

purposes’’. The commenter requested 

clarification on this statement because 

patient days reported on the cost report 

on Worksheet S–3, Lines 1–12, Columns 

4, 5, and 6 do not include observation 

days and that Medicaid patient days and 

total patient days used in the Medicaid 

DPP of the Medicare DSH calculation 

exclude observation bed days. In 

addition, the commenter stated that 

observation bed days reported on 

Worksheet S–3, Line 26 should not be 

included in the DSH calculation and 

that it would be incorrect to deduct total 

observation days from Medicaid patient 

days or total patient days. 

Response: Currently, we include 

observation patient days for admitted 

patients in the Medicare DSH DPP. 

Hospitals currently report total hospital 

observation bed patient days, 

observation patient days for patients 

who are admitted, and observation 

patient days for patients who are not 

admitted on the Medicare hospital cost 


sroberts on DSKD5P82C1PROD with RULES
43908 Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 

report. In addition, hospitals report on 

the Medicare hospital cost report total 

Medicaid observation patient days, 

Medicaid observation patient days for 

patients who are admitted, and 

Medicaid observation patient days for 

patients who are not admitted. This 

information is reported on Worksheet 

S–3, Part I, Line 26, Columns 5, 5.01, 

5.02, 6, 6.01 and 6.02. Currently, we add 

Medicaid observation patient days for 

admitted patients to the numerator of 

the Medicaid fraction of the DPP, and 

we add total observation patient days 

for admitted patients to the denominator 

of the Medicaid fraction of the DPP. The 

commenter is correct that observation 

patient days for admitted patients 

would not be deducted from the 

numerator or denominator of the 

Medicaid fraction; rather, we would no 

longer include observation patient days 

for admitted patients in the patient day 

counts in the DPP of the Medicare DSH 

calculation for cost reporting periods 

beginning on or after October 1, 2009. 

However, to determine available bed 

days for DSH and IME purposes, 

observation bed days would need to be 

deducted from total available bed days. 

Currently, total bed days available 

(reported on Worksheet S–3, Part I, Line 

12, Column 2) include all observation 

bed days (for both admitted and 

nonadmitted patients). Under the 

current policy where we include 

observation bed days for admitted 

patients, we deduct observation bed 

days for patients not admitted from the 

total available bed day count. However, 

effective for cost reporting periods 

beginning on or after October 1, 2009, to 

ensure that we no longer include any 

observation bed days in the bed day 

count for IME and DSH purposes, we 

would deduct all observation bed days 

(reported on Worksheet S–3, Part I, Line 

26, Column 6) from the total bed days 

available (reported on Worksheet S–3, 

Part I, Line 12, Column 2). 

Finally, the cost report will be 

changed to accommodate this policy 

change once this final rule is published. 

After consideration of the public 

comments we received, we are 

finalizing our proposal, without 

modification, to exclude observation 

patient days for admitted patients from 

the patient day count at 

§ 412.106(a)(1)(ii) (for DSH) and the bed 

day count at § 412.105(b) (for IME), as 

cross-referenced at § 412.106(a)(1)(i) (for 

DSH). The policy change is effective for 

cost reporting periods beginning on or 

after October 1, 2009. 

5. Public Comments That Are Out of the 

Scope of the Proposed Rule 

We received a number of public 

comments on DSH-related issues 

regarding appeals or pending litigation 

on the Medicare fraction and the 

inclusion of Medicare managed care 

patient days in the Medicare DSH 

calculation, for which we did not 

include any proposed changes in the 

proposed rule. We are not summarizing 

these comments in detail nor providing 

responses to the comments because we 

consider them to be out of the scope of 

the provisions of the proposed rule. 

F. Technical Correction to Regulations 

on Payments for Anesthesia Services 

Furnished by Hospital or CAH 

Employed Nonphysician Anesthetists or 

Obtained Under Arrangements 

(§ 412.113) 

Section 412.113(c) of the regulations 

contains our rules governing payments 

for anesthesia services furnished by a 

hospital or CAH by qualified 

nonphysician anesthetists employed by 

the hospital or CAH or obtained under 

arrangements. We have discovered that, 

under paragraph (c)(2)(i)(B) of § 412.113, 

there is an incorrect cross-reference to 

‘‘§ 410.66’’ for the definition of a 

qualified nonphysician anesthetist. The 

correct cross-reference for the definition 

of a qualified nonphysician anesthetist 

is ‘‘§ 410.69’’. As we proposed in the FY 

2010 IPPS/RY 2010 LTCH PPS proposed 

rule (74 FR 24191), we are correcting the 

cross-reference in § 412.113(c)(2)(i)(B) to 

refer to ‘‘§ 410.69’’. We did not receive 

any public comments on this proposal. 

G. Payments for Direct Graduate 

Medical Education (GME) (§§ 413.75 

and 413.79) 

1. Background 

Under section 1886(a)(4) of the Act, 

costs of approved educational activities 

are excluded from the operating costs of 

hospital inpatient services. Section 

1886(h) of the Act, as implemented in 

regulations at § 413.75 through § 413.83, 

establishes a methodology for 

determining payments to hospitals for 

the direct costs of approved GME 

programs. Section 1886(h)(2) of the Act 

sets forth a methodology for the 

determination of a hospital-specific, 

base-period per resident amount (PRA) 

that is calculated by dividing a 

hospital’s allowable direct costs of GME 

for a base period by its number of 

residents in the base period. The base 

period is, for most hospitals, the 

hospital’s cost reporting period 

beginning in FY 1984 (that is, the period 

of October 1, 1983, through September 

30, 1984). Medicare direct GME 

payments are calculated by multiplying 

the PRA times the weighted number of 

full-time equivalent (FTE) residents 

working in all areas of the hospital 

complex (and nonhospital sites, when 

applicable), and the hospital’s Medicare 

share of total inpatient days. The base 

year PRA is updated annually for 

inflation. 

Section 1886(h)(4)(F) of the Act 

established a limit on the number of 

allopathic and osteopathic FTE 

residents that a hospital may include in 

its FTE resident count for purposes of 

calculating direct GME payments. For 

most hospitals, the limit, or cap, is the 

unweighted number of allopathic and 

osteopathic FTE residents training in 

the hospital’s most recent cost reporting 

period ending on or before December 

31, 1996. 

2. Clarification of Definition of New 

Medical Residency Training Program 

For purposes of determining direct 

GME and IME payments, the Medicare 

statute establishes a cap on the number 

of allopathic and osteopathic FTE 

residents a hospital may count, which, 

for most hospitals, is based on the 

number of allopathic and osteopathic 

FTE residents the hospital was training 

in its most recent cost reporting period 

ending on or before December 31, 1996. 

Section 1886(h)(4)(H)(i) of the Act 

requires the Secretary to prescribe rules 

for the application of the FTE resident 

cap in the case of medical residency 

programs that are established on or after 

January 1, 1995. This provision is 

applicable for purposes of the IME 

adjustment under the IPPS through 

section 1886(d)(5)(B)(viii) of the Act. 

The provision specifies that such rules 

must be consistent with the principles 

of the statutory provisions regarding the 

establishment of the FTE resident caps 

and regarding application of a 3-year 

rolling average count of FTE residents. 

The statute also requires the Secretary to 

give special consideration in such rules 

to facilities that meet the needs of 

underserved rural areas. Accordingly, 

we issued regulations to permit 

adjustments to the FTE resident caps, 

under certain circumstances, for 

hospitals that establish new medical 

residency training programs on or after 

January 1, 1995. Section 413.79(e)(1) of 

the regulations state that if a hospital 

had no allopathic or osteopathic 

residents in the base year, the hospital 

may receive an adjustment to its FTE 

resident cap (which otherwise would be 

zero) if it establishes one or more new 

medical residency training programs, 

but only for new programs established 

within 3 academic years after residents 

begin training in the first new program. 


sroberts on DSKD5P82C1PROD with RULES
Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 43909 

(Rural hospitals may receive FTE cap 

adjustments for newly established 

programs at any time under the 

regulations at § 413.79(e)(1)(iii)). Under 

§ 413.79(e)(2), hospitals that had 

allopathic or osteopathic residents in 

the base year were permitted to receive 

an adjustment for new programs, but 

only if the new programs were 

established on or after January 1, 1995, 

and before August 5, 1997. Section 

413.79(l) defines a new medical 

residency training program as ‘‘a 

medical residency that receives initial 

accreditation by the appropriate 

accrediting body or begins training 

residents on or after January 1, 1995.’’ 

These regulations concerning cap 

adjustments for newly established 

medical residency training programs 

also apply for IME purposes as stated at 

§ 412.105(f)(1)(vii). 

As we discussed in the FY 2010 

IPPS/RY 2010 LTCH PPS proposed rule 

(74 FR 24191), it has come to our 

attention that there has been some 

misinterpretation or misunderstanding 

of these regulations among some 

hospitals and Medicare contractors 

despite previous discussions of the 

topic in the Federal Register. 

Specifically, some hospitals or 

contractors took the regulations to mean 

that, as long as the relevant accrediting 

body (either the Accreditation Council 

on Graduate Medical Education 

(ACGME) for allopathic programs or the 

American Osteopathic Association 

(AOA) for osteopathic programs) grants 

an ‘‘initial’’ accreditation or reaccredits 

a program as ‘‘new,’’ the hospital may 

receive an FTE cap adjustment for that 

program, regardless of whether that 

program may have been accredited 

previously at another hospital. In other 

words, some hospitals and contractors 

appear to have read our regulations to 

mean that the Secretary would defer, in 

all circumstances, to the relevant 

accrediting body’s identification of a 

particular accreditation as a ‘‘new’’ or 

‘‘initial’’ accreditation of a medical 

residency training program. 

In the FY 1998 IPPS final rule that 

established § 413.79(1) of the 

regulations, we discussed both the 

meaning of this regulation and the 

rationale for establishing it: 

‘‘For purposes of this provision, a 

‘program’ will be considered newly 

established if it is accredited for the first 

time, including provisional 

accreditation on or after January 1, 1995, 

by the accrediting body. Although the 

Secretary of the Department of Health 

and Human Services has broad 

authority to prescribe rules for counting 

residents in new programs, the 

Conference Report for Public Law 105– 

33 [House Conference Report No. 105– 

217, pp. 821–822] indicates concern that 

the aggregate number of FTE residents 

should not increase over current levels.’’ 

(62 FR 46006) 

Similarly, in the FY 2000 IPPS final 

rule (64 FR 41519), we responded to a 

public comment suggesting that CMS 

include within the definition of ‘‘new 

residency program’’ a residency 

program that may have been in 

existence at other clinical sites in the 

past. We replied that ‘‘the language 

‘begins training residents on or after 

January 1, 1995’ [in the regulation at 

§ 413.79(1)] means that the program may 

have been accredited by the appropriate 

accrediting body prior to January 1, 

1995, but did not begin training in the 

program until on or after January 1, 

1995. The language does not mean that 

it is the first time a particular hospital 

began training residents in a program on 

or after January 1, 1995, but that 

program was in existence at another 

hospital prior to January 1, 1995, as the 

commenter suggests.’’ (Emphasis 

added.) 

Accordingly, as we have suggested in 

discussions in our previous rules, rather 

than relying solely on the accrediting 

body’s characterization of whether a 

program is new, we continue to believe 

it is appropriate that CMS require a 

hospital to evaluate whether a particular 

program is a newly established one for 

Medicare GME purposes by considering 

whether a program was initially 

accredited ‘‘for the first time,’’ and is 

not a program that existed previously at 

another hospital. In evaluating whether 

a program is truly new, as opposed to 

an existing program that is relocated to 

a new site, it is important to consider 

not only the characterization by the 

accrediting body, but also supporting 

factors such as (but not limited to) 

whether there are new program 

directors, new teaching staff, and 

whether there are only new residents 

training in the program(s) at the 

different site. In determining whether a 

particular program is a newly 

established one, it may also be 

necessary to consider factors such as the 

relationship between hospitals (for 

example, common ownership or a 

shared medical school or teaching 

relationship) and the degree to which 

the hospital with the original program 

continues to operate its own program in 

the same specialty. (Although this 

discussion of new programs is framed in 

the context of a hospital operating a 

program, we note that many programs 

are operated or sponsored by schools of 

medicine or other nonhospital entities. 

This section is intended to address all 

GME programs that were previously 

accredited at one operating entity, and 

that entity ceases to operate the 

program, but the program is then 

opened and operated at another entity, 

even if it is accredited as a new program 

at the second entity. Such a program 

may not be treated as new at the second 

entity.) In any case, we believe it is 

appropriate to be deliberate in the 

determinations regarding FTE resident 

cap adjustments relating to residents in 

new programs. The statute clearly 

requires that our rules regarding 

adjustments to hospitals’ FTE resident 

caps for newly established programs 

must adhere to the principles of the 

statutory provision limiting the count of 

FTE residents for direct GME and IME 

payments to the count for the most 

recent cost reporting period ending on 

or before December 31, 1996. In 

addition, as we indicated in our final 

rule establishing FTE cap adjustments 

for ‘‘new programs,’’ the Conference 

Report for the BBA explicitly indicates 

that the aggregate number of FTE 

residents should be held to the 

‘‘current’’ levels at the time the BBA 

was enacted (House Conference Report 

No. 105–217, pp. 821–822). 

If we were to find that a program at 

one hospital is a newly established 

program merely because it was relocated 

from another hospital, the result would 

be that an FTE resident cap adjustment 

would be granted based on the same 

program at two different hospitals. 

Furthermore, if both hospitals continue 

to operate, the FTE resident cap slots 

that were vacated from the program at 

the first hospital could potentially be 

filled with residents from that hospital’s 

other residency training programs. We 

do not believe such an increase in the 

aggregate number of FTE residents and 

the potential duplication of the FTE 

resident cap adjustment would be 

consistent with the statutory mandate to 

adhere to the principles of the base-year 

FTE resident caps when devising rules 

to account for newly established 

medical residency training programs. 

Therefore, in the FY 2010 IPPS/RY 2010 

LTCH PPS proposed rule (74 FR 24192), 

we proposed to clarify our policy that a 

new medical residency program is one 

that receives initial accreditation for the 

first time, as opposed to reaccreditation 

of a program that existed previously at 

the same or another hospital. 

Furthermore, we indicated that we 

believe it is appropriate and necessary 

that CMS expect a hospital that wishes 

to claim an adjustment to its direct GME 

and IME FTE caps based on residents 

training in a medical residency program 

to first evaluate whether the program is 

‘‘new’’ for Medicare purposes, rather 


sroberts on DSKD5P82C1PROD with RULES
43910 Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 

than to rely exclusively on the 

characterization of a particular program 

by the relevant accrediting body. 

Comment: Several commenters were 

hospitals that have been notified by 

CMS, through their fiscal 

intermediaries, that their residency 

training programs were not new and, 

therefore, the hospitals’ FTE resident 

caps should not have been adjusted 

under § 413.79(e)(1). These programs 

were continuations of residency 

programs that existed at other hospitals. 

One commenter maintained that its 

program is separate and distinct from 

the program that existed and closed at 

the other hospital. The commenter had 

provided CMS with evidence to support 

its belief. Another commenter had 

already taken steps to address the 

problem posed by its continuation of 

existing programs by creating a 

consortium model for new residency 

programs that differs greatly from the 

original models. The commenters also 

stated that funding from Medicare is 

vital to the success of the programs and 

is necessary for combating the shortage 

of primary care physicians. They urged 

CMS to reverse its initial position and 

retroactively restore the hospital’s direct 

GME and IME payments. 

Response: If the hospitals disagree 

with our decision, they may appeal 

these determinations through the 

administrative appeals process. Rather 

than discuss the specifics of these 

determinations in this response, we will 

address the commenters’ concerns in 

general, in the context of the policy 

clarification. In determining whether a 

particular residency training program is 

new, the relevant fiscal intermediary/ 

MAC and CMS review the 

characteristics of the residency program 

in question, considering all of the 

relevant criteria discussed earlier to 

determine whether there has been a 

transfer of a previously existing program 

to another hospital. Where we find that 

the facts point to the conclusion that a 

program is not a new program, we 

determine that the hospital does not 

qualify for the FTE cap increase for new 

medical residency programs. We 

understand that in some cases external 

factors unrelated to the medical school 

or hospital may contribute to this 

transfer of a program to another 

hospital, and we are also very aware of 

the fact that hospitals rely on Medicare 

funding for residency programs. 

However, as discussed above, we wish 

to ensure that FTE cap increases for new 

programs are only awarded to programs 

that are truly new. 

Comment: Some commenters asked 

about the proper course of action for a 

provider to follow if it has received 

payment relating to residents in a ‘‘new 

program,’’ even though those residents 

would not be considered to be training 

in new programs based on factors 

detailed in the proposed rule, and the 

cost reports are within the 3-year 

reopening period, the issue is under 

appeal, or the cost report is currently 

being reopened. 

Response: If a fiscal intermediary or 

MAC identifies a teaching hospital that 

has received IME and direct GME 

payments relating to residents in a 

program that is treated as new, but the 

program is, in fact, a transfer of an 

existing program in accordance with the 

factors outlined in this final rule, the 

fiscal intermediary or MAC may reopen 

cost reports that are still within the 3- 

year reopening period and recover 

overpayments accordingly. If the issue 

is already under appeal, the appeal may 

proceed according to normal 

procedures. 

Comment: Several commenters stated 

that CMS’ proposed clarification of the 

definition of a new residency program 

is, in fact, not a clarification, but a 

‘‘major change to longstanding agency 

policy.’’ The commenters expressed 

concern that CMS is retroactively 

imposing its new interpretation of 

‘‘supporting factors,’’ which was never 

previously published in agency 

guidance, to deny hospitals an 

adjustment to their FTE resident caps 

for new programs when they followed 

the existing regulations in good faith. 

The commenters asserted that residency 

programs will no longer be able to 

qualify as new based on what the 

commenters argued is the literal, simple 

meaning of the regulatory phrase (that 

is, ‘‘initial accreditation by the 

appropriate accrediting body’’) but, 

instead, they will have to meet ‘‘new 

and ambiguous criteria in the form of 

‘supporting factors.’ ’’ The commenters 

argued that the new policy will result in 

more confusion because the ‘‘supporting 

factors’’ will lead to subjective 

determinations, particularly if a 

hospital’s program meets some, but not 

all, of the factors. Several commenters 

urged CMS to withdraw the ‘‘confusing, 

arbitrary, retrospective ‘clarification’ ’’ 

regarding what constitutes a new 

residency program, and instead 

establish a prospective, definitive 

process that is consistent with the 

prospective payment system under 

which hospitals should know up front 

what qualifies as a ‘‘new’’ program for 

purposes of direct GME and IME 

payments. 

Commenters also remarked that there 

is no legal authority for the proposal in 

relevant statutes and legislative history, 

and that no change in law or regulation 

has prompted these clarifications. The 

commenters stated that the proposal is 

inconsistent with regulations at 

§ 413.79(e) and (l), and that the changes 

are self-serving and ‘‘intended to 

support CMS’s position in currently 

pending litigation.’’ Another commenter 

expressed concern that CMS is shifting 

the responsibility for determining what 

constitutes a new program to a hospital 

without giving the hospital a way to 

receive formal approval before the 

hospital begins to operate the program 

and potentially is subject to 

disallowances or overpayments. The 

commenter believed the current practice 

of allowing the accrediting body to 

make a formal determination 

beforehand is appropriate, but if CMS 

chooses to finalize this ‘‘new’’ policy, 

the commenter recommended that CMS 

establish a more definitive process that 

allows prior approvals to minimize 

uncertainty among hospitals. 

Response: We disagree with the 

commenters that the policy discussed in 

the proposed rule is not a clarification 

but instead is a ‘‘major’’ policy change. 

A significant principle that we must 

consider in implementing a policy on 

what constitutes a new medical 

residency program for purposes of 

establishing new FTE resident caps is 

that the aggregate number of FTE 

residents should not increase 

unnecessarily over the numbers of 

residents being trained at the time the 

BBA was passed. To that end, it is 

important to ensure that FTE cap 

adjustments are not made for programs 

that are not actually new, that is, 

programs that have existed previously at 

another hospital. As discussed above, 

we articulated this point in the Federal 

Register at least as early as the FY 2000 

IPPS final rule (64 FR 41519). 

Further, while we acknowledge that it 

would be simple to rely solely on the 

accrediting body’s determination as to 

whether a program is ‘‘new,’’ as we have 

explained above, we also recognize that 

the accrediting body may have very 

different reasons from CMS for 

designating a program as ‘‘new.’’ We 

continue to believe it is appropriate to 

look at factors in addition to the 

accrediting body’s characterization of its 

accreditation to determine whether a 

particular program constitutes a new 

program. Certainly, a program that 

maintains the same program director, 

teaching staff, and residents but has 

only been moved to a different 

participating institution would not be 

considered a new program for Medicare 

purposes. We also do not believe that 

there is anything subjective about 

making determinations based on several 

‘‘supporting factors,’’ as the commenter 


sroberts on DSKD5P82C1PROD with RULES
Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 43911 

suggests. On the contrary, we believe 

that taking a more thorough look at the 

characteristics of a program using an 

approach that considers multiple factors 

is more objective and ensures that FTE 

cap adjustments, which could increase 

the number of Medicare-funded training 

slots in the aggregate, will only be 

granted to qualifying teaching hospitals 

when warranted. The academic medical 

community will be able to consider 

these factors before making decisions 

related to opening, closing, or 

expanding programs. Through proper 

planning and consideration of these 

factors, teaching hospitals should be 

able to determine whether programs that 

have commonalities with previously 

existing programs may or may not 

qualify for FTE cap increases and 

associated Medicare IME and direct 

GME funding. 

We also disagree with the 

commenter’s suggestion that we lack the 

legal authority to implement this policy. 

The BBA and our regulations provide 

that hospitals are permitted to receive 

an FTE cap increase in order to start 

new programs, and CMS is the agency 

charged with administering these 

provisions. As such, it is our 

responsibility to provide guidance when 

we believe clarification is needed. 

Because it appears there has been some 

recent confusion surrounding this 

policy, we proposed to clarify our 

definition of a new program in the FY 

2010 IPPS proposed rule. We believe the 

fact that there are pending reopenings, 

disallowances, and litigation relating to 

the definition of a new program only 

supports the need to clarify the policy 

at this time. 

Comment: One commenter argued 

that because the phrase ‘‘initial 

accreditation’’ is a term of art used by 

the ACGME, it has a ‘‘well understood 

meaning’’ in the academic medical 

community, and the ‘‘law is clear that 

the term as used in the regulation has 

the same meaning as is generally 

understood in the regulated 

community.’’ The commenter believed 

that CMS likely was aware of the use of 

this term by the ACGME when CMS first 

promulgated the definition of a new 

medical residency program in the 

regulations, and CMS cannot decide 

after the fact that it was ‘‘unwise to have 

adopted an industry term’’ without 

complying with the APA’s 

[Administrative Procedure Act’s] 

directive for notice and comment 

rulemaking. 

Response: We understand that ‘‘initial 

accreditation’’ is a term that is used by 

the ACGME and that the term was used 

by the ACGME before the time that the 

BBA was passed. Specifically, the 

ACGME describes ‘‘initial 

accreditation’’ as follows: 

‘‘Accreditation is conferred initially 

when a Review Committee determines 

that a proposal for a new program or 

sponsoring institution substantially 

complies with the requirements. 

‘‘(a) This initial cycle is considered a 

developmental stage during which the 

proposal for the new program or 

sponsoring institution will be fully 

developed and implemented * * *. 

‘‘(b) Initial accreditation may be 

granted to a new program or sponsoring 

institution or a previously-accredited 

program or sponsoring institution, 

which had had its accreditation 

withheld or withdrawn or has 

voluntarily withdrawn and has 

subsequently applied for reaccreditation * * *.’’ 

We first provided a definition in the 

regulations for ‘‘new medical residency 

training program’’ in the final rule with 

comment period published in the 

Federal Register published on August 

29, 1997, shortly following the passage 

of the BBA on August 5, 1997. We stated 

that a ‘‘ ‘program’ will be considered 

newly established if it is accredited for 

the first time, including provisional 

accreditation on or after January 1, 

1995’’ (emphasis added, 62 FR 46006). 

In the regulatory text, we defined ‘‘new 

medical residency training program’’ as 

‘‘a medical residency training program 

that receives initial accreditation by the 

appropriate accrediting body on or after 

July [sic] 1, 1995’’ (emphasis added, 62 

FR 46035). Because we used the phrase 

‘‘for the first time’’ in the preamble, and 

the term ‘‘initial accreditation’’ in the 

regulations text, we believed it would be 

obvious that CMS did not rely on the 

definition of initial program as used by 

the ACGME. As defined by the ACGME, 

initial accreditation can be given to a 

program that was accredited previously. 

We did not give any indication that we 

were using the term ‘‘initial 

accreditation’’ as a term of art as used 

by the ACGME. 

We next discussed new medical 

residency training programs in the May 

12, 1998 final rule responding to public 

comments on the August 29, 1997 final 

rule with comment period (63 FR 

263359). In response to public 

comments, we revised the definition of 

a ‘‘new medical residency training 

program’’ to mean ‘‘a medical residency 

that receives initial accreditation by the 

appropriate accrediting body or begins 

training residents on or after January 1, 

1995.’’ The purpose of the revision was 

not to revise the definition of the word 

‘‘initial’’ but, rather, to include the 

situation of residency training that 

begins on or after January 1, 1995, 

because we recognized that hospitals 

usually do not begin training residents 

immediately upon receiving an 

accreditation letter. The definition has 

not been revised since then. Thus, this 

is the definition that is currently in the 

regulations at § 413.79(l). 

Furthermore, it would not be 

appropriate for CMS to use a term of art 

if that term is unique to only one of the 

organizations that accredit GME 

programs. The graduate medical 

education community consists not just 

of the ACGME, but also includes the 

AOA (and the Commission on Dental 

Accreditation and the Council on 

Podiatric Medical Education). We 

believe that if, in fact, the term ‘‘initial 

accreditation’’ is an industry standard 

whose meaning is clearly understood by 

the academic medical community, we 

would expect it to be used by the AOA 

as well. However, we understand that 

the AOA does not use ‘‘initial 

accreditation’’ as a formal term with 

respect to identifying programs as new. 

In fact, we understand the AOA only 

uses the term ‘‘accreditation’’ with 

respect to approvals of sponsoring 

institutions (such as Osteopathic 

Postdoctoral Training Institutions 

(OPTIs)), while the term ‘‘approval’’ is 

the term that is applied to a new 

program when it is first recognized by 

the AOA. 

Accordingly, given that the ACGME 

and the AOA use different terminology 

for accreditation status, we disagree 

with the commenter that the ‘‘law is 

clear that the term as used in the 

regulation has the same meaning as is 

generally understood in the regulated 

community.’’ We believe it is 

appropriate for us to use the term 

‘‘initial accreditation’’ in our regulations 

and interpret it in a manner that reflects 

CMS’ priorities. Unlike the ACGME 

which, based on its definition quoted 

above, may grant ‘‘initial’’ accreditation 

to a previously accredited program or to 

a program that applies for 

reaccreditation, we continue to interpret 

‘‘initial’’ with respect to Medicare GME 

payment to mean ‘‘for the first time.’’ 

That is, as we stated in the August 29, 

1997 final rule, a ‘‘ ‘program’ will be 

considered newly established if it is 

accredited for the first time, including 

provisional accreditation, on or after 

January 1, 1995’’ (emphasis added, 62 

FR 46006), and we continue to believe 

that FTE cap increases should be 

awarded to programs that are accredited 

‘‘for the first time,’’ and not to programs 

for which granting new program status 

would create duplicate FTE slots. 

Comment: One commenter remarked 

that hospitals already evaluate whether 

their teaching programs are sufficiently 


sroberts on DSKD5P82C1PROD with RULES
43912 Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 

new when they receive an initial letter 

of accreditation from the relevant 

accrediting body, as instructed by 

§ 413.79(e)(1). The commenter also 

stated that those accrediting bodies are 

best positioned to determine whether or 

not a program is new; and a conflict of 

interest inherently exists when 

Medicare, which is not an expert in this 

area, makes that determination. Some 

commenters disagreed with CMS’ 

statement in the proposed rule that CMS 

has provided this definition of new 

programs in previous regulations; and 

asserted that, if so, this proposal would 

not have been necessary. In addition, 

the commenters claimed that while the 

BBA indicated that Congress did not 

want the national cap level to increase 

above the levels at the time the BBA was 

passed, Congress did not require that 

CMS enact barriers to the creation of 

new residency programs, and CMS 

should recognize that the concern that 

there was a surplus of physicians at the 

time the BBA was passed is no longer 

relevant today. 

Response: We recognize that the 

accrediting bodies are expert in 

identifying and ensuring programs that 

meet minimum standards for medical 

education. In fact, we recognize their 

expertise in our regulations regarding 

Medicare-approved residency training 

programs. However, accrediting bodies 

have different goals than CMS and may 

consider different factors when 

evaluating whether a particular 

residency training program is new. CMS 

is charged to protect the Medicare Trust 

Fund and carry out the relevant 

Medicare statutory provisions. 

Therefore, we must ensure that only 

appropriate cap increases are granted. 

Because our goals are not necessarily 

consistent with the goals of accrediting 

bodies, our perspective on the status of 

a program as ‘‘new’’ may sometimes 

differ from the accrediting bodies’ 

assessment. In addition, we do not 

believe that a conflict of interest exists 

when we determine a residency 

program’s new status. We are not 

dictating curricula requirements; rather, 

we simply wish to ensure that a 

program is truly new from Medicare’s 

perspective before granting the hospital 

an increase in its FTE resident caps and 

the additional IME and GME funding 

that accompanies the increase. 

We also disagree with the contention 

that our clarification will pose barriers 

to the establishment of new residency 

programs. Our proposal was intended to 

clarify Medicare policy with respect to 

the treatment of residency training 

programs when a previously existing 

program is involved. We continue to 

encourage the development of new 

training programs, and will continue to 

adjust hospitals’ FTE resident caps for 

new programs in accordance with our 

regulations. However, we will only 

allow a hospital’s FTE caps to be 

adjusted for programs that are truly 

new. In addition, as long as a national 

aggregate cap on FTE resident positions 

is in place, we continue to believe our 

policies should work to maintain that 

cap level. 

Comment: One commenter expressed 

concern that CMS’ criteria for 

identifying a new program could 

impinge on the quality of new programs 

by restricting their ability to hire 

experienced program directors and 

faculty, while also limiting the freedom 

of these individuals to teach and 

practice where they choose. The 

commenter argued that the ‘‘mere 

presence’’ of a program director or 

faculty member who worked for another 

residency training program does not 

make the second program identical to 

the first program; rather, the residents 

will have a different experience based 

on the clinical setting, regardless of who 

the director or teaching staff may be. 

Response: It is not our intent to 

interfere with the direction of a medical 

education program or to inhibit the 

career choices of physicians. However, 

we disagree with the commenter that 

the ‘‘mere presence’’ of the same 

program director does not contribute to 

the similarity in a program that was 

operated at two sites. While it is true 

that each hospital setting provides 

somewhat of a different training 

experience, simply because no two 

hospitals are exactly the same, the 

implementation of the curriculum and 

the approach to teaching are very much 

influenced by the program director and 

the teaching staff. Moreover, when a 

program director (or faculty members) 

moves from a program that was in 

operation at one hospital to a program 

that is in operation at another hospital, 

we believe this strongly suggests that 

the second program is not a new one, 

but is the continuation of the first 

program. Therefore, in determining 

whether a program is new, we believe 

it is logical and appropriate to look at 

numerous factors, including whether 

the programs have in common the 

program directors and teaching staff. 

Comment: Some commenters noted 

that, in the proposed rule, CMS used the 

term ‘‘and/or’’ in the list of supporting 

factors. Specifically, a residency 

program with a new program director 

and new residents, but also with some 

teaching staff who had taught at the 

‘‘original’’ program, may or may not be 

considered ‘‘new.’’ The commenter 

argued that such rules are unclear, and 

may result in a situation where a 

hospital invests significant time and 

financial resources into what it believes 

is the creation of a new program, only 

to find out several years later that CMS 

does not believe the program is new. 

The commenters stated that if CMS 

believes that it must use the ‘‘supporting 

criteria’’ set forth in the proposed rule, 

then CMS should replace each use of 

the term ‘‘and/or’’ with the word ‘‘and,’’ 

and it should be added after each 

criterion, not just the first two. One 

commenter further stated that a 

determination of whether a program is 

‘‘new’’ cannot be based on one single 

factor alone (such as the presence of a 

single program director from an 

‘‘original’’ program). Instead, the 

commenter recommended that a 

program that is not new should be 

defined as one where, at a minimum, all 

of its program directors and faculty, and 

residents came from the ‘‘original’’ 

program, while still allowing the 

Secretary discretion to determine that 

such a program may still be new as a 

result of other circumstances. Another 

commenter asked whether a hospital 

must answer ‘‘no’’ to each of the 

supporting criteria or to just half of the 

criteria in order for the program to be 

considered new. Other commenters 

pointed out that medical schools can, 

and often do, support more than one 

program in the same specialty in 

different geographic areas of a State and 

with more than one hospital 

simultaneously. Therefore, the 

commenters added, CMS cannot assume 

that a second program in the same 

specialty is not a ‘‘new medical 

residency training program.’’ 

Response: We agree that the use of 

‘‘and/or’’ in the list of supporting 

criteria could be confusing. Therefore, 

we are removing the ‘‘or’’ and only 

using ‘‘and.’’ Thus, the supporting 

factors to be considered in determining 

whether a program is new are (but not 

limited to) as follows: 

—Is the program director new, and 

—Is the teaching staff new, and 

—Are there new residents? 

We understand the commenters’ 

concerns that these factors do not 

provide a test that is as clear as relying 

solely on a determination from the 

accrediting body. However, as explained 

earlier, we believe that our mission and 

goals are different from those of the 

accrediting bodies; and the 

ramifications of a determination as to 

whether a program is new for Medicare 

purposes are less significant to the 

accrediting bodies than they are to us. 

We also understand that, at least with 

the ACGME, a hospital has a fair 


sroberts on DSKD5P82C1PROD with RULES
Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 43913 

amount of latitude in requesting that an 

accrediting body accredits a program as 

a new program. We are wary of 

situations where one program has 

literally been moved in its entirety from 

one hospital to another, and is 

accredited as ‘‘new’’ in the second 

hospital. We believe that we must 

ensure that FTE cap increases are only 

made under appropriate circumstances. 

By employing these supporting factors, 

we will be able to gain a fuller picture 

of the program, and to make a 

determination based on case-specific 

evidence as to whether there are new 

program directors, new teaching staff, 

and new residents. 

With respect to the comment that 

schools of medicine often sponsor 

residency programs in more than one 

geographic area and with more than one 

hospital at the same time, we do not 

believe that will necessarily affect 

whether a program is considered to 

meet the new program definition. As we 

stated in the proposed rule, we will 

consider the degree to which, and the 

way in which, two programs continue to 

operate simultaneously at the original 

hospital and the subsequent hospital. 

We understand that a medical school 

may sponsor two separate programs in 

the same specialty with different 

program directors, staff, and residents, 

but that is very different from the 

situation where a sponsoring school of 

medicine closes a program in one 

hospital and moves the program to 

another hospital. In the former situation, 

the fact that there are two separate 

programs operating simultaneously and 

continually is evidence that could 

support a determination that the two 

programs are, in fact, separate and 

distinct. However, in the latter situation, 

the closure of one program and the 

movement of the program director, 

faculty, and residents to another 

hospital are indicative of the relocation 

of an existing program for which no FTE 

cap increase is warranted. Accordingly, 

despite the commenters’ concerns, we 

believe we should use the list of 

supporting factors to determine what 

constitutes a new program, rather than 

relying solely on the determination of 

an accrediting body. 

Comment: One commenter opined 

that imposing more stringent standards 

for identifying new programs does not 

actually address CMS’ concern that 

there could be an inappropriate increase 

in the aggregate total number of 

residency slots funded by Medicare 

when one hospital shifts an existing 

program to another hospital, and then 

the original hospital uses the open slots 

to count other residents (when the 

hospital had previously trained a 

number of residents that exceeded its 

FTE resident caps). The commenter 

noted that, just as a hospital may decide 

at any time to close one program and 

use those slots to count residents that 

were previously in excess of its caps, a 

nonteaching hospital may decide at any 

time to become a new teaching hospital 

and participate in training residents in 

its own new programs, thereby 

increasing the aggregate number of 

Medicare-funded positions. 

Several commenters also mentioned 

alternative methods by which CMS can 

preserve the national aggregate cap 

without implementing the provisions of 

the proposed rule. One commenter 

suggested that the cap number can be 

kept neutral by removing old cap slots 

and reassigning them to new programs. 

Other commenters stated that, among 

other solutions, one way to maintain the 

national cap level is to promulgate rules 

stating that a hospital loses the caps 

attached to a closed teaching program, 

but that those caps can be added back 

into the system when a program opens 

in a new hospital. One commenter 

suggested that CMS work together with 

accrediting bodies to use the ‘‘existing 

infrastructure’’ to create a clear, 

unambiguous method for determining 

the criteria for a new program. Another 

commenter suggested creating a formal 

process by which hospitals can apply 

for and receive the ‘‘new program’’ 

designation. 

Response: We disagree with the 

commenter’s assertion that the rules 

regarding new programs do not address 

the underlying concern that the 

aggregate number of Medicare-funded 

positions should not, in general, 

increase over the levels in place when 

the BBA was passed. First, we believe 

caution is warranted to ensure that any 

increase in the aggregate level of 

resident slots relates only to truly new 

programs. Second, if a hospital that is 

training residents in excess of its FTE 

resident caps closes one of its programs 

and, as a result, the number of FTE 

residents the hospital is training equals 

its caps, there will be no increase in the 

number of FTE residents the hospital is 

permitted to count for IME and direct 

GME purposes, and no increase in the 

aggregate number of FTE resident 

positions. In other words, the closure of 

a program does not, by itself, allow for 

an increase in the aggregate levels of 

Medicare-funded resident slots. 

However, we do not believe it is 

appropriate for an increase to the 

aggregate FTE resident caps to occur as 

a result of a program that moves from 

one hospital to another, allowing the 

first hospital to receive the same amount 

of Medicare funding by filling the 

vacated slots, and allowing the second 

hospital to receive a ‘‘new program’’ 

increase in its FTE caps for that same 

residency program. In such a case, we 

do not believe it would be appropriate 

for the Medicare program to bear the 

additional costs associated with the 

transfer of an existing program to 

another hospital. Third, we believe that 

an implicit assumption in the BBA 

conference report language is that, while 

new teaching hospitals and new 

programs may open over time, some 

existing teaching hospitals and 

programs would close. Accordingly, this 

‘‘offset’’ of resident slots would, to a 

certain extent, limit the growth in the 

levels of Medicare-funded residency 

positions in years subsequent to the 

BBA. Therefore, we believe it is 

appropriate to take a rigorous approach 

to determining whether a program is 

new for Medicare purposes, and 

whether an increase in the hospital’s 

FTE resident caps is appropriate and 

consistent with the statutory FTE caps. 

Nevertheless, we have considered the 

comments we received and whether the 

use of a list of ‘‘supporting factors’’ 

included in the proposed rule is the best 

approach to determine whether a 

program is actually new for purposes of 

Medicare IME and direct GME 

payments. We find compelling the 

comment that there may be alternative 

methods to preserve the national 

aggregate cap, while allowing for some 

flexibility in the application of the 

‘‘factors.’’ We also considered the 

suggestion that the aggregate national 

cap could remain neutral by removing 

existing cap slots and reassigning them 

to new programs. One situation is of 

particular concern to us; when a 

teaching hospital closes a program but 

the hospital itself remains open, and 

that program is relocated to a hospital 

that may qualify for an FTE cap increase 

under § 413.79(e)(1) or (3) and applies 

for and receives new accreditation for 

the program. Because the first hospital 

continues to operate and retains the FTE 

cap positions relating to the program, 

there is the potential for Medicare to 

recognize the same residency cap 

positions twice—once for the program at 

the original hospital and again for the 

‘‘new’’ program at the second hospital. 

Thus, there could be a form of ‘‘double 

counting’’ when the first hospital fills 

the same FTE slots that were vacated 

from the program that closed at the first 

hospital, while the new teaching 

hospital is permitted to count FTE 

residents in the ‘‘new’’ program as well. 

We do not believe such an increase in 

the aggregate number of FTE residents 

and the potential duplication of the FTE 


sroberts on DSKD5P82C1PROD with RULES
43914 Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 

resident cap adjustment would be 

consistent with the statutory mandate to 

adhere to the principles of the base-year 

FTE resident caps when devising rules 

to account for newly established 

medical residency training programs. 

However, in the instance where the first 

hospital actually closes (that is, its 

Medicare provider agreement and its 

FTE caps are retired and not used by 

another hospital), and its residency 

program(s) transition to another 

hospital(s) that qualifies for an FTE cap 

increase under § 413.79(e)(1) or (3), 

there would be no threat of duplicative 

FTE slots relating to the same program. 

Rather, the national aggregate FTE cap 

would remain approximately the same. 

After considering the public 

comments concerning other means to 

maintain a steady national aggregate 

cap, we have decided that another 

important ‘‘supporting factor’’ to 

consider is whether the hospital from 

which the program was relocated has 

closed (terminated its provider 

agreement and its FTE caps are not 

being used by another hospital) prior to 

the transfer of the program. The fact that 

a program originated from a hospital 

that closed, where no other hospital 

retained the FTE caps, suggests that it 

would be appropriate to consider the 

program to be new for purposes of 

establishing IME and direct GME FTE 

caps. 

Because our intent is to ensure that no 

duplicative FTE resident slots are 

created by virtue of an inappropriate 

‘‘new program’’ adjustment, a hospital 

that is considering starting such a 

‘‘new’’ program should ask several 

questions: 

1. Has this program been relocated 

from a hospital that closed? 

2. If so, was this program part of the 

closed hospital’s FTE cap 

determination? 

3. More generally, is this program part 

of any existing hospital’s FTE cap 

determination? 

Our goal in prompting hospitals to ask 

these questions is to have them assess 

whether the positions continue to be 

incorporated into the aggregate national 

FTE caps. If the answer to the first two 

questions is yes, and the answer to the 

third question is no, the FTE caps 

associated with the previous program 

had already been incorporated into the 

national aggregate cap (prior to the 

hospital’s closure); and because the FTE 

caps associated with the previous 

program are no longer available for use 

at any other hospital, there is ‘‘room’’ 

under the national aggregate caps for a 

‘‘new program’’ adjustment for the 

hospital with the successor program. 

Consequently, there would be no danger 

that an FTE cap adjustment to reflect a 

new program would result in 

duplicative FTE caps. Thus, even if 

there are significant similarities between 

the program in terms of the program 

director, teaching staff, or residents, we 

could consider the program that was 

transferred from the closed hospital to 

be new for Medicare direct GME and 

IME purposes without concern for 

undermining the national aggregate FTE 

caps. To determine whether the FTE 

residents associated with a program are 

part of the closed hospital’s FTE cap 

determination, the hospital that seeks an 

adjustment to its FTE caps would refer 

to the closed hospital’s FTE 

documentation associated with its cost 

reporting period ending on or before 

December 31, 1996, or, if applicable, the 

cost report for other permanent cap 

adjustments permissible under the 

regulations. 

However, the same cannot be said of 

the situation where there are significant 

similarities between programs, and the 

first hospital remains open or the first 

hospital closes but the FTE caps remain 

available for use by another hospital (for 

example, the answer to the third 

question is yes). We do not believe it 

would be appropriate to consider a 

program that is substantially the same as 

a previous program at another hospital 

to be a new program where the first 

hospital remains open, or where the 

FTE cap slots for the previous program 

remain available for use by another 

hospital (for example, as a result of a 

merger). 

Up to this point, we have discussed 

the situation where one hospital closes 

and a program that was part of the 

closed hospital’s FTE cap determination 

transfers to a new teaching hospital. We 

have indicated that we would add to the 

list of supporting factors the condition 

under which the program in question 

originated at a hospital that closed 

because there would be no duplicative 

FTE caps due to the closure of the first 

hospital. However, because our primary 

concern in this instance is that there 

should be no duplicative FTE resident 

cap slots, our intent would be to ensure, 

to the extent possible, that no FTE cap 

increases are granted in instances where 

another ‘‘active’’ FTE cap still exists, of 

which the transferred program was a 

part. As we stated above, the hospital to 

which the program transfers would need 

to assess whether this program was part 

of any other hospital’s FTE cap 

determination and, if so, whether this 

program is still reflected in the FTE caps 

of any existing hospital. 

For example, we can envision a 

scenario where two teaching hospitals, 

Hospitals A and B, merge; Hospital B’s 

Medicare provider agreement is retired 

(that is, it closes), and their respective 

FTE caps are combined under Hospital 

A’s single Medicare provider agreement. 

Sometime subsequent to the merger, the 

merged facility decides that it no longer 

wishes to operate one of the programs 

that was part of Hospital B’s FTE cap 

determination, and the program is 

transferred along with its program 

director, teaching staff, and residents to 

a new teaching Hospital C. In this case, 

it would not be appropriate to consider 

the program at Hospital C to be a new 

program because, although the program 

originated from Hospital B which 

closed, the FTE caps of which this 

program was a part are still in effect and 

available for use by the merged facility. 

Thus, if we were to adjust Hospital C’s 

FTE caps for the transferred program, 

the adjustment would result in 

duplicative FTE resident slots relating 

to the same program. Similarly, there 

could be historical situations where a 

closed hospital’s FTE caps were 

absorbed by another hospital through a 

termination clause in a Medicare GME 

affiliated group (prior to October 1, 

2002) (67 FR 50070). In such a case, a 

third hospital might seek an adjustment 

to its FTE caps for a new program that 

is substantially the same as a program 

formerly operated by the closed 

hospital. However, it would not be 

appropriate for that hospital to receive 

FTE cap increases relating to that 

program because, again, the FTE caps of 

which the transferred program was 

originally a part still exist, and, 

therefore, an adjustment to the third 

hospital’s FTE resident caps would 

result in duplicative FTE residents caps 

relating to the same program. 

With respect to the commenter’s 

suggestion that we could consider 

promulgating rules that would remove 

the slots from a hospital’s FTE resident 

cap when it closes a program, but the 

hospital itself remains open, in addition 

to our concern about duplicative FTE 

caps, we do not believe we have the 

statutory authority to do this under 

section 1886(h)(4) of the Act. Each 

hospital’s FTE resident cap is equal to 

the FTE count in a base year, which is 

usually the hospital’s most recent cost 

reporting period ending on or before 

December 31, 1996, as adjusted for new 

programs under § 413.79(e) and other 

provisions, as applicable. Furthermore, 

each hospital’s FTE cap is based on a 

total count of its allopathic and 

osteopathic residents, that is, a hospitalspecific cap, and is not generally 

associated with any particular program 

or specialty. We have tried, to the extent 

possible, to implement our policies in a 


sroberts on DSKD5P82C1PROD with RULES
Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 43915 

way to maintain the fungibility of FTE 

slots within a hospital’s caps in order to 

maximize a hospital’s flexibility to 

modify the mix and type of residents it 

trains. Accordingly, it is acceptable for 

a hospital to decide to close one 

program to make room within its FTE 

resident caps for additional numbers of 

residents in another program. 

Furthermore, the focus of the 

clarification in the proposed rule was 

not that a hospital may close a program 

and fill those vacated slots with 

residents from another specialty, which, 

by itself, is acceptable, but rather, it was 

to address the point that an FTE cap 

increase should only be awarded to a 

hospital for starting a genuinely new 

program, not one that was merely 

transferred from another hospital. 

Comment: Several commenters 

expressed surprise that CMS initiated a 

proposal that will have a ‘‘chilling effect 

on primary care production’’ at a time 

when the President has been so 

outspoken in his support for primary 

care. Other commenters similarly voiced 

their concerns regarding what they 

believed the detrimental and 

disproportionate effect the proposed 

rule may have on primary care 

residencies, which are already too few 

in aggregate number and which serve as 

the basis of America’s healthcare 

system. One commenter noted that the 

shortage of primary care physicians 

extends to the available faculty for 

primary care residency programs, and 

this proposal would force closed 

primary care programs to find new 

faculty when they wish to reopen. 

Commenters also believed that the 

proposed rule is unrealistic for similar 

reasons, as it is unreasonable to suggest 

that the director, faculty, and residents 

in a closed residency program with 

Medicare-funded resident slots should 

relocate in order to continue their 

careers. The commenters stated that, by 

forcing closed primary care residency 

programs to relocate, the proposed rule 

will harm communities who are served 

by those residents. Another commenter 

specifically mentioned the retrospective 

nature of the proposed rule as posing a 

threat to primary care residencies that 

started after 1995, while other 

commenters mentioned the 

retrospective provision of the proposed 

rule as another example of its 

unreasonable nature. 

Several commenters mentioned that 

primary care residencies are more costly 

to hospitals than other specialty 

programs and, thus, would be the first 

to close if hospitals were forced to cut 

GME costs. The commenters also noted 

that residents are increasingly training 

in ‘‘newer, more community-based 

environments,’’ specifically in the 

primary care field of family medicine, 

and CMS should attempt to regulate 

towards that new training style ‘‘rather 

than continue to keep fitting training 

into the hospital.’’ One commenter 

echoed the above statements by 

explaining that primary care residencies 

are often housed in community 

hospitals, which are prone to ‘‘being 

rebuilt, bought and sold at a regular 

pace’’ and, as such, would require their 

teaching programs to frequently switch 

locations. Another commenter remarked 

that CMS’ previous efforts to enforce 

this clarification of its ‘‘new program’’ 

definition have already caused family 

medicine programs to spend much time 

and effort proving their new status to 

CMS, and such situations have even led 

to program closings. 

In a similar vein, some commenters 

believed that the proposed rule 

expressly harmed teaching hospitals in 

underserved areas. One commenter 

explained that many teaching hospitals 

serve a disproportionate number of 

‘‘indigent and underinsured/uninsured 

patients,’’ and thus many are forced to 

close due to financial strain. This 

commenter believed that those 

residency programs, which ‘‘serve those 

who need health care the most,’’ should 

not be penalized for having to relocate. 

Another commenter stated that the 

proposed rule is unnecessary and unfair 

to hospitals that ‘‘have acted in good 

faith’’ by establishing new programs 

where they are needed. 

Response: We do not understand why 

the commenters viewed the proposed 

clarification regarding the definition of 

new programs as hindering the growth 

of primary care residency programs or 

residencies in underserved areas in 

particular. Neither of these types of 

residencies was specifically targeted in 

the proposed rule, nor were they 

mentioned at all. CMS had no intention 

of inappropriately inhibiting the growth 

of primary care residencies, or of 

‘‘harming’’ teaching programs in 

underserved areas, with the proposed 

clarification of the definition of a new 

program. The supporting factors we 

identified as indicative of new 

programs, as described in the proposal, 

are meant to serve as general guidelines 

to hospitals for establishing new 

programs in all specialties. Furthermore, 

we believe that our revised policy 

allowing a hospital to receive FTE cap 

increases in the instance where it 

operates a program that is transferred 

from another hospital that closed should 

help provide some flexibility in 

situations where hospitals are closing 

and the community is struggling to 

maintain an adequate teaching presence 

and ensure sufficient access to care. 

Comment: One commenter noted that 

the proposal states that ‘‘the statute 

clearly requires [emphasis added by 

commenter] that our rules regarding 

adjustments to the hospitals FTE caps 

for newly established programs must 

adhere to the principles of the statutory 

provision limiting the count of FTE 

residents for direct GME and IME 

payments to the count for the most 

recent cost reporting period ending on 

or before December 31, 1996.’’ The 

commenter observed that the statute 

says: ‘‘(i) NEW FACILITIES—The 

Secretary shall, consistent with the 

principles [emphasis added by 

commenter] of subparagraphs (F) and 

(G), prescribe rules for the application of 

such subparagraphs in the case of 

medical residency training programs 

established on or after January 1, 1995. 

In promulgating such rules for purposes 

of subparagraph (F), the Secretary shall 

give special consideration to facilities 

that meet the needs of underserved rural 

areas.’’ This commenter believed that 

the Secretary has not given special 

consideration to underserved rural 

areas, despite a ‘‘mandate’’ to do so, and 

‘‘it seems disingenuous to strongly 

assert one provision of law while not 

following other statutory requirements.’’ 

Response: We disagree with the 

commenter that we are selectively 

focusing on certain aspects of the statute 

and the BBA conference report 

language, to the exclusion of others. It 

is clear that an overarching concern of 

Congress with respect to GME funding 

at the time that the BBA was passed was 

that a cap should be placed on the 

number of Medicare-funded resident 

positions, in an attempt to control 

spending while still addressing the 

needs of those areas of the country or 

those specialties where physicians were 

in shorter supply. Specifically, the BBA 

conference agreement includes ‘‘* * * a 

requirement that the Secretary prescribe 

rules for limiting and counting the 

number of interns and residents in 

training programs established on or after 

January 1, 1995. In promulgating such 

rules, the Secretary would be required 

to give special consideration to facilities 

that meet the needs of underserved rural 

areas* * *. Among the specific issues 

that concerned the Conferees was 

application of a limit to new facilities, 

that is, hospitals or other entities which 

established programs after January 1, 

1995. The Conferees understand that 

there are a sizeable number of hospitals 

that elect to initiate such programs (as 

well as terminate such programs) over 

any period of time, and the Conferees 

are concerned that within the principles 


sroberts on DSKD5P82C1PROD with RULES
43916 Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 

of the cap that there is proper flexibility 

to respond to such changing needs, 

including the period of time such 

programs would be permitted to receive 

an increase in payments before a cap 

was applied. Nonetheless, the 

Secretary’s flexibility is limited by the 

conference agreement that the aggregate 

number of FTE residents should not 

increase over current levels. The 

Conferees are also concerned about the 

application of the limit on the number 

of residents to programs established to 

serve rural underserved areas, which the 

Conferees believe have special 

importance in easing physician 

shortages in such areas. The conference 

agreement provides the Secretary with 

statutory direction to provide special 

consideration to such programs.’’ 

(House Conference Rept. No. 105–217, 

pp. 821–822) 

Accordingly, in promulgating 

regulations implementing the statutory 

caps, we allowed those urban hospitals 

that did not have residents in the most 

recent cost reporting period ending on 

or before December 31, 1996, to adjust 

their caps for new programs only during 

a period of 3 years after the first new 

program began training residents 

(§ 413.79(e)(1)(iii)). Rural hospitals were 

not so limited. For those urban hospitals 

that had residents in the most recent 

cost reporting period ending on or 

before December 31, 1996, we allowed 

cap adjustments only for new programs 

established between January 1, 1995 and 

August 5, 1997 (§ 413.79(e)(2)). 

However, we allowed rural hospitals, 

even ones that already had FTE caps 

during the base period (that is, the most 

recent cost reporting period ending on 

or before December 31, 1996), to receive 

an increase to their FTE resident cap at 

any time for starting new programs 

(§ 413.79(e)(3)). Therefore, contrary to 

the commenter’s assertion, we have 

given ‘‘special consideration’’ to 

programs established to serve 

underserved areas. 

Comment: One commenter asked 

CMS for direction regarding a closed 

teaching program in a rural facility. The 

commenter desired to start another 

training program in that same specialty 

at a second facility and asked if this 

would meet the definition of a new 

program under the proposed 

clarification. 

Response: The hospital should 

evaluate the circumstances relating to 

the second program by assessing the 

factors as described above and in our 

proposed rule in order to be considered 

a new program. It appears from the 

comment that the rural hospital itself 

remains open, and only the program 

closed. Thus, the hospital that is 

considering opening a program in the 

same specialty should focus its 

assessment on the other supporting 

factors (whether there is a new program 

director, new faculty, and new 

residents). 

Comment: One commenter that 

represents dental residency programs 

stated that a number of dental programs 

were closed in the 1980s and 1990s, and 

there is interest in reopening the 

programs in the same hospitals and 

nonhospital dental school clinics in 

which they were previously operated. 

The commenter noted that a hospital 

may be associated with the same dental 

school, program director, and teaching 

staff that were involved in operation of 

the old program, even though about 10 

years may have passed since the 

previous program closed. The 

commenter believed that programs that 

open after being closed for several years 

and that require accreditation by the 

Council on Dental Accreditation as a 

new program should be treated by CMS 

as new. 

Response: We agree with the 

commenter that if a hospital wishes to 

begin training residents in a particular 

program in which it trained residents in 

the past, but the program has not trained 

residents for the past 10 years, the 

program could subsequently be 

considered a new program. We believe 

that a program that is closed for several 

years and then reopens is separate and 

distinct from the previous program, and 

would likely not involve any residents 

that had trained in the previous 

program, even though, as the 

commenter indicated, the directors and 

teaching staff may be the same. 

(However, we note that it may be 

necessary to determine whether the 

program director and the teaching staff 

have been training dental residents 

during the past 10 years at another 

training site in order to determine 

whether the program at the hospital that 

is beginning to train residents after a 10- 

year hiatus is truly a new program.) 

Comment: One commenter found it 

‘‘interesting’’ that CMS provided several 

supporting factors for identifying a new 

program, but did not propose to change 

the actual text of the regulation. 

Response: Section 413.79(l) currently 

defines a new medical residency 

training program as ‘‘a medical 

residency that receives initial 

accreditation by the appropriate 

accrediting body or begins training 

residents on or after January 1, 1995.’’ 

We did not propose to revise the 

language of the regulations text because 

we believe the existing language is 

sufficient in that it conveys the 

important point that a program must be 

‘‘initially’’ accredited for the first time 

as new by the accrediting body. The 

supporting factors that we have 

provided for determining whether a 

program is to be considered as new by 

CMS further clarify and support the 

concept of ‘‘initial’’ accreditation. 

Comment: One commenter was 

concerned that its hospital was 

negatively affected by an unfavorable 

interpretation of the statute related to 

training in nonprovider settings in cases 

where the program is jointly funded by 

two or more hospitals. 

One commenter asked CMS to clarify 

the statement ‘‘may count towards board 

certification’’ in § 413.75 (b), and give 

specific examples of when a 

nonapproved program may count 

towards certification and when the 

interns and residents should be 

included in the FTE count. 

Response: We appreciate the 

submission of these comments. 

However, because they are outside the 

scope of the proposed rule, we are not 

responding to them in this final rule. 

In summary, in this final rule, we are 

clarifying our existing policy regarding 

the definition of a new medical 

residency training program. Under 

existing policy, to determine whether a 

program is new and whether, as a result, 

a hospital qualifies for an FTE cap 

adjustment, the supporting factors that a 

hospital should consider are (but not 

limited to) as follows: 

—Is the program director new, and 

—Is the teaching staff new, and 

—Are there new residents? 

In determining whether a particular 

program is a newly established one, it 

may also be necessary to consider 

factors such as the relationship between 

hospitals (for example, common 

ownership or a shared medical school or 

teaching relationship) and the degree to 

which the hospital with the original 

program continues to operate its own 

program in the same specialty. In 

addition, the following factors could 

also be considered: 

—Has this program been relocated from 

a hospital that closed? 

—If so, was this program part of the 

closed hospital’s FTE cap 

determination? 

—More generally, is this program part of 

any existing hospital’s FTE cap 

determination? 

We would not consider a transferred 

program to be new in the case where the 

program director, teaching staff, and 

residents are the same as another 

program that closed in another hospital 

and the first hospital remains open, or 

when an FTE cap that was associated 


sroberts on DSKD5P82C1PROD with RULES
Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 43917 

with the first program is still available 

for use by an existing provider. 

3. Participation of New Teaching 

Hospitals in Medicare GME Affiliation 

Groups 

Sections 1886(h)(4)(F) and 

1886(d)(5)(B)(v) of the Act establish 

limits on the number of allopathic and 

osteopathic residents that hospitals may 

count for purposes of calculating direct 

GME payments and the IME adjustment, 

respectively. Accordingly, effective 

October 1, 1997, we established 

hospital-specific direct GME and IME 

FTE resident caps. Furthermore, under 

the authority granted by section 

1886(h)(4)(H)(ii) of the Act, the 

Secretary issued rules to allow 

institutions that are members of the 

same affiliated group to elect to apply 

their direct GME and IME FTE resident 

caps on an aggregate basis. Accordingly, 

as specified in the regulations at 

§§ 413.79(f) and 412.105(f)(1)(vi), 

hospitals that are part of the same 

Medicare GME affiliated group are 

permitted to apply their direct GME and 

IME FTE resident caps on an aggregate 

basis, and to temporarily adjust each 

hospital’s caps to reflect the rotation of 

residents among affiliated hospitals 

during an academic year. Under 

§ 413.75(b), a Medicare GME affiliated 

group can be formed by two or more 

hospitals if they are under common 

ownership, or if they are jointly listed 

as program sponsors or major 

participating institutions in the same 

program. Furthermore, the existing 

regulations at § 413.79(f)(1) specify that 

each hospital in a Medicare GME 

affiliated group must submit a Medicare 

GME affiliation agreement (as defined 

under § 413.75(b)) to the CMS fiscal 

intermediary or MAC servicing the 

hospital and send a copy to CMS’ 

Central Office no later than July 1 of the 

residency program year during which 

the Medicare GME affiliation agreement 

will be in effect. For example, in order 

for a hospital to receive a temporary 

adjustment to its FTE resident caps to 

reflect participation in a Medicare GME 

affiliated group for the academic year 

beginning July 1, 2009, through June 30, 

2010, each hospital in the affiliated 

group is required to submit a Medicare 

GME affiliation agreement to the fiscal 

intermediary or MAC servicing the 

hospital and to CMS’ Central Office no 

later than July 1, 2009. 

As we discussed in the FY 2010 IPPS/ 

RY 2010 LTCH PPS proposed rule (74 

FR 24193), it has recently come to CMS’ 

attention that flexibility in the 

submission deadline for Medicare GME 

affiliation agreements due to an 

unanticipated need is warranted in 

situations where a hospital opens after 

July 1 and begins training residents for 

the first time prior to the following July 

1. That is, the new hospital, because it 

did not train residents in the FTE cap 

base year, would have FTE resident caps 

of zero. Currently, if a new hospital 

begins training residents from another 

hospital’s existing program, the new 

hospital would not be able to receive a 

temporary FTE resident cap adjustment 

through participation in a Medicare 

GME affiliated group because the 

existing regulations do not provide 

flexibility for a hospital that begins 

training residents after the start of an 

academic year to enter into and submit 

a Medicare GME affiliation agreement 

after the July 1 submission deadline. 

That is, a new hospital that opens after 

July 1 would not be able to enter into 

a Medicare GME affiliation agreement 

because the hospital did not exist before 

the submission deadline. We 

understand that the new hospital is 

likely to incur GME costs during the 

first year of training residents, and we 

believe it is reasonable to permit the 

new hospital that receives a new 

Medicare provider agreement and 

begins training residents for the first 

time after July 1 of an academic year to 

receive an adjustment to its FTE 

resident caps for IME and direct GME 

payments through participation in a 

Medicare GME affiliated group during 

its first year of training residents, even 

if the hospital completes and submits 

the Medicare GME affiliation agreement 

to CMS after July 1 of the academic year. 

Accordingly, in the FY 2010 IPPS/RY 

2010 LTCH PPS proposed rule, we 

proposed to amend § 413.79(f) by 

revising paragraph (f)(1) and adding a 

new paragraph (f)(6) (the existing 

paragraph (f)(6) would be redesignated 

as paragraph (f)(7)). In the proposed new 

paragraph (f)(6), we proposed to provide 

that a hospital that is new after July 1 

and that begins training residents for the 

first time prior to the following July 1 

would be permitted to receive a 

temporary adjustment to its FTE 

resident caps to reflect its participation 

in an existing Medicare GME affiliated 

group if the new hospital submits a 

Medicare GME affiliation agreement the 

earlier of June 30 of the residency 

program year during which the 

Medicare GME affiliation agreement 

will be in effect or the end of the first 

cost reporting period during which the 

hospital begins training residents. For 

this purpose, a new hospital is one for 

which a new Medicare provider 

agreement takes effect in accordance 

with § 489.13. We proposed to require 

that the Medicare GME affiliation 

agreement specify the effective period 

for the agreement, which in any case 

would begin no earlier than the date the 

affiliation agreement is submitted to 

CMS. Furthermore, we proposed that 

each of the other hospitals participating 

in the Medicare GME affiliated group 

with the new hospital would be 

required to submit an amended 

Medicare GME affiliation agreement that 

reflects the participation of the new 

hospital to the CMS contractor servicing 

the hospital and send a copy to the CMS 

Central Office no later than June 30 of 

the residency program year during 

which the Medicare GME affiliation 

agreement will be in effect. 

Comment: A number of commenters 

applauded CMS’ efforts to provide 

flexibility in the Medicare GME 

affiliation agreement regulation. 

However, the majority of the 

commenters believed the regulations, 

even with the addition of the proposed 

policy, remain unduly narrow and 

urged CMS to create further flexibility. 

For example, several commenters 

suggested that CMS add a fourth 

criterion for affiliations, specifying that 

hospitals that are members of the same 

GME consortium may enter into a 

Medicare GME affiliation agreement. 

Specifically, as an example of GME 

consortia, the commenters cited 

Osteopathic Postdoctoral Training 

Institutions (OPTIs), which are 

community-based training consortia 

comprised of at least one college of 

osteopathic medicine and one or more 

teaching hospitals as well as 

community-based facilities such as 

ambulatory care centers, rehabilitation 

centers, or surgicenters. The 

commenters believed that OPTIs 

‘‘provide a natural basis for affiliations 

among teaching hospitals and other 

training venues’’ and therefore members 

of the same OPTI should be allowed to 

adjust their FTE resident caps within an 

aggregate cap. Another commenter 

requested that CMS allow hospitals that 

are members of the same health system 

to enter into a Medicare GME affiliation 

agreement and adjust their FTE resident 

caps within an aggregate cap, 

‘‘irrespective of whether the hospital is 

designated as ‘new’ or whether the FTE 

resident cap at any given hospital is 

new since 1995.’’ 

One commenter provided comments 

on our policy on counting FTE residents 

training in the nonhospital setting. 

Response: We appreciate the 

commenters’ support of the proposed 

change and the additional suggestions 

on creating further flexibility in the 

regulations for Medicare GME affiliated 

groups. In the May 12, 1998 final rule 

(63 FR 26336 through 26341), we 


sroberts on DSKD5P82C1PROD with RULES
43918 Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 

established the definition of a Medicare 

GME affiliated group and discussed the 

requirement for the timely submission 

of Medicare GME affiliation agreements. 

Specifically, the regulation at 

§ 413.75(b) defines Medicare GME 

affiliated group to mean (1) two or more 

hospitals that are located in the same 

urban or rural area (as defined in 

subpart D of Part 412 of this chapter) or 

in a contiguous area, (2) two or more 

hospitals that are not located in the 

same or in a contiguous urban or rural 

area * * * and are jointly listed as the 

sponsor, primary clinical site, or major 

participating institution for one or more 

programs, or (3) two or more hospitals 

that are under common ownership. 

Furthermore, the regulations specify 

that hospitals in an affiliated group are 

required to have a shared rotational 

arrangement. These provisions permit 

hospitals that are members of the same 

affiliated group to elect to apply their 

FTE resident caps on an aggregate basis. 

To respond to the commenters’ 

suggestion that we expand the 

definition of affiliated group to allow 

hospitals and other entities involved in 

a GME consortium, for example OPTIs, 

to affiliate as a Medicare GME affiliated 

group, we note that the regulations 

specifically only refer to hospitals as 

members of an affiliated group. The sole 

benefit gained from participating in a 

Medicare GME affiliated group is the 

ability to count FTE residents under an 

aggregate FTE resident cap for GME 

payment purposes. That is, by 

aggregating FTE resident caps in a 

Medicare GME affiliated group, a 

hospital that is currently training above 

its own FTE resident cap can receive a 

temporary cap adjustment from another 

hospital that is training below its own 

FTE resident cap. The training venues 

cited by the commenters (communitybased facilities such as ambulatory care 

centers, rehabilitation centers, or 

surgicenters) typically are either already 

a part of the hospital, which means they 

would be included in the affiliated 

group, or are nonhospital training sites 

in which case there are separate rules 

for counting FTE residents training in 

the nonhospital setting. There would be 

no additional benefit for a nonprovider 

to be included as a member of an 

affiliated group because a nonprovider 

would not have FTE resident caps to 

share in an affiliated group. 

Furthermore, we note that the hospitals 

in an OPTI currently do have the ability 

to form an affiliated group under the 

current definition of Medicare GME 

affiliated group at § 413.75(b). In 

addition to the ability to qualify through 

geographic proximity, all hospitals that 

meet the rotation requirement and are 

listed as sponsors or listed under 

‘‘affiliations and outside rotations’’ for a 

program in operation in Opportunities, 

Directory of Osteopathic Postdoctoral 

Education Programs also qualify to 

participate in an affiliated group. 

In response to the commenter who 

suggested CMS allow hospitals that are 

members of the same health system to 

enter into a Medicare GME affiliation 

agreement and adjust their FTE resident 

caps within an aggregate cap, 

‘‘irrespective of whether the hospital is 

designated as ‘new’ or whether the FTE 

resident cap at any given hospital is 

new since 1995,’’ we note first that 

hospitals under common ownership 

already qualify to form an affiliated 

group because, as we noted in the May 

12, 1998 final rule, ‘‘these systems 

functionally operate coordinated and 

centrally controlled GME programs and 

often rotate their residents among 

various facilities, depending on training 

needs and other considerations’’ (63 FR 

26337). In addition, the commenter 

suggested that hospitals in an affiliated 

group be allowed to temporarily give 

away as well as receive FTE caps 

‘‘whether the FTE resident cap at any 

given hospital is new since 1995.’’ The 

regulations at § 413.79(e)(1)(iv) specify 

that a new urban teaching hospital that 

qualifies for an adjustment to its FTE 

caps for a newly approved program may 

enter into a Medicare GME affiliation 

agreement, but only if the resulting 

adjustments to its direct GME and IME 

caps are ‘‘positive adjustments.’’ 

‘‘Positive adjustment’’ means, for the 

purpose of this policy, that there is an 

increase in the new teaching hospital’s 

caps as a result of the affiliation 

agreement. At no time would the caps 

of a hospital located in an urban area 

that qualifies for adjustment to its FTE 

caps for a new program under 

§ 413.79(e)(1) be allowed to decrease as 

a result of a Medicare GME affiliation 

agreement. In the FY 2006 IPPS final 

rule (70 FR 47453), we stated that we 

established this policy ‘‘because of our 

concern that hospitals with existing 

medical residency training programs 

could otherwise, with the cooperation of 

new teaching hospitals, circumvent the 

statutory FTE resident caps by 

establishing new medical residency 

programs in the new teaching hospitals 

solely for the purpose of affiliating with 

the new teaching hospitals to receive an 

upward adjustment to their FTE cap 

under an affiliation agreement. This 

would effectively allow existing 

teaching hospitals to achieve an 

increase in their FTE resident caps 

beyond the number allowed by their 

statutory caps.’’ 

Finally, we note that each hospital in 

an affiliated group is required to crosstrain residents through a shared 

rotational arrangement with at least one 

other hospital in the affiliated group 

because the criteria for being members 

of the same affiliated group are intended 

to recognize that hospitals that have 

relationships for training their residents 

need flexibility to adjust their FTE 

resident cap. Hospitals that are 

geographically near each other, or 

operating as training sites under the 

same program, or are under common 

ownership have the greatest likelihood 

of being able to fulfill the cross-training 

requirement. Accordingly, we believe 

that the current definition of Medicare 

GME affiliated group is sufficiently 

broad to include hospitals that have 

relationships for training residents and 

are in need of the flexibility afforded 

under an aggregate FTE resident cap. 

We consider the comment on the 

policy on counting FTE residents in the 

nonhospital setting to be outside the 

scope of the proposed rule; we did not 

propose any change in policy in this 

area. Therefore, we are not responding 

to it in this final rule. 

After consideration of the public 

comments we received, we are adopting 

as final, without modification, our 

proposal to revise paragraph (f)(1) of 

§ 413.79 and adding a new paragraph 

(f)(6) (the existing paragraph (f)(6) is 

redesignated as paragraph (f)(7)). In the 

new paragraph (f)(6), we provide that a 

hospital that is new after July 1 and that 

begins training residents for the first 

time prior to the following July 1 is 

permitted to receive a temporary 

adjustment to its FTE resident caps to 

reflect its participation in an existing 

Medicare GME affiliated group if the 

new hospital submits a Medicare GME 

affiliation agreement the earlier of June 

30 of the residency program year during 

which the Medicare GME affiliation 

agreement will be in effect, or the end 

of the first cost reporting period during 

which the hospital begins training 

residents. For this purpose, a new 

hospital is one for which a new 

Medicare provider agreement takes 

effect in accordance with § 489.13. We 

are requiring that the Medicare GME 

affiliation agreement specify the 

effective period for the agreement, 

which in any case would begin no 

earlier than the date the affiliation 

agreement is submitted to CMS. 

Furthermore, each of the other hospitals 

participating in the Medicare GME 

affiliated group with the new hospital is 

required to submit an amended 

Medicare GME affiliation agreement that 


sroberts on DSKD5P82C1PROD with RULES
Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 43919 

reflects the participation of the new 

hospital to the CMS contractor servicing 

the hospital and send a copy to the CMS 

Central Office no later than June 30 of 

the residency program year during 

which the Medicare GME affiliation 

agreement will be in effect. 

4. Technical Corrections to Regulations 

In the FY 2010 IPPS/RY 2010 LTCH 

PPS proposed rule (74 FR 24193), we 

indicated that we had discovered that in 

the existing § 413.79(k), under the 

provision on residents training in rural 

track programs, paragraph (k)(7) 

incorrectly appears as regulation text 

after paragraph (l) of § 413.79. To correct 

this error, we proposed to move 

paragraph (l) so that it appears as the 

last paragraph of the section after 

paragraph (k)(7). 

We did not receive any public 

comments on this proposal and, 

therefore, we are adopting the proposed 

change as final. 

In addition, the regulations at 

§ 413.75(b), paragraph (1), define an 

‘‘approved medical residency program’’ 

as a program that is ‘‘approved by one 

of the national organizations listed in 

§ 415.152’’. Under § 415.152, in the 

definition of an ‘‘approved graduate 

medical education (GME) program’’, we 

reference a residency program approved 

by the ‘‘Committee on Hospitals of the 

Bureau of Professional Education of the 

American Osteopathic Association’’ 

(AOA). In the FY 2010 IPPS/RY 2010 

LTCH PPS proposed rule (74 FR 24193), 

we indicated that it has come to our 

attention that the structure of the AOA 

has changed and that we should merely 

refer to a residency program approved 

by the AOA. Therefore, we proposed to 

make a technical change to paragraph 

(1) of the definition of an ‘‘approved 

graduate medical education (GME) 

program’’ under § 415.152, to remove 

the phrase ‘‘the Committee on Hospitals 

of the Bureau of Professional Education 

of’’. We did not receive any public 

comments on this proposal and 

therefore are adopting the proposed 

change as final. 

H. Hospital Emergency Services Under 

EMTALA (§ 489.24) 

1. Background 

Sections 1866(a)(1)(I), 1866(a)(1)(N), 

and 1867 of the Act impose specific 

obligations on certain Medicareparticipating hospitals and CAHs. 

(Throughout this section of this 

proposed rule, when we reference the 

obligation of a ‘‘hospital’’ under these 

sections of the Act and in our 

regulations, we mean to include CAHs 

as well.) These obligations concern an 

individual who comes to a hospital 

emergency department and requests 

examination or treatment for a medical 

condition, and apply to all individuals, 

regardless of whether they are 

beneficiaries of any program under the 

Act. 

The statutory provisions cited above 

are frequently referred to as the 

Emergency Medical Treatment and 

Labor Act (EMTALA), also known as the 

patient antidumping statute. Section 

9121 of the Consolidated Omnibus 

Budget Reconciliation Act of 1985 

(COBRA), Public Law 99–272, 

incorporated the responsibilities of 

Medicare hospitals in emergency cases 

into the Social Security Act. Congress 

incorporated these antidumping 

provisions within the Act as a part of 

the hospital’s provider agreement to 

ensure that any individual with an 

emergency medical condition is not 

denied essential lifesaving services. 

Under section 1866(a)(1)(I)(i) of the Act, 

a hospital that fails to fulfill its 

EMTALA obligations under these 

provisions may be subject to 

termination of its Medicare provider 

agreement, which would result in loss 

to the hospital of all Medicare and 

Medicaid payments. 

Section 1867 of the Act sets forth 

requirements for medical screening 

examinations for individuals who come 

to the hospital and request examination 

or treatment for a medical condition. 

The section further provides that if a 

hospital finds that such an individual 

has an emergency medical condition, it 

is obligated to provide that individual 

with either necessary stabilizing 

treatment or with an appropriate 

transfer to another medical facility. 

The regulations implementing section 

1867 of the Act are found at 42 CFR 

489.24. The regulations at 42 CFR 

489.20(l), (m), (q), and (r) also refer to 

certain EMTALA requirements outlined 

in section 1866 of the Act. The 

Interpretive Guidelines concerning 

EMTALA are found at Appendix V of 

the CMS State Operations Manual. 

2. Changes Relating to Applicability of 

Sanctions Under EMTALA 

Section 1135 of the Act authorizes the 

Secretary to temporarily waive or 

modify the application of several 

requirements of titles XVIII, XIX, or XXI 

of the Act (the Medicare, Medicaid, and 

Children’s Health Insurance Program 

provisions), and their implementing 

regulations in an emergency area during 

an emergency period. Section 1135(g)(1) 

of the Act defines an ‘‘emergency area’’ 

as the geographical area in which there 

exists an emergency or disaster declared 

by the President pursuant to the 

National Emergencies Act or the Robert 

T. Stafford Disaster Relief and 

Emergency Assistance Act (subsection 

A) and a public health emergency 

declared by the Secretary pursuant to 

section 247d of Title 42 of the United 

States Code. Section 1135(g)(1) of the 

Act also defines an ‘‘emergency period’’ 

as the period during which such a 

disaster or emergency exists. Section 

1135(b) of the Act lists the categories of 

otherwise applicable statutory and 

regulatory requirements that may be 

waived or modified. Included among 

these are the waiver of sanctions under 

EMTALA for, in subparagraph (b)(3)(A), 

a transfer of an individual who has not 

been stabilized (if the transfer is 

necessitated by the circumstances of the 

declared emergency in the emergency 

area during the emergency period) in 

violation of the EMTALA requirements 

governing transfer of an individual 

whose emergency medical condition has 

not been stabilized (section 1867(c) of 

the Act) and, in subparagraph (b)(3)(B), 

the direction or relocation of an 

individual to receive medical screening 

in an alternate location, pursuant to an 

appropriate State emergency 

preparedness plan. Section 1135(b) of 

the Act further states that, except for 

certain emergencies involving pandemic 

infectious disease (described in further 

detail below), a waiver or modification 

provided for under section 1135(b)(3) of 

the Act shall be limited to a 72-hour 

period beginning upon implementation 

of a hospital disaster protocol. 

Section 302(b) of the Pandemic and 

All-Hazards Preparedness Act, Public 

Law 109–417, made two specific 

changes that affect EMTALA 

implementation in instances where the 

Secretary has invoked the section 1135 

waiver authority in an emergency area 

during an emergency period. Section 

302(b)(1)(A) of Public Law 109–417 

amended section 1135(b)(3)(B) of the 

Act to state that sanctions for the 

direction or relocation of an individual 

for screening may be waived where, in 

the case of a public health emergency 

that involves a pandemic infectious 

disease, that direction or relocation 

occurs pursuant to a State pandemic 

preparedness plan, or to an appropriate 

State emergency preparedness plan. In 

addition, sections 302(b)(1)(B) and 

(b)(1)(C) of Public Law 109–417 

amended section 1135(b) of the Act to 

further state that ‘‘if a public health 

emergency involves a pandemic 

infectious disease (such as pandemic 

influenza), the duration of a waiver or 

modification for such emergency shall 

be determined in accordance with 

section 1135(e) of the Act as such 


sroberts on DSKD5P82C1PROD with RULES
43920 Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 

subsection applies to public health 

emergencies.’’ 

In the FY 2008 IPPS final rule with 

comment period (72 FR 47413), we 

amended the regulations at 

§ 489.24(a)(2) (which refers to the 

nonapplicability of certain EMTALA 

provisions in an emergency area during 

an emergency period) to incorporate the 

changes made to section 1135 of the Act 

by the Pandemic and All-Hazards 

Preparedness Act. We amended the 

regulations to specify that, under a 

section 1135 waiver, the sanctions that 

do not apply are either those for the 

inappropriate transfer of an individual 

who has not been stabilized or those for 

the direction or relocation of an 

individual to receive medical screening 

at an alternate location. We also added 

a second sentence to paragraph (a)(2) to 

state that a waiver of these sanctions for 

EMTALA violations is limited to a 72- 

hour period beginning upon the 

implementation of a hospital disaster 

protocol, except that if a public health 

emergency involves a pandemic 

infectious disease (such as pandemic 

influenza), the duration of the waiver 

will be determined in accordance with 

section 1135(e) of the Act as it applies 

to public health emergencies. In the FY 

2009 IPPS final rule (73 FR 28667), we 

made a technical change to the 

regulations at § 489.24(a)(2) by adding 

section 1135 language we had 

inadvertently left out when we made 

changes to the regulations at 

§ 489.24(a)(2) in the FY 2008 IPPS final 

rule with comment period. Specifically, 

we added the phrases ‘‘pursuant to an 

appropriate State emergency 

preparedness plan or, in the case of a 

public health emergency that includes a 

pandemic infectious disease, pursuant 

to a State pandemic preparedness plan’’ 

and ‘‘during an emergency period,’’ to 

make the regulatory language consistent 

with the statutory text. Existing 

§ 489.24(a)(2) states that ‘‘Sanctions 

under this section for an inappropriate 

transfer during a national emergency or 

for the direction or relocation of an 

individual to receive medical screening 

at an alternate location pursuant to an 

appropriate State emergency 

preparedness plan or, in the case of a 

public health emergency that involves a 

pandemic infectious disease, pursuant 

to a State pandemic preparedness plan 

do not apply to a hospital with a 

dedicated emergency department 

located in an emergency area during an 

emergency period, as specified in 

section 1135(g)(1) of the Act. A waiver 

of these sanctions is limited to a 72-hour 

period beginning upon the 

implementation of a hospital disaster 

protocol, except that, if a public health 

emergency involves a pandemic 

infectious disease (such as pandemic 

influenza), the waiver will continue in 

effect until the termination of the 

applicable declaration of a public health 

emergency, as provided for by section 

1135(e)(1)(B) of the Act.’’ 

As we discussed in the FY 2010 IPPS/ 

RY 2010 LTCH PPS proposed rule (74 

FR 24194 through 24195), after further 

review of the revised regulatory 

language as compared to the statutory 

language at section 1135 of the Act, we 

believe that further revisions to the 

language of § 489.24(a)(2) are necessary 

to make the language conform more 

closely to the language of section 1135 

of the Act and better reflect how the 

section 1135 authority has been used in 

practice. Specifically, we stated that we 

believe that the regulatory language 

should be revised to be more consistent 

with the language in the statute to state 

that EMTALA sanctions for an 

inappropriate transfer may be waived 

only if the inappropriate transfer arises 

out of the circumstances of the 

emergency. We further proposed to 

amend the regulations to provide that 

the sanctions waived for both an 

inappropriate transfer and the 

redirection or relocation of an 

individual to receive a medical 

screening examination at an alternate 

location are only applicable if the 

hospital does not discriminate on the 

basis of an individual’s source of 

payment or ability to pay. These 

additional requirements (which are 

underlined) are currently not included 

in the regulations text at § 489.24(a)(2). 

To ensure that the language of the 

regulations is fully consistent with the 

statutory language at section 1135 of the 

Act, we stated that we believe the 

regulations need to be clarified to 

include these provisions. 

In addition, as we stated in the FY 

2010 IPPS/RY 2010 LTCH PPS proposed 

rule, we believe the existing regulations 

do not adequately reflect the Secretary’s 

authority under section 1135 of the Act 

to waive or modify requirements for a 

single health care provider, a class of 

health care providers, or a geographic 

subset of health care providers located 

within an emergency area during an 

emergency period. The language at 

section 1135(b) of the Act states: 

‘‘To the extent necessary to 

accomplish the purpose specified in 

subsection (a), the Secretary is 

authorized, subject to the provisions of 

this section, to temporarily waive or 

modify the application of, with respect 

to health care items and services 

furnished by a health care provider (or 

classes of health care providers) in any 

emergency area (or portion of such an 

area) during any portion of an 

emergency period, the requirements of 

titles XVIII, XIX, or XXI, or any 

regulation thereunder (and the 

requirements of this title other than this 

section, and regulations thereunder, 

insofar as they relate to such titles), 

pertaining to—’’ (emphases added). 

Thus, it is clear from the emphasized 

text that waivers under the section 1135 

authority may be tailored and applied to 

one or more hospitals in the emergency 

area (or portion thereof) during some or 

all of the emergency period, as 

necessary. However, the existing 

regulations may inadvertently imply, 

contrary to the flexibility clearly 

contemplated in the statute, that all 

hospitals in all portions of an 

emergency area during an entire 

emergency period automatically receive 

a waiver of EMTALA sanctions. In the 

proposed rule, we proposed revisions to 

the regulation text to clarify this issue. 

We proposed to revise the regulations 

to further clarify that the Secretary has 

the authority to implement a section 

1135 waiver as necessary to ensure that 

the purpose of section 1135(a) of the Act 

can be achieved. That is, the Secretary 

is authorized to apply a section 1135 

waiver, for example, to one or more 

hospitals in the emergency area (or 

portion thereof) during some or all of 

the emergency period, as necessary. The 

Secretary may delegate implementation 

of a waiver of EMTALA sanctions to 

CMS (as the Secretary has done in every 

instance in which the section 1135 

waiver authority has been invoked thus 

far.) 

In summary, we proposed to revise 

the regulations at § 489.24(a)(2) to state 

that a waiver of EMTALA sanctions 

pursuant to an inappropriate transfer 

only applies if the transfer arises out of 

the circumstances of the emergency. We 

also proposed to revise the regulations 

to provide that the sanctions waived for 

an inappropriate transfer or for the 

relocation or redirection of an 

individual to receive a medical 

screening examination at an alternate 

location are only in effect if the hospital 

to which the waiver applies does not 

discriminate on the source of an 

individual’s payment or ability to pay. 

In addition, we proposed to revise the 

regulations to state that the Secretary 

has the authority to apply the waiver of 

EMTALA sanctions to one or more 

hospitals in a portion of an emergency 

area or a portion of an emergency 

period. 

Comment: Several commenters 

supported the proposed changes to the 

regulations to make them conform more 

closely to the statutory text. The 


sroberts on DSKD5P82C1PROD with RULES
Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 43921 

commenters agreed with the addition to 

the regulations stating that a waiver of 

EMTALA sanctions would only apply if 

the hospital does not discriminate on an 

individual’s insurance status or ability 

to pay. The commenters also stated that 

revising the regulations to clarify that 

the Secretary has the authority to waive 

EMTALA sanctions for a portion of 

hospitals in an emergency area during a 

portion of an emergency period will 

enable the Secretary to waive EMTALA 

sanctions in a more expeditious manner 

when a public health emergency is 

declared. 

Response: We thank the commenters 

for their support of the proposals and 

are finalizing the provisions regarding a 

waiver of EMTALA sanctions only if the 

hospital does not discriminate based on 

an individual’s source of payment and 

ability to pay and the Secretary’s 

authority to waive EMTALA sanctions 

for a portion of an emergency area and 

during a portion of an emergency 

period. 

Comment: One commenter supported 

the intent of the law that a waiver of 

sanctions under EMTALA only applies 

if the transfer does not discriminate 

based on insurance status. However, the 

commenter questioned whether the 

regulations need to be revised to include 

this provision because the law is already 

quite clear. The commenter questioned 

the involvement of the Secretary in 

declaring a public health emergency in 

order to invoke the waiver. Specifically, 

the commenter stated that ‘‘It is not 

evident to us that the government is in 

a position to be able to determine which 

hospitals within a public health 

emergency declaration should be 

granted a waiver from the EMTALA 

requirements and which ones should 

not.’’ The commenter further stated that 

emergency situations tend to be chaotic 

and it may be difficult to gather 

information. The commenter believed 

that efforts should be focused on patient 

care and not the applicability of waivers 

to specific hospitals. Therefore, the 

commenter requested that the waiver be 

granted to an entire area. The 

commenter also asked for clarification 

on the timeliness of the declaration of 

a public health emergency. Specifically, 

the commenter stated that ‘‘We have an 

additional concern regarding the 

timeliness of a Secretary’s declaration of 

a public health emergency, when in fact 

events are likely to be ahead of any such 

decision. We understand that such 

declarations can be retroactive to an 

earlier date, but this still begs the 

question of timeliness.’’ The commenter 

requested information on how to obtain 

an extension of a waiver of EMTALA 

sanctions past 72 hours. The commenter 

stated that the rule is not clear and 

asked for simplicity and clarity on how, 

at the local level, the request for an 

extension or designation of a public 

health emergency can be communicated 

to the authorities. 

Another commenter supported the 

proposed provision, which 

acknowledges the Secretary’s authority 

to apply the waiver to particular 

hospitals because, for example, level I 

and II trauma centers may be better 

equipped to handle a public health 

emergency. The commenter further 

stated that ‘‘We do have concerns with 

the process for the Secretary, DHHS to 

declare a public health emergency 

expeditiously enough to allow for 

emergency department readiness * * *. 

We ask CMS to be aware of this and 

enforce the law and regulations 

judiciously.’’ 

Response: We believe that our 

proposal to amend the regulations to 

state that a waiver of sanctions can only 

be applied if the hospital does not 

discriminate on the basis of an 

individual’s source of payment or 

ability to pay is necessary to ensure that 

the regulations reflect the entirety of 

statutory constraints related to a waiver 

of EMTALA sanctions under section 

1135 of the Act and that hospitals are 

aware of the requirements they must 

meet in order to receive a waiver. 

Furthermore, we emphasize that the 

requirement not to discriminate on an 

individual’s source of payment or 

ability to pay in order for a waiver of 

sanctions to be granted applies to both 

the waiver of sanctions governing an 

inappropriate transfer and the waiver of 

sanctions for the direction or relocation 

of an individual to receive a medical 

screening at an alternate location. In 

response to the involvement of the 

Secretary in declaring a public health 

emergency, the statute requires the 

Secretary to declare a public health 

emergency under 42 U.S.C. 247d in 

order to invoke the section 1135 waiver 

authority. In response to the comment 

regarding extending a waiver of 

EMTALA sanctions beyond 72 hours, 

section 1135(b) of the Act expressly 

limits the duration of the waiver to 72 

hours (beginning with the 

implementation of a hospital disaster 

protocol) unless the public health 

emergency involves a pandemic 

infectious disease. Permitting a waiver 

of sanctions beyond that 72-hour period 

(except in the case of a pandemic 

infectious disease) would require a 

change in the law. We will continue to 

work with State and local officials to 

improve the communication that is 

needed to provide for timely and 

appropriate patient care during declared 

emergencies. We further note that a 

waiver of EMTALA sanctions can be 

implemented retroactive to the 

beginning of the emergency period. 

Comment: The majority of 

commenters disagreed with the 

proposed language at § 489.24(a)(2)(i)(A) 

which specifies that ‘‘If relating to an 

inappropriate transfer, the transfer 

arises out of the circumstances of the 

emergency.’’ The commenters stated 

that this language is not consistent with 

the statute and could be interpreted too 

narrowly and misconstrued as only 

providing a waiver of sanctions if the 

individual’s ‘‘* * * emergency medical 

condition is the direct result of the 

public health emergency.’’ The 

commenters stated that Congress’ intent 

was not to provide a waiver of sanctions 

in scenarios where the individual’s 

emergency medical condition was 

related to the declared emergency but to 

provide for a waiver of sanctions in 

cases where the hospital had to transfer 

the individual in a manner that is 

inconsistent with an appropriate 

transfer under EMTALA because of 

circumstance of the emergency. The 

commenters recommended that CMS 

revise the proposed regulation text at 

§ 489.24(a)(2)(i)(A) so that it reads ‘‘If 

relating to an inappropriate transfer, the 

transfer is necessitated by the 

circumstances of the declared 

emergency.’’ 

Another commenter opposed the 

inclusion of the language ‘‘If relating to 

an inappropriate transfer, the transfer 

arises out of the circumstances of the 

emergency’’ ‘‘* * * on the grounds that 

it is vague, likely to be arbitrary in its 

application, and not required by the 

language of the Act.’’ The commenter 

further stated that such a regulatory 

requirement would necessitate that the 

hospital, its legal counsel, CMS, and the 

courts be able to determine the 

difference between the transfers that are 

due to the underlying disaster or 

emergency in the geographic area and 

those transfers that are not the result of 

the underlying disaster or emergency. 

The commenter stated that ‘‘To 

distinguish between situations that do 

and do not arise out of the 

circumstances is likely to be arbitrary at 

best. Also the administrative and 

litigation proceedings that will result 

from adding such a vague condition will 

only hamper the purpose and 

requirements of the Act.’’ 

Response: We agree with the 

commenters that the intent of the statute 

is to provide flexibility in cases where 

an inappropriate transfer may arise out 

of conditions relating to the declared 

emergency and that it is not a 

requirement that an individual’s 


sroberts on DSKD5P82C1PROD with RULES
43922 Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 

emergency medical condition be a direct 

result of the public health emergency in 

order for sanctions to be waived. To 

address the commenters’ concerns and 

minimize confusion regarding 

applicability of the policy described at 

§ 489.24(a)(2)(i)(A), in this final rule, we 

are revising the regulatory text to state: 

‘‘The transfer is necessitated by the 

circumstances of the declared 

emergency in the emergency area during 

the emergency period.’’ We are 

removing the phrase ‘‘If relating to’’ 

under both paragraphs (a)(2)(i)(A) and 

(a)(2)(i)(B) of § 489.24 to provide for 

further consistency with the statutory 

language and clarify that sanctions can 

only be waived for an inappropriate 

transfer and for the direction or 

relocation of an individual to receive a 

medical screening and not for any 

action ‘‘related to’’ these events. In 

response to the commenter who stated 

that including language pertaining to an 

inappropriate transfer would result in 

administrative and litigation 

proceedings, currently the statute limits 

the waiver related to inappropriate 

transfers to transfers necessitated by the 

circumstances of the declared 

emergency in the emergency area during 

the emergency period. This is not a new 

requirement under the law. Therefore, 

we do not believe that reflecting the 

statutory requirement in the regulations 

will have any effect on the likelihood of 

administrative and litigation 

proceedings. 

Comment: One commenter stated that 

regulations governing the application of 

sanctions should be as flexible as 

possible because of the innumerable 

types of emergency situations that may 

occur and the varied hospital and State 

responses that may result. The 

commenter stated that emergency 

situations are unpredictable and that 

there may be ‘‘* * * state or hospital 

actions that are critical for an effective 

emergency response, but may 

technically violate EMTALA.’’ 

Therefore, the commenter requested that 

CMS adopt the EMTALA Technical 

Advisory Group’s (TAG) high priority 

recommendation with respect to 

expansion of EMTALA waivers, which 

is referred to as recommendation 

number 18 of the final TAG report. 

Response: The commenter is referring 

to the following recommendation made 

by the EMTALA TAG: ‘‘The TAG 

recommends that HHS pursue statutory 

and regulatory changes, as well as 

changes to the Interpretive Guidelines, 

addressing waiving EMTALA 

obligations in an emergency as declared 

by a Federal, State, county, or city 

government or by an individual 

hospital.’’ 

The EMTALA TAG report containing 

this recommendation can be found at 

the following Web site: http:// 

www.cms.hhs.gov/EMTALA/ 

03_emtalatag.asp#TopOfPage. The 

recommendation made by the EMTALA 

TAG would require a statutory change. 

Because implementing this 

recommendation would require 

Congressional action, based on existing 

statutory language, we are not revising 

the regulation in this final rule. 

Comment: Several commenters stated 

that ‘‘* * * lessons learned from recent 

disasters make it clear that changes to 

the law are needed in order to provide 

additional flexibility in regulatory 

enforcement and payment policy so that 

hospitals can maximize their ability to 

quickly and safely respond to the needs 

of their communities and patients in 

disasters.’’ The commenters stated that 

they have developed examples of where 

changes and additional flexibilities are 

necessary and would be willing to work 

with CMS and the Secretary on 

legislative proposals to address these 

changes. 

Response: We appreciate the 

commenters’ interest in continuing to 

improve access to patient care during 

emergency situations and the 

commenters’ offer to work with CMS 

and the Secretary on legislative changes 

and future rulemaking to address the 

need for increased flexibility for 

hospitals during emergency situations. 

After consideration of the public 

comments we received, we are adopting 

as final the proposed change to 

§ 489.24(a)(2) of the regulations, except 

that we are changing the language under 

paragraphs (a)(2)(i)(A) and (a)(2)(i)(B) as 

noted above. The revised § 489.24(a)(2) 

reads as follows: 

‘‘(i) When a waiver has been issued in 

accordance with section 1135 of the Act 

that includes a waiver under section 

1135(b)(3) of the Act, sanctions under 

this section for an inappropriate transfer 

or for the direction or relocation of an 

individual to receive medical screening 

at an alternate location do not apply to 

a hospital with a dedicated emergency 

department if the following conditions 

are met: 

(A) The transfer is necessitated by the 

circumstances of the declared 

emergency in the emergency area during 

the emergency period. 

(B) The direction or relocation of an 

individual to receive medical screening 

at an alternate location is pursuant to an 

appropriate State emergency 

preparedness plan or, in the case of a 

public health emergency that involves a 

pandemic infectious disease, pursuant 

to a State pandemic preparedness plan. 

(C) The hospital does not discriminate 

on the basis of an individual’s source of 

payment or ability to pay. 

(D) The hospital is located in an 

emergency area during an emergency 

period, as those terms are defined in 

section 1135(g)(1) of the Act. 

(E) There is a determination that a 

waiver of sanctions is necessary. 

(ii) A waiver of these sanctions is 

limited to a 72-hour period beginning 

upon the implementation of a hospital 

disaster protocol, except that, if a public 

health emergency involves a pandemic 

infectious disease (such as pandemic 

influenza), the waiver will continue in 

effect until the termination of the 

applicable declaration of a public health 

emergency, as provided under section 

1135(e)(1)(B) of the Act.’’ 

I. Rural Community Hospital 

Demonstration Program 

In accordance with the requirements 

of section 410A(a) of Public Law 108– 

173, the Secretary has established a 5- 

year demonstration program (beginning 

with selected hospitals’ first cost 

reporting period beginning on or after 

October 1, 2004) to test the feasibility 

and advisability of establishing ‘‘rural 

community hospitals’’ 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. 

Section 410A(a)(4) of Public Law 108– 

173 states that no more than 15 such 

hospitals may participate in the 

demonstration program. 

As we indicated in the FY 2005 IPPS 

final rule (69 FR 49078), in accordance 

with sections 410A(a)(2) and (a)(4) of 

Public Law 108–173 and using 2002 

data from the U.S. Census Bureau, we 

identified 10 States with the lowest 

population density from which to select 

hospitals: 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). Eleven rural community 

hospitals located within these States are 

currently participating in the 

demonstration program. (Of the 13 


sroberts on DSKD5P82C1PROD with RULES
Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 43923 

hospitals that participated in the first 2 

years of the demonstration program, 4 

hospitals located in Nebraska became 

CAHs and withdrew from the program.) 

In a notice published in the Federal 

Register on February 6, 2008 (73 FR 

6971 through 6973), we announced a 

solicitation for up to six additional 

hospitals to participate in the 

demonstration program. The February 6, 

2008 notice specified the eligibility 

requirements for 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. 

The end date of participation for these 

hospitals is September 30, 2010. Two 

hospitals among the hospitals that began 

the demonstration at the project’s 

inception withdrew from the 

demonstration between April and June 

2009. These two hospitals stated that 

they preferred being paid under the SCH 

provision of the MIPPA (Pub. L. 110– 

275) instead of participating in the 

demonstration. 

Under the demonstration program, 

participating hospitals are paid the 

reasonable costs of providing covered 

inpatient hospital services (other than 

services furnished by a psychiatric or 

rehabilitation unit of a hospital that is 

a distinct part), applicable for 

discharges occurring in the first cost 

reporting period beginning on or after 

the October 1, 2004 implementation 

date of the demonstration program (or 

the July 1, 2008 date for the newly 

selected hospitals). Payments to the 

participating hospitals will be the lesser 

amount of the reasonable cost or a target 

amount in subsequent cost reporting 

periods. The target amount in the 

second cost reporting period is defined 

as the reasonable costs of providing 

covered inpatient hospital services in 

the first cost reporting period, increased 

by the inpatient prospective payment 

update factor (as defined in section 

1886(b)(3)(B) of the Act) for that 

particular cost reporting period. The 

target amount in subsequent cost 

reporting periods is defined as the 

preceding cost reporting period’s target 

amount, increased by the inpatient 

prospective payment update factor (as 

defined in section 1886(b)(3)(B) of the 

Act) for that particular cost reporting 

period. 

Covered inpatient hospital services 

are inpatient hospital services (defined 

in section 1861(b) of the Act), and 

include extended care services 

furnished under an agreement under 

section 1883 of the Act. 

Section 410A of Public Law 108–173 

requires that, ‘‘in conducting the 

demonstration program under this 

section, the Secretary shall ensure that 

the aggregate payments made by the 

Secretary do not exceed the amount 

which the Secretary would have paid if 

the demonstration program under this 

section was not implemented.’’ 

Generally, when CMS implements a 

demonstration program on a budget 

neutral basis, the demonstration 

program is budget neutral in its own 

terms; in other words, the aggregate 

payments to the participating hospitals 

do not exceed the amount that would be 

paid to those same hospitals in the 

absence of the demonstration program. 

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 hospitals. 

In the FY 2010 IPPS/RY 2010 LTCH 

PPS proposed rule (74 FR 24196), we 

proposed two measures to achieve 

budget neutrality for the demonstration 

program for FY 2010, which, when 

combined, would lead to an adjustment 

in the national inpatient PPS rates. We 

proposed to adjust the national 

inpatient PPS rates by an amount 

sufficient to account for the added costs 

of this demonstration program. We 

proposed to apply budget neutrality 

across the payment system as a whole 

rather than merely across the 

participants in this demonstration 

program. As we discussed in the FY 

2005, FY 2006, FY 2007, FY 2008, and 

FY 2009 IPPS final rules (69 FR 49183; 

70 FR 47462; 71 FR 48100; 72 FR 47392; 

and 73 FR 48670), we believe that the 

language of the statutory budget 

neutrality requirements permits the 

agency to implement the budget 

neutrality provision in this manner. 

First, in the proposed rule, we 

estimated the cost of the demonstration 

program for FY 2010 for the 13 

participating hospitals. We stated that 

the estimate of the portion of the budget 

neutrality adjustment that accounts for 

the costs of the demonstration for FY 

2010 for 9 of the 13 hospitals (that is, 

the 9 hospitals that had participated in 

the demonstration since its inception 

and that were continuing to participate 

in the demonstration) was based on data 

from their first and second year cost 

reports—that is, cost reporting periods 

beginning in CY 2005 and CY 2006. We 

proposed to use these cost reports 

because they were the most recent 

complete cost reports and thus we 

believed they enabled us to estimate FY 

2010 costs as accurately as possible. In 

addition, we estimated the cost of the 

demonstration for FY 2010 for the 4 

hospitals that joined the demonstration 

in 2008 based on data for their cost 

reporting periods beginning October 1, 

2005, through July 1, 2006 (that is, cost 

reporting periods that include CY 2006). 

When we added together the estimated 

costs of the demonstration for FY 2010 

for the 9 hospitals that had participated 

in the demonstration since its inception 

and the 4 new hospitals selected in 

2008, the proposed total estimated cost 

was $14,613,632. This proposed 

estimated amount reflected the 

difference between the participating 

hospitals’ estimated costs under the 

methodology set forth in Public Law 

108–173 and the estimated amount the 

hospitals would have been paid under 

the IPPS. 

Second, for the proposed rule, 

because the cost reports of all hospitals 

participating in the demonstration in its 

first year (that is, FY 2005) had been 

finalized, we were able to determine 

how much the cost of the demonstration 

program exceeded the amount that was 

offset by the budget neutrality 

adjustment for FY 2005. For all 13 

hospitals that participated in the 

demonstration in FY 2005, the amount 

was $7,179,461. The total proposed 

budget neutrality offset amount to be 

applied for the demonstration for the 

demonstration for FY 2010 was the sum 

of these two amounts, or $21,793,093. In 

addition, we stated in the FY 2010 IPPS/ 

RY 2010 LTCH PPS proposed rule that 

the budget neutrality offset amount may 

be different in the IPPS final rule to the 

extent that we have more recent data. 

We did not receive any public 

comments on our proposal. 


sroberts on DSKD5P82C1PROD with RULES
43924 Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 

For this final rule, based on more 

recent data, we are estimating the cost 

of the demonstration program for FY 

2010 for the 11 currently participating 

hospitals. (As indicated previously, two 

hospitals recently withdrew from the 

demonstration, and we are adjusting the 

estimation of the cost of the 

demonstration for FY 2010 for this final 

rule to reflect this.) The estimate of the 

portion of the budget neutrality 

adjustment that accounts for the costs of 

the demonstration for FY 2010 for 7 of 

the 11 currently participating hospitals 

(that is, the 7 hospitals that have 

participated in the demonstration since 

its inception and that continue to 

participate in the demonstration) is 

based on data from their second year 

cost reports—that is, cost reporting 

periods beginning in CY 2006. We used 

these cost reports because they are the 

most recent complete cost reports and, 

thus, we believe they enable us to 

estimate FY 2010 costs for this final rule 

as accurately as possible. (We note that, 

at the time of the proposed rule, we had 

completed cost reports for cost reporting 

periods beginning in CY 2005 for all of 

the hospitals that had participated in 

the demonstration since its inception 

and that were continuing to participate, 

and complete cost reports for cost 

reporting periods beginning in CY 2006 

for most, but not all, such hospitals. 

Because we did not have all cost reports 

for cost reporting periods beginning in 

CY 2006, we used data from CYs 2005 

and 2006 to best estimate FY 2010 costs 

for these hospitals. For this final rule, 

we had complete cost reports for cost 

reporting periods beginning in CY 2006 

for all 7 currently participating 

hospitals. Therefore, we used these most 

recent data to estimate costs.) In 

addition, we estimate the cost of the 

demonstration for FY 2010 for the 4 

hospitals that joined the demonstration 

in 2008. For 3 of the 4 hospitals that 

joined the demonstration in 2008, we 

estimate the cost of the demonstration 

for FY 2010 based on data for their cost 

reporting periods beginning January 1, 

2007, through July 1, 2007. Similarly, 

we used these cost reports because they 

are the most recent cost reports and, 

thus, we believe they enable us to 

estimate FY 2010 costs for these 3 

hospitals as accurately as possible. We 

believe that the estimates obtained from 

the Medicare inpatient cost amounts on 

these cost reports allow for the most 

accurate estimation of the cost of the 

program in FY 2010. The remaining 

hospital of the 4 that began in 2008 is 

an Indian Health Service (IHS) provider. 

Historically, the hospital has not filed 

standard Medicare cost reports. In order 

to estimate its costs, we used an analysis 

of Medicare inpatient costs and 

payments submitted by the hospital for 

the cost reporting period of October 1, 

2005, through September 30, 2006. The 

Medicare cost amount from this analysis 

for the IHS provider is identical to that 

used in the proposed rule. We chose 

this approach because it is consistent 

with our overall methodology. When we 

add together the estimated costs of the 

demonstration for FY 2010 for the 7 

hospitals that have participated in the 

demonstration since its inception and 

the 4 new hospitals selected in 2008 

based on the more recent data, the total 

estimated cost is $15,081,251. This 

estimated amount reflects the difference 

between the participating hospitals’ 

estimated costs under the methodology 

set forth in Public Law 108–173 and the 

estimated amount the hospitals would 

have been paid under the IPPS. 

Second, for this final rule, because the 

FYs 2005 and 2006 cost reports of all 

hospitals participating in the 

demonstration in its first and second 

years have been finalized, we are able to 

determine how much the cost of the 

demonstration program exceeded the 

amount that was offset by the budget 

neutrality adjustment for FY 2005 and 

FY 2006. For all 13 hospitals that 

participated in the demonstration in FY 

2005, the amount is $7,856,617. For the 

10 hospitals with cost reporting periods 

that began in FY 2006, the amount is 

$4,203,947. The sum of these amounts, 

or the amount by which the cost of the 

demonstration program exceeded the 

offset of the budget neutrality 

adjustment for FY 2005 and FY 2006, is 

$12,060,564. 

The total budget neutrality offset 

amount applied for the demonstration 

for FY 2010 is the sum of these two 

amounts, or $27,141,815. We discuss 

the payment rate adjustment that is 

required to ensure the budget neutrality 

of the demonstration program for FY 

2010 in section II.A.4. of the Addendum 

to this final rule. This amount differs 

from that proposed in the proposed rule 

because we used more recent data, 

including the finalized FY 2006 cost 

reports of the hospitals that participated 

in the second year of the demonstration 

(these finalized reports enabled us to 

now include the amount by which the 

cost of the demonstration exceeded the 

amount that was offset by the FY 2006 

budget neutrality adjustment). 

J. Technical Correction to Regulations 

Relating to Calculation of the Federal 

Rate Under the IPPS 

Section 412.63 of the regulations 

specifies the procedures for determining 

the standardized amounts for inpatient 

operating costs for Federal fiscal years 

1984 through 2004. These standardized 

amounts included a ‘‘large urban area’’ 

standardized amount for large urban 

hospitals and an ‘‘other area’’ 

standardized amount for hospitals 

located in other areas. In the FY 1989 

IPPS final rule, we established 

§ 412.63(c)(5). Consistent with section 

1886(d)(3)(C)(ii) of the Act, 

§ 412.63(c)(5) states that, for FYs 1987 

through 2004, CMS calculated the 

average standardized amounts by 

excluding an estimate for IME 

payments. Accordingly, beginning in FY 

1989, we updated the standardized 

amounts using an IME adjustment factor 

that excludes an estimate of IME 

payments. For a complete discussion on 

this adjustment factor for IME, we refer 

readers to the FY 1989 IPPS final rule 

(53 FR 38538 through 38539). 

Section 1886(d)(3)(A)(iv) of the Act, 

as amended by section 401(a) of Public 

Law 108–173, requires that, beginning 

with FY 2004 and thereafter, we 

compute the standardized amount for 

all hospitals in any area equal to the 

standardized amount for the previous 

fiscal year for large urban hospitals, 

updated by the applicable percentage 

update under section 1886(b)(3)(B)(i) of 

the Act. In other words, beginning in FY 

2004, we no longer computed a ‘‘large 

urban area’’ standardized amount and a 

separate ‘‘other area’’ standardized 

amount. As a result of this statutory 

change, we established new regulations 

at § 412.64 to specify the computation of 

the single standardized amount for FY 

2005 and subsequent fiscal years (69 FR 

49077). With the exception of removing 

a separate standardized amount for nonlarge urban hospitals, the regulation text 

at § 412.64 virtually mirrors the 

regulation text at § 412.63. For FY 2005 

and subsequent fiscal years, we 

excluded an estimate for IME payments 

from the calculation of the standardized 

amount in accordance with section 

1886(d)(3)(A)(iv) of the Act. However, 

we inadvertently omitted from § 412.64 

the language under paragraph (c)(5) of 

§ 412.63 that implements the exclusion 

of an estimate for IME payments from 

the calculation of the standardized 

amount in accordance with section 

1886(d)(3)(A)(iv) of the Act. Therefore, 

in the FY 2010 IPPS/RY 2010 LTCH PPS 

proposed rule (74 FR 24196 through 

24197), we proposed to revise 

§ 412.64(c) to include this language so 

that § 412.64(c) reflects the statutory 

requirement under section 

1886(d)(3)(A)(iv) of the Act that 

calculation of the standardized amount 

excludes IME payments. 

We did not receive public comment 

on this technical correction; therefore, 


sroberts on DSKD5P82C1PROD with RULES
Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 43925 

we are adopting our proposal without 

modification. 

VI. Changes to the IPPS for CapitalRelated 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 capitalrelated costs. We initially implemented 

the IPPS for capital-related costs in the 

Federal fiscal year (FY) 1992 IPPS final 

rule (56 FR 43358), in which we 

established a 10-year transition period 

to change the payment methodology for 

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

methodology (based fully on the Federal 

rate). 

FY 2001 was the last year of the 10- 

year transition period established to 

phase in the IPPS for hospital inpatient 

capital-related costs. For cost reporting 

periods beginning in FY 2002, capital 

IPPS payments are based solely on the 

Federal rate for almost all acute care 

hospitals (other than hospitals receiving 

certain exception payments and certain 

new hospitals). (We refer readers to the 

FY 2002 IPPS final rule (66 FR 39910 

through 39914) for additional 

information on the methodology used to 

determine capital IPPS payments to 

hospitals both during and after the 

transition period.) The basic 

methodology for determining capital 

prospective payments using the Federal 

rate is set forth in § 412.312 of the 

regulations. For the purpose of 

calculating payments for each discharge, 

currently the standard Federal rate is 

adjusted as follows: 

(Standard Federal Rate) × (DRG 

Weight) × (Geographic Adjustment 

Factor (GAF)) × (COLA for hospitals 

located in Alaska and Hawaii) × (1 + 

Capital DSH Adjustment Factor + 

Capital IME Adjustment Factor, if 

applicable). 

B. Exception Payments 

The regulations at § 412.348(f) 

provide that a hospital may request an 

additional payment if the hospital 

incurs unanticipated capital 

expenditures in excess of $5 million due 

to extraordinary circumstances beyond 

the hospital’s control. This policy was 

originally established for hospitals 

during the 10-year transition period, but 

as we discussed in the FY 2003 IPPS 

final rule (67 FR 50102), we revised the 

regulations at § 412.312 to specify that 

payments for extraordinary 

circumstances are also made for cost 

reporting periods after the transition 

period (that is, cost reporting periods 

beginning on or after October 1, 2001). 

Additional information on the exception 

payment for extraordinary 

circumstances in § 412.348(f) can be 

found in the FY 2005 IPPS final rule (69 

FR 49185 and 49186). 

During the transition period, under 

§§ 412.348(b) through (e), eligible 

hospitals could receive regular 

exception payments. These exception 

payments guaranteed a hospital a 

minimum payment percentage of its 

Medicare allowable capital-related costs 

depending on the class of the hospital 

(§ 412.348(c)), but were available only 

during the 10-year transition period. 

After the end of the transition period, 

eligible hospitals can no longer receive 

this exception payment. However, even 

after the transition period, eligible 

hospitals receive additional payments 

under the special exceptions provisions 

at § 412.348(g), which guarantees all 

eligible hospitals a minimum payment 

of 70 percent of its Medicare allowable 

capital-related costs provided that 

special exceptions payments do not 

exceed 10 percent of total capital IPPS 

payments. Special exceptions payments 

may be made only for the 10 years from 

the cost reporting year in which the 

hospital completes its qualifying 

project, and the hospital must have 

completed the project no later than the 

hospital’s cost reporting period 

beginning before October 1, 2001. Thus, 

an eligible hospital may receive special 

exceptions payments for up to 10 years 

beyond the end of the capital IPPS 

transition period. Hospitals eligible for 

special exceptions payments are 

required to submit documentation to the 

fiscal intermediary or MAC indicating 

the completion date of their project. (For 

more detailed information regarding the 

special exceptions policy under 

§ 412.348(g), we refer readers to the FY 

2002 IPPS final rule (66 FR 39911 

through 39914) and the FY 2003 IPPS 

final rule (67 FR 50102).) 

C. New Hospitals 

Under the IPPS for capital-related 

costs, § 412.300(b) of the regulations 

defines a new hospital as a hospital that 

has operated (under current or previous 

ownership) for less than 2 years. For 

example, the following hospitals are not 

considered new hospitals: (1) A hospital 

that builds new or replacement facilities 

at the same or another location, even if 

coincidental with a change of 

ownership, a change in management, or 

a lease arrangement; (2) a hospital that 

closes and subsequently reopens; (3) a 

hospital that has been in operation for 

more than 2 years but has participated 

in the Medicare program for less than 2 

years; and (4) a hospital that changes its 

status from a hospital that is excluded 

from the IPPS to a hospital that is 

subject to the capital IPPS. For more 

detailed information, we refer readers to 

the FY 1992 IPPS final rule (56 FR 

43418). During the 10-year transition 

period, a new hospital was exempt from 

the capital IPPS for its first 2 years of 

operation and was paid 85 percent of its 

reasonable costs during that period. 

Originally, this provision was effective 

only through the transition period and, 

therefore, ended with cost reporting 

periods beginning in FY 2002. Because, 

as discussed in the FY 2003 IPPS final 

rule (67 FR 50101), we believe that 

special protection to new hospitals is 

also appropriate even after the transition 

period, we revised the regulations at 

§ 412.304(c)(2) to provide that, for cost 

reporting periods beginning on or after 

October 1, 2002, a new hospital (defined 

under § 412.300(b)) is paid 85 percent of 

its Medicare allowable capital-related 

costs through its first 2 years of 

operation, unless the new hospital 

elects to receive full prospective 

payment based on 100 percent of the 

Federal rate. (We refer readers to the FY 

2003 IPPS final rule (67 FR 50101 

through 50102) for a detailed discussion 

of the special payment provisions for 

new hospitals under the capital IPPS 

after the 10-year transition period.) 

D. Hospitals Located in Puerto Rico 

Section 412.374 of the regulations 

provides for the use of a blended 

payment amount for prospective 

payments for capital-related costs to 

hospitals located in Puerto Rico. 

Accordingly, under the capital IPPS, we 

compute a separate payment rate 

specific to Puerto Rico hospitals using 

the same methodology used to compute 

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

located in Puerto Rico are paid a blend 

of the applicable capital IPPS Puerto 

Rico rate and the applicable capital IPPS 

Federal rate. 

Prior to FY 1998, hospitals in Puerto 

Rico were paid a blended capital IPPS 

rate that consisted of 75 percent of the 

capital IPPS Puerto Rico-specific rate 

and 25 percent of the capital IPPS 

Federal rate. However, effective October 

1, 1997 (FY 1998), in conjunction with 

the change to the operating IPPS blend 

percentage for hospitals located in 

Puerto Rico required by section 4406 of 

Public Law 105–33, we revised the 

methodology for computing capital IPPS 


sroberts on DSKD5P82C1PROD with RULES
43926 Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 

payments to hospitals in Puerto Rico to 

be based on a blend of 50 percent of the 

capital IPPS Puerto Rico rate and 50 

percent of the capital IPPS Federal rate. 

Similarly, in conjunction with the 

change in operating IPPS payments to 

hospitals located in Puerto Rico for FY 

2005 required by section 504 of Public 

Law 108–173, we again revised the 

methodology for computing capital IPPS 

payments to hospitals located in Puerto 

Rico to be based on a blend of 25 

percent of the capital IPPS Puerto Rico 

rate and 75 percent of the capital IPPS 

Federal rate effective for discharges 

occurring on or after October 1, 2004. 

E. Proposed and Final Changes 

1. FY 2010 MS–DRG Documentation 

and Coding Adjustment 

a. Background on the Prospective MS– 

DRG Documentation and Coding 

Adjustments for FY 2008 and FY 2009 

In the FY 2008 IPPS final rule with 

comment period (72 FR 47175 through 

47186), we adopted the MS–DRG 

patient classification system for the 

IPPS, effective October 1, 2007, to better 

recognize patients’ severity of illness in 

Medicare payment rates. Adoption of 

the MS–DRGs resulted in the expansion 

of the number of DRGs from 538 in FY 

2007 to 745 in FY 2008 (currently 746, 

including one additional MS–DRG 

created in FY 2009). By increasing the 

number of DRGs and more fully taking 

into account patients’ severity of illness 

in Medicare payment rates, the MS– 

DRGs encourage hospitals to change 

their documentation and coding of 

patient diagnoses. In that same final rule 

with comment period (72 FR 47183), we 

indicated that we believe the adoption 

of the MS–DRGs had the potential to 

lead to increases in aggregate payments 

without a corresponding increase in 

actual patient severity of illness due to 

the incentives for changes in 

documentation and coding. 

Accordingly, we established 

adjustments to both the national 

operating standardized amount and the 

national capital Federal rate to eliminate 

the estimated effect of changes in 

documentation and coding resulting 

from the adoption of the MS–DRGs that 

do not reflect real changes in case-mix. 

Specifically, we established prospective 

documentation and coding adjustments 

of ¥1.2 percent for FY 2008, ¥1.8 

percent for FY 2009, and ¥1.8 percent 

for FY 2010. However, to comply with 

section 7(a) of Public Law 110–90, 

enacted on September 29, 2007, in a 

final rule published in the Federal 

Register on November 27, 2007 (72 FR 

66886 through 66888), we modified the 

documentation and coding adjustment 

for FY 2008 to ¥0.6 percent, and 

consequently revised the FY 2008 IPPS 

operating and capital payment rates, 

factors, and thresholds accordingly, 

with these revisions effective October 1, 

2007. 

For FY 2009, section 7(a) of Public 

Law 110–90 required a documentation 

and coding adjustment of ¥0.9 percent 

instead of the ¥1.8 percent adjustment 

established in the FY 2008 IPPS final 

rule with comment period. As discussed 

in the FY 2008 IPPS final rule with 

comment period (72 FR 48447 and 

48733 through 48774), we applied a 

documentation and coding adjustment 

of ¥0.9 percent to the FY 2009 IPPS 

national standardized amounts and the 

capital Federal rate. The documentation 

and coding adjustments established in 

the FY 2009 IPPS final rule, as amended 

by Public Law 110–90, are cumulative. 

As a result, the ¥0.9 percent 

documentation and coding adjustment 

in FY 2009 was in addition to the ¥0.6 

percent adjustment in FY 2008, yielding 

a combined effect of ¥1.5 percent. (For 

additional details on the development 

and implementation of the 

documentation and coding adjustments 

for FY 2008 and FY 2009, we refer 

readers to section II.D. of this preamble 

and the following rules published in the 

Federal Register: August 22, 2007 (72 

FR 47175 through 47186 and 47431 

through 47432); November 27, 2007 (72 

FR 66886 through 66888); and August 

19, 2008 (73 FR 48447 through 48450 

and 48773 through 48775).) 

b. Prospective MS–DRG Documentation 

and Coding Adjustment to the National 

Capital Federal Rate for FY 2010 and 

Subsequent Years 

As discussed in the FY 2010 IPPS/RY 

2010 LTCH PPS proposed rule (74 FR 

24199 through 24200), consistent with 

the prospective adjustment to the 

national average operating IPPS 

standardized amounts (discussed in 

section II.D. of this preamble), under the 

capital IPPS we also continue to believe 

that it is appropriate to make 

adjustments to the capital IPPS rates to 

eliminate the effect of any 

documentation and coding changes as a 

result of the implementation of the MS– 

DRGs. These adjustments are intended 

to ensure that future annual aggregate 

IPPS payments are the same as 

payments that otherwise would have 

been made had the prospective 

adjustments for documentation and 

coding applied in FY 2008 and FY 2009 

accurately reflected the change due to 

documentation and coding that 

occurred in those years. As noted above 

in section VI.A. of this preamble, under 

section 1886(g) of the Act, the Secretary 

has broad authority in establishing and 

implementing the IPPS for acute care 

hospital inpatient capital-related costs 

(that is, the capital IPPS). We have 

consistently stated since the initial 

implementation of the MS–DRG system 

that we do not believe it is appropriate 

for Medicare expenditures under the 

capital IPPS to increase due to MS–DRG 

related changes in documentation and 

coding. Accordingly, we believe that it 

is appropriate under the Secretary’s 

broad authority under section 1886(g) of 

the Act, in conjunction with section 

1886(d)(3)(A)(vi) of the Act and section 

7(b) of Public Law 110–90, to make 

adjustments to the capital Federal rate 

to eliminate the full effect of the 

documentation and coding changes 

resulting from the adoption of the MS– 

DRGs. We believe that this is 

appropriate because, in absence of such 

adjustments, the effect of the 

documentation and coding changes 

resulting from the adoption of the MS– 

DRGs results in inappropriately high 

capital IPPS payments because that 

portion of the increase in aggregate 

payments is not due to an increase in 

patient severity (and costs). 

We have performed a thorough 

retrospective evaluation of the most 

recent available claims data, and the 

results of this evaluation were used by 

our actuaries to determine any 

necessary payment adjustments beyond 

the cumulative ¥1.5 percent adjustment 

applied in determining the FY 2009 

capital Federal rate to ensure budget 

neutrality for the implementation of 

MS–DRGs. Specifically, as discussed in 

greater detail in section II.D.4. of the 

preamble of this final rule, for the 

proposed rule, we performed a 

retrospective evaluation of the FY 2008 

claims data updated through December 

2008. We updated that analysis for this 

final rule based on the FY 2008 claims 

data updated through March 2009, 

which confirmed our original analysis. 

Based on this evaluation, which is 

described in greater detail in section 

II.D.4. of this preamble, our actuaries 

have determined that the 

implementation of the MS–DRG system 

resulted in a 2.5 percent change in casemix due to documentation and coding 

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

2008. 

The 2.5 percent change in FY 2008 

case-mix due to documentation and 

coding changes that did not reflect real 

changes in case-mix for discharges 

occurring during FY 2008 exceeds the 

¥0.6 percent prospective 

documentation and coding adjustment 

applied to the FY 2008 capital Federal 

rate (as established in the final rule 


sroberts on DSKD5P82C1PROD with RULES
Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 43927 

published in the Federal Register on 

November 27, 2007 (72 FR 66886 

through 66888)) by 1.9 percentage 

points (2.5 percent minus 0.6 percent). 

Therefore, in the proposed rule, under 

the Secretary’s broad authority under 

section 1886(g) of the Act, in 

conjunction with section 

1886(d)(3)(A)(vi) of the Act and section 

7(b) of Public Law 110–90, we proposed 

to reduce the capital Federal rate in FY 

2010 by ¥1.9 percent to account for the 

amount by which the 2.5 percent change 

in FY 2008 exceeds the established 

¥0.6 percent adjustment. Furthermore, 

consistent with our proposal under the 

operating IPPS, we proposed to leave 

that proposed ¥1.9 percent adjustment 

in place for subsequent fiscal years to 

account for the effect in FY 2010 and 

subsequent years of the amount by 

which the 2.5 percent change in FY 

2008 exceeds the established ¥0.6 

percent adjustment. 

In the FY 2010 IPPS/RY 2010 LTCH 

PPS proposed rule, we sought public 

comment on the proposed ¥1.9 percent 

prospective adjustments to address the 

effect of documentation and coding 

changes unrelated to changes in real 

case-mix in FY 2008. In addition, as we 

discussed in section II.D. of the 

preamble of the proposed rule, we 

sought public comment on addressing 

in the FY 2011 rulemaking cycle any 

differences between the increase in FY 

2009 case-mix due to documentation 

and coding changes that do not reflect 

real changes in case-mix for discharges 

occurring during FY 2009 and the ¥0.9 

percent prospective documentation and 

coding adjustment applied in 

determining the FY 2009 capital Federal 

rate established in the FY 2009 IPPS 

final rule. 

Comment: One commenter sought 

clarification whether or not the estimate 

of case-mix change related to 

documentation and coding fully 

considers the estimate of real case-mix 

change for FYs 2009 and 2010 under the 

capital IPPS. 

Response: Our actuaries’ estimate of 

real case-mix change under capital IPPS 

for FYs 2009 and FY 2010 represents a 

long-term projection of real case-mix 

growth. In contrast, as described above, 

our actuaries estimate of case-mix 

change related to documentation and 

coding changes in FY 2008 of 2.5 

percent is based on a retrospective 

evaluation of actual FY 2008 claims 

data. Our estimate of case-mix change 

related to documentation and coding in 

FY 2008 does not require the 

consideration of real case-mix changes 

since the methodology for estimating 

the FY 2008 documentation and coding 

effect does not, by definition, include 

real case-mix, regardless of the actual 

real case-mix level because it uses only 

FY 2008 claims, as discussed in more 

detail in the comment responses in 

section II.D.4. of this preamble. 

Comment: In addition to the 

comments on the methodology and 

economic impact of the proposed ¥1.9 

percent documentation and coding 

adjustment discussed in section II.D.4. 

and section II.D.5. of this preamble, a 

few commenters specifically opposed 

the application of the proposed ¥1.9 

percent adjustment to the capital 

Federal rate. The commenters noted that 

such a reduction in capital IPPS 

payments, coupled with the reductions 

to capital IPPS payments over the past 

few years, would be difficult to sustain 

in the current national economic 

environment and would affect hospitals’ 

ability to fund much needed capital 

projects. Accordingly, the commenters 

recommended that the proposed 

adjustment for documentation and 

coding for FY 2010 not be applied to the 

capital Federal rate. 

Response: As explained above, we 

believe that it is appropriate to make 

adjustments to the capital Federal rate 

to eliminate the full effect of the 

documentation and coding changes 

resulting from the adoption of the MS– 

DRGs, which in the absence of such 

adjustments, 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). 

Our actuaries have determined, and 

MedPAC has confirmed, that the 

implementation of the MS–DRG system 

resulted in a change of 2.5 percent, 

which represents the documentation 

and coding effect that does not reflect 

real changes in case-mix for discharges 

occurring during FY 2008. The impact 

of these changes is greater than the ¥0.6 

percent prospective documentation and 

coding adjustments applied to the FY 

2008 capital Federal rate. Therefore, as 

described in the FY 2010 IPPS/RY 2010 

LTCH PPS proposed rule, we proposed 

to adjust the FY 2010 capital Federal 

rate by ¥1.9 percent. 

In the FY 2010 IPPS/RY 2010 LTCH 

PPS proposed rule, we also discussed 

our examination of the differences in 

case-mix between the FY 2008 claims 

data in which cases were grouped 

through the FY 2008 GROUPER 

(Version 25.0) and the FY 2009 

GROUPER (Version 26.0). As discussed 

in section II.D.5. of this preamble, this 

was to help inform our analysis of the 

potential for increase in the 

documentation and coding effect in FY 

2009. In FY 2008, we were transitioning 

to the fully implemented MS–DRG 

relative weights and the fully 

implemented cost-based weights. We 

found that the use of the transition 

weights (that is, weights that were based 

on a 50/50 blend of the MS–DRG 

relative weights and the CMS DRG 

relative weights (72 FR 47276) mitigated 

the FY 2008 documentation and coding 

effect on expenditures. Specifically, our 

analysis of FY 2008 claims data shows 

that, even assuming no additional 

changes in documentation and coding 

in FY 2009, the use of the FY 2009 MS– 

DRG relative weights (which no longer 

were based on a blend of the MS–DRGs 

and the CMS DRGs) results in an 

additional 0.7 percent documentation 

and coding effect in FY 2009. Based on 

these analyses and other factors, our 

actuaries continue to estimate that the 

cumulative overall effect of 

documentation and coding changes 

under the MS–DRG system will be 4.8 

percent. Our actuaries also estimate that 

these changes will be substantially 

complete by the end of FY 2009. 

Therefore, our current estimate of the 

MS–DRG documentation and coding 

effect is 2.3 percent for discharges 

occurring during FY 2009 (that is, the 

4.8 percent total increase minus the 2.5 

percent increase from FY 2008). 

Consistent with the national operating 

standardized amounts presented in 

section II.D.4. of this preamble, we 

proposed to address any differences 

between the increase in FY 2009 casemix due to documentation and coding 

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

2009 and the ¥0.9 percent prospective 

documentation and coding adjustment 

applied to the FY 2009 capital Federal 

rate in a future rulemaking after a full 

evaluation of the overall national 

average changes in case-mix for FY 2009 

can be completed. 

We continue to believe it is 

appropriate to make adjustments to the 

capital Federal rate to eliminate the full 

effect of the documentation and coding 

changes resulting from the adoption of 

the MS–DRGs. However, after 

consideration of the public comments, 

consistent with the application of the 

documentation and coding adjustment 

to the operating IPPS standardized 

amounts discussed in section II.D.5. of 

this preamble, we have determined that 

it would be appropriate to postpone the 

adoption of any additional 

documentation and coding adjustments 

to the capital IPPS rates until a full 

analysis of FY 2009 case-mix changes 

can be completed. Although we only 

proposed to make a ¥1.9 percent 

adjustment to account for the portion of 

the estimated 2.5 percent change in FY 


sroberts on DSKD5P82C1PROD with RULES
43928 Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 

2008 case-mix due to documentation 

and coding changes that exceeds the 

¥0.6 percent prospective 

documentation and coding adjustment 

applied to the FY 2008 capital Federal 

rate (that is, 2.5 percent minus 0.6 

percent = 1.9 percent), as noted above, 

our current estimate of the MS–DRG 

documentation and coding effect for FY 

2009 is 2.3 percent (that is, the 4.8 

percent total increase minus the 2.5 

percent increase from FY 2008). If the 

estimated documentation and coding 

effect determined based on a full 

analysis of FY 2009 claims data is more 

or less than our current estimates, it 

would change the anticipated 

cumulative adjustments that we 

currently estimate we would have to 

make for FY 2008 and FY 2009 

combined. In future rulemaking, we will 

consider applying a prospective 

documentation and coding adjustment 

to the capital IPPS rates based on a 

complete analysis of FY 2008 and FY 

2009 claims data. 

c. Documentation and Coding 

Adjustment to the Puerto Rico-Specific 

Capital Rate 

As discussed in the FY 2010 IPPS/RY 

2010 LTCH PPS proposed rule, under 

§ 412.74, Puerto Rico hospitals are 

currently paid based on 75 percent of 

the national capital Federal rate and 25 

percent of the Puerto Rico-specific 

capital rate. In the FY 2009 IPPS final 

rule (73 FR 48775), consistent with our 

development of the FY 2009 Puerto 

Rico-specific operating standardized 

amount, we did not apply the additional 

¥0.9 percent documentation and 

coding adjustment (or the cumulative 

¥1.5 percent adjustment) to the FY 

2009 Puerto Rico-specific capital rate. 

However, we discussed that the statute 

gives broad authority to the Secretary 

under section 1886(g) of the Act, with 

respect to the development of and 

adjustments to a capital PPS, and 

therefore we would not be outside the 

authority of section 1886(g) of the Act 

in applying the documentation and 

coding adjustment to the Puerto Ricospecific portion of the capital payment 

rate. As we explained in that same final 

rule, to date we had not yet applied a 

documentation and coding adjustment 

to the Puerto Rico-specific capital rate 

because we have historically made 

changes to the capital IPPS consistent 

with those changes made to the 

operating IPPS. We also stated that we 

may propose to apply such an 

adjustment to the Puerto Rico capital 

rates in the future. 

As discussed in section II.D.10. of the 

preamble of the proposed rule and in 

this final rule, when we performed a 

retrospective evaluation of the FY 2008 

claims data of hospitals located in 

Puerto Rico using the same 

methodology discussed above, we found 

that the change in case-mix due to 

documentation and coding that did not 

reflect real changes in case-mix for 

discharges occurring during FY 2008 

from hospitals located in Puerto Rico 

was approximately 1.1 percent. Given 

this case-mix increase due to changes in 

documentation and coding under the 

MS–DRGs, consistent with our proposal 

to adjust the FY 2010 capital Federal 

rate presented above and consistent 

with our proposed adjustment to the FY 

2010 Puerto Rico-specific standardized 

amount discussed in section II.D.10. of 

the preamble of the proposed rule, in 

the proposed rule, under the Secretary’s 

broad authority under section 1886(g) of 

the Act, we proposed to adjust the 

Puerto Rico-specific capital rate by ¥1.1 

percent in FY 2010 for the FY 2008 

increase in case-mix due to changes in 

documentation and coding under the 

MS–DRGs. In addition, consistent with 

our other proposals concerning 

prospective MS–DRG documentation 

and coding adjustments to the capital 

Federal rate and operating IPPS 

standardized amounts presented in the 

proposed rule, we proposed to leave 

that proposed ¥1.1 percent adjustment 

in place for subsequent fiscal years in 

order to ensure that changes in 

documentation and coding resulting 

from the adoption of the MS–DRGs do 

not lead to an increase in aggregate 

payments not reflective of an increase in 

real case-mix. We proposed that the 

proposed 1.1 percent adjustment would 

be applied to the capital Puerto Ricospecific rate that accounts for 25 percent 

of payments to hospitals located in 

Puerto Rico, with the remaining 75 

percent based on the national capital 

Federal rate, which we proposed to 

adjust as described above. 

Consequently, the proposed overall 

reduction to the FY 2010 payment rates 

for hospitals located in Puerto Rico to 

account for documentation and coding 

changes would be slightly less than the 

reduction for IPPS hospitals paid based 

on 100 percent of the national capital 

Federal rate. As noted above, the Puerto 

Rico-specific capital rate was not 

adjusted for the effects of 

documentation and coding changes in 

FY 2008 or FY 2009 as were the FY 

2008 and FY 2009 national capital 

Federal rates. 

As stated in section II.D.10. of the 

preamble of the proposed rule, we 

sought public comment on the proposed 

¥1.1 percent prospective adjustment to 

the Puerto Rico-specific IPPS rates in FY 

2010 for the FY 2008 documentation 

and coding effect, including the 

methodology for determining these 

adjustments. In addition, we sought 

public comment on addressing in the 

FY 2011 rulemaking cycle any increase 

in FY 2009 case-mix due to 

documentation and coding changes that 

did not reflect real changes in case-mix 

for discharges occurring during FY 

2009. We did not receive any public 

comments on the proposed ¥1.1 

percent prospective adjustment to the 

Puerto Rico-specific IPPS rates in FY 

2010 for the FY 2008 documentation 

and coding effect. However, as 

discussed in greater detail above, in this 

final rule, we have determined that it 

would be appropriate to postpone the 

adoption of any documentation and 

coding adjustments to the capital IPPS 

rates at this time until a full analysis of 

FY 2009 case-mix changes can be 

completed. Any future documentation 

and coding adjustment to the capital 

Puerto Rico-specific IPPS rates based on 

a complete analysis of FY 2008 and FY 

2009 claims data for Puerto Rico 

hospitals would be established through 

the notice and comment rulemaking 

process. 

2. Revision to the FY 2009 IME 

Adjustment Factor 

In the FY 2008 IPPS final rule, we 

established a policy to phase out the 

capital IPPS teaching adjustment over a 

3-year period because of the high 

positive aggregate capital IPPS Medicare 

margins for teaching hospitals. Under 

the regulations, as established at 

§ 412.322(b), (c), and (d), teaching 

hospitals would receive the full capital 

IME adjustment for FY 2008, but the 

adjustment would be reduced by 50 

percent in FY 2009, and there would be 

no capital IME adjustment for FY 2010 

and thereafter. 

As noted in section VI.A. of this 

preamble, section 4301(b)(1) of Public 

Law 111–5 requires that the phase-out 

of the capital IPPS teaching adjustment 

specified at § 412.322(c) of the 

regulations (that is, the 50-percent 

reduction for FY 2009) shall not be 

applied, and the Secretary shall apply 

§ 412.322 without regard to paragraph 

(c) of that section. Furthermore, section 

4301(b)(2) of the Public Law 111–5 

specifies that the law has no effect on 

§ 412.322(d), which eliminates the 

capital IPPS teaching adjustment for FY 

2010 and thereafter. Therefore, in order 

to reflect the current statutory 

requirements as specified in section 

4301(b)(1) of Public Law 111–5, in the 

FY 2010 IPPS/RY 2010 LTCH PPS 

proposed rule, we proposed to delete 

§ 412.322(c) of the existing regulations. 


sroberts on DSKD5P82C1PROD with RULES
Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 43929 

In the FY 2010 IPPS/RY 2010 LTCH PPS 

proposed rule, we solicited public 

comments on our proposed 

implementation of section 4301(b) of 

Public Law 111–5 concerning capital 

IME payments. 

Comment: Numerous commenters 

addressed the proposal to implement 

section 4301(b) of Pub. L. 111–5. 

Specifically, the commenters 

unanimously opposed the elimination 

of the capital IME adjustment for FY 

2010. Many commenters discussed the 

financial impact that eliminating the 

capital teaching adjustment would have 

on teaching hospitals across the country 

or in their States and for a particular 

hospital. Some commenters pointed out 

that the level of capital payments to 

hospitals is already projected to 

decrease in FY 2010 compared to FY 

2009. The commenters advised that if 

CMS reversed the cut to the capital IME 

adjustment, it would mitigate what the 

commenters believed to be a substantial 

decrease in capital payments. A large 

number of commenters also believed 

any margin analysis should include 

both the operating and capital payment 

systems. They stated that IPPS is the 

only Medicare payment system that 

does not provide a single payment for 

total cost (operating and capital), and 

that hospitals have always used their 

operating and capital payments as if 

they were one payment. Therefore, 

margin analysis, as well, should include 

both payment systems. 

The commenters indicated that 

teaching hospitals are the main 

providers of uncompensated care and 

often act as the community safety net 

and added that these responsibilities 

increase costs to teaching hospitals in 

addition to the more traditional sources 

of higher costs such as for training 

purposes. They also stated that these 

safety net teaching hospitals rely 

heavily upon Medicare capital 

payments as a source of stable revenue 

for capital improvements because it is 

often difficult for these types of 

hospitals to access affordable funding. 

One commenter indicated that Medicare 

capital payments are critical to safety 

net type hospitals as uncompensated 

costs have increased and that looking at 

capital margins in isolation is not 

indicative of the overall health of a 

hospital. 

Some commenters also found CMS’ 

proposed elimination of payment that 

supports medical education 

contradictory to CMS’ emphasis on 

quality, preventive measures and 

improved clinical outcomes as a method 

of reducing cost. Several commenters 

also mentioned that CMS’ proposal is at 

odds with Congress’ intent when they 

established special payments for 

teaching hospitals as a means of 

Medicare supporting medical education 

until other insurers fill that role. This 

has not occurred, according to 

commenters; therefore, the requisite 

teaching adjustment allows Medicare to 

continue in this necessary role. 

Response: We recognize the 

importance of hearing the opinions of 

the health care industry and other 

stakeholders, and we have found it 

valuable to review the many comments 

we received on this issue. We carefully 

considered our approach to eliminating 

the capital teaching adjustment and 

were aware of the reaction such an 

action would garner. As operators of the 

Medicare program, we not only have a 

responsibility to ensure quality of and 

access to care for Medicare 

beneficiaries, we also have a financial 

responsibility to the program to create 

policies that are not a detriment to its 

financial viability as well as to change 

or eliminate those policies that have a 

negative financial effect to the program. 

Consequently, we developed the policy 

to eliminate the capital teaching 

adjustment after conducting numerous 

analyses with particular attention given 

to capital Medicare costs and payments 

under the capital IPPS. It is never our 

intent to create financial hardship for 

hospitals, nor is it our purpose to enable 

some hospitals to experience 

consistently large positive margins. As 

we have discussed in previous 

rulemakings (72 FR 47393; 73 FR 

48672), the statutory history of the 

capital IPPS suggests that the system in 

the aggregate should not provide for 

continuous, large positive margins. Our 

analyses indicated that the adjustments 

for teaching hospitals have been a 

contributor to the excessive capital 

payment levels in previous years. 

While we continue to believe our 

margin analyses are accurate, we also 

acknowledge that the analyses covered 

the period from 1996 through 2006, 

using the most recently available data at 

the time that we proposed and adopted 

the 3-year phase-out of the capital IME 

adjustment. In consideration of 

numerous comments regarding the 

capital expenditure cycle, as well as 

commenters referencing other margin 

analyses by outside sources that 

indicated a decline in capital margins, 

we conducted further capital margin 

analysis given the availability of more 

recent data. Specifically, we looked at 

capital Medicare margins for FY 2007. 

Our analysis indicates that while 

teaching hospitals continue to 

experience positive capital margins, 

there is a decline in these margins in 

comparison to the last year in our 

previous analyses (2006). Accordingly, 

we do not believe eliminating the 

capital teaching adjustment is prudent 

at this time. As we stated in the FY 2008 

IPPS final rule (72 FR 47397), we will 

continue to analyze the data concerning 

the adequacy of payments under the 

capital IPPS, and may propose 

adjustments in the future if our analysis 

indicates such adjustments are 

warranted. However, in light of our 

most recent analysis, and in 

consideration of some of the comments 

received, we are deleting the 

requirement at § 412.322(d) of the 

regulations, which eliminates the IPPS 

capital teaching adjustment for FY 2010. 

We are adopting, as final, our 

proposal to delete § 412.322(c) of the 

existing regulations. In the absence of 

existing § 412.322(c), the capital IPPS 

teaching adjustment for FY 2009 will 

not be reduced by 50 percent but will 

be as determined under § 412.322(b) 

(that is, the full capital IME teaching 

adjustment). We also are deleting 

§ 412.322(d) of the existing regulations, 

which eliminates the teaching 

adjustment for FY 2010. Therefore, the 

full capital IME teaching adjustment is 

restored for FY 2010 and will be 

determined under § 412.322(b). We note 

that we have issued instructions 

(Change Request 6444, dated March 27, 

2009) to fiscal intermediaries and MACs 

to implement the change to the capital 

teaching adjustment for FY 2009, as 

specified in section 4301(b)(1) of Public 

Law 111–5. 

In summary, as noted above, in this 

final rule, as we proposed, we are 

revising the existing regulations at 

§ 412.322 by deleting the language of 

paragraph (c). In addition, as discussed 

above, we are deleting the language of 

paragraph (d) in § 412.322. Both 

paragraphs (c) and (d) will be labeled 

‘‘Repealed.’’ 

3. Other Changes for FY 2010 

The proposed and final annual update 

to the capital IPPS national and Puerto 

Rico-specific rates, as provided for at 

§ 412.308(c), for FY 2010 is discussed in 

section III. of the Addendum to this 

final rule. 

VII. 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. An annual per discharge limit 

(the target amount as defined in 


sroberts on DSKD5P82C1PROD with RULES
43930 Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 

§ 413.40(a)) was set for each hospital or 

hospital unit based on the hospital’s 

own cost experience in its base year. 

The target amount was multiplied by 

the Medicare discharges and applied as 

an aggregate upper limit (the ceiling as 

defined in § 413.40(a)) on total inpatient 

operating costs for a hospital’s cost 

reporting period. Prior to October 1, 

1997, these payment provisions applied 

consistently to all categories of excluded 

providers, which included 

rehabilitation hospitals and units (now 

referred to as IRFs), psychiatric 

hospitals and units (now referred to as 

IPFs), LTCHs, children’s hospitals, and 

cancer hospitals. 

Payment to children’s hospitals and 

cancer hospitals that are excluded from 

the IPPS continues to be subject to the 

rate-of-increase ceiling based on the 

hospital’s own historical cost 

experience. (We note that, in accordance 

with § 403.752(a) of the regulations, 

RNHCIs are also subject to the rate-ofincrease limits established under 

§ 413.40 of the regulations.) 

In the FY 2010 IPPS/RY 2010 LTCH 

PPS proposed rule (74 FR 24201), we 

proposed that the percentage increase in 

the rate-of-increase limits for cancer and 

children’s hospitals and RNHCIs was 

the percentage increase in the proposed 

FY 2010 IPPS operating market basket. 

In compliance with section 404 of the 

MMA, in the proposed rule, we 

proposed to replace the FY 2002-based 

IPPS operating and capital market 

baskets with the revised and rebased FY 

2006-based IPPS operating and capital 

market baskets for FY 2010. Therefore, 

consistent with the current law, based 

on IHS Global Insight, Inc.’s 2009 first 

quarter forecast, with historical data 

through the 2008 fourth quarter, we 

proposed that the FY 2010 update to the 

IPPS operating market basket would be 

2.1 percent (that is, the current estimate 

of the market basket rate-of-increase). 

Consistent with our historical 

approach, we calculated the proposed 

IPPS operating market basket for FY 

2010 using the most recent data 

available. However, we proposed that if 

more recent data became available for 

the final rule, we would use them to 

calculate the IPPS operating market 

basket for FY 2010. Therefore, based on 

IHS Global Insight, Inc.’s 2009 second 

quarter forecast, with historical data 

through the 2009 first quarter, the IPPS 

operating market basket update factor 

for FY 2010 is 2.1 percent. Moreover, 

consistent with our proposal that the 

percentage increase in the rate-ofincrease limits for cancer and children’s 

hospitals and RNHCIs would be the 

percentage increase in the FY 2010 IPPS 

operating market basket, the FY 2010 

rate-of-increase percentage that is 

applied to FY 2009 target amounts in 

order to calculate the FY 2010 target 

amounts for cancer and children’s 

hospitals and RNHCIs is 2.1 percent, in 

accordance with the applicable 

regulations in 42 CFR 413.40. 

We note that IRFs, IPFs, and LTCHs, 

which were paid previously under the 

reasonable cost methodology, now 

receive payment under their own 

prospective payment systems, in 

accordance with changes made to the 

statute. In general, the prospective 

payment systems for IRFs, IPFs, and 

LTCHs provided transition periods of 

varying lengths during which time a 

portion of the prospective payment was 

based on cost-based reimbursement 

rules under Part 413. (However, certain 

providers do not receive a transition 

period or may elect to bypass the 

transition period as applicable under 42 

CFR Part 412, Subparts N, O, and P.) We 

note that the various transition periods 

provided for under the IRF PPS, the IPF 

PPS, and the LTCH PPS have ended. 

The IRF PPS, the IPF PPS, and the 

LTCH PPS are updated annually. We 

refer readers to section IV. of the 

Addendum to this final rule for the 

specific update changes to the Federal 

payment rates for LTCHs under the 

LTCH PPS for RY 2010. The annual 

updates for the IRF PPS and the IPF PPS 

are issued by the agency in separate 

Federal Register documents. 

B. Criteria for Satellite Facilities of 

Hospitals 

The regulations at 42 CFR 412.22(e) 

specify the criteria that a hospital that 

occupies space in a building also used 

by another hospital or in one or more 

separate buildings located on the same 

campus as buildings used by another 

hospital (also known as a hospitalwithin-hospital (HwH)) must meet in 

order to be excluded from the IPPS. 

Section 412.22(e)(1)(i) specifies that the 

HwH must have a governing body that 

is separate from the governing body of 

the hospital occupying space in the 

same building or on the same campus. 

The HwH’s governing body must not be 

under the control of the hospital with 

which it shares space in a building or 

on a campus, nor can it be under the 

control of any third entity that controls 

both hospitals. 

As we discussed in the FY 2010 IPPS/ 

RY 2010 LTCH PPS proposed rule (74 

FR 24201 through 24202), it has come 

to our attention that there is an 

inadvertent inconsistency between the 

governance and control criteria at 

§ 412.22(h)(2)(iii)(A) that satellite 

facilities must meet in order to be 

excluded from the IPPS and the separate 

governing body criteria at 

§ 412.22(e)(1)(i) that HwHs must meet in 

order to be excluded from the IPPS. 

Specifically, the separate governing 

body requirement for satellite facilities 

at § 412.22(h)(2)(iii)(A) mistakenly omits 

language regarding a third entity. In 

particular, it fails to indicate that the 

governing body of the hospital of which 

the satellite facility is a part cannot be 

under the control of any third entity that 

controls both the hospital of which the 

satellite facility is a part and the 

hospital with which the satellite facility 

is co-located. 

As explained in past rulemaking, we 

believe satellite facilities are similar 

enough to HwHs to warrant application 

of more closely related criteria to both 

types of facilities (67 FR 49982 and 

50105 through 50106). Specifically, 

satellite facilities are like HwHs in that 

the satellite facilities are also physically 

located in acute care hospitals that are 

paid for inpatient services they furnish 

under the acute care IPPS. Moreover, 

both satellite facilities and HwHs 

provide hospital inpatient services that 

are generally paid for at higher rates 

than would apply if the facilities were 

treated by Medicare as part of the acute 

care hospitals. In view of these facts, we 

continue to believe that it is important 

to establish clear criteria for ensuring 

that a satellite facility is not merely a 

unit of the acute care hospital with 

which it is co-located, but rather is 

organizationally and functionally 

separate from the hospital. Therefore, 

we believe the separate governing body 

requirements for satellite facilities 

should include requirements that are 

similar to those we included at 

§ 412.22(e)(1)(i) for HwHs; that is, that 

the governing body of the hospital of 

which the satellite facility is a part 

cannot be under the control of any third 

entity that controls both the hospital of 

which the satellite facility is a part and 

the hospital with which the satellite 

facility is co-located. Accordingly, in 

the FY 2010 IPPS/RY 2010 LTCH PPS 

proposed rule, we proposed to amend 

the criteria for satellite facilities at 

§ 412.22(h)(2)(iii)(A) by adding language 

under paragraph (1) to state that, except 

as provided in proposed paragraph 

(h)(2)(iii)(A)(2), the governing body of 

the hospital of which the satellite 

facility is a part cannot be under the 

control of any third entity that controls 

both the hospital of which the satellite 

facility is a part and the hospital with 

which the satellite facility is co-located. 

We proposed that the revised criteria 

would be effective with cost reporting 

periods beginning on or after October 1, 

2009. 


sroberts on DSKD5P82C1PROD with RULES
Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 43931 

In addition, we proposed to add a 

‘‘grandfathering’’ provision to the 

regulations at § 412.22(h)(2)(iii)(A)(2). 

Currently, an IPPS-excluded hospital 

with a satellite facility that has its 

governing body under the control of a 

third entity that controls the hospital of 

which the satellite facility is a part and 

the hospital with which the satellite 

facility is co-located can retain its IPPSexcluded status. An IPPS-excluded 

hospital that currently has a satellite 

facility already has its organizational 

structure and financial systems in place. 

We indicated that to require now that a 

hospital that currently has a satellite 

facility must meet the proposed new 

separate governance criteria with 

respect to that satellite facility could 

create undue financial and 

organizational difficulties. This could 

further result in the closure of the 

satellite facility and the discontinuation 

of services because of the inability of the 

hospital and its satellite facility to meet 

the proposed new separate governance 

criteria. Therefore, in proposed 

§ 412.22(h)(2)(iii)(A)(2), we proposed 

the following: ‘‘If a hospital and its 

satellite facility were excluded from the 

inpatient prospective payment system 

under the provisions of this section for 

the most recent cost reporting period 

beginning prior to October 1, 2009, the 

hospital does not have to meet the 

requirements of paragraph 

(h)(2)(iii)(A)(1) of this section, with 

respect to that satellite facility, in order 

to retain its IPPS-excluded status.’’ 

However, we note that the 

corresponding preamble discussion of 

this proposed provision included an 

inadvertent error. Specifically, we stated 

that ‘‘if a hospital and its satellite 

facility were excluded from the IPPS 

under the provision of § 412.22(h) for 

the most recent cost reporting period 

beginning before October 1, 2009, the 

hospital would be required to meet the 

new separate governance criteria at 

§ 412.22(h)(2)(iii)(A)(1) with respect to 

that satellite facility in order to retain its 

IPPS-excluded status (proposed 

§ 412.22(h)(2)(iii)(A)(2))’’ (74 FR 24202). 

We inadvertently omitted the word 

‘‘not’’ in the quoted sentence; therefore, 

the latter portion of the sentence should 

have read ‘‘* * * the hospital would 

not be required to meet the new separate 

governance criteria at 

§ 412.22(h)(2)(iii)(A)(1) with respect to 

that satellite facility in order to retain its 

IPPS-excluded status’’ (emphasis 

added). We note that the regulation text 

presented accurately our proposed 

policy. 

In addition, because we proposed that 

the proposed new separate governance 

criteria would be effective for cost 

reporting periods beginning on or after 

October 1, 2009, we indicated that a 

hospital that establishes an additional 

satellite facility in a cost reporting 

period beginning on or after October 1, 

2009, will have knowledge of the 

requirements that must be met in order 

to retain its IPPS-excluded status prior 

to establishing the additional satellite 

facility, and it will be able to plan 

accordingly. Furthermore, no 

organizational or financial relationship 

would already be in place with respect 

to the additional satellite facility. Thus, 

there would not be a need for the 

hospital and its additional satellite 

facility to be grandfathered. This 

situation is distinguishable from a 

hospital with a satellite facility 

established in the most recent cost 

reporting period beginning prior to 

October 1, 2009, as discussed above. 

Therefore, in proposed 

§ 412.22(h)(2)(iii)(A)(3), we stated the 

following: ‘‘A hospital described in 

paragraph (h)(2)(iii)(A)(2) of this section 

that establishes an additional satellite 

facility in a cost reporting period 

beginning on or after October 1, 2009, 

must meet the criteria in this section, 

including the provisions of paragraph 

(h)(2)(iii)(A)(1) of this section with 

respect to the additional satellite 

facility, in order to be excluded from the 

inpatient prospective payment system.’’ 

Although the proposed regulation text, 

the preamble discussion of our rationale 

for not ‘‘grandfathering’’ such facilities, 

and the example set forth in the 

preamble (74 FR 24202) accurately 

captured the proposed policy, we note 

that a sentence in the preamble 

describing the proposed policy included 

an error. Specifically, the sentence 

indicated that if a hospital and its 

satellite facility were excluded from the 

IPPS under the provision of § 412.22(h) 

for the most recent cost reporting period 

prior to October 1, 2009, and the 

hospital establishes an additional 

satellite facility in a cost reporting 

period beginning on or after October 1, 

2009, the hospital would not [sic] be 

required to meet the proposed new 

separate governance criteria at 

§ 412.22(h)(2)(iii)(A)(1), with respect to 

the additional satellite facility, in order 

to be excluded from the IPPS. We note 

that there was an inadvertent inclusion 

of the word ‘‘not’’ in this sentence as the 

sentence was printed in the Federal 

Register. The latter portion of the 

sentence should have read ‘‘* * * the 

hospital would be required to meet the 

new separate governance criteria at 

§ 412.22(h)(2)(iii)(A)(1) with respect to 

that satellite facility in order to retain its 

IPPS-excluded status’’; that is, the 

hospital and the new additional satellite 

facility would be required to meet the 

new separate governance criteria as well 

as the other applicable requirements in 

§ 412.22(h), consistent with our 

longstanding policies. 

In addition, we gave the following 

example of how the amended 

regulations at § 412.22(h)(2)(iii)(A)(2) 

and (h)(2)(iii)(A)(3) would work. 

Hospital A established a satellite facility 

(s-B) at Hospital B in a cost reporting 

period beginning prior to October 1, 

2009, under the applicable criteria for 

hospitals and satellite facilities at 

§ 412.22(h), and, therefore, the hospital 

and that satellite facility were excluded 

from the IPPS in the most recent cost 

reporting period beginning prior to 

October 1, 2009. If Hospital A 

establishes an additional satellite 

facility (s-C) at Hospital C in a cost 

reporting period beginning on or after 

October 1, 2009, Hospital A and its 

satellite facility at Hospital C must meet 

the applicable hospital and satellite 

facility criteria at § 412.22(h), including 

the new separate governance criteria at 

paragraph (h)(2)(iii)(A)(1), in order to be 

excluded from the IPPS. Thus, the 

governing body of Hospital A cannot be 

under the control of any third entity that 

controls both Hospital A and Hospital C. 

However, Hospital A and s-B must 

continue to meet the other applicable 

criteria in § 412.22(h) to be excluded 

from the IPPS. 

Comment: One commenter pointed 

out that the language in the preamble of 

the proposed rule is contradictory to the 

proposed regulation text with respect to 

a hospital with an existing satellite 

facility for the most recent cost 

reporting period prior to October 1, 

2009. The preamble text stated that if a 

hospital and its satellite facility were 

excluded from the IPPS for the most 

recent cost reporting period prior to 

October 1, 2009, and the hospital 

establishes an additional satellite after 

that date, the hospital would not be 

required to meet the proposed new 

separate governance criteria with 

respect to the new satellite(s) (emphasis 

added). However, in the proposed 

regulation text, we state that this 

hospital would be required to meet the 

new separate governance criteria. The 

commenter believed the error was made 

in the preamble language and that CMS’ 

intent is correctly stated in the 

regulation text. 

Response: The commenter is correct. 

We appreciate the commenter bringing 

the error to our attention. As the 

language in the proposed regulation text 

at § 412.22(h)(2)(iii)(A)(2) stated, ‘‘If a 

hospital and its satellite facility were 


sroberts on DSKD5P82C1PROD with RULES
43932 Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 

excluded from the inpatient prospective 

payment system under the provisions of 

this section for the most recent cost 

reporting period beginning prior to 

October 1, 2009, the hospital does not 

have to meet the requirements of 

paragraph (h)(2)(iii)(A)(1) of this 

section, with respect to that satellite 

facility, in order to retain its IPPSexcluded status.’’ However, as the 

proposed regulation text at 

§ 412.22(h)(2)(iii)(A)(3) stated, ‘‘A 

hospital described in paragraph 

(h)(2)(iii)(A)(2) of this section that 

establishes an additional satellite 

facility in a cost reporting period 

beginning on or after October 1, 2009, 

must meet the criteria in this section, 

including the provisions of paragraph 

(h)(2)(iii)(A)(1) of this section with 

respect to the additional satellite 

facility, in order to be excluded from the 

inpatient prospective payment system.’’ 

Comment: Two commenters 

recommended that CMS withdraw the 

proposed change in the satellite facility 

requirements until CMS produces 

evidence that the proposed requirement 

is necessary in terms of the impact on 

the Medicare program or the provision 

of services to Medicare beneficiaries. 

The commenters stated that CMS 

considered this issue when the agency 

established the current ‘‘separateness 

criteria,’’ and that the language adopted 

was sufficient for the purpose. The 

commenters believed that the proposed 

language is unnecessary and adds 

complexity to an already complex 

regulation. 

Response: As we discussed in the 

preamble of the proposed rule (74 FR 

24201) and in other past rulemaking, we 

believe satellite facilities are similar 

enough to HwHs to warrant similar 

regulatory criteria that must be met for 

exclusion from the IPPS. Both satellite 

facilities and HwHs occupy space in, or 

are on the same campus as, another 

hospital. As IPPS-excluded providers, 

satellite facilities and HwHs receive 

Medicare payments that, in general, are 

higher than Medicare payments to IPPS 

providers. Clearly, there is an effect on 

the Medicare program if Medicare is 

making higher payments to a provider 

that is a satellite facility in name only. 

Therefore, to avoid the HwH or satellite 

facility from being, in reality, a unit of 

the hospital in which it is located, while 

being paid as an IPPS-excluded 

provider, we established the 

separateness and control criteria. Our 

intent was that the criteria for satellite 

facilities should be similar to the criteria 

for HwHs. The fact that the language 

regarding control by a third entity was 

not originally included in the satellite 

facility criteria was an oversight that we 

are now correcting. 

Comment: Two commenters urged 

CMS to exempt children’s hospitals 

from the proposed separate governance 

criteria for satellite facilities. They 

believed that exempting children’s 

hospitals is appropriate because, unlike 

other IPPS-excluded types of providers, 

children’s hospitals serve a small 

proportion of Medicare patients that 

would otherwise be patients in an acute 

care hospital. Therefore, the 

commenters stated that the concern over 

shifting patients to maximize 

reimbursement is not an issue. 

In addition, according to the 

commenters, the proposed criteria 

would inhibit the ability of children’s 

hospitals to expand in an efficient and 

effective manner when responding to 

community needs. The commenters 

stated that an exemption from the 

proposed separate governance criteria 

would allow children’s hospitals to 

expand into space of an affiliated 

hospital for children’s hospitals that are 

part of large integrated health care 

systems. They believed this would be 

the most ‘‘efficacious patient-centric’’ 

way of expansion as opposed to opening 

and operating a pediatric unit in another 

acute care hospital, which the 

commenters claimed is ‘‘very 

challenging’’ and makes it unlikely that 

community needs would be met. 

The commenters suggested that CMS 

consider restrictions on referrals from 

the hospital in which the satellite 

facility is located as a means of 

alleviating the issues that the proposed 

separate governance criteria is intended 

to address. They believed this would be 

a better approach to restrict patient 

shifting without compromising 

expansion opportunities. 

Response: While it is accurate that 

exempting children’s hospitals from the 

proposed separate governance criteria 

would have little effect on Medicare 

costs because there are few Medicare 

patients in children’s hospitals, we 

believe that it would have some effect 

on Medicare costs because, in general, 

Medicare payment for a discharge in an 

IPPS-excluded hospital is greater than 

Medicare payment for a discharge in an 

acute care hospital under IPPS. In 

addition, there are certainly 

ramifications on payments under the 

Medicaid program if CMS were to 

exempt children’s hospitals from the 

proposed criteria. CMS administers the 

Medicare program and oversees the 

Medicaid program, and therefore, the 

agency needs to be concerned about 

inappropriate patient shifting to 

maximize payment. In regard to the 

commenters’ portrayal that the patients 

in children’s hospitals are 

predominantly very young—an 

illustration uses ‘‘under age 2’’—and, 

therefore, have different health care 

needs and facilities, we point out that 

children’s hospitals are hospitals in 

which inpatients are predominantly 

individuals under the age of 18. 

Contrary to the commenters’ assertion, 

this wide span of age makes it more 

conducive to patient shifting from an 

acute care hospital to a children’s 

satellite facility, when that satellite 

facility has an affiliation with the host 

hospital. Furthermore, even without 

patient shifting, it would be 

inappropriate for Medicare and 

Medicaid to pay a hospital differently 

for treating patients in what in essence 

is a pediatric unit of an acute care 

hospital, rather than a ‘‘separate’’ 

children’s hospital. 

The commenters contend that creating 

and operating a children’s satellite 

facility in an unrelated acute care 

hospital is so challenging that 

community needs could be 

compromised, but that this would not 

be the case if the children’s satellite 

facility could operate in an acute care 

hospital with which it was affiliated. 

Further, the commenters believed the 

proposed criteria would inhibit the 

ability of children’s hospitals to expand. 

We believe that establishing a satellite 

facility in an affiliated hospital would 

most likely be less challenging than in 

an unrelated acute care hospital. 

However, the ease or difficulty of 

establishing a children’s satellite facility 

is not the issue. Regardless of whether 

a children’s hospital could establish a 

satellite facility with more ease in an 

affiliated hospital, we believe the rules 

we have promulgated to demonstrate 

separateness, including the change to 

the separate governance criteria, are 

necessary to demonstrate that the colocated facility is not actually a 

department of the host hospital. 

We also do not agree with the 

commenters who suggested that putting 

restrictions on referrals from the host 

hospital to the satellite will alleviate our 

concerns regarding patient shifting. This 

idea was previously discussed in the FY 

2000 proposed rule (64 FR 24743) where 

we indicated that the hospital of which 

the satellite facility is a part could meet 

the referral restrictions, even though all 

of the satellite facility’s patients could 

have been referred from the hospital in 

which it is located. 

After consideration of the public 

comments received, we are adopting as 

final, with one change, the proposed 

additional separate governance criteria 

at § 412.22(h)(2)(iii)(A)(1), (2), and (3). 

We are correcting an inadvertent error 


sroberts on DSKD5P82C1PROD with RULES
Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 43933 

in the language of the provision under 

§ 412.22(h)(2)(iii)(A)(1) by deleting the 

phrase ‘‘the governing body of’’ directly 

after the word ‘‘both’’ in the provision 

in order to conform the regulation text 

to the preamble. (Throughout the 

proposed rule preamble discussion at 74 

FR 24201 through 24202, we articulated 

the provision correctly. However, the 

regulation text included an inadvertent 

repeat of the phrase ‘‘the governing 

body of’’.) Consequently, 

§ 412.22(h)(2)(iii)(A)(1) will provide the 

following: ‘‘Except as provided in 

paragraph (h)(2)(iii)(A)(2) of this 

section, effective for cost reporting 

periods beginning on or after October 1, 

2009, the governing body of the hospital 

of which the satellite facility is a part is 

not under the control of any third party 

entity that controls both the hospital of 

which the satellite facility is a part and 

the hospital with which the satellite 

facility is co-located.’’ 

C. Critical Access Hospitals (CAHs) 

1. Background 

Section 1820 of the Act provides for 

the establishment of Medicare Rural 

Hospital Flexibility Programs (MRHFPs) 

under which individual States may 

designate certain facilities as critical 

access hospitals (CAHs). Facilities that 

are so designated and that meet the CAH 

conditions of participation under 42 

CFR part 485, Subpart F, will be 

certified as CAHs by CMS. Regulations 

governing payments to CAHs for 

services to Medicare beneficiaries are 

located in 42 CFR part 413. 

2. Payment for Clinical Diagnostic 

Laboratory Tests Furnished by CAHs 

Section 1834(g)(1) of the Act states 

that payment for outpatient services 

furnished by a CAH will be made at 101 

percent of the reasonable costs to the 

CAH in providing those services, except 

for those CAHs that elect the optional 

reimbursement method outlined at 

section 1834(g)(2) of the Act. We refer 

to payment under the elective 

methodology described in section 

1834(g)(2) of the Act as the ‘‘optional 

method.’’ (We discuss changes to the 

CAH optional method of payment 

regulations below in section VII.C.3. of 

this preamble.) Section 1834(g)(4) of the 

Act provides that there is no beneficiary 

cost-sharing for ‘‘clinical diagnostic 

laboratory services furnished as an 

outpatient critical access hospital 

service.’’ 

Section 148 of Public Law 110–275 

(MIPPA) amended section 1834(g)(4) of 

the Act, effective for services furnished 

on or after July 1, 2009. Specifically, 

section 148(a)(1) of Public Law 110–275 

changed the heading of section 

1834(g)(4) of the Act to read ‘‘Treatment 

of Clinical Diagnostic Laboratory 

Services.’’ Section 148(a)(2) of Public 

Law 110–275 amended section 

1834(g)(4) of the Act by adding, in 

relevant part, that ‘‘* * * clinical 

diagnostic laboratory services furnished 

by a critical access hospital shall be 

treated as being furnished as part of 

outpatient critical access services 

without regard to whether the 

individual with respect to whom such 

services are furnished is physically 

present in the critical access hospital, or 

in a skilled nursing facility or a clinic 

(including a rural health clinic) that is 

operated by a critical access hospital, at 

the time the specimen is collected.’’ 

Regulations implementing section 

1834(g) of the Act are set forth at 

§ 413.70. Currently, the regulations at 

§ 413.70(b)(2)(iii) state that payment to a 

CAH for clinical diagnostic laboratory 

services is made at 101 percent of 

reasonable cost ‘‘only if the individuals 

[for whom the tests are performed] are 

outpatients of the CAH, as defined in 

§ 410.2 * * * and are physically present 

in the CAH, at the time the specimens 

are collected.’’ Clinical diagnostic 

laboratory tests performed for 

individuals who are not physically 

present in the CAH when the specimen 

is collected generally are paid on the 

basis of the Clinical Laboratory Fee 

Schedule (CLFS) in accordance with the 

provisions of sections 1833(a)(1)(D) and 

1833(a)(2)(D) of the Act. 

In the FY 2010 IPPS/RY 2010 LTCH 

PPS proposed rule (74 FR 24202 

through 24203), we proposed to amend 

the regulations at § 413.70(b) in order to 

implement the changes made by section 

148(a)(2) of Public Law 110–275. 

Section 148(a)(2) of Public Law 110–275 

mandates that, effective for services 

furnished on or after July 1, 2009, 

individuals are no longer required to be 

physically present in the CAH at the 

time the specimen is collected in order 

for the CAH to receive payment based 

on reasonable cost for furnishing 

outpatient clinical diagnostic laboratory 

tests. Specifically, we believe the use of 

the phrase ‘‘without regard to whether 

the individual with respect to whom 

such services are furnished is physically 

present in the critical access hospital’’ 

means that as long as the tests are 

performed for individuals who are CAH 

outpatients as defined in § 410.2, 

payment based on reasonable cost must 

be made regardless of where the 

specimen is collected, even if the 

patient is not physically present in the 

CAH at the time the specimen is 

collected. Accordingly, we proposed to 

implement section 148(a)(2) by revising 

the existing regulations to reflect our 

interpretation of the statutory change. 

We proposed to amend the 

regulations at § 413.70(b) by deleting 

existing § 413.70(b)(2)(iii) and adding a 

new § 413.70(b)(7) to state that, for 

services furnished on or after July 1, 

2009, in order for a CAH to be paid 

based on reasonable cost for outpatient 

clinical diagnostic laboratory tests, a 

CAH outpatient is no longer required to 

be physically present in the CAH at the 

time the specimen is collected. 

However, we proposed that if the 

individual is not physically present in 

the CAH at the time the specimen is 

collected, the individual must continue 

to be an outpatient of the CAH, as 

defined at § 410.2. We stated that we 

consider an individual to be an 

outpatient of the CAH if the individual 

is receiving services directly from the 

CAH. This requirement is consistent 

with our definition of a CAH outpatient 

at § 410.2, which states that outpatient 

‘‘means a person who has not been 

admitted as an inpatient but who is 

registered on the hospital or CAH 

records as an outpatient and receives 

services (rather than supplies alone) 

directly from the hospital or CAH.’’ 

Consistent with section 1834(g)(4) of the 

Act, we proposed to amend the 

regulations to provide that, in order to 

be receiving services directly from the 

CAH, either the individual must be 

receiving outpatient services in the CAH 

on the same day the specimen is 

collected, or the specimen must be 

collected by an employee of the CAH. 

Accordingly, where the individual is an 

outpatient of the CAH as defined above, 

the individual would not be required to 

be physically present in the CAH at the 

time the specimen is collected. 

In addition, we stated that we do not 

believe that the enactment of section 

148 of Public Law 110–275 has any 

effect on the applicability of the 

requirements at section 1862(a)(18) of 

the Act and the implementing 

regulations at § 411.15(p), which set 

forth requirements for payment of 

services furnished to SNF patients. 

Accordingly, we proposed that in cases 

where Medicare rules otherwise require 

consolidated billing or bundling of 

payments (for example, for services 

furnished to SNF patients during a 

Medicare Part A covered stay), the CAH 

laboratory payment provision would 

only provide for separate payment to the 

CAH once consolidated billing no 

longer applies. Where consolidated 

billing is required by Medicare rules, a 

separate payment for bundled services 

furnished by another provider, 

including a CAH, is prohibited. For 

example, for purposes of payment to a 


sroberts on DSKD5P82C1PROD with RULES
43934 Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 

CAH for performing a clinical laboratory 

test on a specimen collected from a SNF 

patient, the proposed new CAH 

payment rules would apply only once 

the consolidated billing rules for SNF 

payments no longer apply. Coverage 

under Medicare Part A for services 

furnished to a SNF patient is limited to 

100 days in a benefit period. During that 

period, the collection of a specimen by 

a CAH employee in the SNF and the 

CAH’s performance of a laboratory test 

on the specimen would be bundled into 

the SNF payment. Once the SNF patient 

has exhausted his or her Medicare Part 

A SNF days (that is, after 100 days), 

payment for the specimen collection by 

a CAH employee and the test 

performance by the CAH would no 

longer be bundled into the SNF 

payment and the CAH could receive a 

reasonable cost-based payment for the 

collection of a specimen by a CAH 

employee and the performance of the 

laboratory test by the CAH. 

In summary, we proposed that a CAH 

may receive reasonable cost-based 

payment for outpatient clinical 

diagnostic laboratory tests furnished to 

an individual who is an outpatient of 

the CAH (and therefore receiving 

services directly from the CAH) even if 

the individual with respect to whom the 

laboratory services are furnished is not 

physically present in the CAH at the 

time the specimen is collected. In order 

for the individual to be determined to be 

receiving services directly from the 

CAH, we proposed that either the 

individual must have received 

outpatient services in the CAH on the 

same day the specimen is collected or 

the specimen must be collected by an 

employee of the CAH. In either case, the 

individual would not need to be 

physically present in the CAH at the 

time the specimen is collected. We also 

noted that if the individual is physically 

present in the CAH or a facility that is 

provider-based to the CAH when the 

specimen is collected, the CAH would 

also receive a reasonable cost-based 

payment. In this case, the specimen 

would not need to be collected by an 

employee of the CAH. (We refer readers 

to section VII.D. of this preamble for 

further discussion of CAH providerbased facilities.) 

Comment: The majority of 

commenters supported the proposal 

implementing section 148 of the MIPPA. 

One commenter stated that the proposal 

will provide assistance to less mobile 

elderly patients in rural communities. 

Another commenter stated that the 

proposed rule will have a positive 

impact on Nebraska’s 65 CAHs and CAH 

patients. A third commenter fully 

supported recognizing that laboratory 

services provided by a CAH department 

should be paid on the same basis as the 

other departments. 

However, many commenters, in 

addition to supporting the proposed 

policy, asked for clarification on two 

aspects of the proposal. Specifically, the 

commenters requested that CMS clarify: 

(1) That if a patient for whom laboratory 

services are performed is in a facility 

that is not provider-based to the CAH, 

the CAH will still receive 101 percent of 

the reasonable cost for these services as 

long as the patient receives outpatient 

services in the CAH on the same day the 

specimen is collected or an employee of 

the CAH collects the specimen; and (2) 

whether employees of a CAH’s providerbased facility (including a providerbased rural health clinic (RHC)) are 

considered CAH employees for 

purposes of this policy, such that CAHs 

will receive payment at 101 percent of 

the reasonable cost for furnishing 

outpatient clinical diagnostic laboratory 

services if the specimen is collected by 

an employee of a CAH’s provider-based 

facility. 

Another commenter requested 

clarification on what it means to be an 

employee for CAHs that ‘‘contract for 

laboratory services under arrangement 

or hire laboratory personnel on 

contract.’’ The commenter requested 

that CMS clarify the definition of 

employee so that it includes individuals 

employed by the CAH or those who are 

under contract to provide laboratory 

services ‘‘either personally or under 

arrangement with an independent 

laboratory.’’ 

Another commenter agreed with CMS’ 

efforts to ‘‘establish applicable limits 

and controls to avoid ‘gaming’ and 

inequitable payments.’’ However, the 

commenter suggested adding language 

to the employee provision so that it 

reads ‘‘* * * or the specimen must be 

collected by an employee of the CAH or 

an agent of the CAH through contractual 

arrangement with the CAH.’’ 

Response: We appreciate the 

commenters’ support of the proposed 

policy, and we agree that it provides 

increased flexibility to CAHs in 

furnishing outpatient clinical diagnostic 

laboratory tests. We would like to clarify 

that not all services furnished by 

entities that are provider-based to a 

CAH are eligible to be paid based on 

reasonable cost. For example, 

psychiatric and rehabilitation distinct 

part units are paid under their 

prospective payment systems. We stated 

in the proposed rule that we believe the 

use of the statutory phrase ‘‘* * * 

without regard to whether the 

individual with respect to whom such 

services are furnished is physically 

present in the critical access hospital 

* * *’’ means that as long as the 

individual from whom the specimen is 

collected is an outpatient of the CAH, as 

outpatient is defined at 42 CFR 410.2, 

payment based on reasonable cost must 

be made, regardless of where the 

specimen is collected, even if the 

patient is not physically present in the 

CAH at the time the specimen is 

collected. We further stated that ‘‘we 

also note that if the individual is 

physically present in the CAH or a 

facility that is provider-based to the 

CAH when the specimen is collected, 

the CAH would also receive a 

reasonable cost-based payment. In this 

case, the specimen would not need to be 

collected by an employee of the CAH’’ 

(74 FR 24203). 

In this final rule, we are clarifying 

that the individual does not need to be 

physically present in the CAH or a 

facility that is provider-based to the 

CAH at the time the specimen is 

collected for the CAH to receive 

payment based on reasonable cost as 

long as either: (1) the individual 

receives an outpatient service in the 

CAH (or facility that is provider-based 

to the CAH, including a provider-based 

RHC) on the same day the specimen is 

collected; or (2) the specimen collection 

is performed by a CAH employee. In 

cases where the individual is in the 

CAH or facility that is provider-based to 

the CAH when the specimen is 

collected, the individual does not need 

to receive another outpatient service on 

that same day nor does the specimen 

collection need to be performed by a 

CAH employee in order for the CAH to 

be paid based on reasonable cost. 

Furthermore, we are clarifying in this 

final rule that we consider an employee 

of a CAH’s provider-based department, 

but not an employee of a provider-based 

entity, to be an employee of the CAH for 

purposes of implementing section 148 

of MIPPA. A provider-based department 

is integrated with the main provider and 

would not function as a freestanding 

provider of health care services, 

whereas a provider-based entity is paid 

differently than an entity that is not 

CAH-based. For example, a CAH-based 

RHC with 50 or more beds is a providerbased entity because it is paid based on 

the RHC payment methodology at 42 

CFR 405.2462. Furthermore, as defined 

at § 413.65 of the regulations, a 

provider-based department furnishes 

the same type of health care services as 

the main provider, while a providerbased entity furnishes health care 

services of a different type than those 

furnished by the main provider. Because 

the health care services furnished by an 

individual employee at a provider-based 


sroberts on DSKD5P82C1PROD with RULES
Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 43935 

department are directly related to the 

health care services furnished by an 

individual employed at the same 

campus, those employees working in a 

CAH’s provider-based department will 

be considered CAH employees for 

purposes of this provision. Therefore, 

the CAH can meet the requirement that 

the specimen collection be performed 

by a CAH employee, if the individual 

collecting the specimen is an employee 

of a department that is provider-based to 

the CAH. 

In response to the commenters who 

suggested CMS allow for contracted 

employees to be considered employees 

of the CAH for purposes of this policy, 

we agree that if the individual 

performing the specimen collection is 

not employed by any other entity to 

provide services at the location where 

the specimen collection is taking place, 

that individual, even if a contracted 

employee, could be considered a CAH 

employee for purposes of this provision. 

However, if the individual collecting the 

specimen is employed at the facility 

where the specimen collection is being 

performed, other than by the CAH, to 

provide other services in addition to 

being contracted by the CAH to perform 

the specimen collection, the CAH 

cannot consider this individual an 

employee of the CAH for purposes of 

implementing section 148 of MIPPA. 

For example, if a SNF employee is 

employed at the SNF and is contracted 

as a CAH employee to collect blood 

samples from SNF patients, that 

individual could not be considered a 

CAH employee for purposes of this 

provision. We are not adopting the 

commenter’s proposed language because 

we believe such a provision would 

enable a CAH to bypass the requirement 

that laboratory specimens be collected 

by an employee of the CAH simply by 

entering into contractual arrangements 

with the employees of other entities. 

Such a policy would be contrary to our 

determination that an individual must 

be an outpatient of the CAH, receiving 

services directly from the CAH, in order 

for laboratory services furnished by the 

CAH to be paid based on reasonable 

cost. 

Comment: Several commenters asked 

for clarification on how specimen 

collection is defined and how the 

proposed policy is applied to different 

types of specimen collection. One 

commenter stated that, generally, a 

blood or sputum sample can be 

collected by a CAH laboratory 

employee, but the SNF nursing staff 

member or the patient usually performs 

the collection of a wound, urine, stool, 

or throat culture. The commenters asked 

which of these tests would be paid 

under reasonable cost-based payment. 

One commenter asked whether, in the 

situation where a CAH sends a CAH 

employee to a SNF to collect a blood 

specimen and then the CAH employee 

is also given a urine sample to test, 

would both the venipuncture and blood 

work be included on an 851 type of bill 

and the urine specimen put on a 141 

type of bill or would both the blood and 

urine specimens be included on an 851 

type of bill. 

Another commenter asserted that 

although the MIPPA provided that all 

laboratory tests performed in the CAH 

laboratory department should be paid 

based on reasonable cost, the proposed 

rule has drawn a line whereby a CAH 

has to establish whether it meets the 

definition of collecting the specimen. 

The commenter stated that a patient 

may bring a urine specimen to a CAH 

on a doctor’s orders: For example, while 

the CAH patient is in the emergency 

department, he or she may be told to 

collect a urine specimen and return it to 

the CAH the next day. The commenter 

asked whether, in this case, the CAH or 

RHC employee would meet the 

requirements of collecting the urine 

specimen. Commenters asked under 

what circumstances can a specimen 

collected in an outside HHA or SNF be 

paid on a reasonable cost basis. 

One commenter asked would a 

Medicare beneficiary have to exhaust 

his or her Part A coverage before a 

specimen collected by a CAH employee 

for a home health patient qualified for 

reasonable cost-based payment. The 

commenter also stated that allowing the 

CAH to receive reasonable cost-based 

payment only for SNF patients who 

have exhausted their Part A services and 

billing the specimen collection on a 

separate bill under Part B will require 

more tracking and paperwork. 

Response: We believe that the intent 

of section 148 of MIPPA is to pay CAHs 

on a reasonable cost basis for furnishing 

outpatient clinical diagnostic laboratory 

tests as long as the patient is an 

outpatient of a CAH. An outpatient is 

defined in the regulations at 42 CFR 

410.2 as receiving services (rather than 

supplies alone) directly from the CAH. 

We do not believe that instances where 

the specimen is ‘‘picked up’’ by an 

employee of the CAH rather than 

collected by an employee of the CAH, 

and the individual does not also receive 

an outpatient service in the CAH on the 

same day, qualify as receiving services 

directly from the CAH. Rather, if the 

individual is not physically present in 

the CAH and the individual does not 

also receive an outpatient service in the 

CAH on the same day the specimen is 

collected, a CAH employee would need 

to physically perform the specimen 

collection in order for the CAH to 

receive payment based on reasonable 

cost. 

To address the commenter’s question 

on how to bill for a blood specimen that 

is collected by a CAH employee from a 

SNF patient (assuming consolidated 

billing no longer applies) and then the 

CAH employee is given the urine 

specimen, the individual could be 

considered an outpatient for purposes of 

billing for the analysis of the blood 

specimen, but would be considered a 

nonpatient for purposes of billing the 

urine specimen in the case where he or 

she does not also receive an outpatient 

service in the CAH on the same day the 

urine specimen is collected. Even 

though collection of a specimen may be 

performed by an individual (not a CAH 

employee) outside of the CAH based on 

a doctor’s orders, the CAH would not 

receive reasonable cost-based payment 

for the analysis of the specimen unless 

the specimen is collected on the same 

day the individual received an 

outpatient service from the CAH. 

Therefore, if the individual comes to the 

CAH the day after the specimen 

collection, the CAH would not be paid 

for the analysis of the specimen based 

on reasonable cost. We emphasize that 

in instances where the CAH does not 

qualify to receive payment based on 

reasonable cost, the CAH still will 

receive payment for these services, but 

instead of receiving reasonable costbased payment, it will be paid for the 

service under the CLFS. 

In the proposed rule, we stated how 

the policy would apply in cases where 

an individual is located in a facility 

where consolidated billing rules apply. 

We stated: ‘‘Accordingly, we are 

proposing that, in cases where Medicare 

rules otherwise require consolidated 

billing or bundling of payments (for 

example, for services furnished to SNF 

patients during a Medicare Part A 

covered stay), the CAH laboratory 

payment provision would only provide 

for separate payment to the CAH once 

consolidated billing no longer applies. 

Where consolidated billing is required 

by Medicare rules, a separate payment 

for bundled services furnished by 

another provider, including a CAH, is 

prohibited’’ (74 FR 24203). Therefore, in 

cases where a CAH employee performs 

a laboratory service for a SNF patient, 

the CAH would only receive reasonable 

cost-based payment once the SNF 

patient has exhausted his or her Part A 

SNF days. For purposes of receiving 

reasonable cost-based payment for an 

individual receiving home health 

services, we understand that home 

health consolidated billing rules do not 


sroberts on DSKD5P82C1PROD with RULES
43936 Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 

apply to the provision of laboratory 

tests. Therefore, if a CAH employee 

performs the specimen collection from a 

patient who is receiving home health 

services, the CAH would not be limited 

by the consolidated billing rules from 

billing for that service. 

In response to the commenter who 

stated that application of the policy to 

SNF patients would require more 

tracking and paperwork, the policy 

permitting CAHs to receive payment 

based on reasonable cost when a CAH 

employee collects a specimen from a 

patient of a SNF cannot be used to 

circumvent the statutory requirements 

for consolidated billing of SNF services. 

Therefore, a CAH must take SNF 

consolidated billing rules into 

consideration when it bills for specimen 

collection of a SNF patient. 

Comment: One commenter argued 

that section 148 of MIPPA clearly states 

that regardless of whether or not the 

individual is physically present in the 

CAH, all laboratory services provided in 

a CAH’s laboratory are to be viewed as 

outpatient CAH services. The 

commenter asserted that CMS’ proposed 

policy would unnecessarily complicate 

billing procedures. The commenter 

stated that the intent of the legislation 

is that a CAH should receive payment 

based on reasonable cost for all 

laboratory services performed at the 

CAH as was the case when the CAH 

program was first implemented and that 

the MIPPA legislation was requested by 

CAHs to revert back to the former policy 

in which all laboratory services 

performed in the CAH laboratory would 

be paid based on reasonable cost. The 

commenter stated that section 148 of the 

MIPPA did not include any language 

pertaining to specimen collection by 

CAH employees or receiving another 

outpatient service on the same day or 

anything similar to the language that is 

being used in CMS Change Request 

6395, Transmittal 1729. The commenter 

requested that CMS revise the proposed 

rule to state that all laboratory services 

performed in the CAH are paid based on 

reasonable cost and not based on the 

CLFS. 

One commenter stated that the 

proposed policy concerning providerbased status of CAH laboratories would 

impact the policy implementing section 

148 of the MIPPA. The commenter 

stated, ‘‘We also understand that the 

proposed change in the regulations 

regarding the treatment of a clinical 

diagnostic laboratory of a CAH under 

the provider-based status of facilities 

and organizations would likewise 

impact this determination.’’ The 

commenter also stated that ‘‘conversely, 

with regard to reasonable cost payment 

to the CAH for the clinical diagnostic 

laboratory service(s), it would not 

matter where or by whom a specimen is 

collected if it is collected on the same 

date as a patient receives outpatient 

services at a CAH.’’ Another commenter 

stated that the proposed rule adds 

complexity and confusion for CAHs and 

the commenter supported ‘‘keeping 

CAHs intact and consistent with what 

we believe was the original 

congressional intent.’’ In general, one 

commenter also stated that ‘‘if you want 

to improve healthcare, you must 

consider access and cost. Most of the 

rules limit access and increase cost.’’ 

Response: As stated previously, we 

believe our proposal provides for 

increased flexibility for CAHs to receive 

payment based on reasonable cost for 

furnishing outpatient clinical diagnostic 

laboratory tests because existing 

regulations require that an individual be 

physically present in the CAH to receive 

reasonable cost-based payment; 

otherwise, the CAH is paid on the basis 

of the CLFS. Section 148 of the MIPPA 

states ‘‘* * * clinical diagnostic 

laboratory services furnished by a 

critical access hospital shall be treated 

as being furnished as part of outpatient 

critical access services without regard to 

whether the individual with respect to 

whom such services are furnished is 

physically present in the critical access 

hospital * * *’’ (emphasis added). 

Therefore, we believe it is appropriate to 

require that an individual still has to be 

an outpatient of a CAH, that is, 

receiving services directly from the 

CAH, to be paid based on reasonable 

cost. 

We would not consider an individual 

to be an outpatient of a CAH if the only 

relationship the individual has with the 

CAH is that his or her specimen is 

processed by the CAH. We do not 

believe the intent of section 148 of 

MIPPA was, for example, to allow a 

CAH in one State to process a laboratory 

specimen it receives from an individual 

in a distant State and receive payment 

on a reasonable cost basis for this 

service without the individual being 

physically present in the CAH or having 

any other direct relationship with the 

CAH. Allowing such a scenario to occur 

would convert a CAH into a reference 

laboratory and subvert the statutory 

laboratory fee schedule used to pay for 

clinical laboratory services. Our policy 

allows CAHs to be paid for outpatient 

clinical diagnostic laboratory tests 

where the individual is not physically 

present in the CAH at the time the 

specimen is being collected, consistent 

with the purpose of the provision, and 

avoids the problems that would result 

from a broader interpretation of the 

statutory language. Therefore, we stated 

if the individual is not physically 

present in a CAH when the specimen is 

collected, in order for the CAH to 

receive payment based on reasonable 

cost, either the individual has to receive 

other outpatient services in the CAH on 

the same day the specimen is collected 

or the specimen collection has to be 

performed by a CAH employee. If 

providers have questions about whether 

specific scenarios would qualify for 

reasonable cost-based payment, we 

encourage them to contact CMS or their 

Medicare contractor. 

A commenter referenced Change 

Request 6395, Transmittal 1729. This 

document can be accessed at the 

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

Transmittals/downloads/R1729CP.pdf. 

The purpose of this instruction was to 

implement section 148 of MIPPA on the 

statutory effective date of July 1, 2009. 

Because we are finalizing the policy as 

proposed, the instruction will continue 

to apply for purposes of payment to 

CAHs for clinical diagnostic laboratory 

tests after the effective date of this final 

rule. If we believe further instructions 

are needed, we will issue another 

change request. We stated in the 

proposed rule that we believe it will be 

important to develop a modifier that 

could assist CMS in tracking laboratory 

services paid to CAHs under this 

provision. We reiterate that when a 

modifier is developed, we will issue 

guidance regarding its use. 

In regard to the comment concerning 

the impact of the proposed policy on 

provider-based status of CAH 

laboratories, we do not believe this 

policy has a direct impact on the policy 

implementing section 148 of the MIPPA 

because the individual does not need to 

be physically present in a facility that is 

provider-based to the CAH in order for 

the CAH to receive payment based on 

reasonable cost. 

In summary, in this final rule, we are 

finalizing our proposed policy that a 

CAH can receive payment based on 

reasonable cost for furnishing clinical 

diagnostic laboratory tests even if the 

individual is not physically present in 

the CAH at the time the specimen is 

collected, provided either (1) the 

individual receives an outpatient 

service in the CAH on the same day the 

specimen is collected, or (2) the 

specimen collection is performed by a 

CAH employee. For purposes of section 

148 of the MIPPA, a facility that is 

provider-based to the CAH is considered 

a CAH for purposes of determining 

where the specimen is collected. If the 

individual is in a facility or receiving 

services under which Medicare 

consolidated billing rules apply when 


sroberts on DSKD5P82C1PROD with RULES
Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 43937 

the specimen is collected, the CAH will 

receive reasonable cost-based payment 

only once the consolidated billing rules 

no longer apply. 

3. CAH Optional Method of Payment for 

Outpatient Services 

Section 1834(g) of the Act establishes 

the payment rules for outpatient 

services furnished by a CAH. Section 

403(d) of Public Law 106–113 (BBRA) 

amended section 1834(g) of the Act to 

provide for two methods of payment for 

outpatient services furnished by a CAH. 

Specifically, section 1834(g)(1) of the 

Act, as amended by Public Law 106– 

113, provided that the amount of 

payment for outpatient services 

furnished by a CAH is equal to the 

reasonable cost of providing such 

services, unless the CAH made an 

election, under section 1834(g)(2) of the 

Act, to receive amounts that were equal 

to the reasonable cost of the CAH for 

facility services plus, with respect to the 

professional services, the amount 

otherwise paid for professional services 

under Medicare, less the applicable 

Medicare deductible and coinsurance 

amount. The election made under 

section 1834(g)(2) of the Act is 

sometimes referred to as ‘‘Method II.’’ 

Throughout this section of this 

preamble, we refer to this election as the 

‘‘optional method.’’ 

Section 202 of Public Law 106–554 

(BIPA) amended section 1834(g)(2)(B) of 

the Act to increase the payment for 

professional services under the optional 

method to 115 percent of the amount 

otherwise paid for professional services 

under Medicare. In addition, section 

405(a)(1) of Public Law 108–173 (MMA) 

amended section 1834(g)(l) of the Act by 

inserting the phrase ‘‘equal to 101 

percent of’’ before the phrase ‘‘the 

reasonable costs’’. However, section 

405(a)(1) of Public Law 108–173 did not 

amend the phrase ‘‘reasonable costs’’ 

under the optional method at section 

1834(g)(2)(A) of the Act. 

Accordingly, section 1834(g) of the 

Act currently provides for two methods 

of payment for outpatient CAH services. 

Under the first method, as specified at 

section 1834(g)(1) of the Act, a CAH will 

be paid 101 percent of reasonable costs, 

unless it elects to be paid under the 

methodology specified at section 

1834(g)(2) of the Act. Under the method 

specified at section 1834(g)(1) of the 

Act, facility services are paid at 101 

percent of reasonable costs to the CAH 

through the Medicare fiscal 

intermediary or the Medicare Part A/B 

MAC, while payments for physician and 

other professional services are made to 

the physician under the Medicare 

Physician Fee Schedule (MPFS) through 

the Medicare carriers. However, under 

section 1834(g)(2) of the Act (the 

optional method), a CAH submits bills 

for both the facility and the professional 

services to its Medicare fiscal 

intermediary or its Medicare Part A/B 

MAC. If a CAH chooses this optional 

method for outpatient services, the 

physician or other practitioner must 

reassign his or her billing rights to the 

CAH to bill the Medicare program for 

those services. In accordance with 

section 1834(g)(2)(A) of the Act, under 

this optional method, the CAH receives 

reasonable cost payment for its facility 

costs and, with respect to the 

professional services, 115 percent of the 

amount otherwise paid for professional 

services under Medicare. 

Regulations implementing section 

1834(g) of the Act are set forth at 

§ 413.70(b). Section 413.70(b) states 

that, unless a CAH elects the optional 

method, payment for outpatient CAH 

services is 101 percent of the reasonable 

costs of the CAH in providing CAH 

services to its outpatients. However, 

existing § 413.70(b)(3)(ii)(A) states that a 

CAH may elect, under the optional 

method, to be paid at 101 percent of the 

reasonable costs for facility services. As 

a result, we believe that the existing 

regulation is not consistent with the 

plain reading of section 1834(g)(2) of the 

Act, which provides for payment under 

the optional method of reasonable cost 

for facility services. 

In order to ensure that the regulations 

are consistent with the plain reading of 

section 1834(g)(2)(A) of the Act, in the 

FY 2010 IPPS/RY 2010 LTCH PPS 

proposed rule (74 FR 24203 through 

24204), we proposed to revise 

§ 413.70(b)(3)(ii)(A) to state that CAHs 

that elect the optional method will 

receive payment based on reasonable 

cost for outpatient facility services. We 

indicated that the proposed change 

would not affect payment for the 

professional component as set forth 

under § 413.70(b)(3)(ii)(B). 

Comment: Commenters opposed 

CMS’ proposal to change payment for 

outpatient facility services for CAHs 

that elect the optional method of 

payment from 101 percent of reasonable 

cost to 100 percent of reasonable cost. 

Many commenters argued that the 

proposal to reduce payments to CAHs 

for outpatient facility services under the 

optional method is not in accordance 

with the intent of Congress. The 

commenters stated that section 405(a) of 

the MMA actually increased CAH 

payment to 101 percent of reasonable 

cost for outpatient facility services, 

regardless of whether or not a CAH 

elects the optional method. The 

commenters stated that while the 

statutory language of the MMA 

erroneously did not specify that CAHs 

that elect the optional method should be 

paid at 101 percent of reasonable cost, 

the proposed change goes against the 

intent of Congress as expressed in the 

conference report. Commenters stated 

that ‘‘the conference report references 

both types of payment methods, stating 

that CAHs may elect either ‘cost-based 

hospital outpatient service 

reimbursement or an all-inclusive rate, 

which is equal to reasonable cost 

reimbursement for facility services plus 

115 percent of the fee schedule payment 

for professional services.’ ’’ The 

commenters also stated that ‘‘In 

summarizing the conference agreement, 

the report more generally refers to CAH 

payments, stating that ‘outpatient * * * 

services provided by a CAH will be 

reimbursed at 101 percent of reasonable 

cost’.’’ Furthermore, the commenters 

asserted that the summary of present 

law in the conference report 

distinguishes between the traditional 

method of payment and the optional 

method, but the summary of the 

conference agreement does not make 

this distinction, which the commenters 

believe makes it clear that the 

conference agreement applies to both 

methods. 

Response: We have reviewed and 

have taken into consideration the 

commenters’ concerns regarding our 

proposal to revise the regulatory text to 

be consistent with the plain reading of 

section 1834(g)(2)(A) of the Act. Despite 

the commenters’ contentions that the 

statutory language of the MMA is 

erroneous, we continue to believe that 

the statutory text takes precedent over 

Conference report language. While the 

conference agreement does state that 

CAHs should be paid at 101 percent of 

reasonable cost for inpatient, outpatient, 

and covered SNF services, we believe 

the language in the conference 

agreement could be read not as an 

explicit expression of policy for CAHs 

that elect the optional method, but 

rather as a summary of CAH payment 

policy. We acknowledge the concerns 

raised by the commenters regarding the 

potential financial impact the proposal 

may have on CAHs. However, we are 

required to conform our payment policy 

to the statutory language and must 

revise the regulatory text to ensure it is 

consistent with the plain reading of the 

statute. If Congress makes a legislative 

change to allow CAHs that elect the 

optional payment method to receive 101 

percent of reasonable cost for outpatient 

facility services, we will revise the 

regulations accordingly to implement 

such a change. 


sroberts on DSKD5P82C1PROD with RULES
43938 Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 

Comment: Many commenters urged 

CMS to perform a detailed and thorough 

impact analysis on the effect the 

proposal may have on CAHs before 

moving forward. The commenters stated 

that CMS could have obtained 

information on which CAHs elect the 

optional method in a timely manner 

from its Medicare contractors and 

performed a thorough impact analysis. 

The commenters stated that, on behalf 

of the AHA, State hospital associations 

contacted Medicare contractors once the 

proposed rule was released and 

requested from them a list of CAHs that 

elect the optional method in each State. 

One commenter stated that the 

information received from the Medicare 

contractors ‘‘indicates that the vast 

majority of CAHs elect Method 2 

payment. For example, 88 percent of the 

CAHs in Iowa, 71 percent of the CAHs 

in Kansas, and 86 percent of the CAHs 

in North Dakota have elected to be paid 

under Method 2.’’ Many of the 

commenters believed the current 

proposal to reduce payment for 

outpatient facility services for CAHs 

that elect the optional method may have 

a significant financial impact for these 

small hospitals. Several commenters 

estimated that the proposal may cut 

payments to CAHs nationwide by $22 

million in FY 2010. Several commenters 

noted estimated impacts for CAHs 

located in specific States for FY 2010: 

$2.4 million for CAHs in Iowa; $1.7 

million for CAHs in Illinois; $700,000 

for CAHs in Nebraska; $779,783 for 

CAHs in Kansas; and more than $1 

million for CAHs in Kentucky. Another 

commenter stated that changing the 

payment under the optional method for 

outpatient facility services would cause 

its facility to lose $33,350 in payments 

for outpatient services. The commenter 

stated ‘‘while not a huge amount of 

money, for a rural distressed facility, 

any cut in reimbursement may be 

catastrophic.’’ The commenters urged 

that, because a detailed impact analysis 

was not performed, CMS should 

withdraw the proposed policy change. 

Several commenters expressed 

concern over the misinterpretation the 

proposed policy change may have 

among Medicare contractors. One 

commenter stated that the cost report, as 

currently written, does not specifically 

designate which costs are outpatient 

facility costs for services provided 

under the optional method. The 

commenter expressed concern that 

Medicare contractors may interpret the 

change in payment for outpatient 

facility services under the optional 

method from 101 percent of reasonable 

cost to 100 percent of reasonable cost to 

apply to all outpatient facility services. 

The commenter also stated that such an 

interpretation would eliminate any 

benefit gained from the additional 

payment for professional services under 

the optional method. In addition, the 

commenter stated that making the 

change would defeat a CAH’s incentive 

to elect the optional payment method 

and discourage medical providers and 

CAHs from working together. The 

commenter stated that ‘‘Even if the 

intent of the proposed rule is to 

eliminate the additional 1% 

reimbursement on only the costs 

associated with the Method II outpatient 

facility charges, the loss of the 1% 

reimbursement via the cost report 

would cut our benefit of Method II 

billing by approximately 40%.’’ The 

commenter stated that CAHs in Illinois 

‘‘* * * operate at negative operating 

margins’’ and the average operating 

margin is only at about 1.25 percent.’’ 

The commenter asserted that the 

smallest amount change in Medicare’s 

payment policy for CAHs can adversely 

impact CAHs and recommended that 

the proposed rule language read as 

follows: 

‘‘Facility Fee 1834(g)(2)(A) With 

respect to facility services, 101% of the 

reasonable costs of the critical access 

hospital in providing such services. 

‘‘Fee Schedule for Professional 

Services 1834(g)(2)(B) With respect to 

professional services, 115 percent of 

such amounts.’’ 

Another commenter stated that 

because the Medicare cost report does 

not provide for separate facility 

payment under the optional method, the 

commenter is concerned that Medicare 

contractors will apply 100 percent 

reasonable cost payment to all 

outpatient CAH services. 

Response: With respect to the 

financial impact of the proposal, we did 

not conduct an in-depth impact analysis 

because our proposal is a revision to 

regulatory text that currently is contrary 

to the plain language of the statute. That 

is, we did not have a choice as to 

whether we would change payment for 

outpatient facility costs for CAHs that 

elect the optional method. Furthermore 

we do not believe we could necessarily 

estimate the impact of the proposed 

provision because election of the 

optional method is not permanent; 

CAHs are only required to make the 

election 30 days prior to the start of the 

cost reporting period for which it is 

effective. Therefore, we cannot estimate 

how many CAHs will choose to retain 

the optional method of payment if 

facility services are only paid at 100 

percent of reasonable cost. Furthermore, 

the optional method is physicianspecific. That is, for some physicians’ 

outpatient services, a CAH may elect to 

be paid under the optional method and 

for other physicians’ outpatient services, 

it may opt to be paid only at 101 percent 

of reasonable costs for facility services. 

The CAH’s election is contingent on 

whether the physician is willing to 

reassign his or her billing rights to the 

CAH. Therefore, because it is the 

physician’s decision as to whether he or 

she chooses to reassign billing rights to 

the CAH, we believe we cannot 

accurately determine which physicians 

would choose to opt out of the optional 

method upon implementation of the 

proposed provision. 

To address the commenters’ concerns 

regarding possible misinterpretation of 

the proposed regulatory change by 

Medicare contractors, we intend to issue 

instructions to ensure that contractors 

properly update the Fiscal Intermediary 

Share System (FISS). The instructions 

will include full and complete details to 

clarify that the regulatory text change is 

only applicable to services for which the 

CAH has elected to use the optional 

method. We are not adopting the 

commenter’s proposed regulatory 

language because, as stated previously, 

the regulations pertaining to payment 

for outpatient facility services for CAHs 

that elect the optional method need to 

conform to the statutory text at section 

1834(g)(2)(A) of the Act that references 

reasonable cost payment instead of ‘‘101 

percent of reasonable cost’’ payment. 

Comment: Many commenters 

requested that if the proposed policy is 

finalized, CMS specify an effective date 

for the proposed change. The 

commenters urged CMS to allow CAHs 

adequate time to evaluate their 

circumstances and make an informed 

decision as to whether or not to elect the 

optional method going forward. Several 

commenters recommended that, if the 

proposed policy is finalized, the 

effective date should be no earlier than 

cost reporting periods beginning on or 

after January 1, 2010. 

Response: We believe we cannot 

delay implementation of this proposed 

policy as the regulation as currently 

written is not consistent with the plain 

reading of section 1834(g)(2)(A) of the 

Act. However, we recognize that it may 

be unfair to apply this change in the 

middle of an existing cost reporting 

period, when CAHs made their decision 

to elect the optional method under the 

existing regulatory text. Therefore, 

while we are finalizing the revisions to 

the regulations as proposed, the change 

will be effective for cost reporting 

periods beginning on or after October 1, 

2009, and not in the middle of any 

CAH’s cost reporting period. If a CAH 


sroberts on DSKD5P82C1PROD with RULES
Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 43939 

determines that, based on the 

percentage revision in the regulation, 

the CAH no longer wants to elect to use 

the optional method, the CAH may 

change its election beginning with its 

next cost reporting period that begins on 

or after October 1, 2009. 

Comment: Commenters expressed 

concern that reducing payment for 

outpatient facility services for CAHs 

that elect the optional method from 101 

percent of reasonable cost to 100 

percent of reasonable cost would limit 

access to patient care. One commenter 

stated that ‘‘* * * the option to use 

Method 2 billing was intended to be an 

additional incentive to attract 

physicians to provide services in 

communities where their services might 

not otherwise be available. Method 2 

billing is meant to be an enhancement 

to what a CAH would otherwise receive 

as reimbursement, not a choice between 

what is received for professional 

services versus what is received for 

facility services.’’ The commenter stated 

that if CMS believes the language 

describing payment for CAHs that elect 

the optional method is ambiguous, CMS 

should request clarification from 

Congress so that Congress’ drafting error 

can be corrected, rather than proposing 

a rule that would prove harmful to the 

provision of physician services in the 

local community. Another commenter 

stated that ‘‘This increased payment for 

physician services helps bring 

physicians to our areas. It would be 

counterproductive to then take away the 

add-on the hospital gets.’’ One 

commenter stated that it would make 

more sense to reduce payment under the 

optional method for professional 

services and leave payment for facility 

services at 101 percent of reasonable 

cost. The commenter stated that using 

the optional method for physician 

services has allowed its CAH to simplify 

Medicare billing for providers’ services. 

The commenter also asserted that using 

the optional method for physician 

services has made it easier for the 

patient to understand the bill he or she 

receives because the CAH can combine 

the facility service and the physician 

service onto one bill to the Medicare 

contractor. The commenter stated that, 

for example, the CAH can combine an 

X ray and the radiologist reading fee 

charges onto one bill to the Medicare 

contractor. However, the commenter 

indicated, under the proposed rule, it 

would have to bill the X ray to the 

Medicare contractor and the radiologist 

reading fee to the Medicare carrier. 

Under this scenario, the patient would 

receive two explanations of benefit 

forms as opposed to the one the patient 

receives under the current rules. In 

addition, under the proposed provision, 

the CAH would have increased billing 

costs because it would have to provide 

two explanations of benefits. 

Response: We emphasize that the 

proposed provision to reduce payment 

for outpatient facility services for CAHs 

that elect the optional method from 101 

percent of reasonable cost to 100 

percent of reasonable cost does not 

affect payment to CAHs for professional 

services under the optional method. As 

a result, it would not be appropriate to 

change payment for professional 

services under the optional method of 

payment because the statute clearly 

states that payment for these services is 

115 percent of the physician fee 

schedule amount. CAHs will continue 

to receive payment at 115 percent of the 

applicable physician fee schedule 

amount for professional services. 

Therefore, we do not agree that reducing 

payment for outpatient facility services 

will necessarily limit the provision of 

physician services. Furthermore, as 

stated previously, if Congress makes a 

legislative change to allow CAHs that 

elect the optional payment method to 

receive 101 percent of reasonable cost 

for outpatient facility services, CMS will 

revise the regulations accordingly to 

implement such a change. 

In response to the commenter’s 

concern regarding the billing process, 

we encourage the commenter to work 

with its Medicare contractor to resolve 

those concerns. 

In summary, in order to ensure that 

the regulations are consistent with the 

plain reading of section 1834(g)(2)(A) of 

the Act, we are finalizing our proposal 

to revise the regulatory text at 

§ 413.70(b)(3)(ii)(A) to state that CAHs 

that elect the optional method will 

receive payment at 100 percent of 

reasonable cost for outpatient facility 

services. The change is effective for cost 

reporting periods beginning on or after 

October 1, 2009. The change does not 

affect the existing policy for payment for 

the professional component as set forth 

under § 413.70(b)(3)(ii)(B). 

4. Continued Participation by CAHs 

Located in Counties Redesignated as 

Urban 

Under section 1820(c)(2)(B)(i) of the 

Act, a facility is eligible for designation 

as a CAH only if it is located in a county 

or equivalent unit of local government 

in a rural area (as defined in section 

1886(d)(2)(D) of the Act), or is being 

treated as being located in a rural area 

pursuant to section 1886(d)(8)(E) of the 

Act. The regulations implementing this 

location requirement are located at 42 

CFR 485.610(b). Currently, several 

CAHs are located in counties that were 

designated as ‘‘rural areas’’ in FY 2009 

under section 1886(d)(2)(D) of the Act 

but will, as of October 1, 2009, be 

considered to be located in urban areas 

due to the redesignation of three 

Micropolitan Statistical Areas 

announced by the Office of Management 

and Budget (OMB) on November 20, 

2008. (We refer readers to section III.C. 

of this preamble for a discussion of the 

changes in the three Micropolitan 

Statistical Areas that now qualify as 

MSAs that were announced in OMB 

Bulletin No. 09–01.) A facility that is 

located in an urban area cannot remain 

a CAH, unless it has been deemed rural 

under 42 CFR 412.103. In response to 

the FY 2010 IPPS/RY 2010 LTCH PPS 

proposed rule in which we discussed 

the OMB changes for purposes of 

determining the hospital wage index for 

FY 2010 (74 FR 24139), we received a 

number of public comments on this 

issue. 

Comment: Many commenters urged 

CMS to exercise the same executive 

discretion that was applied in the FY 

2005 IPPS final rule (69 FR 49221), in 

which CMS provided for special 

treatment for CAHs that were affected 

by OMB redesignations of MSAs by 

amending the regulations at § 412.103 

and § 485.610 to allow CAHs that were 

located in counties that were considered 

rural in FY 2004, but urban in FY 2005, 

to maintain their CAH status through 

either the earlier of FY 2006 or when the 

CAH obtained a rural designation under 

§ 412.103. The commenters stated that, 

under the amendment, CAHs were 

allowed to continue participation as a 

CAH for 2 years and were not required 

to convert to PPS hospitals unless they 

were not able to obtain a rural 

designation under § 412.103. 

The commenters also requested that 

CMS not only take the same approach 

as it did in FY 2005, but also 

recommended that CMS make the 

regulation change permanent so that the 

agency does not have to address this 

issue each time the redesignation or 

creation of MSAs affects CAH status. To 

do so, the commenters recommended 

that CMS revise § 485.610(b)(3) to delete 

references to specific dates and instead 

incorporate general language to allow 

CAHs that have CAH status in one year, 

but are located in counties that will be 

considered urban in the next year, to 

retain their CAH status for a 2-year 

period. The commenters also suggested 

that CMS also revise § 412.103(a)(4) to 

delete references to specific dates and 

instead incorporate general language 

allowing CAHs that are located in 

counties that are reclassified from rural 


sroberts on DSKD5P82C1PROD with RULES
43940 Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 

to urban to have 2 years to obtain a rural 

designation under § 412.103. 

Several commenters stated that if 

CMS is unwilling to take the same 

approach as it afforded CAHs in FY 

2005, CAHs located mainly in Kansas 

and Missouri, as an unintended 

consequence, will lose their CAH status 

and will be forced to revert back to a 

PPS hospital. The commenters stated 

that if CAH participation were 

terminated, these facilities would likely 

need to seek State licensure and 

Medicare participation as hospitals in 

order to be able to continue operations. 

However, the commenters argued that 

this would have a profound effect on the 

communities that CAHs service and 

would place these facilities at 

significant financial risk in excess of 

more than $1 million per hospital per 

year. 

Response: We understand the 

commenters’ concerns and agree that 

providing a transition period for the 

CAHs that are located in counties that 

are reclassified from rural to urban to 

obtain a rural redesignation will 

mitigate the disruptive impact of this 

change. Accordingly, we believe it is 

appropriate to revise § 485.610 by 

adding a new paragraph (b)(4) and to 

revise § 412.103 by adding a new 

paragraph (a)(5) to provide special 

treatment for such facilities, as was 

done in FY 2005. Under the revision 

made to § 485.610(b) and § 412.103(a), a 

CAH that is located in a county that, in 

FY 2009, was not part of an MSA, as 

defined by the OMB, but as of FY 2010 

was included as part of an MSA as a 

result of the most recent census data 

and implementation of the new MSA 

definitions announced by OMB on 

November 20, 2008, would nevertheless 

be considered to meet the rural location 

requirement and, therefore, could 

continue participating without 

interruption as a CAH from October 1, 

2009 through the earlier of the date on 

which the CAH obtains a rural 

designation under § 412.103, or 

September 30, 2011. Such a facility 

would be allowed to continue 

participating as a CAH and would not 

be required to convert back to being a 

PPS hospital unless it was not able to 

obtain rural designation under that 

section. We also will consider whether 

it is appropriate to propose, in future 

IPPS rulemaking, to revise § 485.610 

and § 412.103 to provide for a transition 

period any time a CAH that was 

formerly considered to be located in a 

rural area is designated as being located 

in an urban area as a result of the 

redesignation of its county from rural to 

urban. 

D. Provider-Based Status of Facilities 

and Organizations: Policy Changes 

1. Background 

Since the beginning of the Medicare 

program, some providers, which we 

refer to as ‘‘main providers,’’ have 

functioned as a single entity while 

owning and operating multiple 

provider-based departments, locations, 

and facilities that were treated as part of 

the main provider for Medicare 

purposes. Therefore, we have 

maintained that having clear criteria for 

provider-based status is important 

because by failing to properly 

distinguish between a provider-based 

facility and a freestanding facility, we 

risk additional program payments and 

increased beneficiary coinsurance 

liability with no commensurate benefit 

to the Medicare program or its 

beneficiaries. In addition, we jeopardize 

the delivery of safe and appropriate 

health care services to beneficiaries. 

The Medicare policies regarding 

provider-based status of facilities and 

organizations are set forth at 42 CFR 

413.65. The regulations at § 413.65 have 

been revised and updated on numerous 

occasions since they were originally 

issued on April 7, 2000 (65 FR 18504). 

We note that the implementation of the 

April 7, 2000 regulations was delayed 

by Public Law 106–554 (BIPA) for many 

providers. Public Law 106–554 also 

made changes in the criteria for 

determining provider-based status, 

which we implemented in a final rule 

published in the Federal Register on 

November 30, 2001 (66 FR 59956). The 

most recent revisions of § 413.65 were 

included in the FY 2006 IPPS final rule 

(70 FR 47457 through 47461 and 47487 

through 47488) when we updated the 

rules with respect to the facilities for 

which provider-based determinations 

will not be made and clarified some of 

the provider-based definitions and 

requirements. 

Currently, § 413.65(a) specifies the 

facilities and organizations for which 

provider-based status may be sought 

and lists those facilities for which 

determinations of provider-based status 

for Medicare payment purposes are not 

made. Section 413.65(b) describes the 

procedures for making provider-based 

determinations, and § 413.65(c) explains 

the requirements for reporting material 

changes in relationships between main 

providers and provider-based facilities 

and organizations. In § 413.65(d), we 

specify all of the requirements that any 

facility or organization for which 

provider-based status is sought must 

meet, whether located on or off the 

campus of a potential main provider. 

Section 413.65(e) specifies additional 

requirements applicable to off-campus 

facilities or organizations. These 

requirements include: Operation under 

the ownership and control of the main 

provider; administration and 

supervision; and location. Sections 

413.65(f) through (o) set forth the 

policies regarding provider-based status 

for joint ventures, obligations of hospital 

outpatient departments and hospitalbased entities, management contracts, 

furnishing of all services under 

arrangement, inappropriate treatment of 

a facility or organization as providerbased, temporary treatment as providerbased, correction of errors, status of 

Indian Health Service and Tribal 

facilities and organizations, FQHCs and 

‘‘look alikes,’’ and effective dates of 

provider-based status. 

2. Changes to the Scope of the ProviderBased Status Regulations for CAHs 

(a) CAH-Based Clinical Diagnostic 

Laboratory Facilities 

As we discussed in the FY 2010 IPPS/ 

RY 2010 LTCH PPS proposed rule (74 

FR 24204 through 24205), the providerbased status rules generally apply to 

situations where there is a financial 

incentive for a facility or organization to 

claim affiliation with a main provider. 

The provider-based status rules 

establish criteria for a facility or 

organization to demonstrate that it is 

integrated with the main provider for 

payment purposes. However, the 

regulation at § 413.65(a)(1)(ii) lists 

specific types of facilities and 

organizations for which CMS will not 

make provider-based determinations. 

Included on this list of facilities exempt 

from provider-based determinations are 

facilities that furnish only clinical 

diagnostic laboratory services 

(§ 413.65(a)(1)(ii)(G)). 

As we have stated previously (that is, 

the FY 2006 IPPS final rule (70 FR 

47457)), the list at § 413.65(a)(1)(ii) was 

created after we had concluded that 

‘‘provider-based determinations should 

not be made for these facilities because 

the outcome of the determination (that 

is, whether a facility, unit, or 

department is found to be freestanding 

or provider-based) would not affect the 

methodology used to make Medicare or 

Medicaid payment, the scope of benefits 

available to a Medicare beneficiary in or 

at the facility, or the deductible or 

coinsurance liability of a Medicare 

beneficiary in or at the facility.’’ We 

note that we included a facility that 

furnishes only clinical diagnostic 

laboratory services in the list of facilities 

for which a determination of providerbased status is not made in 

§ 413.65(a)(1)(ii)(G) because these 


sroberts on DSKD5P82C1PROD with RULES
Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 43941 

facilities are generally paid under the 

Clinical Laboratory Fee Schedule 

(CLFS), regardless of the setting in 

which the services are furnished. 

Consequently, we believed that whether 

a clinical diagnostic laboratory was 

freestanding or provider-based would 

not affect the amount of Medicare 

payment. 

However, upon further review of 

existing § 413.65(a)(1)(ii), we believe 

that a clinical diagnostic laboratory, 

when operated as part of a CAH, 

generates a higher Medicare payment 

than when operating as a freestanding 

facility. When a clinical diagnostic 

laboratory is part of a CAH, the services 

furnished by the laboratory are generally 

paid 101 percent of reasonable cost. 

Otherwise, clinical diagnostic laboratory 

services provided by a freestanding 

diagnostic laboratory are paid under the 

CLFS. Currently, because the services of 

a clinical diagnostic laboratory of a CAH 

are paid at a higher rate by virtue of 

being provided by a CAH department, 

we believe they should be subject to the 

rules under the provider-based status 

regulations at § 413.65. 

Therefore, in the FY 2010 IPPS/RY 

2010 LTCH PPS proposed rule (74 FR 

24205), we proposed to exclude a 

clinical diagnostic laboratory facility 

that operates as part of a CAH from the 

list of facilities for which we do not 

make provider-based determinations. 

That is, we proposed to revise the 

regulations to require facilities 

furnishing only clinical diagnostic 

laboratory tests that operate as part of 

CAHs to meet the applicable providerbased criteria in § 413.65 in order for the 

CAHs to receive payments for the 

services furnished at those facilities 

based on reasonable cost. Specifically, 

we proposed to revise the language of 

§ 413.65(a)(1)(ii)(G) to state that CMS 

will not make a determination of 

provider-based status for payment 

purposes as to whether the following 

facilities are provider-based: 

‘‘Independent diagnostic testing 

facilities that furnish only services paid 

under a fee schedule, such as facilities 

that furnish only screening 

mammography services, facilities that 

furnish only clinical diagnostic 

laboratory tests, other than those 

clinical diagnostic laboratory facilities 

operating as parts of CAHs, or facilities 

that furnish only some combination of 

these services’’ (emphasis added). In 

addition, we proposed to specify that 

‘‘Clinical diagnostic laboratories 

operating as parts of CAHs must meet 

the applicable provider-based 

requirements.’’ 

Comment: One commenter questioned 

whether there is a financial incentive for 

a clinical diagnostic laboratory facility 

to be part of a CAH compared to a 

freestanding clinical diagnostic 

laboratory facility or a clinical 

diagnostic laboratory facility that is part 

of a hospital. The commenter 

questioned whether payment under 

reasonable cost for clinical diagnostic 

laboratory services is higher than 

payment under the CLFS. The 

commenter requested that CMS provide 

data that demonstrate that there is, in 

fact, a payment differential between a 

freestanding clinical diagnostic 

laboratory facility and a CAH-owned 

clinical diagnostic laboratory facility. 

Response: CAHs are, by definition, 

limited-service facilities located in rural 

areas. CAH services are paid under 101 

percent of reasonable cost (or, in some 

cases, reasonable cost) in order to 

ensure that these isolated, high-cost, 

rural hospitals are able to furnish 

critical health care services. Thus, it is 

reasonable to assume that the reasonable 

cost-based payment for clinical 

diagnostic laboratory services is, in 

some cases, higher than payment under 

the CLFS. As such, we believe that there 

is a financial incentive for clinical 

diagnostic laboratory facilities to be part 

of a CAH rather than a freestanding 

facility or a part of a hospital. Because 

of this financial incentive, we believe 

that a CAH-owned clinical diagnostic 

laboratory facility should demonstrate 

integration with the CAH under the 

provider-based status rules in order to 

receive the higher CAH payment rate. 

Comment: Several commenters 

opposed the proposal to require that 

facilities that furnish only clinical 

diagnostic laboratory services as part of 

a CAH meet the provider-based status 

rules. The commenters were opposed to 

the proposal because they believed that 

CAH-based clinical diagnostic 

laboratory facilities would be unable to 

meet all of the provider-based rules at 

§ 413.65. In addition, the commenters 

were concerned that these facilities 

would not be able to meet the distance 

requirement applicable to CAHs that 

requires that CAHs and their providerbased locations established after January 

1, 2008, must be more than 35 miles 

from a hospital or another CAH (or more 

than 15 miles in areas with 

mountainous terrain or only secondary 

roads) in accordance with § 485.610(e). 

Another commenter requested that 

currently operating CAH-based clinical 

diagnostic laboratory facilities or those 

under development should be 

grandfathered to have provider-based 

status. Another commenter suggested 

that currently operating CAH-based 

clinical diagnostic laboratory facilities 

or those under development should be 

granted provider-based status if they 

meet the applicable provider-based 

status rules with the exception of the 

distance requirement. 

Response: The intent of the providerbased status rules is to ensure that 

higher levels of Medicare payment are 

limited to situations where the facility 

or organization is clearly an integral and 

subordinate part of the main provider. 

Therefore, we believe it is reasonable for 

a CAH-owned clinical diagnostic 

laboratory facility to meet the providerbased status rules to demonstrate that 

the facility is fully integrated with the 

main provider in order for the clinical 

diagnostic laboratory services provided 

in the facility to be paid based on 

reasonable cost. 

We understand the commenters’ 

concerns that clinical diagnostic 

facilities that are currently operating as 

part of CAHs may not be able to meet 

the provider-based status rules. 

However, we do not agree that, because 

existing facilities cannot meet the 

provider-based rules, they should be 

exempt from those rules. We believe 

that these facilities should meet all of 

the requirements, including the 

provider-based status location 

requirement at § 413.65(e)(3) under 

which an off-campus provider-based 

department must be within 35 miles of 

the main provider or must meet other 

location requirements. In addition, 

under this policy, CAH-owned clinical 

diagnostic laboratory facilities would be 

required to meet the requirement at 

§ 485.610(e)(2) that specifies that, for a 

CAH or a necessary provider CAH that 

operates an off-campus provider-based 

location that was created or acquired by 

the CAH on or after January 1, 2008, the 

off-campus provider-based location 

must be more than a 35-mile drive from 

a hospital or another CAH (or more than 

a 15-mile drive, in areas with 

mountainous terrain or only secondary 

roads). This regulation applies to the 

off-campus provider-based locations of 

CAHs created or acquired on or after 

January 1, 2008. If a CAH-owned 

clinical diagnostic laboratory facility 

cannot meet the location requirement, 

we believe the CAH-owned clinical 

diagnostic laboratory facility does not 

warrant the higher CAH payment rate. 

Accordingly, we are not amending the 

proposal to grandfather existing 

arrangements of CAH-owned clinical 

diagnostic laboratory facilities. 

However, in this final rule, we are 

allowing additional time, until October 

1, 2010, for CAH-owned clinical 

diagnostic laboratory facilities to meet 

the provider-based status rules. If the 

CAH-based clinical diagnostic 

laboratory facility cannot meet the 


sroberts on DSKD5P82C1PROD with RULES
43942 Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 

provider-based status rules by that date, 

the clinical diagnostic laboratory 

services furnished at the facility will be 

paid under the CLFS. 

Comment: One commenter believed 

that the proposal to require a clinical 

diagnostic laboratory facility that is part 

of the four walls of the CAH to meet the 

provider-based status rules was 

illogical. The commenter believed the 

proposal would be similar to requiring 

a radiology department of a CAH to 

meet the provider-based status rules so 

that the CAH could receive reasonable 

cost-based payment. 

Response: The provider-based status 

rules were established to address main 

providers that function as a single entity 

while owning and operating multiple 

departments, locations, and facilities. 

We do not agree with the assertion that 

just because a department is within the 

four walls of a hospital or CAH, that the 

department should be exempt from the 

provider-based status rules. Hospitals 

can and have leased space on their 

campuses to physicians and other 

providers or suppliers of health 

services, and these providers or 

suppliers may have no connection to or 

integration with the hospital’s 

operations other than a lease agreement 

and physical proximity. For example, 

under our existing regulations, a CAH 

can lease some of its space to a clinical 

diagnostic laboratory facility, and that 

facility could be paid more significantly 

for services as a provider-based 

department to the CAH than as a 

freestanding facility. Because of this 

payment difference, we believe that a 

clinical diagnostic laboratory facility 

must meet the provider-based status 

rules at § 413.65, even if it is located 

within the CAH, to demonstrate that it 

is fully integrated with the operations of 

the CAH and warrants the higher CAH 

payment rate. Therefore, in order for 

services to be paid under reasonable 

cost, a clinical diagnostic laboratory 

facility that is part of a CAH must meet 

the appropriate provider-based status 

rules, regardless of whether it is on or 

off the campus of the CAH. 

Comment: Some commenters 

expressed concern about how the 

proposal would affect ‘‘necessary 

provider’’ CAHs. The commenters 

believed that clinical diagnostic 

laboratory facilities that are part of 

CAHs that received the ‘‘necessary 

provider’’ designation would not be able 

to meet the provider-based status rules. 

The commenters stated that necessary 

provider CAHs did not have to meet the 

mileage requirement; therefore, by 

requiring their clinical diagnostic 

laboratory facilities to meet the 

provider-based status rules, the facilities 

would not meet the distance 

requirement which would threaten the 

CAHs’ status. The commenters were 

concerned that, as a result of this 

proposal, facilities may close, 

decreasing beneficiary access to these 

essential services. 

Response: Under § 485.610(c) of the 

regulations, CAHs with the necessary 

provider designation are CAHs that, 

before January 1, 2006, were ‘‘certified 

by the State as being a necessary 

provider of health care services to 

residents in the area’’ and are exempt 

from the distance requirement that it is 

more than a 35-mile drive (or in the case 

of mountainous terrain or in areas with 

only secondary roads available, more 

than a 15-mile drive) from a hospital or 

another CAH. Designations for 

necessary provider CAHs were made 

until December 31, 2005, and these 

necessary provider CAHs were 

grandfathered and allowed to maintain 

that designation after January 1, 2006. 

Section 485.610(e) of the regulations 

requires that an off-campus providerbased location of a CAH or a necessary 

provider CAH that is created or acquired 

on or after January 1, 2008, must be 

more than a 35-mile drive (or in the case 

of mountainous terrain or in areas with 

only secondary roads available, more 

than a 15-mile drive) from another CAH 

or hospital. Because the regulation at 

§ 485.610(e) did not exempt providerbased departments of necessary 

provider CAHs from the distance 

requirement, we do not believe that 

necessary provider CAHs that own offcampus clinical diagnostic laboratory 

facilities should be exempt from the 

distance requirement now that these 

clinical diagnostic laboratory facilities 

must meet the provider-based status 

rules. We note that § 485.610(e)(2) only 

applies the distance requirement to 

CAH-based, off-campus provider-based 

locations created or acquired on or after 

January 1, 2008. Therefore, only CAHbased, off-campus facilities furnishing 

clinical diagnostic laboratory services 

acquired or created on or after January 

1, 2008, must meet the distance 

requirement at § 485.610(e)(2), which 

requires the off-campus provider-based 

location to be more than a 35-mile drive 

from another hospital or CAH. In 

contrast, CAH-based clinical diagnostic 

laboratory facilities acquired or created 

prior to January 1, 2008, must meet the 

location requirements at § 413.65 to be 

considered provider-based to the CAH, 

but are exempt from the distance 

requirement at § 485.610(e)(2). 

Regarding the concern that clinical 

diagnostic laboratory facilities may 

close, decreasing beneficiary access to 

these essential services as a result of this 

policy, we believe this is an incorrect 

assumption. If a CAH owns a clinical 

diagnostic laboratory facility that does 

not meet the provider-based status rules 

at § 413.65 or the CAH distance 

requirements at § 485.610, the services 

provided in the clinical diagnostic 

laboratory facility will still be paid 

under the CLFS. 

Comment: Commenters requested that 

CMS specify an effective date for the 

proposal to require CAH-owned 

facilities furnishing diagnostic 

laboratory tests to meet the providerbased rules. The commenters requested 

that CMS set an effective date no earlier 

than October 1, 2010, so that CAHs have 

adequate time to ensure that their 

clinical diagnostic laboratory facilities 

meet provider-based status rules and to 

allow for CAHs to attest to obtaining 

provider-based status. 

Response: We agree with the 

commenters that CAHs may require 

time to ensure that their clinical 

diagnostic laboratory facilities meet the 

provider-based status rules at § 413.65 

in order for services furnished in those 

facilities to be paid under reasonable 

cost. In addition, we understand that 

CAHs may want to file an attestation, 

although voluntary, with their CMS 

Regional Office to get a provider-based 

status determination. We encourage 

CAHs to work with their CMS Regional 

Office and contractor on how to file an 

attestation and request a provider-based 

determination. To allow CAHs the time 

they need to make organizational 

changes, if necessary, to comply with 

the provider-based status rules and to 

ensure that the CMS Regional Offices 

and contractors are able to process 

requests for provider-based 

determinations, we are delaying the 

effective date of our policy so that 

clinical diagnostic laboratory facilities 

that are part of a CAH will have to meet 

the provider-based status rules as of 

October 1, 2010. Beginning October 1, 

2010, a clinical diagnostic laboratory 

facility will be considered as providerbased to a CAH only if it meets all of 

the requirements at § 413.65, and if, on 

that date, it either has a written 

determination from CMS that it is 

provider-based or is billing and being 

paid as a provider-based department or 

entity of the CAH. In this final rule, we 

are modifying our proposal to revise 

§ 413.65(a)(1)(ii)(G) to reflect an 

effective date of October 1, 2010. In 

addition, the CAH distance requirement 

at § 485.610(e)(2) provides that offcampus provider-based locations of a 

CAH or a necessary provider CAH that 

were created or acquired on or after 

January 1, 2008, must be more than a 

35-mile drive from a hospital or another 


sroberts on DSKD5P82C1PROD with RULES
Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 43943 

CAH as of October 1, 2010. Existing 

CAH-based clinical diagnostic 

laboratory facilities that were created on 

or after January 1, 2008, will also have 

to satisfy the CAH distance 

requirements for the CAH to retain its 

CAH certification, as well as meet the 

provider-based status rules in order to 

be paid based on reasonable cost. 

Comment: One commenter asked 

whether the policy to require CAHowned clinical diagnostic laboratory 

facilities to meet the provider-based 

rules would apply to open cost reports. 

In addition, the commenter asked 

whether Medicare contractors had to 

audit the facilities to determine 

provider-based status. 

Response: As discussed above, we are 

specifying that the CAH-owned clinical 

diagnostic laboratory facilities must 

meet the provider-based status rules by 

October 1, 2010, in order for their 

services to be paid at reasonable cost. 

The policy will not apply to open cost 

reports; rather, CAH-based clinical 

diagnostic laboratory facilities will have 

to meet the provider-based status rules 

by October 1, 2010. Medicare 

contractors should use their standard 

audit procedures to review CAH cost 

reports for periods beginning on or after 

October 1, 2010, to ensure that their 

facilities furnishing clinical diagnostic 

laboratory tests meet the provider-based 

rules and are billing appropriately. In 

addition, Medicare contractors and CMS 

Regional Offices can expect to receive 

attestations for provider-based 

determinations of CAH-based clinical 

diagnostic laboratory facilities. 

In adopting this change to the 

provider-based status rules, we 

recognize that there may be confusion 

between this provision that a clinical 

diagnostic laboratory facility that is part 

of a CAH must meet provider-based 

status rules in order to receive the 

higher reasonable cost-based payment 

and the provision discussed in section 

VII.C.2. of this preamble to implement 

section 148 of Public Law 110–275. In 

section VII.C.2. of this preamble, we are 

adopting as final our proposal to revise 

the regulations at § 413.70 to specify 

that CAHs can bill for outpatient 

clinical diagnostic laboratory services 

furnished to patients who are 

outpatients of the CAH, regardless of 

whether they are physically present in 

the CAH at the time the specimen is 

collected. Under the revision to 

§ 413.70, in order for a CAH to bill 

based on the reasonable costs of 

outpatient clinical diagnostic laboratory 

services furnished to an individual, the 

individual must be an outpatient of the 

CAH, as defined at § 410.2, that is, be 

receiving services directly from the 

CAH. As a result, either the individual 

must be receiving outpatient services in 

the CAH on the same day that the 

specimen is collected or the specimen 

must be collected by an employee of the 

CAH. Under the final policy changes to 

the provider-based status rules under 

§ 413.65 in this section of this final rule, 

if a CAH operates a provider-based 

clinical diagnostic laboratory facility, 

the facility must meet the providerbased status requirements under 

§ 413.65 in order for the facility to be 

considered part of the CAH and in order 

for the CAH to be eligible to be paid 

based on reasonable cost for the clinical 

diagnostic laboratory services furnished 

by the laboratory facility. According to 

our finalized policy in section VII.C.2. 

of the preamble of this final rule, a CAH 

will have the option to bill for 

outpatient clinical diagnostic laboratory 

services based on reasonable cost for 

patients where the specimen was 

collected at non-CAH-based facilities as 

long as the patients are outpatients of 

the CAH, as defined above, and 

therefore, either the specimen is 

collected by an employee of the CAH or 

the individual is receiving outpatient 

services in the CAH on the same day 

that the specimen is collected. In 

addition, under our provider-based 

status finalized policy in this final rule, 

a CAH can also bill for clinical 

diagnostic laboratory services on a 

reasonable cost basis for patients who 

are furnished services in a clinical 

diagnostic laboratory facility that is 

owned and operated by the CAH as long 

as the clinical diagnostic laboratory 

facility meets the provider-based status 

requirements at § 413.65. 

In summary, after consideration of the 

public comments we received, we still 

believe that clinical diagnostic 

laboratory facilities could generate an 

increase in Medicare payments when 

they are part of a CAH compared to 

when they are freestanding. Therefore, 

we are finalizing our proposal that these 

facilities, which are currently exempt 

from provider-based determinations, 

must meet the applicable providerbased status requirements at § 413.65 in 

order for the CAH to receive payment 

for their clinical diagnostic laboratory 

services based on reasonable cost. This 

requirement will apply to facilities that 

furnish clinical diagnostic laboratory 

services beginning on or after October 1, 

2010. It is important to note that, in 

addition to meeting the provider-based 

status requirements at § 413.65, these 

provider-based facilities will also have 

to meet other requirements for providerbased facilities operated by CAHs, 

including the distance requirements 

under § 485.610(e). Generally, the 

regulations at § 485.610(e)(2) provide 

that off-campus provider-based 

locations of a CAH that were created or 

acquired on or after January 1, 2008, 

must be more than a 35-mile drive from 

a hospital or another CAH if the CAH 

is to continue meeting the location 

requirements under § 485.610(e)(2). 

b. CAH-Based Ambulance Services 

The existing regulations at 

§ 413.70(b)(5) provide that ambulance 

services are paid at reasonable cost if 

the services are furnished by a CAH or 

by an entity owned and operated by a 

CAH, but only if the CAH or entity is 

the only supplier or provider of 

ambulance service within a 35-mile 

drive of the CAH or entity. In the FY 

2010 IPPS/RY 2010 LTCH PPS proposed 

rule (74 FR 24205 and 24206), we 

solicited public comments regarding 

whether an ambulance service that is 

owned and operated by a CAH, and is 

eligible to receive reasonable cost-based 

payment, should be required to meet the 

provider-based status rules. It is 

important to consider that the regulation 

at § 413.70(b)(5) already specifies the 

proximity criteria that CAH-owned and 

operated ambulance services must meet 

in order to be paid at reasonable cost. 

However, these proximity requirements 

are used to ensure that CAH-owned and 

operated ambulance services do not 

receive higher payments in relation to a 

competing ambulance service that is not 

owned and operated by a CAH. It can 

be argued that CAH-owned and 

operated ambulance suppliers or 

providers should also be required to 

meet the provider-based status 

requirements to demonstrate that the 

ambulance services are integrated with 

the CAH because the CAH ambulance 

services are paid at a higher Medicare 

payment level when they are owned and 

operated by a CAH compared to when 

they are freestanding. 

Comment: Several commenters 

disagreed that CAH-owned and operated 

ambulance services that are eligible to 

be paid at reasonable cost should be 

required to meet applicable providerbased rules. The commenters generally 

cited the unique role that CAHs serve in 

regions with limited medical service 

options. The commenters claimed that 

requiring ambulance services to meet 

provider-based status rules would result 

in an unnecessary administrative 

burden and would result in the loss of 

service in some areas. The commenters 

specifically cited the cases of ‘‘necessary 

provider CAHs,’’ which would be 

unable to meet the requirements that 

provider-based departments or facilities 

be located beyond 35 miles (15 miles if 


sroberts on DSKD5P82C1PROD with RULES
43944 Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 

located in mountainous terrain) from 

another CAH or hospital. 

Response: While commenters may be 

concerned that an ambulance service 

based to a necessary provider CAH may 

not be able to meet the requirements set 

forth in § 485.610(e)(2) if we required 

CAH-based ambulances to meet the 

provider-based status rules, we point 

out that there are existing regulations at 

§ 413.70(b)(5) that prohibit CAHs from 

receiving a cost-based payment for 

ambulance services if another provider 

or supplier of ambulance services is 

located within a 35-mile drive of the 

CAH. The main campus of a necessary 

provider CAH is not subject to CAH 

distance requirements and may be 

within 35 miles of another CAH or 

hospital. However, that distance 

exception does not apply to off-campus 

provider-based departments of 

necessary provider CAHs that were 

created or acquired on or after January 

1, 2008. Under § 485.610(e)(2), offcampus, provider-based locations of 

CAHs and necessary provider CAHs that 

were created or acquired on or after 

January 1, 2008, must be more than a 

35-mile drive from another CAH or 

hospital. We agree that a proposal to 

subject CAH-based ambulance services 

paid based on reasonable cost to 

provider-based determinations may 

result in some ambulance services not 

being able to meet the CAH distance 

requirements for provider-based 

facilities at § 485.610(e) and, as a result, 

ambulance services provided by the 

necessary provider CAH could not be 

paid under reasonable cost. 

With respect to the unnecessary 

administrative burden that may be 

placed upon CAH-owned and operated 

ambulance services, we reiterate that 

any regulatory proposal would only 

apply to those ambulance services that 

are eligible to receive a reasonable cost 

payment, in accordance with 

§ 413.70(b)(5); that is, ambulance 

services furnished by a CAH or an entity 

that is owned and operated by a CAH, 

where the CAH or the entity is the only 

provider or supplier of ambulance 

services within a 35-mile radius. 

Ambulance services that are paid under 

the fee schedule would not be subject to 

provider-based determinations. 

Furthermore, we are aware that some of 

the provider-based requirements at 

§ 413.65 include required provisions 

that may not be applicable to ambulance 

services (for example, clinical privileges 

for professional staff, medical record 

retrieval system integration, among 

others). If, in the future, we propose to 

require that CAH-owned and operated 

ambulance services meet the providerbased status rules, we would propose 

the applicable provider-based status 

requirements that the ambulance 

services would need to meet for 

provider-based status. 

In summary, while we still believe 

that it may be appropriate to require any 

part of a CAH to meet the providerbased rules in order to be paid at 

reasonable cost, we are not at this time 

proposing or adopting any changes to 

the regulations at § 413.65 to require 

CAH-owned and operated ambulance 

services that are eligible to be paid at 

reasonable cost to meet the providerbased status rules. We thank those 

commenters that responded to our 

solicitation of public comments. 

3. Technical Correction to Regulations 

Section 413.65(a)(1)(ii)(H) of the 

regulations specifies, among the 

facilities for which CMS does not make 

provider-based determinations for 

payment purposes, ‘‘Facilities, other 

than those operating as parts of CAHs, 

furnishing only physical, occupational, 

or speech therapy to ambulatory 

patients, for as long as the $1,500 

annual cap on coverage of physical, 

occupational, or speech therapy, as 

described in section 1833(g)(2) of the 

Act, remains suspended by the action of 

the subsequent legislation.’’ In the FY 

2010 IPPS/RY 2010 LTCH proposed rule 

(74 FR 24206), we proposed to make 

two basic changes to the language of 

§ 413.65(a)(1)(ii)(H). First, we proposed 

to delete the phrase ‘‘$1,500 annual 

cap’’ and replace it with the generic 

phrase ‘‘annual financial cap amount’’. 

We proposed to make this change 

because we need to update our 

regulations to reflect that the $1,500 

annual financial cap is no longer 

applicable and has been replaced with 

the cap amount described in section 

1833(g)(2)(B) of the Act. Specifically, 

the $1,500 cap amount described in 

section 1833(g)(2)(A) of the Act was 

limited to 3 years (1999 through 2001). 

For years after 2001, in general, the 

amount of the annual cap on payment 

of physical, occupational, or speech 

therapy is the amount specified in the 

preceding year increased by the 

percentage increase in the Medicare 

economic index for the current year 

(section 1833(g)(2)(B) of the Act). 

However, we note that the annual cap 

amount did not apply to expenses 

incurred with respect to such therapy 

services during various years as set forth 

in the statute. 

Second, we proposed to replace the 

phrase ‘‘for as long as’’ with the phrase 

‘‘throughout any period during which’’ 

and to replace the phrase ‘‘remains 

suspended by the action of subsequent 

legislation’’ with the phrase ‘‘is 

suspended by legislation’’. We proposed 

to make this change because 

§ 413.65(a)(1)(ii)(H), as currently 

written, may incorrectly suggest that the 

annual financial cap amounts on the 

therapy services described in sections 

1833(g)(1) and 1833(g)(3) of the Act 

continue to be suspended. Although the 

financial caps on such services were 

suspended when the provision was 

added originally, they ceased to be 

suspended for a portion of 2003 and 

then beginning January 1, 2006. We 

indicated that we believe the proposed 

change would eliminate any confusion 

about whether the therapy caps were or 

were not currently suspended, as well 

as accomplish our goal of exempting 

facilities, other than those operating as 

parts of CAHs, that furnish only 

physical, occupational, or speech 

therapy to ambulatory patients from 

complying with the provider-based 

status requirements any time the annual 

financial cap amount as described in 

section 1883(g)(2) of the Act is 

suspended by legislation. In conclusion, 

we maintain that we would not make 

provider-based determinations for nonCAH operated facilities furnishing only 

physical, occupational, or speech 

therapy to ambulatory patients when the 

therapy cap is suspended. 

We also are further clarifying a 

proposed regulation text change not 

fully detailed in the proposed rule. The 

term ‘‘payment for’’ was inserted 

between ‘‘annual financial cap amount 

on’’ and ‘‘coverage of physical, 

occupational, or speech therapy’’ in the 

regulatory text to more accurately 

describe the referenced financial cap on 

therapy services. 

We did not receive any public 

comments on our proposals for 

correction of the regulatory language. 

Therefore, in this final rule, we are 

adopting the proposals as final. 

E. Report of Adjustment (Exceptions) 

Payment 

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 units, by reason of section 

1886(b)(4) of the Act, during the 

previous fiscal year. 

The process of requesting, 

adjudicating, and awarding an 

adjustment payment is likely to occur 

over a 2-year period or longer. First, 

generally, an excluded hospital or 

excluded unit of a hospital must file its 

cost report for a fiscal year in 

accordance with § 413.24(f)(2). The 

fiscal intermediary or MAC reviews the 

cost report and issues a Notice of 


sroberts on DSKD5P82C1PROD with RULES
Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 43945 

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 6 

months 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 

CMS during FY 2008. 

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 2008. As 

indicated above, the adjustments made 

during FY 2008 only pertain to cost 

reporting periods ending in years prior 

to FY 2007. Total adjustment payments 

given to excluded hospitals and units 

during FY 2008 are $9,780,846. The 

table depicts for each class of hospitals, 

in the aggregate, the number of 

adjustment requests adjudicated, the 

excess operating cost over ceiling, and 

the amount of the adjustment payments. 

Class of hospital Number Excess cost 

over ceiling 

Adjustment 

payments 

Psychiatric .................................................................................................................................... 14 $12,585,567 $3,429,244 

Children’s ..................................................................................................................................... 3 1,326,989 1,183,486 

Cancer ......................................................................................................................................... 3 28,656,569 5,136,202 

Religious Nonmedical Health Care Institution ............................................................................. 1 40,961 31,914 

Total ...................................................................................................................................... ........................ ........................ 9,780,846 

VIII. Changes to the Long-Term Care 

Hospital Prospective Payment System 

(LTCH PPS) for RY 2010 

A. Background of the LTCH PPS 

1. Legislative and Regulatory Authority 

Section 123 of the Medicare, 

Medicaid, and SCHIP (State Children’s 

Health Insurance Program) Balanced 

Budget Refinement Act of 1999 (BBRA) 

(Pub. L. 106–113) as amended by 

section 307(b) of the Medicare, 

Medicaid, and SCHIP Benefits 

Improvement and Protection Act of 

2000 (BIPA) (Pub. L. 106–554) provides 

for payment for both the operating and 

capital-related costs of hospital 

inpatient stays in long-term care 

hospitals (LTCHs) under Medicare Part 

A based on prospectively set rates. The 

Medicare prospective payment system 

(PPS) for LTCHs applies to hospitals 

that are described in section 

1886(d)(1)(B)(iv) of the Social Security 

Act (the Act), effective for cost reporting 

periods beginning on or after October 1, 

2002. 

Section 1886(d)(1)(B)(iv)(I) of the Act 

defines a LTCH as ‘‘a hospital which has 

an average inpatient length of stay (as 

determined by the Secretary) of greater 

than 25 days.’’ Section 

1886(d)(1)(B)(iv)(II) of the Act also 

provides an alternative definition of 

LTCHs: specifically, a hospital that first 

received payment under section 1886(d) 

of the Act in 1986 and has an average 

inpatient length of stay (LOS) (as 

determined by the Secretary of Health 

and Human Services (the Secretary)) of 

greater than 20 days and has 80 percent 

or more of its annual Medicare inpatient 

discharges with a principal diagnosis 

that reflects a finding of neoplastic 

disease in the 12-month cost reporting 

period ending in FY 1997. 

Section 123 of the BBRA requires the 

PPS for LTCHs to be a ‘‘per discharge’’ 

system with a diagnosis-related group 

(DRG) based patient classification 

system that reflects the differences in 

patient resources and costs in LTCHs. 

Section 307(b)(1) of the BIPA, among 

other things, mandates that the 

Secretary shall examine, and may 

provide for, adjustments to payments 

under the LTCH PPS, including 

adjustments to DRG weights, area wage 

adjustments, geographic reclassification, 

outliers, updates, and a disproportionate 

share adjustment. 

In the August 30, 2002 Federal 

Register, we issued a final rule that 

implemented the LTCH PPS authorized 

under the BBRA and BIPA (67 FR 

55954). This system currently uses 

information from LTCH patient records 

to classify patients into distinct MSlong-term care diagnosis-related groups 

(MS–LTC–DRGs) based on clinical 

characteristics and expected resource 

needs. Payments are calculated for each 

MS–LTC–DRG and provisions are made 

for appropriate payment adjustments. 

Payment rates under the LTCH PPS are 

updated annually and published in the 

Federal Register. 

The LTCH PPS replaced the 

reasonable cost-based payment system 

under the Tax Equity and Fiscal 

Responsibility Act of 1982 (TEFRA) 

(Pub. L. 97–248) for payments for 

inpatient services provided by a LTCH 

with a cost reporting period beginning 

on or after October 1, 2002. (The 

regulations implementing the TEFRA 

reasonable cost-based payment 

provisions are located at 42 CFR part 

413.) With the implementation of the 

PPS for acute care hospitals authorized 

by the Social Security Amendments of 

1983 (Pub. L. 98–21), which added 

section 1886(d) to the Act, certain 

hospitals, including LTCHs, were 

excluded from the PPS for acute care 

hospitals and were paid their reasonable 

costs for inpatient services subject to a 

per discharge limitation or target 

amount under the TEFRA system. For 

each cost reporting period, a hospitalspecific ceiling on payments was 

determined by multiplying the 

hospital’s updated target amount by the 

number of total current year Medicare 

discharges. (Generally, in section VIII. of 

this preamble, when we refer to 

discharges, the intent is to describe 

Medicare discharges.) The August 30, 

2002 final rule further details the 

payment policy under the TEFRA 

system (67 FR 55954). 

In the August 30, 2002 final rule, we 

provided for a 5-year transition period. 

During this 5-year transition period, a 

LTCH’s total payment under the PPS 

was based on an increasing percentage 

of the Federal rate with a corresponding 

decrease in the percentage of the LTCH 

PPS payment that is based on 

reasonable cost concepts. However, 

effective for cost reporting periods 

beginning on or after October 1, 2006, 

total LTCH PPS payments are based on 

100 percent of the Federal rate. 

In addition, in the August 30, 2002 

final rule, we presented an in-depth 

discussion of the LTCH PPS, including 

the patient classification system, 

relative weights, payment rates, 


sroberts on DSKD5P82C1PROD with RULES
43946 Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 

additional payments, and the budget 

neutrality requirements mandated by 

section 123 of the BBRA. The same final 

rule that established regulations for the 

LTCH PPS under 42 CFR part 412, 

Subpart O also contained LTCH 

provisions related to covered inpatient 

services, limitation on charges to 

beneficiaries, medical review 

requirements, furnishing of inpatient 

hospital services directly or under 

arrangement, and reporting and 

recordkeeping requirements. We refer 

readers to the August 30, 2002 final rule 

for a comprehensive discussion of the 

research and data that supported the 

establishment of the LTCH PPS (67 FR 

55954). 

In the June 6, 2003 Federal Register, 

we published a final rule that set forth 

the FY 2004 annual update of the 

payment rates for the Medicare PPS for 

inpatient hospital services furnished by 

LTCHs (68 FR 34122). It also changed 

the annual period for which the 

payment rates were to be effective, such 

that the annual updated rates were 

effective from July 1 through June 30 

instead of from October 1 through 

September 30. We refer to the July 

through June time period as a ‘‘longterm care hospital rate year’’ (LTCH PPS 

rate year). In addition, we changed the 

publication schedule for the annual 

update to allow for an effective date of 

July 1. The payment amounts and 

factors used to determine the annual 

update of the LTCH PPS Federal rate are 

based on a LTCH PPS rate year. While 

the LTCH payment rate updates were to 

be effective July 1, the annual update of 

the DRG classifications and relative 

weights for LTCHs continued to be 

linked to the annual adjustments of the 

acute care hospital inpatient DRGs and 

were effective each October 1. 

As discussed in detail in section 

VIII.A.1. of the May 9, 2008 RY 2009 

LTCH PPS final rule (73 FR 26788), we 

again changed the schedule for the 

annual updates of the LTCH PPS 

Federal payment rates beginning with 

RY 2010. We consolidated the 

rulemaking cycle for the annual update 

of the LTCH PPS Federal payment rates 

and description of the methodology and 

data used to calculate these payment 

rates with the annual update of the MS– 

LTC–DRG classifications and associated 

weighting factors for LTCHs so that the 

updates to the rates and the weights 

now occur on the same schedule and 

appear in the same publication. As a 

result, the updates to the rates and the 

weights are now effective on October 1 

(on a Federal fiscal year schedule), and 

the annual updates to the LTCH PPS 

Federal rates will no longer be 

published with a July 1 effective date 

(73 FR 26797 through 26798). 

Public Law 110–173 (MMSEA), 

enacted on December 29, 2007, included 

provisions that have various effects on 

the LTCH PPS. In addition to amending 

section 1861 of the Act to add a 

subsection (ccc) which provided an 

additional definition of LTCHs and 

facility criteria, Public Law 110–173 

also required that no later than 18 

months after the date of enactment of 

the law, the Secretary conduct a study 

and submit a report to Congress that 

included ‘‘recommendations for such 

legislation and administrative actions, 

including timelines for the 

implementation of LTCH patient criteria 

or other actions, as the Secretary 

determines appropriate.’’ The payment 

policy provisions under Public Law 

110–173 also have varying timeframes 

of applicability. First, we note that 

certain provisions of Public Law 110– 

173 provided that the Secretary shall 

not apply, for cost reporting periods 

beginning on or after the date of the 

enactment of Public Law 110–173 

(December 29, 2007) for a 3-year period: 

The extension of payment adjustments 

at § 412.534 to ‘‘grandfathered LTCHs’’ 

(a long-term care hospital identified by 

the amendment made by section 4417(a) 

of Pub. L. 105–33); and the payment 

adjustment at § 412.536 to 

‘‘freestanding’’ LTCHs. In addition, 

Public Law 110–173 provided that the 

Secretary shall not apply, for the 3-year 

period beginning on the date of 

enactment of the Act, the revision to the 

short-stay outlier (SSO) policy that was 

finalized in the RY 2008 LTCH PPS final 

rule (72 FR 26904 and 26992) and the 

one-time adjustment to the payment 

rates provided for in § 412.523(d)(3). 

The statute also provided that the base 

rate for RY 2008 be the same as the base 

rate for RY 2007 (the revised base rate, 

however, does not apply to discharges 

occurring on or after July 1, 2007, and 

before April 1, 2008); for a 3-year 

moratorium (with specified exceptions) 

on the establishment of new LTCHs, 

LTCH satellites, and on the increase in 

the number of LTCH beds. Public Law 

110–173 also revised the threshold 

percentages for certain co-located 

LTCHs and LTCH satellites governed 

under § 412.534. Finally, Public Law 

110–173 provided for an expanded 

review of medical necessity for 

admission and continued stay at LTCHs. 

In the RY 2009 LTCH PPS final rule 

(73 FR 26801 through 26812), we 

established the applicable Federal rates 

for RY 2009 consistent with section 

1886(m)(2) of the Act as amended by 

Public Law 110–173. We also revised 

the regulations at § 412.523(d)(3) to 

change the methodology for the onetime budget neutrality adjustment and 

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

Public Law 110–173. Other policy 

revisions necessitated by the statutory 

changes of Public Law 110–173 were 

addressed in separate interim final 

rulemaking documents with comment 

periods (73 FR 24871 and 73 FR 29699). 

First, in the May 6, 2008 interim final 

rule with comment period (73 FR 

24871), we implemented changes made 

by section 114(c)(3) and (e) of the 

MMSEA that affected payments to 

LTCHs for inpatient hospital services as 

follows: 

• Modification of payment 

adjustments to certain SSO cases. 

Section 114(c)(3) of the MMSEA 

specified that the refinement of the SSO 

policy implemented in RY 2008 shall 

not apply for a 3-year period beginning 

with discharges occurring on or after 

December 29, 2007. Specifically, the 

fourth SSO payment option under 

§ 412.529(c)(3)(i) shall not apply for a 

3-year period. 

• Revision to the RY 2008 payment 

rate provision. Section 114(e)(1) of the 

MMSEA provided that the base rate for 

RY 2008 ‘‘shall be the same as the base 

rate for discharges for the hospital 

occurring during the rate year ending in 

2007.’’ Furthermore, in accordance with 

section 114(e)(2) of the MMSEA, the 

revised payment rate will not be 

applicable to discharges occurring on or 

after July 1, 2007 and before April 1, 

2008. 

The May 22, 2008 interim final rule 

with comment (73 FR 29699) 

implemented changes made by section 

114(c)(1) and (c)(2) and section 114(d) of 

the MMSEA as follows: 

• Modification of payment 

adjustments to LTCHs and LTCH 

satellite facilities for discharges of 

patients who were admitted from 

specific referring hospitals and that 

exceed various percentage thresholds. 

Sections 114(c)(1) and (c)(2) of the 

MMSEA mandated specific changes for 

3 years, beginning with cost reporting 

periods beginning on or after December 

29, 2007, with respect to § 412.534 in 

existence as that time, which governs 

the ‘‘25 percent threshold’’ payment 

adjustment to LTCH hospitals-withinhospitals (HwHs) and LTCH satellite 

facilities for discharges of patients who 

were admitted from their co-located 

hosts (established in the FY 2005 IPPS 

final rule and amended in the RY 2008 

LTCH PPS final rule), and § 412.536 in 

existence at that time, which applies a 

payment adjustment policy (that was in 

transition to 25 percent prior to the 

enactment of this law) to LTCH and 

LTCH satellite facilities for discharges of 


sroberts on DSKD5P82C1PROD with RULES
Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 43947 

patients who were admitted from any 

individual hospital not co-located with 

the LTCH or LTCH satellite facility 

(established in the RY 2008 LTCH PPS 

final rule). 

• Moratorium on new LTCHs, LTCH 

satellite facilities, and on increase in 

beds in existing LTCHs and LTCH 

satellite facilities. Section 114(d) of the 

MMSEA established a 3-year 

moratorium, beginning on December 29, 

2007, on the establishment and 

classification of new LTCHs, LTCH 

satellite facilities, and on any increase 

in beds in existing LTCHs and LTCH 

satellite facilities, with certain 

exceptions. 

We received 6 timely pieces of 

correspondence in response to the May 

6, 2008 interim final rule with comment 

period and 30 timely pieces of 

correspondence on the May 22, 2008 

interim final rule with comment period. 

We are finalizing these two interim final 

rules with comment period in this 

Federal Register document and 

addressing the public comments that we 

received under section X. of the 

preamble of this document. 

Section 4302 of the ARRA, Public 

Law 111–5, enacted on February 17, 

2009, included several amendments to 

the provisions set forth in section 114 of 

Public Law 110–173 (the MMSEA). We 

have issued instructions to the fiscal 

intermediaries and MACs interpreting 

the provisions of section 4302 of Public 

Law 111–5 (Change Request 6444). As 

we stated in the FY 2010 IPPS/RY 2010 

LTCH PPS proposed rule, we are 

implementing the provisions of section 

4302 of Public Law 111–5 through an 

interim final rule with comment period 

in this Federal Register document 

under section XI. of this preamble. 

2. Criteria for Classification as a LTCH 

a. Classification as a LTCH 

Under the existing regulations at 

§ 412.23(e)(1) and (e)(2)(i), which 

implement section 1886(d)(1)(B)(iv)(I) of 

the Act, to qualify to be paid under the 

LTCH PPS, a hospital must have a 

provider agreement with Medicare and 

must have an average Medicare 

inpatient length of stay (LOS) of greater 

than 25 days. Alternatively, 

§ 412.23(e)(2)(ii) states that for cost 

reporting periods beginning on or after 

August 5, 1997, a hospital that was first 

excluded from the PPS in 1986 and can 

demonstrate that at least 80 percent of 

its annual Medicare inpatient discharges 

in the 12-month cost reporting period 

ending in FY 1997 have a principal 

diagnosis that reflects a finding of 

neoplastic disease must have an average 

inpatient length of stay for all patients, 

including both Medicare and nonMedicare inpatients, of greater than 20 

days. 

b. Hospitals Excluded From the LTCH 

PPS 

The following hospitals are paid 

under special payment provisions, as 

described in § 412.22(c), and therefore, 

are not subject to the LTCH PPS rules: 

• Veterans Administration hospitals. 

• Hospitals that are reimbursed under 

State cost control systems approved 

under 42 CFR part 403. 

• Hospitals that are reimbursed in 

accordance with demonstration projects 

authorized under section 402(a) of the 

Social Security Amendments of 1967 

(Pub. L. 90–248) (42 U.S.C. 1395b–1) or 

section 222(a) of the Social Security 

Amendments of 1972 (Pub. L. 92–603) 

(42 U.S.C. 1395b–1 (note)) (Statewide 

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

Act). 

• Nonparticipating hospitals 

furnishing emergency services to 

Medicare beneficiaries. 

3. Limitation on Charges to Beneficiaries 

In the August 30, 2002 final rule, we 

presented an in-depth discussion of 

beneficiary liability under the LTCH 

PPS (67 FR 55974 through 55975). In the 

RY 2005 LTCH PPS final rule (69 FR 

25676), we clarified that the discussion 

of beneficiary liability in the August 30, 

2002 final rule was not meant to 

establish rates or payments for, or define 

Medicare-eligible expenses. Under 

§ 412.507, if the Medicare payment to 

the LTCH is the full LTC–DRG payment 

amount, as consistent with other 

established hospital prospective 

payment systems, a LTCH may not bill 

a Medicare beneficiary for more than the 

deductible and coinsurance amounts as 

specified under § 409.82, § 409.83, and 

§ 409.87 and for items and services as 

specified under § 489.30(a). However, 

under the LTCH PPS, Medicare will 

only pay for days for which the 

beneficiary has coverage until the SSO 

threshold is exceeded. Therefore, if the 

Medicare payment was for a SSO case 

(§ 412.529) that was less than the full 

LTC–DRG payment amount because the 

beneficiary had insufficient remaining 

Medicare days, the LTCH could also 

charge the beneficiary for services 

delivered on those uncovered days 

(§ 412.507). 

4. Administrative Simplification 

Compliance Act (ASCA) and Health 

Insurance Portability and 

Accountability Act (HIPAA) 

Compliance 

Claims submitted to Medicare must 

comply with both the Administrative 

Simplification Compliance Act (ASCA) 

(Pub. L. 107–105), and the Health 

Insurance Portability and 

Accountability Act of 1996 (HIPAA) 

(Pub. L. 104–191). Section 3 of the 

ASCA requires that the Medicare 

Program deny payment under Part A or 

Part B for any expenses incurred for 

items or services ‘‘for which a claim is 

submitted other than in an electronic 

form specified by the Secretary.’’ 

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

section 3(a) of the ASCA) provides that 

the Secretary shall waive such denial in 

two specific types of cases and may also 

waive such denial ‘‘in such unusual 

cases as the Secretary finds appropriate’’ 

(68 FR 48805). Section 3 of the ASCA 

operates in the context of the HIPAA 

regulations, which include, among other 

provisions, the transactions and code 

sets standards requirements codified 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 healthcare 

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 

1. Background 

Section 123 of the BBRA requires that 

the Secretary implement a PPS for 

LTCHs (that is, a per discharge system 

with a diagnosis-related group (DRG)- 

based patient classification system 

reflecting the differences in patient 

resources and costs). Section 307(b)(1) 

of the BIPA modified the requirements 

of section 123 of the BBRA by requiring 

that the Secretary examine ‘‘the 

feasibility and the impact of basing 

payment under such a system [the longterm care hospital (LTCH) PPS] on the 

use of existing (or refined) hospital 

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 


sroberts on DSKD5P82C1PROD with RULES
43948 Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 

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).’’ As discussed in greater detail 

below, 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 of the MS–DRGs and 

MS–LTC–DRGs, we refer readers to the 

FY 2008 IPPS final rule with comment 

period (72 FR 47141 through 47175 and 

47277 through 47299). (We note that, in 

that same final rule, we revised the 

regulations at § 412.503 to specify that 

for LTCH discharges occurring on or 

after October 1, 2007, when applying 

the provisions of 42 CFR part 412, 

Subpart O applicable to LTCHs for 

policy descriptions and payment 

calculations, all references to LTC– 

DRGs would be considered a reference 

to MS–LTC–DRGs. For the remainder of 

this section, we present the discussion 

in terms of the current MS–LTC–DRG 

patient classification system unless 

specifically referring to the previous 

LTC–DRG patient classification system 

that was in effect before October 1, 

2007.) We believe the MS–DRGs (and by 

extension, the MS–LTC–DRGs) 

represent a substantial improvement 

over the previous CMS DRGs in their 

ability to differentiate cases based on 

severity of illness and resource 

consumption. 

The MS–DRGs adopted in FY 2008 

represent an increase in the number of 

DRGs by 207 (that is, from 538 to 745) 

(72 FR 47171). In FY 2009, an additional 

MS–DRG was adopted for a total of 746 

distinct groupings (73 FR 48497). In 

addition to improving the DRG system’s 

recognition of severity of illness, we 

believe the MS–DRGs are responsive to 

the public comments that were made on 

the FY 2007 IPPS proposed rule with 

respect to how we should undertake 

further DRG reform. The MS–DRGs use 

the CMS DRGs as the starting point for 

revising the DRG system to better 

recognize resource complexity and 

severity of illness. We have generally 

retained all of the refinements and 

improvements that have been made to 

the base DRGs over the years that 

recognize the significant advancements 

in medical technology and changes to 

medical practice. 

Consistent with section 123 of the 

BBRA, as amended by section 307(b)(1) 

of the BIPA, and § 412.515, we use 

information derived from LTCH PPS 

patient records to classify LTCH 

discharges into distinct MS–LTC–DRGs 

based on clinical characteristics and 

estimated resource needs. We then 

assign an appropriate weight to the MS– 

LTC–DRGs to account for the difference 

in resource use by patients exhibiting 

the case complexity and multiple 

medical problems characteristic of 

LTCHs. 

In a departure from the IPPS, and as 

discussed in greater detail below in 

section VIII.B.3.e. of this preamble, we 

use low-volume MS–LTC–DRGs (that is, 

MS–LTC–DRGs with less than 25 LTCH 

cases) in determining the MS–LTC–DRG 

relative weights because LTCHs do not 

typically treat the full range of 

diagnoses as do acute care hospitals. For 

purposes of determining the relative 

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

the low-volume MS–LTC–DRGs into 

five quintiles based on average charge 

per discharge. (A detailed discussion of 

the application of the Lewin Group 

‘‘quintile’’ model that was used to 

develop the LTC–DRGs appears in the 

August 30, 2002 LTCH PPS final rule 

(67 FR 55978).) We also account for 

adjustments to payments for SSO cases 

(that is, cases where the covered LOS at 

the LTCH is less than or equal to fivesixths of the geometric ALOS for the 

MS–LTC–DRG). Furthermore, we make 

adjustments to account for 

nonmonotonically increasing weights, 

when necessary. That is, theoretically, 

cases under the MS–LTC–DRG system 

that are more severe require greater 

expenditure of medical care resources 

and will result in higher average charges 

such that, in the severity levels within 

a base MS–LTC–DRG, the weights 

should increase monotonically with 

severity from the lowest to highest 

severity level. (We discuss 

nonmonotonicity in greater detail and 

our methodology to adjust the RY 2010 

MS–LTC–DRG relative weights to 

account for nonmonotonically 

increasing relative weights in section 

VIII.B.3.f. (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 

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 

(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. 

• Up to eight additional diagnoses. 

• Up to six procedures performed. 

• Age. 

• Sex. 

• Discharge status of the patient. 

Upon the discharge of the patient 

from an LTCH, the LTCH must assign 

appropriate diagnosis and procedure 

codes from the most current version of 

the International Classification of 

Diseases, Ninth Revision, Clinical 

Modification (ICD–9–CM). HIPAA 

Transactions and Code Sets Standards 

regulations at 45 CFR parts 160 and 162 

require that no later than October 16, 

2003, all covered entities must comply 

with the applicable requirements of 

Subparts A and I through R of Part 162. 

Among other requirements, those 

provisions direct covered entities to use 

the ASC X12N 837 Health Care Claim: 

Institutional, Volumes 1 and 2, Version 

4010, and the applicable standard 

medical data code sets for the 

institutional health care claim or 


sroberts on DSKD5P82C1PROD with RULES
Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 43949 

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. 

To create the MS–DRGs (and by 

extension, the MS–LTC–DRGs), 

individual DRGs were subdivided 

according to the presence of specific 

secondary diagnoses designated as 

complications or comorbidities (CCs) 

into three, two, or one level, depending 

on the impact of the CCs on resources 

used for those cases. Specifically, there 

are sets of MS–DRGs that are split into 

2 or 3 subgroups based on the presence 

or absence of a CC or a major 

complication and comorbidity (MCC). 

The original discussion about the 

creation of MS–DRGs and their severity 

levels is described in detail in the FY 

2008 IPPS final rule with comment 

period (72 FR 47169). However, to 

reiterate the development of the CCs 

and MCCs, two of our major goals were 

to create DRGs that would more 

accurately reflect the severity of the 

cases assigned to them and to create 

groups that would have sufficient 

volume so that meaningful and stable 

payment weights could be developed. In 

designating an MS–DRG as one that will 

be divided into subgroups based on the 

presence of a CC or MCC, we developed 

a set of criteria to facilitate the 

decisionmaking process. The subgroup 

was required to meet all criteria, which 

are described in detail in the FY 2008 

IPPS final rule with comment period (72 

FR 47169). As a first step, each of the 

base MS–DRGs was subdivided into 

three subgroups: Non-CC, CC, and MCC. 

Each subgroup was then analyzed in 

relation to the other two subgroups, and 

the criteria were applied in the 

following hierarchical manner. 

• If a three-way subdivision met the 

criteria, we divided the base MS–DRG 

into three CC subgroups. 

• If only one type of two-way 

subdivisions met the criteria, we 

subdivided the base MS–DRG into two 

CC subgroups based on the type of twoway subdivision that met the criteria. 

• If both types of two-way 

subdivisions met the criteria, we 

subdivided the base MS–DRG into two 

CC subgroups based on the type of twoway subdivision with the highest R2

(most explanatory power to explain the 

difference in average charges). 

• Otherwise, we did not subdivide 

the base MS–DRG into CC subgroups. 

For any given base MS–DRG, our 

evaluation in some cases showed that a 

subdivision between a non-CC and a 

combined CC/MCC subgroup was all 

that was warranted (that is, there was 

not a sufficient difference between the 

CC and MCC subgroups to justify 

separate CC and MCC subgroups). 

Conversely, in some cases, even though 

an MCC subgroup was warranted, there 

was not a sufficient difference between 

the non-CC and CC subgroups to justify 

separate subgroups. 

Based on this methodology, a base 

MS–DRG may be subdivided according 

to the following three alternatives: 

• DRGs with three subgroups (MCC, 

CC, and non-CC). 

• DRGs with two subgroups 

consisting of an MCC subgroup but with 

the CC and non-CC subgroups 

combined. These are referred to as 

‘‘with MCC’’ and ‘‘without MCC.’’ 

• DRGs with two subgroups 

consisting of a non-CC subgroup but 

with the CC and MCC subgroups 

combined. We refer to these two groups 

as ‘‘with CC/MCC’’ and ‘‘without CC/ 

MCC.’’ 

For example, under the MS–LTC– 

DRG system, multiple sclerosis and 

cerebellar ataxia with MCC is MS–LTC– 

DRG 58; multiple sclerosis and 

cerebellar ataxia with CC is MS–LTC– 

DRG 59; and multiple sclerosis and 

cerebellar ataxia without CC/MCC is 

MS–LTC–DRG 60. For purposes of 

discussion in this section, the term 

‘‘base DRG’’ is used to refer to the DRG 

category that encompasses all levels of 

severity for that DRG. For example, 

when referring to the entire DRG 

category for multiple sclerosis and 

cerebellar ataxia, which includes the 

above three severity levels, we would 

use the term ‘‘base DRG.’’ (As noted 

above in this section, further 

information on the development and 

implementation of the MS–DRGs and 

MS–LTC–DRGs can be found in the FY 

2008 IPPS final rule with comment 

period (72 FR 47138 through 47175 and 

47277 through 47299).) 

In developing the first MS–DRG 

GROUPER program (that is, Version 

25.0 effective for FY 2008), the 

diagnoses comprising the CC list were 

completely redefined. The revised CC 

list is primarily comprised of significant 

acute disease, acute exacerbations of 

significant chronic diseases, advanced 

or end stage chronic diseases, and 

chronic diseases associated with 

extensive debility. In general, most 

chronic diseases were not included on 

the revised CC list. For a patient with a 

chronic disease, a significant acute 

manifestation of the chronic disease was 

required to be present and coded for the 

patient to be assigned a CC. In addition 

to the revision of the CC list, each CC 

was also categorized as an MCC or a CC 

based on relative resource use. 

Approximately 12 percent of all 

diagnoses codes were classified as an 

MCC, 24 percent as a CC, and 64 percent 

as a non-CC. Diagnoses closely 

associated with mortality (ventricular 

fibrillation, cardiac arrest, shock, and 

respiratory arrest) were assigned as an 

MCC if the patient lived, but as a nonCC if the patient died. The MCC, CC, 

and non-CC categorization was used to 

subdivide the surgical and medical 

DRGs into up to three levels, with a case 

being assigned to the most resource 

intensive level (for example, a case with 

two secondary diagnoses that are 

categorized as an MCC and a CC is 

assigned to the MCC level). 

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, the following types of cases are 

selected for further development: 

• Cases that are improperly coded. 

(For example, diagnoses are shown that 

are inappropriate, given the sex of the 

patient. Code 68.69 (Other and 

unspecified radical abdominal 

hysterectomy) would be an 

inappropriate code for a male.) 

• Cases including surgical procedures 

not covered under Medicare. (For 

example, organ transplant in a 

nonapproved transplant center.) 

• Cases requiring more information. 

(For example, ICD–9–CM codes are 

required to be entered at their highest 

level of specificity. There are valid 3- 

digit, 4-digit, and 5-digit codes. That is, 

code 262 (Other severe protein-calorie 

malnutrition) contains all appropriate 

digits, but if it is reported with either 

fewer or more than 3 digits, the claim 

will be rejected by the MCE as invalid.) 

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 


sroberts on DSKD5P82C1PROD with RULES
43950 Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 

GROUPER software program used under 

the IPPS. Following the MS–LTC–DRG 

assignment, the Medicare contractor 

determines the prospective payment 

amount by using the Medicare PRICER 

program, which accounts for hospitalspecific adjustments. Under the LTCH 

PPS, we provide an opportunity for 

LTCHs to review the MS–LTC–DRG 

assignments made by the Medicare 

contractor and to submit additional 

information within a specified 

timeframe as provided in § 412.513(c). 

The GROUPER software is used both 

to classify past cases to measure relative 

hospital resource consumption to 

establish the MS–LTC–DRG weights and 

to classify current cases for purposes of 

determining payment. The records for 

all Medicare hospital inpatient 

discharges are maintained in the 

MedPAR file. The data in this file are 

used to evaluate possible MS–DRG and 

MS–LTC–DRG classification changes 

and to recalibrate the MS–DRG and MS– 

LTC–DRG relative weights during our 

annual update under both the IPPS 

(§ 412.60(e)) and the LTCH PPS 

(§ 412.517), respectively. 

Although the LTCH PPS RYs 2004 

through 2009 annual payment rate 

update cycles were effective July 1 

through June 30 instead of October 1 

through September 30 (with the 

exception of the 15-month RY 2009 

payment rate update cycle, which is 

effective July 1, 2008 through September 

30, 2009), because the patient 

classification system utilized under the 

LTCH PPS uses the same DRGs as those 

used under the IPPS for acute care 

hospitals, the annual update of the 

LTC–DRG classifications and relative 

weights continued to remain linked to 

the annual reclassification and 

recalibration of the DRGs used under 

the IPPS. Therefore, the payment rate 

update to the MS–LTC–DRG 

classifications and relative weights are 

effective for discharges occurring on or 

after October 1 through September 30 of 

each year (RYs 2004 through 2009), and 

we published the annual proposed and 

final update of the MS–LTC–DRGs in 

the same notice as the proposed and 

final update for the IPPS (69 FR 34122 

through 34125). 

In the RY 2009 LTCH PPS final rule, 

we amended the regulations at § 412.503 

and § 412.535 in order to consolidate 

the rate year and fiscal year rulemaking 

cycles, effective October 1, 2009 (73 FR 

26797 through 26798). Specifically, we 

revised the regulations to shift the 

payment rate update from a July 1 

through June 30 cycle to an October 1 

through September 30 cycle. We 

extended the 2009 rate year period to 

September 30, 2009, so that RY 2009 is 

15 months; that is, July 1, 2008, through 

September 30, 2009. Consequently, after 

the conclusion of the 15-month RY 

2009, both the annual update of the 

LTCH PPS payment rates (and the 

description of the methodology and data 

used to calculate these payment rates) 

and the annual update of the MS–LTC– 

DRG classifications and associated 

weighting factors for LTCHs will be 

updated on an October 1 through 

September 30 cycle and, thus, be 

effective on October 1 of each Federal 

fiscal year beginning October 1, 2009. 

Beginning with the RY 2010 LTCH PPS 

update, both the annual update of the 

LTCH PPS payment rate, including the 

annual update of the MS–LTC–DRGs, 

and policy changes will be presented 

along with the annual IPPS payment 

rate and policy changes in a single 

combined rulemaking document 

published in the Federal Register as 

was done in the proposed rule and in 

this final rule. 

Prior to FY 2004, the annual update 

to the DRGs used under the IPPS had 

been based on the annual revisions to 

the ICD–9–CM codes and was effective 

each October 1. As discussed in past 

LTCH PPS and IPPS proposed and final 

rules (most recently in the FY 2009 IPPS 

final rule (73 FR 48530)), section 503(a) 

of Public Law 108–173 amended section 

1886(d)(5)(K) of the Act by adding a 

new clause (vii) which states that ‘‘the 

Secretary shall provide for the addition 

of new diagnosis and procedure codes 

in [sic] 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 by 

accounting for those ICD–9–CM codes 

in the MedPAR claims data earlier than 

the agency had accounted for new 

technology in the past. In implementing 

the statutory change, the agency has 

provided that ICD–9–CM diagnosis and 

procedure codes for new medical 

technology may be created and assigned 

to existing DRGs in the middle of the 

Federal fiscal year, on April 1. 

Therefore, there is the possibility that 

one feature of the GROUPER software 

program may be updated twice during a 

Federal fiscal year (that is, October 1 

and April 1). However, we note that, as 

the statute permits, the DRG relative 

weights in effect for that fiscal year will 

continue to be updated only once a year 

(October 1). 

The patient classification system used 

under the LTCH PPS is the same patient 

classification system that is used under 

the IPPS. Therefore, the ICD–9–CM 

codes currently used under both the 

IPPS and the LTCH PPS have the 

potential of being updated twice a year 

due to the implementation of section 

503(a) of Public Law 108–173 for the 

IPPS (as explained above). Because we 

do not publish a midyear IPPS rule, any 

April 1 ICD–9–CM coding update will 

not be published in the Federal 

Register. Rather, consistent with the 

policy under the IPPS (discussed in 

section II.G.7. of the preamble of this 

final rule), we assign any new diagnosis 

or procedure codes to the same DRG in 

which its predecessor code was 

assigned, so that there is no impact on 

the DRG assignments. Any coding 

updates will be available through the 

Web sites provided in section II.G.7. of 

the preamble of this final rule 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 system. If new 

codes are implemented on April 1, 

revised code books and software 

systems, including the GROUPER 

software program, will be necessary 

because the most current ICD–9–CM 

codes must be reported. Therefore, for 

purposes of the LTCH PPS, because 

each ICD–9–CM code must be included 

in the GROUPER algorithm to classify 

each case under the correct LTCH PPS, 

the GROUPER software program used 

under the LTCH PPS would need to be 

revised to accommodate any new codes. 

In implementing section 503(a) of 

Public Law 108–173, there will only be 

an April 1 update if new technology 

diagnosis and procedure code revisions 

are requested and approved. We note 

that any new codes created for April 1 

implementation will be limited to those 

primarily needed to describe new 

technologies and medical services. 

However, we reiterate that the process 

of discussing updates to the ICD–9–CM 

is an open process through the ICD–9– 

CM Coordination and Maintenance 

Committee. Requestors will be given the 

opportunity to present the merits for a 

new code and to make a clear and 

convincing case for the need to update 

ICD–9–CM codes for purposes of the 

IPPS new technology add-on payment 

process through an April 1 update (as 

also discussed in section II.G.7. of the 

preamble of this final rule). 

There were no mid-year codes added 

to the ICD–9–CM coding system as a 

result of the September 24–25, 2008 

meeting of the ICD–9–CM Coordination 

and Maintenance Committee. The next 

update to the ICD–9–CM coding system 

will occur on October 1, 2009 (FY 2010), 

and the ICD–9–CM coding set 

implemented on October 1, 2009, will 


sroberts on DSKD5P82C1PROD with RULES
Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 43951 

continue through September 30, 2010 

(FY 2010). The ICD–9–CM Coordination 

and Maintenance Committee met again 

on March 11–12, 2009. Because this 

meeting was for the purpose of 

informing the public of proposed 

changes to the ICD–9–CM code set as 

well as for requesting comment from the 

public, no decisions regarding coding 

changes were made at this meeting. 

Commenters were requested to submit 

comments by April 3, 2009, concerning 

the proposed code revisions discussed 

at the March 11–12, 2009 meeting. Any 

new codes or other revisions created as 

a result of this meeting were not 

included in the proposed rule because 

of the short turnaround time required 

for the publication of the proposed rule. 

However, new codes and any other 

revisions appear in this final rule in 

Tables 6A through 6F of the Addendum. 

The codes appearing for the first time in 

this final rule are identified with an 

asterisk leading to the following 

notation: ‘‘These codes were discussed 

at the March 11–12, 2009 ICD–9–CM 

Coordination and Maintenance 

Committee meeting and were not 

finalized in time to include in the 

proposed rule. However, they will be 

implemented on October 1, 2009.’’ The 

update to the ICD–9–CM coding system 

that is effective on October 1, 2009, is 

discussed in section II.G.7. of the 

preamble of this final rule. 

b. Changes to the MS–LTC–DRGs for RY 

2010 

As we proposed, consistent with our 

historical practice of using the same 

patient classification system under the 

LTCH PPS as is used under the IPPS, in 

this final rule, we are modifying and 

revising the MS–LTC–DRG 

classifications effective October 1, 2009, 

through September 30, 2010 (RY 2010) 

consistent with the changes to specific 

MS–DRG classifications presented 

above in section II.G. of this final rule 

(that is, GROUPER Version 27.0). 

Therefore, the MS–LTC–DRGs for RY 

2010 presented in this final rule are the 

same as the MS–DRGs that will be used 

under the IPPS for FY 2010 (that is, 

GROUPER Version 27.0 as described in 

section II.G. of the preamble of this final 

rule). In addition, because the MS–LTC– 

DRGs for RY 2010 are the same as the 

MS–DRGs for FY 2010, the other 

changes that will affect MS–DRG (and 

by extension MS–LTC–DRG) 

assignments under Version 27.0 of the 

GROUPER discussed in section II.G. of 

the preamble of this final rule, including 

the changes to the MCE software and 

changes to the ICD–9–CM coding 

system, will also be applicable under 

the LTCH PPS for RY 2010. 

Comment: A few commenters 

supported the proposed revisions to the 

MS–DRG classifications and, by 

extension, the MS–LTC–DRG 

classifications that would apply under 

the LTCH PPS for RY 2010. 

Response: We appreciate the 

commenters’ support as we continue to 

refine the MS–DRG classifications and, 

by extension, the MS–LTC–DRG 

classifications. As stated above, in this 

final rule, we are adopting Version 27.0 

of the MS–DRG GROUPER (as described 

in section II.G. of the preamble of this 

final rule) for use under the LTCH PPS 

for RY 2010. 

3. Development of the RY 2010 MS– 

LTC–DRG Relative Weights 

a. General Overview of the Development 

of the MS–LTC–DRG Relative Weights 

As we stated in the August 30, 2002 

LTCH PPS final rule (67 FR 55984), one 

of the primary goals for the 

implementation of the LTCH PPS is to 

pay each LTCH an appropriate amount 

for the efficient delivery of medical care 

to Medicare patients. The system must 

be able to account adequately for each 

LTCH’s case-mix in order to ensure both 

fair distribution of Medicare payments 

and access to adequate care for those 

Medicare patients whose care is more 

costly. To accomplish these goals, we 

have annually adjusted the LTCH PPS 

standard Federal prospective payment 

system rate by the applicable relative 

weight in determining payment to 

LTCHs for each case. (As we have noted 

above, we adopted the MS–LTC–DRGs 

for the LTCH PPS beginning in FY 2008. 

However, this change in the patient 

classification system does not affect the 

basic principles of the development of 

relative weights under a DRG-based 

prospective payment system.) 

Although the adoption of the MS– 

LTC–DRGs resulted in some 

modifications of existing procedures for 

assigning weights in cases of zero 

volume and/or nonmonotonicity, as 

discussed in the FY 2008 IPPS final rule 

with comment period (72 FR 47289 

through 47295) and the FY 2009 IPPS 

final rule (73 FR 48542 through 48550) 

and as detailed in the following 

sections, the basic methodology for 

developing the RY 2010 MS–LTC–DRG 

relative weights in this final rule 

continues to be determined in 

accordance with the general 

methodology established in the August 

30, 2002 LTCH PPS final rule (67 FR 

55989 through 55991). Under the LTCH 

PPS, relative weights for each MS–LTC– 

DRG are a primary element used to 

account for the variations in cost per 

discharge and resource utilization 

among the payment groups (§ 412.515). 

To ensure that Medicare patients 

classified to each MS–LTC–DRG have 

access to an appropriate level of services 

and to encourage efficiency, we 

calculate a relative weight for each MS– 

LTC–DRG that represents the resources 

needed by an average inpatient LTCH 

case in that MS–LTC–DRG. For 

example, cases in an MS–LTC–DRG 

with a relative weight of 2 will, on 

average, cost twice as much to treat as 

cases in an MS–LTC–DRG with a weight 

of 1. 

b. Development of the Proposed MS– 

LTC–DRG Relative Weights for RY 2010 

Beginning with the FY 2008 update, 

we established a budget neutral 

requirement for the annual update to the 

MS–LTC–DRG classifications and 

relative weights at 42 CFR 412.517(b) (in 

conjunction with § 412.503), such that 

estimated aggregate LTCH PPS 

payments would be unaffected, that is, 

would be neither greater than nor less 

than the estimated aggregate LTCH PPS 

payments that would have been made 

without the classification and relative 

weight changes. (See the May 11, 2007 

LTCH PPS final rule (72 FR 26882 

through 26884).) 

Consistent with § 412.517(b), we 

apply a two-step budget neutrality 

methodology, which is based on the 

current year MS–LTC–DRG 

classifications and relative weights. (For 

additional information on the 

established two-step budget neutrality 

methodology, refer to the FY 2008 IPPS 

final rule (72 FR 47295 through 47296).) 

Thus, the annual update to the MS– 

LTC–DRG classifications and relative 

weights for RY 2010 is based on the FY 

2009 MS–LTC–DRG classifications and 

relative weights. In the FY 2010 IPPS/ 

RY 2010 LTCH PPS proposed rule (74 

FR 24218 through 24227), we proposed 

RY 2010 MS–LTC–DRG relative weights 

based on the FY 2009 MS–LTC–DRG 

relative weights published in the FY 

2009 IPPS final rule (73 FR 48528 

through 48551 and 49041 through 

49062). Through an interim final rule 

with comment period published in the 

Federal Register on June 3, 2009 (74 FR 

26546 through 26569), we revised the 

published FY 2009 MS–LTC–DRG 

relative weights based on the 

appropriate application of the FY 2009 

budget neutrality factor determined 

consistent with our established 

methodology. In section IX. of the 

preamble of this final rule, we respond 

to the public comments we received on 

that interim final rule with comment 

period and finalize the revised FY 2009 

MS–LTC–DRG relative weights that are 

applicable for the period of June 3, 2009 


sroberts on DSKD5P82C1PROD with RULES
43952 Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 

through September 30, 2009. Based on 

the revised FY 2009 MS–LTC–DRG 

relative weights published in the June 3, 

2009 interim final rule with comment 

period, in the RY 2010 LTCH PPS 

supplemental proposed rule published 

in the Federal Register on June 3, 2009 

(74 FR 26600 through 26635), we 

presented both proposed RY 2010 MS– 

LTC–DRG relative weights and a 

proposed RY 2010 high-cost outlier 

(HCO) fixed-loss amount. 

Comment: In response to the RY 2010 

LTCH PPS supplemental proposed rule, 

a few commenters asserted that CMS 

did not establish good cause for 

deviating from the required ‘‘notice and 

comment’’ rulemaking procedures 

required by the Social Security Act (the 

Act) and the Administrative Procedures 

Act (APA). The commenters stated that, 

in order to submit meaningful 

comments, the public should have been 

given the full 60 days to evaluate the 

proposals contained in the RY 2010 

LTCH PPS supplemental proposed rule, 

and asserted that there was sufficient 

time before the October 1, 2009 effective 

date to provide for the full 60-day 

comment period. 

Response: We do not agree with the 

commenters that we did not establish 

good cause for deviating from the 

‘‘notice and comment’’ rulemaking 

procedures required by section 1871 of 

the Act and section 553(d) of the APA. 

As discussed in the RY 2010 LTCH PPS 

supplemental proposed rule (74 FR 

26603), we ordinarily publish a 

proposed rule and provide a 60-day 

period for public comment in 

accordance with section 1871(b)(1) of 

the Act and section 553(d) of the APA. 

However, section 1871(b)(2)(C) of the 

Act provides that this period may be 

shortened when the Secretary, for good 

cause, finds that such a comment period 

would be impracticable, unnecessary, or 

contrary to the public interest and 

incorporates a statement of the finding 

and its reasons in the notice issued. In 

this instance, we believe that a 60-day 

comment period would have been both 

impracticable and contrary to the public 

interest because it would not have 

allowed for coordinated consideration 

of the public comments on the RY 2010 

LTCH PPS supplemental proposed rule 

with those on the FY 2010 IPPS/RY 

2010 LTCH PPS proposed rule. Because 

the proposals presented in the RY 2010 

LTCH PPS supplemental proposed rule 

were integral to our consideration of 

public comments on certain other LTCH 

PPS proposals presented in the FY 2010 

IPPS/RY 2010 LTCH PPS proposed rule, 

we believe that it was necessary and 

appropriate to review public comments 

received on the proposals presented in 

the RY 2010 LTCH PPS supplemental 

proposed rule in conjunction with the 

public comments received on the FY 

2010 IPPS/RY 2010 LTCH PPS proposed 

rule. 

With respect to the commenters’ 

assertion that there was sufficient time 

before the October 1, 2009 effective date 

of the RY 2010 LTCH PPS annual 

update to provide for the full 60-day 

comment period, as we stated in the RY 

2010 LTCH PPS supplemental proposed 

rule (74 FR 26603), a 60-day comment 

period would have been both 

impracticable and contrary to the public 

interest because it would not allow for 

coordinated consideration of the public 

comments on the RY 2010 LTCH PPS 

supplemental proposed rule with those 

on the FY 2010 IPPS/RY 2010 LTCH 

PPS proposed rule. Because the 

proposals contained in the RY 2010 

LTCH PPS supplemental proposed rule 

were integral to our consideration of 

public comments on certain proposals 

in the FY 2010 IPPS/RY 2010 LTCH PPS 

proposed rule, we do not believe it 

would have been appropriate to review 

public comments on the proposals 

contained in the RY 2010 LTCH PPS 

supplemental proposed rule in isolation 

from the public comments received on 

the FY 2010 IPPS/RY 2010 LTCH PPS 

proposed rule. We also do not agree that 

the less than 60-day comment period 

deprived the public of an opportunity to 

submit meaningful comments on the 

proposals presented in the RY 2010 

LTCH PPS supplemental proposed rule. 

We note that the proposed RY 2010 MS– 

LTC–DRG relative weights and the RY 

2010 HCO fixed-loss threshold amount 

presented in the RY 2010 LTCH PPS 

supplemental proposed rule were 

developed consistent with the 

methodology described in the original 

FY 2010 IPPS/RY 2010 LTCH PPS 

proposed rule (74 FR 24080), which had 

been available to the public for over 3 

weeks at the time the supplemental 

proposed rule was published. For the 

reasons set forth above, we believe we 

provided the necessary and required 

timeframes for meaningful public 

comment on the proposals presented in 

the RY 2010 LTCH PPS supplemental 

proposed rule. 

c. Data 

In this final rule, to calculate the MS– 

LTC–DRG relative weights for RY 2010, 

we obtained total Medicare allowable 

charges from FY 2008 Medicare LTCH 

bill data from the March 2009 update of 

the MedPAR file, which are the best 

available data at this time, and used the 

finalized Version 27.0 of the GROUPER 

to classify LTCH cases (as discussed 

above). For the proposed rule, we used 

data from the December 2008 update of 

the MedPAR file, which was the best 

available we had at the time of 

publication of the proposed rule. 

Consistent with our historical 

methodology, we excluded the data 

from LTCHs that are all-inclusive rate 

providers and LTCHs that are 

reimbursed in accordance with 

demonstration projects authorized 

under section 402(a) of Public Law 90– 

248 or section 222(a) of Public Law 92– 

603. (We refer readers to the FY 2009 

IPPS final rule (73 FR 48532).) 

Therefore, in the development of the RY 

2010 MS–LTC–DRG relative weights in 

this final rule, we excluded the data of 

15 all-inclusive rate providers and the 2 

LTCHs that are paid in accordance with 

demonstration projects that had claims 

in the FY 2008 MedPAR file. 

c. Hospital-Specific Relative Value 

(HSRV) Methodology 

By nature, LTCHs often specialize in 

certain areas, such as ventilatordependent patients and rehabilitation 

and wound care. Some case types 

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

in hospitals that have, from a 

perspective of charges, relatively high 

(or low) charges. This nonrandom 

distribution of cases with relatively high 

(or low) charges in specific MS–LTC– 

DRGs has the potential to 

inappropriately distort the measure of 

average charges. As we proposed, to 

account for the fact that cases may not 

be randomly distributed across LTCHs, 

in this final rule, we used a hospitalspecific relative value (HSRV) 

methodology to calculate the MS–LTC– 

DRG relative weights instead of the 

methodology used to determine the MS– 

DRG relative weights under the IPPS 

described in section II.H. of the 

preamble of this final rule. We believe 

this method removed this hospitalspecific source of bias in measuring 

LTCH average charges. Specifically, we 

reduced 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 

standardized charges for each LTCH by 

converting its charges for each case to 

hospital-specific relative charge values 

and then adjusted 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 


sroberts on DSKD5P82C1PROD with RULES
Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 43953 

this way, each LTCH’s relative charge 

value is adjusted by its case-mix to an 

average that reflects the complexity of 

the cases it treats relative to the 

complexity of the cases treated by all 

other LTCHs (the average case-mix of all 

LTCHs). 

Comment: One commenter believes 

that it is inconsistent to utilize the 

HSRV methodology under the LTCH 

PPS when it is not utilized under the 

IPPS and recommended that the HSRV 

methodology not be used under either 

the LTCH PPS or the IPPS. 

Response: Because different types of 

LTCH cases may not be randomly 

distributed across all LTCHs due to the 

specialized nature of LTCHs, as 

discussed above, we believe the HSRV 

methodology is appropriate to use under 

the LTCH PPS in order to remove this 

hospital-specific source of bias in 

measuring the LTCH average charges 

that are used in determining the relative 

weights for the MS–LTC–DRGs under 

the LTCH PPS. Therefore, we are not 

adopting the commenter’s 

recommendation and, as proposed, have 

continued to utilize the HSRV 

methodology under the LTCH PPS to 

determine the MS–LTC–DRG relative 

weights for RY 2010. As discussed 

above in sections II.C. and II.E. of this 

preamble, we have evaluated the use of 

the HSRV methodology under the IPPS 

for future consideration and continue to 

explore refinement to the relative 

weight methodology used under the 

IPPS. 

In accordance with the methodology 

established in the August 30, 2002 

LTCH PPS final rule (67 FR 55989 

through 55991), we continue to 

standardize charges for each case by 

first dividing the adjusted charge for the 

case (adjusted for SSOs under § 412.529 

as described in section VIII.B.3.f. (step 

3) of the preamble of this final rule) by 

the average adjusted charge for all cases 

at the LTCH in which the case was 

treated. SSO cases are cases with a 

length of stay that is less than or equal 

to five-sixths the average length of stay 

of the MS–LTC–DRG (§ 412.529 and 

§ 412.503). The average adjusted charge 

reflects the average intensity of the 

health care services delivered by a 

particular LTCH and the average cost 

level of that LTCH. The resulting ratio 

is multiplied by that LTCH’s case-mix 

index to determine the standardized 

charge for the case. 

Multiplying by the LTCH’s case-mix 

index accounts for the fact that the same 

relative charges are given greater weight 

at a LTCH with higher average costs 

than they would at a LTCH with low 

average costs, which is needed to adjust 

each LTCH’s relative charge value to 

reflect its case-mix relative to the 

average case-mix for all LTCHs. Because 

we standardize charges in this manner, 

we count charges for a Medicare patient 

at a LTCH with high average charges as 

less resource intensive than they would 

be at a LTCH with low average charges. 

For example, a $10,000 charge for a case 

at a LTCH with an average adjusted 

charge of $17,500 reflects a higher level 

of relative resource use than a $10,000 

charge for a case at a LTCH with the 

same case-mix, but an average adjusted 

charge of $35,000. We believe that the 

adjusted charge of an individual case 

more accurately reflects actual resource 

use for an individual LTCH because the 

variation in charges due to systematic 

differences in the markup of charges 

among LTCHs is taken into account. 

d. Treatment of Severity Levels in 

Developing the MS–LTC–DRG Relative 

Weights 

For purposes of determining the MS– 

LTC–DRG relative weights, as we 

discussed in the FY 2009 IPPS final rule 

(73 FR 48532 through 48533), 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 were assigned to 

those MS–LTC–DRGs) are crosswalked 

to other MS–LTC–DRGs based on the 

clinical similarities and assigned the 

relative weight of the crosswalked MS– 

LTC–DRG (as described in greater detail 

below). (We provide in-depth 

discussions of our policy regarding 

weight-setting for low-volume MS– 

LTC–DRGs in section VIII.B.3.e. of the 

preamble of this final rule and for novolume MS–LTC–DRGs, under Step 5 in 

section VIII.B.3.f. of the preamble of this 

final rule.) 

As noted above, in response to the 

need to account for severity and pay 

appropriately for cases, we developed a 

severity-adjusted patient classification 

system that we adopted for both the 

IPPS and the LTCH PPS in FY 2008. As 

described in greater detail above, the 

MS–LTC–DRG system can accommodate 

three severity levels: ‘‘with MCC’’ (most 

severe); ‘‘with CC,’’ and ‘‘without CC/ 

MCC’’ (the least severe), with each level 

assigned an individual MS–LTC–DRG 

number. In cases with two subdivisions, 

the levels are either ‘‘with CC/MCC’’ 

and ‘‘without CC/MCC’’ or ‘‘with MCC’’ 

and ‘‘without MCC.’’ For example, 

under the MS–LTC–DRG system, 

multiple sclerosis and cerebellar ataxia 

with MCC is MS–LTC–DRG 58; multiple 

sclerosis and cerebellar ataxia with CC 

is MS–LTC–DRG 59; and multiple 

sclerosis and cerebellar ataxia without 

CC/MCC is MS–LTC–DRG 60. For 

purposes of discussion in this section, 

the term ‘‘base DRG’’ is used to refer to 

the DRG category that encompasses all 

levels of severity for that DRG. For 

example, when referring to the entire 

DRG category for multiple sclerosis and 

cerebellar ataxia, which includes the 

above three severity levels, we would 

use the term ‘‘base DRG.’’ 

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. As a general rule, 

consistent with the methodology 

established when we adopted the MS– 

LTC–DRGs in the FY 2008 IPPS final 

rule with comment period (72 FR 47278 

through 47281), we determined the RY 

2010 relative weights for the MS–LTC– 

DRGs using the following steps: (1) If an 

MS–LTC–DRG had at least 25 cases, it 

was assigned its own relative weight; (2) 

if an MS–LTC–DRG had between 1 and 

24 cases, it was assigned to a quintile for 

which we computed a relative weight 

for all of the MS–LTC–DRGs assigned to 

that quintile; and (3) if an MS–LTC– 

DRG had no cases, it was crosswalked 

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 VIII.B.3.f. of this preamble). 

Furthermore, in determining the RY 

2010 MS–LTC–DRG relative weights, 

when necessary, we made adjustments 

to account for nonmonotonicity, as 

explained in greater detail below in Step 

6 of section VIII.B.3.f. of this preamble. 

Our methodology for determining 

relative weights for the MS–LTC–DRGs 

included an adjustment for 

nonmonotonicity because, 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. Therefore, in the three severity 

levels, weights should increase with 

severity, from lowest to highest. If the 

weights do not increase (that is, if based 

on the relative weight methodology 

outlined above, the MS–LTC–DRG with 

MCC would have a lower relative 

weight than one with CC, or the MS– 

LTC–DRG without CC/MCC would have 

a higher relative weight than either of 


sroberts on DSKD5P82C1PROD with RULES
43954 Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 

the others), there is a problem with 

monotonicity. Since the start of the 

LTCH PPS for FY 2003 (67 FR 55990), 

when determining the LTC–DRG 

relative weights, we have made 

adjustments in order to maintain 

monotonicity by grouping both sets of 

cases together and establishing a new 

relative weight for both LTC–DRGs. We 

continue to believe that utilizing 

nonmonotonic relative weights to adjust 

Medicare payments would result in 

inappropriate payments because, in a 

nonmonotonic system, cases that are 

more severe and require greater 

expenditure of medical care resources 

would be paid based on a lower relative 

weight than cases that are less severe 

and require lower resource use. The 

adopted methodology for making 

adjustments because of 

nonmonotonicity in determining the RY 

2010 MS–LTC–DRG relative weights is 

discussed in greater detail below in 

section VIII.B.3.f. (Step 6) of the 

preamble of this final rule. 

e. Low-Volume MS–LTC–DRGs 

In order to account for MS–LTC– 

DRGs with low volume (that is, with 

fewer than 25 LTCH cases), consistent 

with the methodology we established 

when we implemented the LTCH PPS 

(67 FR 55984 through 55995) and the 

methodology that we established when 

we implemented the MS–LTC–DRGs in 

the FY 2008 IPPS final rule with 

comment period (72 FR 47283 through 

47288), for purposes of determining the 

MS–LTC–DRG relative weights, we 

group those ‘‘low-volume MS–LTC– 

DRGs’’ (that is, MS–LTC–DRGs that 

contained between 1 and 24 cases 

annually) into one of five categories 

(quintiles) based on average charges. In 

determining the RY 2010 MS–LTC–DRG 

relative weights in this final rule, 

consistent with the methodology 

described above and the methodology 

we used to establish the FY 2009 MS– 

LTC–DRG relative weights in the FY 

2009 IPPS final rule (73 FR 48533 

through 48540), we continue to employ 

this quintile methodology for lowvolume MS–LTC–DRGs. In addition, in 

cases where the initial assignment of a 

low-volume MS–LTC–DRG to quintiles 

results in nonmonotonicity within a 

base-DRG, in order to ensure 

appropriate Medicare payments, 

consistent with our historical 

methodology, we made adjustments to 

the treatment of low-volume MS–LTC– 

DRGs to preserve monotonicity, as 

discussed in detail below in section 

VIII.B.3.f. (Step 6) in this preamble. 

In this final rule, using LTCH cases 

from the March 2009 update of the FY 

2008 MedPAR file, we identified 281 

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 56 MS–LTC–DRGs (281/ 

5 = 56 with 1 MS–LTC–DRG 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 would contain the 1 additional 

low-volume MS–LTC–DRG. 

Specifically, after sorting the 281 lowvolume MS–LTC–DRGs by ascending 

order by average charge, we assigned the 

first fifth (1st through 56th) of lowvolume 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 

57th low-volume MS–LTC–DRG in the 

sorted list was closer to the average 

charge of the 56th low-volume MS– 

LTC–DRG (assigned to Quintile 1) than 

to the average charge of the 58th lowvolume MS–LTC–DRG (assigned to 

Quintile 2), we placed it into Quintile 

1 (such that Quintile 1 contains 57 lowvolume MS–LTC–DRGs before any 

adjustments for nonmonotonicity, as 

discussed below). This process was 

repeated through the remaining lowvolume MS–LTC–DRGs so that 1 of the 

5 low-volume quintiles contain 57 MS– 

LTC–DRGs (Quintile 1) and the other 4 

low-volume quintiles contain 56 MS– 

LTC–DRGs (Quintiles 2, 3, 4, and 5). 

Accordingly, in order to determine 

the RY 2010 relative weights for the 

MS–LTC–DRGs with low volume, we 

used the five low-volume quintiles 

described above. The composition of 

each of the five low-volume quintiles 

shown in the chart below was used in 

determining the RY 2010 MS–LTC–DRG 

relative weights (as shown in Table 11 

of the Addendum to this final rule). 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 in section VIII.B.3.f. 

of the preamble of this final rule. We 

assigned the same relative weight and 

average length of stay to each of the lowvolume MS–LTC–DRGs that make up an 

individual low-volume quintile. We 

note that, as this system is dynamic, it 

is possible that the number and specific 

type of MS–LTC–DRGs with a low 

volume of LTCH cases will vary in the 

future. We use the best available claims 

data in the MedPAR file to identify lowvolume MS–LTC–DRGs and to calculate 

the relative weights based on our 

methodology. 

COMPOSITION OF LOW-VOLUME QUINTILES FOR RY 2010 

MS–LTC–DRG MS–LTC–DRG description 

Quintile 1 

26 .......................................................... Craniotomy & endovascular intracranial procedures w CC. 

53 .......................................................... Spinal disorders & injuries w/o CC/MCC. 

60 .......................................................... Multiple sclerosis & cerebellar ataxia w/o CC/MCC. 

66 .......................................................... Intracranial hemorrhage or cerebral infarction w/o CC/MCC. 

68 .......................................................... Nonspecific cva & precerebral occlusion w/o infarct w/o MCC. 

69 .......................................................... Transient ischemia. 

72 .......................................................... Nonspecific cerebrovascular disorders w/o CC/MCC. 

78 .......................................................... Hypertensive encephalopathy w CC. 

81 .......................................................... Nontraumatic stupor & coma w/o MCC. 

89 .......................................................... Concussion w CC. 

90 .......................................................... Concussion w/o CC/MCC. 

93 .......................................................... Other disorders of nervous system w/o CC/MCC. 

103 ........................................................ Headaches w/o MCC. 

115 ........................................................ Extraocular procedures except orbit. 

139 ........................................................ Salivary gland procedures. 


sroberts on DSKD5P82C1PROD with RULES
Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 43955 

COMPOSITION OF LOW-VOLUME QUINTILES FOR RY 2010—Continued 

MS–LTC–DRG MS–LTC–DRG description 

149 ........................................................ Dysequilibrium. 

184 ........................................................ Major chest trauma w CC. 

198 ........................................................ Interstitial lung disease w/o CC/MCC. 

201 ........................................................ Pneumothorax w/o CC/MCC. 

203 ........................................................ Bronchitis & asthma w/o CC/MCC. 

284 ........................................................ Circulatory disorders w AMI, expired w CC.* 

310 ........................................................ Cardiac arrhythmia & conduction disorders w/o CC/MCC. 

313 ........................................................ Chest pain. 

350 ........................................................ Inguinal & femoral hernia procedures w MCC. 

370 ........................................................ Major esophageal disorders w/o CC/MCC. 

376 ........................................................ Digestive malignancy w/o CC/MCC. 

387 ........................................................ Inflammatory bowel disease w/o CC/MCC. 

437 ........................................................ Malignancy of hepatobiliary system or pancreas w/o CC/MCC. 

440 ........................................................ Disorders of pancreas except malignancy w/o CC/MCC. 

443 ........................................................ Disorders of liver except malig, cirr, alc hepa w/o CC/MCC. 

446 ........................................................ Disorders of the biliary tract w/o CC/MCC. 

534 ........................................................ Fractures of femur w/o MCC. 

536 ........................................................ Fractures of hip & pelvis w/o MCC. 

544 ........................................................ Pathological fractures & musculoskelet & conn tiss malig w/o CC/MCC.

547 ........................................................ Connective tissue disorders w/o CC/MCC. 

556 ........................................................ Signs & symptoms of musculoskeletal system & conn tissue w/o MCC. 

578 ........................................................ Skin graft &/or debrid exc for skin ulcer or cellulitis w/o CC/MCC. 

601 ........................................................ Non-malignant breast disorders w/o CC/MCC. 

645 ........................................................ Endocrine disorders w/o CC/MCC. 

667 ........................................................ Prostatectomy w/o CC/MCC. 

694 ........................................................ Urinary stones w/o esw lithotripsy w/o MCC. 

696 ........................................................ Kidney & urinary tract signs & symptoms w/o MCC. 

725 ........................................................ Benign prostatic hypertrophy w MCC. 

726 ........................................................ Benign prostatic hypertrophy w/o MCC. 

730 ........................................................ Other male reproductive system diagnoses w/o CC/MCC. 

746 ........................................................ Vagina, cervix & vulva procedures w CC/MCC. 

816 ........................................................ Reticuloendothelial & immunity disorders w/o CC/MCC. 

869 ........................................................ Other infectious & parasitic diseases diagnoses w/o CC/MCC. 

880 ........................................................ Acute adjustment reaction & psychosocial dysfunction. 

881 ........................................................ Depressive neuroses. 

883 ........................................................ Disorders of personality & impulse control.* 

895 ........................................................ Alcohol/drug abuse or dependence w rehabilitation therapy. 

897 ........................................................ Alcohol/drug abuse or dependence w/o rehabilitation therapy w/o MCC.

918 ........................................................ Poisoning & toxic effects of drugs w/o MCC. 

964 ........................................................ Other multiple significant trauma w CC. 

965 ........................................................ Other multiple significant trauma w/o CC/MCC. 

976 ........................................................ HIV w major related condition w/o CC/MCC. 

Quintile 2 

032 ........................................................ Ventricular shunt procedures w CC. 

033 ........................................................ Ventricular shunt procedures w/o CC/MCC. 

042 ........................................................ Periph & cranial nerve & other nerv syst proc w/o CC/MCC. 

067 ........................................................ Nonspecific cva & precerebral occlusion w/o infarct w MCC. 

080 ........................................................ Nontraumatic stupor & coma w MCC. 

083 ........................................................ Traumatic stupor & coma, coma >1 hr w CC.* 

087 ........................................................ Traumatic stupor & coma, coma <1 hr w/o CC/MCC.*** 

088 ........................................................ Concussion w MCC. 

096 ........................................................ Bacterial & tuberculous infections of nervous system w/o CC/MCC. 

102 ........................................................ Headaches w MCC. 

125 ........................................................ Other disorders of the eye w/o MCC. 

156 ........................................................ Nasal trauma & deformity w/o CC/MCC.*** 

159 ........................................................ Dental & Oral Diseases w/o CC/MCC. 

182 ........................................................ Respiratory neoplasms w/o CC/MCC.*** 

183 ........................................................ Major chest trauma w MCC. 

188 ........................................................ Pleural effusion w/o CC/MCC. 

257 ........................................................ Upper limb & toe amputation for circ system disorders w/o CC/MCC. 

259 ........................................................ Cardiac pacemaker device replacement w/o MCC. 

282 ........................................................ Circulatory disorders w AMI, discharged alive w/o CC/MCC.*** 

284 ........................................................ Circulatory disorders w AMI, expired w CC.** 

285 ........................................................ Circulatory disorders w AMI, expired w/o CC/MCC. 

294 ........................................................ Deep vein thrombophlebitis w CC/MCC. 

311 ........................................................ Angina pectoris. 

379 ........................................................ G.I. hemorrhage w/o CC/MCC.*** 

384 ........................................................ Uncomplicated peptic ulcer w/o MCC. 

386 ........................................................ Inflammatory bowel disease w CC. 

390 ........................................................ G.I. obstruction w/o CC/MCC. 


sroberts on DSKD5P82C1PROD with RULES
43956 Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 

COMPOSITION OF LOW-VOLUME QUINTILES FOR RY 2010—Continued 

MS–LTC–DRG MS–LTC–DRG description 

418 ........................................................ Laparoscopic cholecystectomy w/o c.d.e. w CC. 

433 ........................................................ Cirrhosis & alcoholic hepatitis w CC. 

436 ........................................................ Malignancy of hepatobiliary system or pancreas w CC. 

479 ........................................................ Biopsies of musculoskeletal system & connective tissue w/o CC/MCC. 

497 ........................................................ Local excision & removal int fix devices exc hip & femur w/o CC/MCC.

517 ........................................................ Other musculoskelet sys & conn tiss O.R. proc w/o CC/MCC. 

535 ........................................................ Fractures of hip & pelvis w MCC. 

553 ........................................................ Bone diseases & arthropathies w MCC. 

598 ........................................................ Malignant breast disorders w CC. 

600 ........................................................ Non-malignant breast disorders w CC/MCC. 

644 ........................................................ Endocrine disorders w CC. 

663 ........................................................ Minor bladder procedures w CC. 

675 ........................................................ Other kidney & urinary tract procedures w/o CC/MCC. 

685 ........................................................ Admit for renal dialysis. 

697 ........................................................ Urethral stricture. 

700 ........................................................ Other kidney & urinary tract diagnoses w/o CC/MCC. 

722 ........................................................ Malignancy, male reproductive system w MCC. 

723 ........................................................ Malignancy, male reproductive system w CC. 

747 ........................................................ Vagina, cervix & vulva procedures w/o CC/MCC. 

759 ........................................................ Infections, female reproductive system w/o CC/MCC. 

803 ........................................................ Other O.R. proc of the blood & blood forming organs w CC. 

808 ........................................................ Major hematol/immun diag exc sickle cell crisis & coagul w MCC.*** 

815 ........................................................ Reticuloendothelial & immunity disorders w CC. 

837 ........................................................ Chemo w acute leukemia as sdx or w high dose chemo agent w MCC. 

842 ........................................................ Lymphoma & non-acute leukemia w/o CC/MCC. 

864 ........................................................ Fever of unknown origin. 

882 ........................................................ Neuroses except depressive. 

894 ........................................................ Alcohol/drug abuse or dependence, left ama. 

922 ........................................................ Other injury, poisoning & toxic effect diag w MCC.* 

986 ........................................................ Prostatic O.R. procedure unrelated to principal diagnosis w/o CC/MCC. 

023 ........................................................ Craniotomy w major device implant or acute complex CNS PDX w MCC. 

029 ........................................................ Spinal procedures w CC. 

030 ........................................................ Spinal procedures w/o CC/MCC. 

058 ........................................................ Multiple sclerosis & cerebellar ataxia w MCC. 

075 ........................................................ Viral meningitis w CC/MCC. 

083 ........................................................ Traumatic stupor & coma, coma >1 hr w CC.** 

084 ........................................................ Traumatic stupor & coma, coma >1 hr w/o CC/MCC.** 

099 ........................................................ Non-bacterial infect of nervous sys exc viral meningitis w/o CC/MCC.*** 

121 ........................................................ Acute major eye infections w CC/MCC. 

124 ........................................................ Other disorders of the eye w MCC. 

158 ........................................................ Dental & Oral Diseases w CC. 

241 ........................................................ Amputation for circ sys disorders exc upper limb & toe w/o CC/MCC. 

290 ........................................................ Acute & subacute endocarditis w/o CC/MCC. 

327 ........................................................ Stomach, esophageal & duodenal proc w CC. 

331 ........................................................ Major small & large bowel procedures w/o CC/MCC. 

348 ........................................................ Anal & stomal procedures w CC. 

381 ........................................................ Complicated peptic ulcer w CC. 

382 ........................................................ Complicated peptic ulcer w/o CC/MCC. 

383 ........................................................ Uncomplicated peptic ulcer w MCC. 

424 ........................................................ Other hepatobiliary or pancreas O.R. procedures w CC. 

472 ........................................................ Cervical spinal fusion w CC. 

476 ........................................................ Amputation for musculoskeletal sys & conn tissue dis w/o CC/MCC. 

493 ........................................................ Lower extrem & humer proc except hip, foot, femur w CC. 

499 ........................................................ Local excision & removal int fix devices of hip & femur w/o CC/MCC. 

511 ........................................................ Shoulder, elbow or forearm proc, exc major joint proc w CC. 

555 ........................................................ Signs & symptoms of musculoskeletal system & conn tissue w MCC. 

562 ........................................................ Fx, sprn, strn & disl except femur, hip, pelvis & thigh w MCC. 

563 ........................................................ Fx, sprn, strn & disl except femur, hip, pelvis & thigh w/o MCC. 

581 ........................................................ Other skin, subcut tiss & breast proc w/o CC/MCC. 

582 ........................................................ Mastectomy for malignancy w CC/MCC. 

584 ........................................................ Breast biopsy, local excision & other breast procedures w CC/MCC. 

597 ........................................................ Malignant breast disorders w MCC. 

620 ........................................................ O.R. procedures for obesity w CC. 

643 ........................................................ Endocrine disorders w MCC. 

656 ........................................................ Kidney & ureter procedures for neoplasm w MCC. 

660 ........................................................ Kidney & ureter procedures for non-neoplasm w CC. 

666 ........................................................ Prostatectomy w CC. 

668 ........................................................ Transurethral procedures w MCC. 

669 ........................................................ Transurethral procedures w CC. 

687 ........................................................ Kidney & urinary tract neoplasms w CC. 

693 ........................................................ Urinary stones w/o esw lithotripsy w MCC. 

695 ........................................................ Kidney & urinary tract signs & symptoms w MCC. 


sroberts on DSKD5P82C1PROD with RULES
Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 43957 

COMPOSITION OF LOW-VOLUME QUINTILES FOR RY 2010—Continued 

MS–LTC–DRG MS–LTC–DRG description 

749 ........................................................ Other female reproductive system O.R. procedures w CC/MCC. 

755 ........................................................ Malignancy, female reproductive system w CC. 

760 ........................................................ Menstrual & other female reproductive system disorders w CC/MCC. 

781 ........................................................ Other antepartum diagnoses w medical complications. 

809 ........................................................ Major hematol/immun diag exc sickle cell crisis & coagul w CC.*** 

821 ........................................................ Lymphoma & leukemia w major O.R. procedure w CC. 

835 ........................................................ Acute leukemia w/o major O.R. procedure w CC. 

843 ........................................................ Other myeloprolif dis or poorly diff neopl diag w MCC.*** 

858 ........................................................ Postoperative or post-traumatic infections w O.R. proc w/o CC/MCC. 

866 ........................................................ Viral illness w/o MCC. 

896 ........................................................ Alcohol/drug abuse or dependence w/o rehabilitation therapy w MCC. 

903 ........................................................ Wound debridements for injuries w/o CC/MCC. 

905 ........................................................ Skin grafts for injuries w/o CC/MCC. 

906 ........................................................ Hand procedures for injuries. 

933 ........................................................ Extensive burns or full thickness burns w MV 96+ hrs w/o skin graft.

941 ........................................................ O.R. proc w diagnoses of other contact w health services w/o CC/MCC.

028 ........................................................ Spinal procedures w MCC. 

077 ........................................................ Hypertensive encephalopathy w MCC. 

082 ........................................................ Traumatic stupor & coma, coma >1 hr w MCC. 

084 ........................................................ Traumatic stupor & coma, coma >1 hr w/o CC/MCC.* 

131 ........................................................ Cranial/facial procedures w CC/MCC. 

133 ........................................................ Other ear, nose, mouth & throat O.R. procedures w CC/MCC. 

157 ........................................................ Dental & Oral Diseases w MCC. 

168 ........................................................ Other resp system O.R. procedures w/o CC/MCC. 

237 ........................................................ Major cardiovascular procedures w MCC. 

243 ........................................................ Permanent cardiac pacemaker implant w CC. 

244 ........................................................ Permanent cardiac pacemaker implant w/o CC/MCC. 

254 ........................................................ Other vascular procedures w/o CC/MCC.*** 

286 ........................................................ Circulatory disorders except AMI, w card cath w MCC. 

287 ........................................................ Circulatory disorders except AMI, w card cath w/o MCC. 

304 ........................................................ Hypertension w MCC. 

338 ........................................................ Appendectomy w complicated principal diag w MCC. 

344 ........................................................ Minor small & large bowel procedures w MCC. 

347 ........................................................ Anal & stomal procedures w MCC. 

353 ........................................................ Hernia procedures except inguinal & femoral w MCC. 

354 ........................................................ Hernia procedures except inguinal & femoral w CC. 

369 ........................................................ Major esophageal disorders w CC.*** 

380 ........................................................ Complicated peptic ulcer w MCC. 

423 ........................................................ Other hepatobiliary or pancreas O.R. procedures w MCC. 

466 ........................................................ Revision of hip or knee replacement w MCC.* 

469 ........................................................ Major joint replacement or reattachment of lower extremity w MCC.* 

471 ........................................................ Cervical spinal fusion w MCC. 

480 ........................................................ Hip & femur procedures except major joint w MCC.* 

487 ........................................................ Knee procedures w pdx of infection w/o CC/MCC. 

488 ........................................................ Knee procedures w/o pdx of infection w CC/MCC. 

490 ........................................................ Back & neck procedures except spinal fusion w CC/MCC or disc devices. 

502 ........................................................ Soft tissue procedures w/o CC/MCC.*** 

503 ........................................................ Foot procedures w MCC. 

505 ........................................................ Foot procedures w/o CC/MCC.*** 

510 ........................................................ Shoulder, elbow or forearm proc, exc major joint proc w MCC. 

513 ........................................................ Hand or wrist proc, except major thumb or joint proc w CC/MCC. 

514 ........................................................ Hand or wrist proc, except major thumb or joint proc w/o CC/MCC. 

516 ........................................................ Other musculoskelet sys & conn tiss O.R. proc w CC. 

537 ........................................................ Sprains, strains, & dislocations of hip, pelvis & thigh w CC/MCC. 

624 ........................................................ Skin grafts & wound debrid for endoc, nutrit & metab dis w/o CC/MCC.*** 

642 ........................................................ Inborn errors of metabolism. 

671 ........................................................ Urethral procedures w CC/MCC. 

691 ........................................................ Urinary stones w esw lithotripsy w CC/MCC. 

711 ........................................................ Testes procedures w CC/MCC. 

800 ........................................................ Splenectomy w CC. 

814 ........................................................ Reticuloendothelial & immunity disorders w MCC. 

829 ........................................................ Myeloprolif disord or poorly diff neopl w other O.R. proc w CC/MCC. 

834 ........................................................ Acute leukemia w/o major O.R. procedure w MCC. 

844 ........................................................ Other myeloprolif dis or poorly diff neopl diag w CC.*** 

855 ........................................................ Infectious & parasitic diseases w O.R. procedure w/o CC/MCC. 

909 ........................................................ Other O.R. procedures for injuries w/o CC/MCC. 

917 ........................................................ Poisoning & toxic effects of drugs w MCC. 

927 ........................................................ Extensive burns or full thickness burns w MV 96+ hrs w skin graft. 

928 ........................................................ Full thickness burn w skin graft or inhal inj w CC/MCC. 

958 ........................................................ Other O.R. procedures for multiple significant trauma w CC. 

963 ........................................................ Other multiple significant trauma w MCC. 

983 ........................................................ Extensive O.R. procedure unrelated to principal diagnosis w/o CC/MCC. 


sroberts on DSKD5P82C1PROD with RULES
43958 Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 

COMPOSITION OF LOW-VOLUME QUINTILES FOR RY 2010—Continued 

MS–LTC–DRG MS–LTC–DRG description 

011 ........................................................ Tracheostomy for face, mouth & neck diagnoses w MCC. 

025 ........................................................ Craniotomy & endovascular intracranial procedures w MCC. 

031 ........................................................ Ventricular shunt procedures w MCC. 

037 ........................................................ Extracranial procedures w MCC. 

038 ........................................................ Extracranial procedures w CC. 

135 ........................................................ Sinus & mastoid procedures w CC/MCC. 

148 ........................................................ Ear, nose, mouth & throat malignancy w/o CC/MCC.*** 

164 ........................................................ Major chest procedures w CC. 

222 ........................................................ Cardiac defib implant w cardiac cath w AMI/HF/shock w MCC. 

226 ........................................................ Cardiac defibrillator implant w/o cardiac cath w MCC. 

227 ........................................................ Cardiac defibrillator implant w/o cardiac cath w/o MCC. 

242 ........................................................ Permanent cardiac pacemaker implant w MCC. 

245 ........................................................ AICD generator procedures. 

250 ........................................................ Perc cardiovasc proc w/o coronary artery stent or AMI w MCC. 

260 ........................................................ Cardiac pacemaker revision except device replacement w MCC. 

326 ........................................................ Stomach, esophageal & duodenal proc w MCC. 

330 ........................................................ Major small & large bowel procedures w CC. 

335 ........................................................ Peritoneal adhesiolysis w MCC. 

405 ........................................................ Pancreas, liver & shunt procedures w MCC. 

406 ........................................................ Pancreas, liver & shunt procedures w CC. 

414 ........................................................ Cholecystectomy except by laparoscope w/o c.d.e. w MCC. 

417 ........................................................ Laparoscopic cholecystectomy w/o c.d.e. w MCC. 

420 ........................................................ Hepatobiliary diagnostic procedures w MCC. 

453 ........................................................ Combined anterior/posterior spinal fusion w MCC. 

454 ........................................................ Combined anterior/posterior spinal fusion w CC. 

456 ........................................................ Spinal fusion exc cerv w spinal curv, malig or 9+ fusions w MCC. 

457 ........................................................ Spinal fusion exc cerv w spinal curv, malig or 9+ fusions w CC. 

459 ........................................................ Spinal fusion except cervical w MCC. 

466 ........................................................ Revision of hip or knee replacement w MCC.** 

467 ........................................................ Revision of hip or knee replacement w CC. 

469 ........................................................ Major joint replacement or reattachment of lower extremity w MCC.** 

470 ........................................................ Major joint replacement or reattachment of lower extremity w/o MCC. 

480 ........................................................ Hip & femur procedures except major joint w MCC.** 

481 ........................................................ Hip & femur procedures except major joint w CC. 

485 ........................................................ Knee procedures w pdx of infection w MCC. 

486 ........................................................ Knee procedures w pdx of infection w CC. 

492 ........................................................ Lower extrem & humer proc except hip, foot, femur w MCC. 

498 ........................................................ Local excision & removal int fix devices of hip & femur w CC/MCC. 

507 ........................................................ Major shoulder or elbow joint procedures w CC/MCC. 

619 ........................................................ O.R. procedures for obesity w MCC. 

659 ........................................................ Kidney & ureter procedures for non-neoplasm w MCC. 

662 ........................................................ Minor bladder procedures w MCC. 

709 ........................................................ Penis procedures w CC/MCC. 

713 ........................................................ Transurethral prostatectomy w CC/MCC. 

717 ........................................................ Other male reproductive system O.R. proc exc malignancy w CC/MCC. 

776 ........................................................ Postpartum & post abortion diagnoses w/o O.R. procedure. 

802 ........................................................ Other O.R. proc of the blood & blood forming organs w MCC. 

823 ........................................................ Lymphoma & non-acute leukemia w other O.R. proc w MCC. 

824 ........................................................ Lymphoma & non-acute leukemia w other O.R. proc w CC. 

827 ........................................................ Myeloprolif disord or poorly diff neopl w maj O.R. proc w CC. 

848 ........................................................ Chemotherapy w/o acute leukemia as secondary diagnosis w/o CC/MCC.*** 

876 ........................................................ O.R. procedure w principal diagnoses of mental illness. 

922 ........................................................ Other injury, poisoning & toxic effect diag w MCC.** 

923 ........................................................ Other injury, poisoning & toxic effect diag w/o MCC. 

957 ........................................................ Other O.R. procedures for multiple significant trauma w MCC. 

969 ........................................................ HIV w extensive O.R. procedure w MCC. 

970 ........................................................ HIV w extensive O.R. procedure w/o MCC. 

984 ........................................................ Prostatic O.R. procedure unrelated to principal diagnosis w MCC. 

985 ........................................................ Prostatic O.R. procedure unrelated to principal diagnosis w CC. 

989 ........................................................ Non-extensive O.R. proc unrelated to principal diagnosis w/o CC/MCC.*** 

* One of the original 281 low-volume MS–LTC–DRGs initially assigned to this low-volume quintile but moved to a different low-volume quintile 

in addressing nonmonotonicity (refer to step 6 in section VIII.B.3.f. of the preamble of this final rule). 

** One of the original 281 low-volume MS–LTC–DRGs initially assigned to a different low-volume quintile but moved to this low-volume quintile 

in addressing nonmonotonicity (refer to step 6 in section VIII.B.3.f. of the preamble of this final rule). 

*** One of the original 281 low-volume MS–LTC–DRGs initially assigned to this low-volume quintile, but removed from this low-volume quintile 

in addressing nonmonotonicity (refer to step 6 in section VIII.B.3.f.of the preamble of this final rule). 

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 


sroberts on DSKD5P82C1PROD with RULES
Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 43959 

incentive for LTCHs to inappropriately 

admit these types of cases. 

f. Steps for Determining the RY 2010 

MS–LTC–DRG Relative Weights 

In general, as we proposed, we 

determined the RY 2010 MS–LTC–DRG 

relative weights based on the 

methodology established in the August 

30, 2002 LTCH PPS final rule (67 FR 

55989 through 55995) and consistent 

with the methodology we used to 

determine the FY 2009 MS–LTC–DRG 

relative weights in the FY 2009 IPPS 

final rule (73 FR 48540 through 48551). 

(We note that, for FY 2009, we made a 

modification to our methodology for 

determining relative weights for MS– 

LTC–DRGs with no LTCH cases (73 FR 

48542 through 48543), which is 

reflected in the adopted methodology 

for determining the RY 2010 MS–LTC– 

DRG relative weights presented below.) 

In summary, for RY 2010, we grouped 

LTCH cases to the appropriate MS– 

LTC–DRG, while taking into account the 

low-volume MS–LTC–DRGs (as 

described above), in order to determine 

the RY 2010 MS–LTC–DRG relative 

weights. After grouping the cases to the 

appropriate MS–LTC–DRG (or lowvolume quintile), we calculated the 

relative weights for RY 2010 by first 

removing statistical outliers and cases 

with a length of stay of 7 days or less 

(as discussed in greater detail below). 

Next, we adjusted the number of cases 

in each MS–LTC–DRG (or low-volume 

quintile) for the effect of SSO cases (as 

also discussed in greater detail below). 

The SSO adjusted discharges and 

corresponding charges are then used to 

calculate ‘‘relative adjusted weights’’ for 

each MS–LTC–DRG (or low-volume 

quintile) using the HSRV method 

(described above). 

Below we discuss in detail the steps 

for calculating the RY 2010 MS–LTC– 

DRG relative weights. We note that, as 

we stated above in section VIII.B.3.c. of 

the preamble of this final rule, we 

excluded the data of all-inclusive rate 

LTCHs and LTCHs that are paid in 

accordance with demonstration projects 

that had claims in the FY 2008 MedPAR 

file. 

Step 1—Remove statistical outliers. 

The first step in the calculation of the 

RY 2010 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. 

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 RY 2010 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 RY 

2010 MS–LTC–DRG relative weights, we 

removed LTCH cases with a length of 

stay of 7 days or less. 

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 RY 2010 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 § 412.529(a) in 

conjunction with § 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 

RY 2010 MS–LTC–DRG relative weights 

would lower the RY 2010 MS–LTC– 

DRG relative weight for affected MS– 

LTC–DRGs because the relatively lower 

charges of the SSO cases would bring 

down the average charge for all cases 

within an MS–LTC–DRG. This would 

result in an ‘‘underpayment’’ for nonSSO cases and an ‘‘overpayment’’ for 

SSO cases. Therefore, we adjusted for 

SSO cases under § 412.529 in this 

manner because it results in more 

appropriate payments for all LTCH 

cases. 

Step 4—Calculate the RY 2010 MS– 

LTC–DRG relative weights on an 

iterative basis. 

Consistent with our historical relative 

weight methodology, we calculate the 

RY 2010 MS–LTC–DRG relative weights 

using the HSRV methodology, which is 

an iterative process. First, for each 

LTCH case, we calculate a hospitalspecific relative charge value by 

dividing the SSO adjusted charge per 

discharge (see Step 3) of the LTCH case 

(after removing the statistical outliers 

(see Step 1)) and LTCH cases with a 

length of stay of 7 days or less (see Step 

2) by the average charge per discharge 

for the LTCH in which the case 

occurred. The resulting ratio is then 

multiplied by the LTCH’s case-mix 

index to produce an adjusted hospitalspecific 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, the RY 2010 

relative weight was calculated 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 

above was multiplied by these hospitalspecific case-mix indexes. These 

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 RY 2010 relative 

weight for MS–LTC–DRGs with no 

LTCH cases. 


sroberts on DSKD5P82C1PROD with RULES
43960 Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 

As we stated above, we determined 

the RY 2010 relative weight for each 

MS–LTC–DRG using total Medicare 

allowable charges reported in the best 

available LTCH claims data (that is, the 

March 2009 update of the FY 2008 

MedPAR file for this final rule). Of the 

RY 2010 MS–LTC–DRGs, we identified 

a number of MS–LTC–DRGs for which 

there were no LTCH cases in the 

database. That is, based on data from the 

FY 2008 MedPAR file used for this final 

rule, no patients who would have been 

classified to those MS–LTC–DRGs were 

treated in LTCHs during FY 2008 and, 

therefore, no charge data were 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). In general, we 

determined RY 2010 relative weights for 

the MS–LTC–DRGs with no LTCH cases 

in the FY 2008 MedPAR file used in this 

final rule (that is, ‘‘no-volume’’ MS– 

LTC–DRGs) by crosswalking each novolume 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 of 

the MS–LTC–DRG to which it was 

crosswalked (as described in greater 

detail below). 

Specifically, in this final rule, as 

stated above, we determined the relative 

weight for each MS–LTC–DRG using 

total Medicare allowable charges 

reported in the March 2009 update of 

the FY 2008 MedPAR file. Of the 746 

MS–LTC–DRGs for RY 2010, we 

identified 218 MS–LTC–DRGs for which 

there were 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 218 novolume 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 528 

(746 ¥ 218 = 528) MS–LTC–DRGs for 

which we were able to determine 

relative weights based on FY 2008 

LTCH claims data using the steps 

described above. (For the remainder of 

this discussion, we refer to one of the 

528 MS–LTC–DRGs for which we were 

able to determine a relative weight as 

the ‘‘crosswalked’’ MS–LTC–DRG.) 

Then, we assigned the no-volume MS– 

LTC–DRG the relative weight of the 

crosswalked MS–LTC–DRG. (As 

explained below in Step 6, when 

necessary, we made adjustments to 

account for nonmonotonicity.) 

In this final rule, as proposed, we 

used the following methodology for 

determining the RY 2010 relative 

weights for the no-volume MS–LTC– 

DRGs: We crosswalked the no-volume 

MS–LTC–DRG to an MS–LTC–DRG for 

which there were LTCH cases in the FY 

2008 MedPAR file and to which it was 

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. As we explained in the 

FY 2009 IPPS final rule (73 FR 48543), 

we evaluated the relative costliness in 

determining the applicable MS–LTC– 

DRG to which a no-volume MS–LTC– 

DRG was crosswalked in order to assign 

an appropriate relative weight for the 

no-volume MS–LTC–DRGs in RY 2010. 

In general, most of the no-volume MS– 

LTC–DRGs historically have not had 

any cases in the LTCH claims data. 

Therefore, we typically are unable to 

evaluate relative costliness based on 

prior years’ LTCH claims data. In 

evaluating the relative costliness for 

most of the no-volume MS–LTC–DRGs, 

a group of CMS medical officers who 

have extensive knowledge and 

familiarity with both the IPPS and 

LTCH DRG-based payment systems used 

their DRG experience to evaluate the 

relative costliness of the no-volume 

MS–LTC–DRGs. Specifically, the 

relative costliness of each of the novolume MS–LTC–DRGs for RY 2010 was 

assessed by taking into consideration 

factors such as relative resource use, 

clinical cohesiveness, and the 

comparableness of services provided 

based on the collective IPPS and LTCH 

PPS experience of those medical 

officers. We also note, as discussed 

above, the no-volume MS–LTC–DRG 

crosswalks are based on both clinical 

similarity and relative costliness, 

including such factors 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 believe in the rare 

event that there would be a few LTCH 

cases grouped to one of the no-volume 

MS–LTC–DRGs in RY 2010, the relative 

weights assigned based on the 

crosswalked 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 crosswalked 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 crosswalked MS– 

LTC–DRG) would have the same relative 

weight for RY 2010. We note that if the 

crosswalked 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 crosswalked 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 

crosswalked MS–LTC–DRG) have the 

same relative weight for RY 2010. (As 

we noted above, in the infrequent case 

where nonmonotonicity involving a novolume MS–LTC–DRG results, 

additional measures as described in 

Step 6 are required in order to maintain 

monotonically increasing relative 

weights.) 

For this final rule, a list of the novolume MS–LTC–DRGs and the MS– 

LTC–DRG to which it was crosswalked 

(that is, the crosswalked MS–LTC–DRG) 

for RY 2010 is shown in the chart 

below. 


sroberts on DSKD5P82C1PROD with RULES
Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 43961 

NO-VOLUME MS–LTC–DRG CROSSWALK FOR RY 2010 

MS–LTC–DRG MS–LTC–DRG description Crosswalked 

MS–LTC–DRG 

9 ...................................................... Bone marrow transplant ..................................................................................................... 823 

12 .................................................... Tracheostomy for face, mouth & neck diagnoses w CC ................................................... 146 

13 .................................................... Tracheostomy for face, mouth & neck diagnoses w/o CC/MCC ....................................... 146 

20 .................................................... Intracranial vascular procedures w PDX hemorrhage w MCC .......................................... 31 

21 .................................................... Intracranial vascular procedures w PDX hemorrhage w CC ............................................. 32 

22 .................................................... Intracranial vascular procedures w PDX hemorrhage w/o CC/MCC ................................. 32 

24 .................................................... Craniotomy w major device implant or acute complex CNS PDX w/o MCC .................... 23 

27 .................................................... Craniotomy & endovascular intracranial procedures w/o CC/MCC ................................... 26 

34 .................................................... Carotid artery stent procedure w MCC .............................................................................. 37 

35 .................................................... Carotid artery stent procedure w CC ................................................................................. 38 

36 .................................................... Carotid artery stent procedure w/o CC/MCC ..................................................................... 38 

39 .................................................... Extracranial procedures w/o CC/MCC ............................................................................... 38 

61 .................................................... Acute ischemic stroke w use of thrombolytic agent w MCC ............................................. 70 

62 .................................................... Acute ischemic stroke w use of thrombolytic agent w CC ................................................ 71 

63 .................................................... Acute ischemic stroke w use of thrombolytic agent w/o CC/MCC .................................... 72 

76 .................................................... Viral meningitis w/o CC/MCC ............................................................................................. 75 

79 .................................................... Hypertensive encephalopathy w/o CC/MCC ...................................................................... 305 

113 .................................................. Orbital procedures w CC/MCC ........................................................................................... 146 

114 .................................................. Orbital procedures w/o CC/MCC ........................................................................................ 147 

116 .................................................. Intraocular procedures w CC/MCC .................................................................................... 125 

117 .................................................. Intraocular procedures w/o CC/MCC ................................................................................. 125 

122 .................................................. Acute major eye infections w/o CC/MCC ........................................................................... 125 

123 .................................................. Neurological eye disorders ................................................................................................. 125 

129 .................................................. Major head & neck procedures w CC/MCC or major device ............................................ 146 

130 .................................................. Major head & neck procedures w/o CC/MCC .................................................................... 148 

132 .................................................. Cranial/facial procedures w/o CC/MCC ............................................................................. 133 

134 .................................................. Other ear, nose, mouth & throat O.R. procedures w/o CC/MCC ...................................... 133 

136 .................................................. Sinus & mastoid procedures w/o CC/MCC ........................................................................ 133 

137 .................................................. Mouth procedures w CC/MCC ........................................................................................... 133 

138 .................................................. Mouth procedures w/o CC/MCC ........................................................................................ 133 

150 .................................................. Epistaxis w MCC ................................................................................................................ 152 

151 .................................................. Epistaxis w/o MCC ............................................................................................................. 153 

165 .................................................. Major chest procedures w/o CC/MCC ............................................................................... 254 

185 .................................................. Major chest trauma w/o CC/MCC ...................................................................................... 184 

215 .................................................. Other heart assist system implant ...................................................................................... 254 

216 .................................................. Cardiac valve & oth maj cardiothoracic proc w card cath w MCC .................................... 237 

217 .................................................. Cardiac valve & oth maj cardiothoracic proc w card cath w CC ....................................... 253 

218 .................................................. Cardiac valve & oth maj cardiothoracic proc w card cath w/o CC/MCC ........................... 254 

219 .................................................. Cardiac valve & oth maj cardiothoracic proc w/o card cath w MCC ................................. 237 

220 .................................................. Cardiac valve & oth maj cardiothoracic proc w/o card cath w CC .................................... 254 

221 .................................................. Cardiac valve & oth maj cardiothoracic proc w/o card cath w/o CC/MCC ........................ 254 

223 .................................................. Cardiac defib implant w cardiac cath w AMI/HF/shock w/o MCC ..................................... 243 

224 .................................................. Cardiac defib implant w cardiac cath w/o AMI/HF/shock w MCC ..................................... 242 

225 .................................................. Cardiac defib implant w cardiac cath w/o AMI/HF/shock w/o MCC .................................. 243 

228 .................................................. Other cardiothoracic procedures w MCC ........................................................................... 252 

229 .................................................. Other cardiothoracic procedures w CC .............................................................................. 253 

230 .................................................. Other cardiothoracic procedures w/o CC/MCC .................................................................. 254 

231 .................................................. Coronary bypass w PTCA w MCC ..................................................................................... 237 

232 .................................................. Coronary bypass w PTCA w/o MCC .................................................................................. 254 

233 .................................................. Coronary bypass w cardiac cath w MCC ........................................................................... 237 

234 .................................................. Coronary bypass w cardiac cath w/o MCC ........................................................................ 254 

235 .................................................. Coronary bypass w/o cardiac cath w MCC ........................................................................ 237 

236 .................................................. Coronary bypass w/o cardiac cath w/o MCC ..................................................................... 254 

238 .................................................. Major cardiovascular procedures w/o MCC ....................................................................... 254 

246 .................................................. Percutaneous cardiovascular proc w drug-eluting stent w MCC ....................................... 252 

247 .................................................. Percutaneous cardiovascular proc w drug-eluting stent w/o MCC .................................... 253 

248 .................................................. Percutaneous cardiovasc proc w non-drug-eluting stent w MCC ...................................... 252 

249 .................................................. Percutaneous cardiovasc proc w non-drug-eluting stent w/o MCC ................................... 253 

251 .................................................. Perc cardiovasc proc w/o coronary artery stent or AMI w/o MCC .................................... 250 

258 .................................................. Cardiac pacemaker device replacement w MCC ............................................................... 259 

261 .................................................. Cardiac pacemaker revision except device replacement w CC ........................................ 259 

262 .................................................. Cardiac pacemaker revision except device replacement w/o CC/MCC ............................ 259 

263 .................................................. Vein ligation & stripping ...................................................................................................... 301 

265 .................................................. AICD lead procedures ........................................................................................................ 259 

295 .................................................. Deep vein thrombophlebitis w/o CC/MCC ......................................................................... 294 

296 .................................................. Cardiac arrest, unexplained w MCC .................................................................................. 283 

297 .................................................. Cardiac arrest, unexplained w CC ..................................................................................... 284 

298 .................................................. Cardiac arrest, unexplained w/o CC/MCC ......................................................................... 284 

328 .................................................. Stomach, esophageal & duodenal proc w/o CC/MCC ....................................................... 327 

332 .................................................. Rectal resection w MCC ..................................................................................................... 356 

333 .................................................. Rectal resection w CC ........................................................................................................ 357 


sroberts on DSKD5P82C1PROD with RULES
43962 Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 

NO-VOLUME MS–LTC–DRG CROSSWALK FOR RY 2010—Continued 

MS–LTC–DRG MS–LTC–DRG description Crosswalked 

MS–LTC–DRG 

334 .................................................. Rectal resection w/o CC/MCC ........................................................................................... 357 

336 .................................................. Peritoneal adhesiolysis w CC ............................................................................................. 335 

337 .................................................. Peritoneal adhesiolysis w/o CC/MCC ................................................................................ 335 

339 .................................................. Appendectomy w complicated principal diag w CC ........................................................... 372 

340 .................................................. Appendectomy w complicated principal diag w/o CC/MCC ............................................... 373 

341 .................................................. Appendectomy w/o complicated principal diag w MCC ..................................................... 371 

342 .................................................. Appendectomy w/o complicated principal diag w CC ........................................................ 372 

343 .................................................. Appendectomy w/o complicated principal diag w/o CC/MCC ............................................ 373 

345 .................................................. Minor small & large bowel procedures w CC .................................................................... 344 

346 .................................................. Minor small & large bowel procedures w/o CC/MCC ........................................................ 344 

349 .................................................. Anal & stomal procedures w/o CC/MCC ............................................................................ 348 

351 .................................................. Inguinal & femoral hernia procedures w CC ...................................................................... 350 

352 .................................................. Inguinal & femoral hernia procedures w/o CC/MCC .......................................................... 350 

355 .................................................. Hernia procedures except inguinal & femoral w/o CC/MCC ............................................. 354 

358 .................................................. Other digestive system O.R. procedures w/o CC/MCC ..................................................... 357 

407 .................................................. Pancreas, liver & shunt procedures w/o CC/MCC ............................................................. 406 

408 .................................................. Biliary tract proc except only cholecyst w or w/o c.d.e. w MCC ........................................ 424 

409 .................................................. Biliary tract proc except only cholecyst w or w/o c.d.e. w CC ........................................... 424 

410 .................................................. Biliary tract proc except only cholecyst w or w/o c.d.e. w/o CC/MCC .............................. 424 

411 .................................................. Cholecystectomy w c.d.e. w MCC ..................................................................................... 418 

412 .................................................. Cholecystectomy w c.d.e. w CC ........................................................................................ 418 

413 .................................................. Cholecystectomy w c.d.e. w/o CC/MCC ............................................................................ 418 

415 .................................................. Cholecystectomy except by laparoscope w/o c.d.e. w CC ................................................ 418 

416 .................................................. Cholecystectomy except by laparoscope w/o c.d.e. w/o CC/MCC .................................... 418 

419 .................................................. Laparoscopic cholecystectomy w/o c.d.e. w/o CC/MCC ................................................... 418 

421 .................................................. Hepatobiliary diagnostic procedures w CC ........................................................................ 424 

422 .................................................. Hepatobiliary diagnostic procedures w/o CC/MCC ............................................................ 424 

425 .................................................. Other hepatobiliary or pancreas O.R. procedures w/o CC/MCC ....................................... 424 

434 .................................................. Cirrhosis & alcoholic hepatitis w/o CC/MCC ...................................................................... 433 

455 .................................................. Combined anterior/posterior spinal fusion w/o CC/MCC ................................................... 457 

458 .................................................. Spinal fusion exc cerv w spinal curv, malig or 9+ fusions w/o CC/MCC .......................... 457 

460 .................................................. Spinal fusion except cervical w/o MCC .............................................................................. 459 

461 .................................................. Bilateral or multiple major joint procs of lower extremity w MCC ...................................... 480 

462 .................................................. Bilateral or multiple major joint procs of lower extremity w/o MCC ................................... 480 

468 .................................................. Revision of hip or knee replacement w/o CC/MCC ........................................................... 480 

473 .................................................. Cervical spinal fusion w/o CC/MCC ................................................................................... 472 

482 .................................................. Hip & femur procedures except major joint w/o CC/MCC ................................................. 480 

483 .................................................. Major joint & limb reattachment proc of upper extremity w CC/MCC ............................... 480 

484 .................................................. Major joint & limb reattachment proc of upper extremity w/o CC/MCC ............................ 480 

489 .................................................. Knee procedures w/o pdx of infection w/o CC/MCC ......................................................... 488 

491 .................................................. Back & neck procedures except spinal fusion w/o CC/MCC ............................................. 490 

494 .................................................. Lower extrem & humer proc except hip, foot, femur w/o CC/MCC ................................... 493 

506 .................................................. Major thumb or joint procedures ........................................................................................ 514 

508 .................................................. Major shoulder or elbow joint procedures w/o CC/MCC ................................................... 507 

509 .................................................. Arthroscopy ......................................................................................................................... 505 

512 .................................................. Shoulder, elbow or forearm proc, exc major joint proc w/o CC/MCC ............................... 511 

533 .................................................. Fractures of femur w MCC ................................................................................................. 480 

538 .................................................. Sprains, strains, & dislocations of hip, pelvis & thigh w/o CC/MCC .................................. 537 

583 .................................................. Mastectomy for malignancy w/o CC/MCC ......................................................................... 582 

585 .................................................. Breast biopsy, local excision & other breast procedures w/o CC/MCC ............................ 584 

599 .................................................. Malignant breast disorders w/o CC/MCC ........................................................................... 598 

614 .................................................. Adrenal & pituitary procedures w CC/MCC ....................................................................... 629 

615 .................................................. Adrenal & pituitary procedures w/o CC/MCC .................................................................... 629 

618 .................................................. Amputat of lower limb for endocrine, nutrit, & metabol dis w/o CC/MCC ......................... 617 

621 .................................................. O.R. procedures for obesity w/o CC/MCC ......................................................................... 620 

625 .................................................. Thyroid, parathyroid & thyroglossal procedures w MCC ................................................... 628 

626 .................................................. Thyroid, parathyroid & thyroglossal procedures w CC ...................................................... 629 

627 .................................................. Thyroid, parathyroid & thyroglossal procedures w/o CC/MCC .......................................... 629 

630 .................................................. Other endocrine, nutrit & metab O.R. proc w/o CC/MCC .................................................. 629 

653 .................................................. Major bladder procedures w MCC ..................................................................................... 660 

654 .................................................. Major bladder procedures w CC ........................................................................................ 660 

655 .................................................. Major bladder procedures w/o CC/MCC ............................................................................ 660 

657 .................................................. Kidney & ureter procedures forneoplasm w CC ................................................................ 656 

658 .................................................. Kidney & ureter procedures for neoplasm w/o CC/MCC ................................................... 656 

661 .................................................. Kidney & ureter procedures for non-neoplasm w/o CC/MCC ............................................ 660 

664 .................................................. Minor bladder procedures w/o CC/MCC ............................................................................ 663 

665 .................................................. Prostatectomy w MCC ........................................................................................................ 669 

670 .................................................. Transurethral procedures w/o CC/MCC ............................................................................. 669 

672 .................................................. Urethral procedures w/o CC/MCC ..................................................................................... 671 

688 .................................................. Kidney & urinary tract neoplasms w/o CC/MCC ................................................................ 687 

692 .................................................. Urinary stones w esw lithotripsy w/o CC/MCC .................................................................. 694 


sroberts on DSKD5P82C1PROD with RULES
Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 43963 

NO-VOLUME MS–LTC–DRG CROSSWALK FOR RY 2010—Continued 

MS–LTC–DRG MS–LTC–DRG description Crosswalked 

MS–LTC–DRG 

707 .................................................. Major male pelvic procedures w CC/MCC ......................................................................... 660 

708 .................................................. Major male pelvic procedures w/o CC/MCC ...................................................................... 660 

710 .................................................. Penis procedures w/o CC/MCC ......................................................................................... 709 

712 .................................................. Testes procedures w/o CC/MCC ....................................................................................... 711 

714 .................................................. Transurethral prostatectomy w/o CC/MCC ........................................................................ 669 

715 .................................................. Other male reproductive system O.R. proc for malignancy w CC/MCC ........................... 717 

716 .................................................. Other male reproductive system O.R. proc for malignancy w/o CC/MCC ........................ 717 

718 .................................................. Other male reproductive system O.R. proc exc malignancy w/o CC/MCC ....................... 717 

724 .................................................. Malignancy, male reproductive system w/o CC/MCC ........................................................ 722 

734 .................................................. Pelvic evisceration, rad hysterectomy & rad vulvectomy w CC/MCC ............................... 717 

735 .................................................. Pelvic evisceration, rad hysterectomy & rad vulvectomy w/o CC/MCC ............................ 717 

736 .................................................. Uterine & adnexa proc for ovarian or adnexal malignancy w MCC .................................. 754 

737 .................................................. Uterine & adnexa proc for ovarian or adnexal malignancy w CC ..................................... 755 

738 .................................................. Uterine & adnexa proc for ovarian or adnexal malignancy w/o CC/MCC ......................... 755 

739 .................................................. Uterine, adnexa proc for non-ovarian/adnexal malig w MCC ............................................ 628 

740 .................................................. Uterine, adnexa proc for non-ovarian/adnexal malig w CC ............................................... 755 

741 .................................................. Uterine, adnexa proc for non-ovarian/adnexal malig w/o CC/MCC ................................... 755 

742 .................................................. Uterine & adnexa proc for non-malignancy w CC/MCC .................................................... 755 

743 .................................................. Uterine & adnexa proc for non-malignancy w/o CC/MCC ................................................. 755 

744 .................................................. D&C, conization, laparascopy & tubal interruption w CC/MCC ......................................... 749 

745 .................................................. D&C, conization, laparascopy & tubal interruption w/o CC/MCC ...................................... 749 

748 .................................................. Female reproductive system reconstructive procedures ................................................... 749 

750 .................................................. Other female reproductive system O.R. procedures w/o CC/MCC ................................... 749 

756 .................................................. Malignancy, female reproductive system w/o CC/MCC ..................................................... 755 

761 .................................................. Menstrual & other female reproductive system disorders w/o CC/MCC ........................... 760 

765 .................................................. Cesarean section w CC/MCC ............................................................................................ 629 

766 .................................................. Cesarean section w/o CC/MCC ......................................................................................... 629 

767 .................................................. Vaginal delivery w sterilization &/or D&C ........................................................................... 629 

768 .................................................. Vaginal delivery w O.R. proc except steril &/or D&C ........................................................ 629 

769 .................................................. Postpartum & post abortion diagnoses w O.R. procedure ................................................ 629 

770 .................................................. Abortion w D&C, aspiration curettage or hysterotomy ....................................................... 629 

774 .................................................. Vaginal delivery w complicating diagnoses ........................................................................ 629 

775 .................................................. Vaginal delivery w/o complicating diagnoses ..................................................................... 629 

777 .................................................. Ectopic pregnancy .............................................................................................................. 629 

778 .................................................. Threatened abortion ........................................................................................................... 759 

779 .................................................. Abortion w/o D&C ............................................................................................................... 759 

780 .................................................. False labor .......................................................................................................................... 759 

782 .................................................. Other antepartum diagnoses w/o medical complications .................................................. 781 

789 .................................................. Neonates, died or transferred to another acute care facility ............................................. 781 

790 .................................................. Extreme immaturity or respiratory distress syndrome, neonate ........................................ 781 

791 .................................................. Prematurity w major problems ........................................................................................... 781 

792 .................................................. Prematurity w/o major problems ........................................................................................ 781 

793 .................................................. Full term neonate w major problems ................................................................................. 781 

794 .................................................. Neonate w other significant problems ................................................................................ 781 

795 .................................................. Normal newborn ................................................................................................................. 781 

799 .................................................. Splenectomy w MCC .......................................................................................................... 800 

801 .................................................. Splenectomy w/o CC/MCC ................................................................................................. 800 

804 .................................................. Other O.R. proc of the blood & blood forming organs w/o CC/MCC ................................ 803 

810 .................................................. Major hematol/immun diag exc sickle cell crisis & coagul w/o CC/MCC .......................... 812 

820 .................................................. Lymphoma & leukemia w major O.R. procedure w MCC .................................................. 823 

822 .................................................. Lymphoma & leukemia w major O.R. procedure w/o CC/MCC ........................................ 821 

825 .................................................. Lymphoma & non-acute leukemia w other O.R. proc w/o CC/MCC ................................. 824 

826 .................................................. Myeloprolif disord or poorly diff neopl w maj O.R. proc w MCC ....................................... 827 

828 .................................................. Myeloprolif disord or poorly diff neopl w maj O.R. proc w/o CC/MCC .............................. 827 

830 .................................................. Myeloprolif disord or poorly diff neopl w other O.R. proc w/o CC/MCC ............................ 829 

836 .................................................. Acute leukemia w/o major O.R. procedure w/o CC/MCC .................................................. 835 

838 .................................................. Chemo w acute leukemia as sdx or w high dose chemo agent w CC ............................. 837 

839 .................................................. Chemo w acute leukemia as sdx or w high dose chemo agent w/o CC/MCC ................. 837 

845 .................................................. Other myeloprolif dis or poorly diff neopl diag w/o CC/MCC ............................................. 844 

887 .................................................. Other mental disorder diagnoses ....................................................................................... 881 

915 .................................................. Allergic reactions w MCC ................................................................................................... 918 

916 .................................................. Allergic reactions w/o MCC ................................................................................................ 918 

929 .................................................. Full thickness burn w skin graft or inhal inj w/o CC/MCC ................................................. 934 

955 .................................................. Craniotomy for multiple significant trauma ......................................................................... 26 

956 .................................................. Limb reattachment, hip & femur proc for multiple significant trauma ................................ 480 

959 .................................................. Other O.R. procedures for multiple significant trauma w/o CC/MCC ................................ 958 


sroberts on DSKD5P82C1PROD with RULES
43964 Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 

To illustrate this methodology for 

determining the relative weights for the 

RY 2010 MS–LTC–DRGs with no LTCH 

cases, we are providing the following 

example, which refers to the no-volume 

MS–LTC–DRGs crosswalk information 

for RY 2010 provided in the chart above. 

Example: There were no cases in the 

FY 2008 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 Cebrovascular Disorders 

with MCC) was 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 

0.8439 for RY 2010 to MS–LTC–DRG 61 

(we refer readers to Table 11 of the 

Addendum to this final rule). 

Furthermore, for RY 2010, 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. Based on our research, 

we found that most LTCHs only perform 

minor surgeries, such as minor small 

and large bowel procedures, to the 

extent any surgeries are performed at 

all. Given the extensive criteria that 

must be met to become certified as a 

transplant center for Medicare, we 

believe it is unlikely that any LTCHs 

will become certified as a transplant 

center. In fact, in the more than 20 years 

since the implementation of the IPPS, 

there has never been a LTCH that even 

expressed an interest in becoming a 

transplant center. 

If, in the future, a LTCH applies for 

certification as a Medicare-approved 

transplant center, we believe that the 

application and approval procedure 

would allow sufficient time for us to 

determine appropriate weights for the 

MS–LTC–DRGs affected. At the present 

time, we only include these eight 

transplant MS–LTC–DRGs in the 

GROUPER program for administrative 

purposes only. Because we use the same 

GROUPER program for LTCHs as is used 

under the IPPS, removing these MS– 

LTC–DRGs would be administratively 

burdensome. 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. 

Step 6—Adjust the RY 2010 MS– 

LTC–DRG relative weights to account 

for nonmonotonically increasing 

relative weights. 

As discussed above in this section, 

the MS–DRGs (used under the IPPS) and 

the MS–LTC–DRGs (used under the 

LTCH PPS) provide a significant 

improvement in the DRG system’s 

recognition of severity of illness and 

resource usage. The MS–DRGs contain 

base DRGs that have been subdivided 

into one, two, or three severity levels. 

Where there are three severity levels, 

the most severe level has at least one 

code that is referred to as an MCC (that 

is, major complication or comorbidity). 

The next lower severity level contains 

cases with at least one code that is a CC 

(that is, complication or comorbidity). 

Those cases without an MCC or a CC are 

referred to as ‘‘without CC/MCC.’’ When 

data do not support the creation of three 

severity levels, the base DRG is 

subdivided into either two levels or the 

base DRG is not subdivided. The twolevel subdivisions could consist of the 

with CC/MCC and the without CC/MCC. 

Alternatively, the other type of twolevel subdivision may consist of the 

MCC and without MCC. 

In those base MS–LTC–DRGs that are 

split into either two or three severity 

levels, cases classified into the ‘‘without 

CC/MCC’’ MS–LTC–DRG are expected 

to have a lower resource use (and lower 

costs) than the ‘‘with CC/MCC’’ MS– 

LTC–DRG (in the case of a two-level 

split) or both the ‘‘with CC’’ and the 

‘‘with MCC’’ MS–LTC–DRGs (in the 

case of a three-level split). That is, 

theoretically, cases that are more severe 

typically require greater expenditure of 

medical care resources and will result in 

higher average charges. Therefore, in the 

three severity levels, relative weights 

should increase by severity, from lowest 

to highest. If the relative weights 

decrease as severity decreased (that is, 

if within a base MS–LTC–DRG, an MS– 

LTC–DRG with CC has a higher relative 

weight than one with MCC, or the MS– 

LTC–DRG without CC/MCC has a higher 

relative weight than either of the 

others), they are nonmonotonic. We 

continue to believe that utilizing 

nonmonotonic relative weights to adjust 

Medicare payments would result in 

inappropriate payments because the 

payment for the cases in the higher 

severity level in a base MS–LTC–DRG 

(which are generally expected to have 

higher resource use and costs) would be 

lower than the payment for cases in a 

lower severity level within the same 

base MS–LTC–DRG (which are generally 

expected to have lower resource use and 

costs). Consequently, in general, 

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 was 

maintained. Specifically, in determining 

the RY 2010 MS–LTC–DRG relative 

weights in this final rule, we used the 

same methodology to adjust for 

nonmonotonicity that we used to 

determine the RY 2009 MS–LTC–DRG 

relative weights in the FY 2009 IPPS 

final rule (73 FR 48549 through 48550). 

In determining the RY 2010 MS–LTC– 

DRG relative weights in this final rule, 

under each of the example scenarios 

provided below, we combined severity 

levels within a base MS–LTC–DRG as 

follows: 

The first example of 

nonmonotonically increasing relative 

weights for an MS–LTC–DRG pertains to 

a base MS–LTC–DRG with a three-level 

split and each of the three levels has 25 

or more LTCH cases and, therefore, 

none of those MS–LTC–DRGs were 

assigned to one of the five low-volume 

quintiles. In this final rule, if 

nonmonotonicity was detected in the 

relative weights of the MS–LTC–DRGs 

in adjacent severity levels (for example, 

the relative weight of the ‘‘with MCC’’ 

(the highest severity level) was less than 

the ‘‘with CC’’ (the middle level), or the 

relative weight ‘‘with CC’’ was less than 

the ‘‘without CC/MCC’’ (lowest severity 

level)), we combined the nonmonotonic 

adjacent MS–LTC–DRGs and 

redetermined a relative weight based on 

the case-weighted average of the 

combined LTCH cases of the 

nonmonotonic MS–LTC–DRGs. The 

case-weighted average charge was 

calculated by dividing the total charges 

for all LTCH cases in both severity 

levels by the total number of LTCH 

cases for both MS–LTC–DRGs. The same 

relative weight was assigned to both 

affected levels of the base MS–LTC– 

DRG. If nonmonotonicity remained an 

issue because the above process resulted 

in a relative weight that was still 

nonmonotonic to the relative weight of 

the remaining MS–LTC–DRG within the 

base MS–LTC–DRG, we combined all 

three of the severity levels to 


sroberts on DSKD5P82C1PROD with RULES
Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 43965 

redetermine the relative weights based 

on the case-weighted average charge of 

the combined severity levels. This same 

relative weight was then assigned to 

each of the MS–LTC–DRGs in that base 

MS–LTC–DRG. 

A second example of 

nonmonotonically increasing relative 

weights for a base MS–LTC–DRG 

pertains to the situation where there are 

three severity levels and one or more of 

the severity levels within a base MS– 

LTC–DRG has less than 25 LTCH cases 

(that is, low volume). If 

nonmonotonicity occurred in the case 

where either the highest or lowest 

severity level (‘‘with MCC’’ or ‘‘without 

CC/MCC’’) had 25 LTCH cases or more 

and the other two severity levels were 

low volume (and, therefore, the other 

two severity levels were otherwise 

assigned the relative weight of the 

applicable low-volume quintile(s)), we 

combined the data for the cases in the 

two adjacent low-volume MS–LTC– 

DRGs for the purpose of determining a 

relative weight. If the combination 

resulted in at least 25 cases, we 

redetermined one relative weight based 

on the case-weighted average charge of 

the combined severity levels and 

assigned this same relative weight to 

each of the severity levels. If the 

combination resulted in less than 25 

cases, based on the case-weighted 

average charge of the combined lowvolume MS–LTC–DRGs, both MS–LTC– 

DRGs were assigned to the appropriate 

low-volume quintile (discussed above in 

section VIII.B.3.e. of this preamble) 

based on the case-weighted average 

charge of the combined low-volume 

MS–LTC–DRGs. Then the relative 

weight of the affected low-volume 

quintile was redetermined and that 

relative weight was assigned to each of 

the affected severity levels (and all of 

the MS–LTC–DRGs in the affected lowvolume quintile). If nonmonotonicity 

persisted, we combined all three 

severity levels and redetermined one 

relative weight based on the caseweighted average charge of the 

combined severity levels and this same 

relative weight was assigned to each of 

the three levels within that base MS– 

LTC–DRG. 

Similarly, in nonmonotonic cases 

where the middle level had 25 cases or 

more but either or both of the lowest or 

highest severity level had less than 25 

cases (that is, low volume), we 

combined the nonmonotonic lowvolume MS–LTC–DRG with the middle 

severity-level MS–LTC–DRG (the ‘‘with 

CC’’) of the base MS–LTC–DRG. We 

redetermined one relative weight based 

on the case-weighted average charge of 

the combined severity levels, and 

assigned this same relative weight to 

each of the affected MS–LTC–DRGs. If 

nonmonotonicity persisted, we 

combined all three levels for the 

purpose of redetermining a relative 

weight based on the case-weighted 

average charge of the combined severity 

levels, and assigned that relative weight 

to each of the three severity levels 

within the base MS–LTC–DRG. 

In the case where all three severity 

levels in the base-MS–LTC–DRGs were 

low-volume MS–LTC–DRGs and two of 

the severity levels were nonmonotonic 

in relation to each other, we combined 

the two adjacent nonmonotonic severity 

levels. If that combination resulted in 

less than 25 cases, both low-volume 

MS–LTC–DRGs were assigned to the 

appropriate low-volume quintile 

(discussed above in section VIII.B.3.e. of 

this preamble) based on the caseweighted average charge of the 

combined low-volume MS–LTC–DRGs. 

Then the relative weight of the affected 

low-volume quintile was redetermined, 

and that relative weight was assigned to 

each of the affected severity levels (and 

all of the MS–LTC–DRGs in the affected 

low-volume quintile). If the 

nonmonotonicity persisted, we 

combined all three levels of that base 

MS–LTC–DRG for the purpose of 

redetermining a relative weight based 

on the case-weighted average charge of 

the combined severity levels, and 

assigned that relative weight to each of 

the three severity levels. If that 

combination of all three severity levels 

resulted in less than 25 cases, we 

assigned that ‘‘combined’’ base MS– 

LTC–DRG to the appropriate lowvolume quintile based on the caseweighted average charge of the 

combined low-volume MS–LTC–DRGs. 

Then the relative weight of the affected 

low-volume quintile was redetermined, 

and that relative weight was assigned to 

each of the affected severity levels (and 

all of the MS–LTC–DRGs in the affected 

low-volume quintile). If the 

combination of all three severity levels 

resulted in 25 or more cases, we 

redetermined one relative weight based 

on the case-weighted average charge of 

the combined severity levels, and 

assigned this same relative weight to all 

three of the severity levels within the 

base MS–LTC–DRG. 

Similarly, in the case where all three 

severity levels in the base MS–LTC– 

DRGs were low-volume MS–LTC–DRGs 

and two of the severity levels were 

nonmonotonic in relation to each other, 

we combined the two adjacent 

nonmonotonic severity levels. If the 

combination resulted in at least 25 

cases, we then redetermined one 

relative weight based on the caseweighted average charge of the 

combined severity levels, and assigned 

this same relative weight to both of the 

affected adjacent severity levels within 

the base MS–LTC–DRG. If the 

nonmonotonicity persisted, we 

combined all three levels of that base 

MS–LTC–DRG for the purpose of 

redetermining a relative weight based 

on the case-weighted average charge of 

the combined severity levels, and 

assigned that relative weight to each of 

the three severity levels within the base 

MS–LTC–DRG. 

Another example of nonmonotonicity 

involved a base MS–LTC–DRG with 

three severity levels where at least one 

of the severity levels had no LTCH 

cases. As discussed above in Step 5, we 

crosswalked a no-volume MS–LTC–DRG 

to an MS–LTC–DRG that had at least 

one case based on resource use intensity 

and clinical similarity. The no-volume 

MS–LTC–DRG was assigned the same 

relative weight as the MS–LTC–DRG to 

which it was crosswalked. For many novolume MS–LTC–DRGs, as shown in the 

chart above in Step 5, the application of 

our methodology resulted in a 

crosswalked MS–LTC–DRG that was the 

adjacent severity level in the same base 

MS–LTC–DRG. Consequently, in most 

instances, the no-volume MS–LTC–DRG 

and the adjacent MS–LTC–DRG to 

which it was crosswalked did not result 

in nonmonotonicity because both of 

these severity levels would have the 

same relative weight. (In this final rule, 

under our methodology for the 

treatment of no-volume MS–LTC–DRGs, 

in the case where the no-volume MS– 

LTC–DRG was either the highest or 

lowest severity level, the crosswalked 

MS–LTC–DRG was typically the middle 

level (‘‘with CC’’) within the same base 

MS–LTC–DRG, and, therefore, the novolume MS–LTC–DRG (either the ‘‘with 

MCC’’ or the ‘‘without CC/MCC’’) and 

the crosswalked MS–LTC–DRG (the 

‘‘with CC’’) have the same relative 

weight. Consequently, no adjustment for 

monotonicity was necessary.) However, 

if our methodology for determining 

relative weights for no-volume MS– 

LTC–DRGs resulted in nonmonotonicity 

with the third severity level in the base 

MS–LTC–DRG, all three severity levels 

were combined in order to redetermine 

one relative weight based on the caseweighted average charge of the 

combined severity levels. This same 

relative weight was assigned to each of 

the three severity levels in the base MS– 

LTC–DRG. 

Thus far in the discussion, we have 

presented examples of nonmonotonicity 

in a base MS–LTC–DRG that has three 

severity levels. Under our methodology 

for the treatment of nonmonotonicity, 


sroberts on DSKD5P82C1PROD with RULES
43966 Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 

we applied the same process where the 

base MS–LTC–DRG contained only two 

severity levels. For example, if 

nonmonotonicity occurred in a base 

MS–LTC–DRG with two severity levels 

(that is, the relative weight of the higher 

severity level was less than the lower 

severity level), where both of the MS– 

LTC–DRGs had at least 25 cases or 

where one or both of the MS–LTC–DRGs 

were low volume (that is, less than 25 

cases), we combined the two MS–LTC– 

DRGs of that base MS–LTC–DRG for the 

purpose of redetermining a relative 

weight based on the combined caseweighted average charge for both 

severity levels. This same relative 

weight was assigned to each of the two 

severity levels in the base MS–LTC– 

DRG. Specifically, if the combination of 

the two severity levels resulted in at 

least 25 cases, we redetermined one 

relative weight based on the caseweighted average charge, and assigned 

that relative weight to each of the two 

MS–LTC–DRGs. If the combination 

resulted in less than 25 cases, we 

assigned both MS–LTC–DRGs to the 

appropriate low-volume quintile 

(discussed above in section VIII.B.3.e. of 

this preamble) based on their combined 

case-weighted average charge. Then the 

relative weight of the affected lowvolume quintile was redetermined, and 

that relative weight was assigned to 

each of the two severity levels within 

the base MS–LTC–DRG (and all of the 

MS–LTC–DRGs in the affected lowvolume quintile). 

Step 7—Calculate the RY 2010 budget 

neutrality factor. 

As we established in the RY 2008 

LTCH PPS final rule (72 FR 26882), 

under the broad authority conferred 

upon the Secretary under section 123 of 

Public Law 106–113, as amended by 

section 307(b) of Public Law 106–554, to 

develop the LTCH PPS, beginning with 

the MS–LTC–DRG update for FY 2008, 

the annual update to the MS–LTC–DRG 

classifications and relative weights is 

done in a budget neutral manner such 

that estimated aggregate LTCH PPS 

payments would be unaffected, that is, 

would be neither greater than nor less 

than the estimated aggregate LTCH PPS 

payments that would have been made 

without the MS–LTC–DRG classification 

and relative weight changes. 

Specifically, in that same final rule, we 

established a requirement under 

§ 412.517(b) that the annual update to 

the MS–LTC–DRG classifications and 

relative weights be done in a budget 

neutral manner. (For a detailed 

discussion on the establishment of the 

budget neutrality requirement to update 

the MS–LTC–DRG classifications and 

relative weights, we refer readers to the 

RY 2008 LTCH PPS final rule (72 FR 

26880 through 26884).) 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. Under the budget 

neutrality requirement, 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 RY 2010 based on the most recent 

available LTCH data, and included a 

budget neutrality adjustment that was 

applied in determining the RY 2010 

MS–LTC–DRG relative weights. 

To ensure budget neutrality in the 

update to the MS–LTC–DRG 

classifications and relative weights 

under § 412.517(b), consistent with the 

budget neutrality methodology we 

established in the FY 2008 IPPS final 

rule with comment period (72 FR 47295 

through 47296), in determining the 

budget neutrality adjustment for RY 

2010 in this final rule, as we proposed, 

we used a method that is similar to the 

methodology used under the IPPS. 

Specifically, for RY 2010, after 

recalibrating the MS–LTC–DRG relative 

weights as we do under the 

methodology as described in detail in 

Steps 1 through 6 above, we calculated 

and applied a normalization factor to 

those recalibrated relative weights to 

ensure that estimated payments were 

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 itself) neither 

increases nor decreases the average CMI. 

To calculate the normalization factor 

for RY 2010, we used the following 

steps: (1) We used the most recent 

available LTCH claims data (FY 2008) 

and grouped them using the RY 2010 

GROUPER (Version 27.0) and the RY 

2010 MS–LTC–DRG relative weights 

(determined above in Steps 1 through 6 

above) to calculate the average CMI; (2) 

we grouped the same LTCH claims data 

(FY 2008) using the FY 2009 GROUPER 

(Version 26.0) and FY 2009 MS–LTC– 

DRG relative weights (presented in 

Table 11 of the interim final rule with 

comment period published on June 3, 

2009 in the Federal Register (74 FR 

26550 through 26569)) and calculated 

the average CMI; and (3) we computed 

the ratio of these average CMIs by 

dividing the average CMI for FY 2009 

(determined in Step 2) by the average 

CMI for RY 2010 (determined in Step 1). 

In determining the MS–LTC–DRG 

relative weights for RY 2010, each 

recalibrated MS–LTC–DRG relative 

weight is multiplied by 1.07341 in the 

first step of the budget neutrality 

methodology, which produces 

‘‘normalized relative weights.’’ 

In the second step of the proposed RY 

2010 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 (the 

RY 2010 MS–LTC–DRG classifications 

and relative weights) are equal to 

estimated aggregate LTCH PPS 

payments (for the same most recent 

available LTCH claims data) before 

reclassification and recalibration (the 

RY 2009 MS–LTC–DRG classifications 

and relative weights). Therefore, similar 

to the methodology used to determine 

the IPPS DRG reclassification and 

recalibration budget neutrality factor 

discussed in section II.A.4.a. of the 

Addendum to this final rule, we used 

FY 2008 discharge data to simulate 

payments and compared estimated 

aggregate LTCH PPS payments using the 

FY 2009 MS–LTC–DRGs and relative 

weights to estimate aggregate LTCH PPS 

payments using the RY 2010 MS–LTC– 

DRGs and relative weights. Consistent 

with our historical policy of using the 

best available data, we used the most 

recently available claims data (that is, 

LTCH claims data from the March 2009 

update of the FY 2008 MedPAR file) for 

determining the budget neutrality 

adjustment factor in this final rule. 

Specifically, we determined the RY 

2010 budget neutrality adjustment factor 

in this final rule using the following 

steps: (1) We simulated estimated total 

LTCH PPS payments using the 

normalized relative weights for RY 2010 

and GROUPER Version 27.0 (as 

described above in this section); (2) we 

simulated estimated total LTCH PPS 

payments using the FY 2009 GROUPER 

(Version 26.0) and the revised FY 2009 

MS–LTC–DRG relative weights shown 

in Table 11 of the June 3, 2009 interim 

final rule with comment period (74 FR 

26550 through 26569)); and (3) we 

calculated the ratio of these estimated 

total LTCH PPS payments by dividing 

the estimated total LTCH PPS payments 

using the FY 2009 GROUPER (Version 

26.0) and the revised FY 2009 MS–LTC– 

DRG relative weights (determined in 

Step 2) by the estimated total LTCH PPS 

payments using the RY 2010 GROUPER 

(Version 27.0) and the normalized MS– 

LTC–DRG relative weights for RY 2010 

(determined in Step 1). In determining 


sroberts on DSKD5P82C1PROD with RULES
Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 43967 

the final RY 2010 MS–LTC–DRG 

relative weights, each normalized 

relative weight was multiplied by a 

budget neutrality factor of 0.9940041 in 

the second step of the budget neutrality 

methodology to determine the final 

budget neutral RY 2010 relative weight 

for each MS–LTC–DRG. 

Accordingly, in determining the RY 

2010 MS–LTC–DRG relative weights in 

this final rule, we applied a 

normalization factor of 1.07341 and a 

budget neutrality factor of 0.9940041, as 

described above. The final RY 2010 MS– 

LTC–DRG relative weights in Table 11 

in the Addendum to this final rule 

reflect both the normalization factor of 

1.07341 and the budget neutrality factor 

of 0.9940041. Table 11 in the 

Addendum to this final rule lists the 

MS–LTC–DRGs and their respective 

relative weights, geometric mean length 

of stay, and five-sixths of the geometric 

mean length of stay (used in 

determining SSO payments under 

§ 412.529) for RY 2010. 

C. Changes to the LTCH Payment Rates 

and Other Changes to the RY 2010 

LTCH PPS 

1. Overview of Development of the 

LTCH Payment Rates 

The LTCH PPS was effective 

beginning with a LTCH’s first cost 

reporting period beginning on or after 

October 1, 2002. Effective beginning 

with that cost reporting period, LTCHs 

were paid, during a 5-year transition 

period, a total LTCH prospective 

payment that is comprised of an 

increasing proportion of the LTCH PPS 

Federal rate and a decreasing proportion 

based on reasonable cost-based 

principles, unless the hospital makes a 

one-time election to receive payment 

based on 100 percent of the Federal rate, 

as specified in § 412.533. New LTCHs 

(as defined at § 412.23(e)(4)) are paid 

based on 100 percent of the Federal rate, 

with no phase-in transition payments. 

The basic methodology for 

determining LTCH PPS Federal 

prospective payment rates is set forth at 

§ 412.515 through § 412.536. In this 

section, we discuss the factors that were 

used to update the LTCH PPS standard 

Federal rate for the 2010 LTCH PPS rate 

year that will be effective for LTCH 

discharges occurring on or after October 

1, 2009 through September 30, 2010. 

For further details on the 

development of the FY 2003 standard 

Federal rate, we refer readers to the 

August 30, 2002 LTCH PPS final rule 

(67 FR 56027 through 56037), and for 

subsequent updates to the LTCH PPS 

Federal rate we refer readers to the 

following final rules: RY 2004 LTCH 

PPS final rule (68 FR 34134 through 

34140), RY 2005 LTCH PPS final rule 

(69 FR 25682 through 25684), RY 2006 

LTCH PPS final rule (70 FR 24179 

through 24180), RY 2007 LTCH PPS 

final rule (71 FR 27819 through 27827), 

RY 2008 LTCH PPS final rule (72 FR 

26870 through 27029), and RY 2009 

LTCH PPS final rule (73 FR 26800 

through 26804). The update to the LTCH 

PPS standard Federal rate for RY 2010 

is presented in section V.A. of the 

Addendum to this final rule. Two of the 

components of the update to the LTCH 

PPS standard Federal rate for RY 2010 

are discussed below. 

2. Market Basket for LTCHs Reimbursed 

Under the LTCH PPS 

a. Overview 

Historically, the Medicare program 

has used a market basket to account for 

price increases in the services furnished 

by providers. The market basket used 

for the LTCH PPS includes both 

operating and capital-related costs of 

LTCHs because the LTCH PPS uses a 

single payment rate for both operating 

and capital-related costs. The 

development of the initial LTCH PPS 

standard Federal rate for FY 2003, using 

the excluded hospital with capital 

market basket, is discussed in further 

detail in the August 30, 2002 LTCH PPS 

final rule (67 FR 56027 through 56033). 

In that final rule (67 FR 56016 

through 56017 and 56030), which 

implemented the LTCH PPS, we 

established the use of the excluded 

hospital with capital market basket as 

the LTCH PPS market basket. The 

excluded hospital with capital market 

basket was also used to update the 

limits on LTCHs’ operating costs for 

inflation under the TEFRA reasonable 

cost-based payment system. We 

explained that we believe the use of the 

excluded hospital with capital market 

basket to update LTCHs’ payments for 

inflation was appropriate because the 

excluded hospital market basket (with a 

capital component) measures price 

increases of the services furnished by 

excluded hospitals, including LTCHs. 

For further details on the development 

of the excluded hospital with capital 

market basket, we refer readers to the 

RY 2004 LTCH PPS final rule (68 FR 

34134 through 34137). 

As discussed in the RY 2007 LTCH 

PPS final rule (71 FR 27810), based on 

our research, we did not develop a 

market basket specific to LTCH services. 

We were unable to create a separate 

market basket specifically for LTCHs at 

that time due to the small number of 

facilities and the limited amount of data 

that was reported (for instance, only 

approximately 15 percent of LTCHs 

reported contract labor cost data for 

2002). In that same final rule, under the 

broad authority conferred upon the 

Secretary by section 123 of the BBRA as 

amended by section 307(b) of the BIPA, 

we adopted the rehabilitation, 

psychiatric, long-term care (RPL) market 

basket as the appropriate market basket 

of goods and services under the LTCH 

PPS for discharges occurring on or after 

July 1, 2006. Specifically, beginning 

with the 2007 LTCH PPS rate year, for 

the LTCH PPS, we adopted the use of 

the RPL market basket which is based 

on FY 2002 cost report data. We chose 

to use the FY 2002 Medicare cost report 

data because those data were the most 

recent, relatively complete cost data for 

IRFs, IPFs, and LTCHs available at the 

time of rebasing. 

The RPL market basket was 

determined based on the operating and 

capital costs of freestanding IRFs, 

freestanding IPFs, and LTCHs. As we 

explained in the RY 2007 LTCH PPS 

final rule, we believed a market basket 

based on the data of IRFs, IPFs, and 

LTCHs was appropriate to use under the 

LTCH PPS because those data were the 

best available data that reflect the cost 

structures of LTCHs. For further details 

on the development of the RPL market 

basket, including the methodology for 

determining the operating and capital 

portions of the RPL market basket, we 

refer readers to the RY 2007 LTCH PPS 

final rule (71 FR 27810 through 27817). 

b. Market Basket Under the LTCH PPS 

for RY 2010 

When we initially created the FY 

2002-based RPL market basket, we were 

unable to create a separate market 

basket specifically for LTCHs due, in 

part, to the small number of facilities 

and the limited data that were provided 

in the Medicare cost reports. Over the 

last several years, however, the number 

of LTCH facilities submitting valid 

Medicare cost report data has increased. 

Based on this development, as well as 

our desire to move from one RPL market 

basket to three stand-alone and 

provider-specific market baskets (for 

IRFs, IPFs, and LTCHs, respectively), we 

plan to begin exploring the viability of 

creating these market baskets for future 

use. However, as we discussed in the FY 

2010 IRF PPS proposed rule, we are 

conducting further research to assist us 

in understanding the reasons for the 

variations in costs and cost structure 

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

reasons for similar variations in costs 

and cost structure between freestanding 

IPFs and hospital-based IPFs. Therefore, 

as we continue to explore the 


sroberts on DSKD5P82C1PROD with RULES
43968 Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 

development of stand-alone market 

baskets for LTCHs, IRFs and IPFs, 

respectively, we believe that it is 

appropriate to continue to use the FY 

2002-based RPL market basket for 

LTCHs, IRFs and IPFs under their 

respective PPSs. Accordingly, as we 

proposed in the FY 2010 IPPS/RY 2010 

LTCH PPS proposed rule (74 FR 24228), 

in this final rule, we are continuing to 

use the FY 2002-based RPL market 

basket under the LTCH PPS for RY 2010 

because we continue to believe it is the 

best available data that reflect the cost 

structure of LTCHs. We are hopeful that 

progress can be made in the near future 

with respect to creating stand-alone 

market baskets for LTCHs, IRFs, and 

IPFs and, as a result, may propose to 

rebase the appropriate market basket(s) 

for subsequent updates in the future. 

Comment: Several commenters agreed 

with the original application of the RPL 

market basket due to the lack of data 

available for LTCHs. However, the 

commenters now believe that there are 

sufficient LTCH-specific cost data to 

develop a separate LTCH market basket 

that will accurately reflect the costs of 

providing LTCH goods and services. 

One commenter stated that a standalone LTCH market basket is necessary 

and warranted due to the unique nature 

of the patient populations served by 

LTCHs and the differences in care 

settings among LTCHs, IRFs, and IPFs. 

Response: We appreciate the 

commenters’ thoughts concerning the 

possible development of a stand-alone 

LTCH market basket. While the number 

of LTCHs submitting cost report data 

has increased, we believe that further 

research is required to determine the 

feasibility of developing stand-alone 

market baskets for LTCHs, IRFs, and 

IPFs. Therefore, we believe that it is 

appropriate to continue to use the FY 

2002-based RPL market basket for 

LTCHs for RY 2010. However, as stated 

above, we will be exploring the viability 

and technical appropriateness of a 

stand-alone LTCH market basket. 

c. Market Basket Update for LTCHs for 

RY 2010 

Consistent with our historical 

practice, we estimate the RPL market 

basket update based on IHS Global 

Insight, Inc.’s forecast using the most 

recent available data. IHS Global 

Insight, Inc. is a nationally recognized 

economic and financial forecasting firm 

that contracts with CMS to forecast the 

components of the hospital market 

baskets. Based on IHS Global Insight, 

Inc.’s first quarter 2009 forecast, we 

proposed that the RY 2010 market 

basket estimate for the LTCH PPS using 

the FY 2002-based RPL market basket 

was 2.4 percent. Consistent with our 

historical practice of using market 

basket estimates based on the most 

recent available data, for this final rule, 

we used IHS Global Insight, Inc.’s 

second quarter 2009 forecast of the RY 

2010 market basket estimate for the 

LTCH PPS using the FY 2002-based RPL 

market basket, which is 2.5 percent. 

This includes increases in both the 

operating section and the capital section 

of the FY 2002-based RPL market 

basket. (As discussed in greater detail in 

section V. of the Addendum to this final 

rule, for RY 2010, we updated the LTCH 

PPS standard Federal rate by 2.0 

percent. The update reflects an 

adjustment based on the most recent 

market basket estimate (currently 2.5 

percent as discussed above) and 

adjustments to account for the increase 

in case-mix in the prior periods (FYs 

2007 through 2009) that resulted from 

changes in documentation and coding 

practices rather than increases in 

patients’ severity of illness.) 

d. Labor-Related Share Under the LTCH 

PPS for RY 2010 

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 Federal rate to account for 

differences in LTCH area wage levels at 

§ 412.525(c). The labor-related portion 

of the LTCH PPS Federal rate, hereafter 

referred to as the labor-related share, is 

adjusted to account for geographic 

differences in area wage levels by 

applying the applicable LTCH PPS wage 

index. 

The labor-related share is determined 

by identifying the national average 

proportion of operating and capital costs 

that are related to, influenced by, or 

vary with the local labor market. We 

continue to classify a cost category as 

labor-related if the costs are laborintensive and vary with the local labor 

market. In addition, as discussed above, 

we continued to use the FY 2002-based 

RPL market basket under the LTCH PPS 

for RY 2010. Given this, we continue to 

define the labor-related share as the 

national average proportion of operating 

costs that are attributable to wages and 

salaries, employee benefits, contract 

labor, professional fees, labor-intensive 

services, and a labor-related portion of 

capital based on the FY 2002-based RPL 

market basket. (Additional information 

on the development of the FY 2002- 

based RPL market basket used under the 

LTCH PPS can be found in the RY 2007 

LTCH PPS final rule (71 FR 27809 

through 27818).) 

As we proposed (74 FR 24228 through 

24229), the labor-related share for RY 

2010 is the sum of the RY 2010 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 2002) and RY 

2010. Based on IHS Global Insight, Inc.’s 

first quarter 2009 forecast of the RY 

2010 relative importance, we proposed 

that the RY 2010 labor-related share 

using the FY 2002-based RPL market 

basket would be 75.904 percent. For this 

final rule, we used more recent data, the 

IHS Global Insight, Inc.’s second quarter 

2009 forecast of the RY 2010 relative 

importance, to determine the laborrelated share. The sum of the relative 

importance for RY 2010 for operating 

costs (wages and salaries, employee 

benefits, professional fees, and all other 

labor-intensive services) is 71.841 

percent. The portion of capital that is 

influenced by the local labor market is 

estimated to be 46 percent. Because the 

relative importance for capital in RY 

2010 is 8.560 percent of the FY 2002- 

based RPL market basket, we took 46 

percent of 8.560 percent to determine 

the labor-related share of capital for RY 

2010. The result is 3.938 percent, which 

we added to 71.841 percent for the 

operating cost amount to determine the 

total labor-related share for RY 2010. 

Thus, the labor-related share that we are 

using for the LTCH PPS in RY 2010 is 

75.779 percent. 

The chart below shows the RY 2010 

relative importance labor-related share 

using the FY 2002-based RPL market 

basket. 

RY 2010 LABOR-RELATED SHARE

BASED ON THE FY 2002–BASED

RPL MARKET BASKET

Cost category 

FY 2002– 

based RPL 

market basket 

labor-related 

share relative 

importance 

(percent) RY 

2010 

Wages and Salaries ............. 52.892 

Employee Benefits ................ 13.949 

Professional Fees: ................ 2.873 

All Other Labor-Intensive 

Services ......................... 2.127 

Subtotal ......................... 71.841 

Labor-Related Share of Capital Costs (46 percent) ...... 3.938 

Total Labor-Related 

Share ......................... 75.779 

We did not receive any public 

comments on the proposed labor-related 

share for the LTCH PPS for RY 2010. 


sroberts on DSKD5P82C1PROD with RULES
Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 43969 

3. Adjustment for Changes in LTCHs’ 

Case-Mix Due to Changes in 

Documentation and Coding Practices 

That Occurred in a Prior Period 

a. Background 

Beginning in RY 2007, in updating the 

standard Federal rate for the LTCH PPS, 

we have accounted for increases in 

payments from a past period that were 

due to changes in documentation and 

coding practices. Specifically, in the RY 

2007 LTCH PPS final rule (71 FR 

27820), we explained that rather than 

solely using the most recent estimate of 

the LTCH PPS market basket increase as 

the basis of the update factor for the 

standard Federal rate for RY 2007, we 

believed that based on our ongoing 

monitoring of LTCHs’ case mix, it was 

appropriate to also adjust the standard 

Federal rate to account for the changes 

in documentation and coding practices 

(rather than patients’ severity of illness), 

in addition to the estimated increase in 

the LTCH PPS market basket. 

Accordingly, we established at 

§ 412.523(c)(3)(iii) of the regulations 

that the update to the standard Federal 

rate for the 2007 LTCH PPS rate year 

was zero percent, based on the most 

recent estimate of the LTCH PPS market 

basket increase of 3.4 percent and an 

equivalent negative adjustment to 

account for changes in case-mix due to 

changes in documentation and coding 

practices in a prior period (FY 2004). 

In the RY 2008 LTCH PPS final rule 

(72 FR 26880 through 26890), we 

continued to monitor and analyze 

LTCHs’ case-mix and applied an update 

to the standard Federal rate of 0.71 

percent, based on the most recent 

estimate of the market basket increase 

(3.2 percent) and an adjustment to 

account for changes in documentation 

and coding practices (¥2.49 percent) in 

a prior period (FY 2005). Similarly, for 

RY 2009, as discussed in the RY 2009 

final rule (73 FR 26805 through 26812), 

the standard Federal rate was updated 

using an update factor of 2.7 percent, 

based on the most recent estimate of the 

market basket increase (3.6 percent) and 

an adjustment to account for changes in 

case-mix due to documentation and 

coding practices (¥0.9 percent) in a 

prior period (FY 2006). 

b. Evaluation of FY 2007 Claims Data 

For RY 2010, we continue to believe 

that changes in the LTCH PPS payment 

rates should accurately reflect changes 

in LTCHs’ true cost of treating patients, 

and should not be influenced by 

changes in documentation and coding 

that do not reflect increases in patients’ 

severity of illness. Accordingly, 

consistent with previous years, and as 

we stated in the FY 2010 IPPS/RY 2010 

LTCH PPS proposed rule (74 FR 24229 

through 24230), we analyzed LTCHs’ 

case-mix index (CMI) changes in the 

prior period, FY 2007, and if applicable, 

determined an appropriate adjustment 

to account for changes in 

documentation and coding practices. As 

we explained in the RY 2007 final rule 

(71 FR 27819 through 27823), an 

LTCH’s CMI is defined as its caseweighted average LTC–DRG relative 

weight for all its discharges in a given 

period. Changes in CMI consist of two 

components: ‘‘real’’ CMI changes and 

‘‘apparent’’ CMI changes. Real CMI 

increase is defined as the increase in the 

average LTC–DRG relative weights 

resulting from the hospital’s treatment 

of more resource intensive patients. 

Apparent CMI increase is defined as the 

increase in CMI due to changes in 

documentation and coding practices 

(including better documentation of the 

medical record, for example, by 

physicians and more complete coding of 

the medical record by coders). In 

previous years, analysis of the most 

recent available LTCH CMI data focused 

on quantifying the portion of CMI 

change in a prior period that is 

attributable to apparent CMI change. 

However, beginning in RY 2010, we 

proposed to revise our methodology to 

determine the documentation and 

coding adjustment, consistent with the 

proposed methodology for case-mix 

analysis under the IPPS, which is 

discussed in detail in section II.D.4 of 

the preamble of this final rule. We note 

that section II.D.4 of the preamble of 

this final rule discusses the analysis in 

the context of the MS–DRG 

documentation and coding adjustments 

for FY 2008 and FY 2009 authorized by 

Public Law 110–90 for the IPPS, and we 

note that the requirements of Public 

Law 110–90 do not apply to the LTCH 

PPS. However, section 123(a)(1) of 

Public Law 106–113 (BBRA), as 

amended by section 307(b) of Public 

Law 106–554 (BIPA), provides broad 

authority to the Secretary in developing 

the LTCH PPS, including the authority 

for establishing appropriate 

adjustments. The stated purpose of the 

CMI analysis for the IPPS is to measure 

and corroborate the extent of the overall 

national average changes in case-mix 

since the adoption of the MS–DRGs, 

which we believe is also relevant in 

determining appropriate adjustments to 

account for changes in documentation 

and coding under the LTCH PPS 

because, as stated above, the same DRGbased patient classification system is 

used under both the LTCH PPS and the 

IPPS (referred to as the MS–LTC–DRGs 

and MS–DRGs, respectively). 

Accordingly, under the broad authority 

afforded by the statute to make 

appropriate adjustments for the LTCH 

PPS, we believe it is appropriate to use 

the same methodology under the LTCH 

PPS that we use under the IPPS as 

described in section II.D.4. of the 

preamble of this final rule and which is 

discussed in further detail below in this 

section. 

Accordingly, consistent with the IPPS 

CMI analysis methodology, we 

conducted a thorough evaluation of 

LTCH claims data in order to assess the 

case-mix changes that do not reflect real 

changes in patients’ severity of illness. 

The results of this evaluation were used 

by our actuaries to determine if any 

payment adjustments are necessary to 

ensure appropriate payments under the 

LTCH PPS. Specifically, to evaluate the 

FY 2007 LTCH claims data, for the 

proposed rule, we performed the 

analysis in the following manner. We 

first divided the CMI obtained by 

grouping the FY 2007 LTCH claims data 

from the December 2007 update of the 

MedPAR files through the FY 2007 

GROUPER (Version 24.0) by the CMI 

obtained by grouping these same FY 

2007 LTCH claims through the FY 2006 

GROUPER (Version 23.0). This resulted 

in a value of 0.974. Because these are 

the same FY 2007 LTCH cases grouped 

using the two GROUPERs, we attributed 

this change primarily to two factors: (1) 

The effect of changes in documentation 

and coding; and (2) the measurement 

effect from the calibration of the 

GROUPER. We estimated the 

measurement effect from the calibration 

of the GROUPER by dividing the CMI 

obtained by grouping the FY 2006 LTCH 

claims through the FY 2007 GROUPER 

by the CMI obtained by grouping these 

same LTCH claims through the FY 2006 

GROUPER. This resulted in a value of 

0.969. In order to isolate the 

documentation and coding effect, we 

then divided the combined effect of the 

changes in documentation and coding 

and measurement (0.974) by the 

measurement effect (0.969) to yield 

1.005. Therefore, our estimate of the 

documentation and coding increase that 

occurred in FY 2007 is 0.5 percent. We 

now have data available from the March 

2009 update of the MedPAR files. 

Applying this analytical methodology to 

the FY 2008 LTCH claims data from the 

March 2009 update of the MedPAR files 

confirms the documentation and coding 

increase that occurred in FY 2007 was 

0.5 percent. 

As in prior years, the FY 2006 and FY 

2007 MedPAR files are available to the 

public to allow independent analysis of 

the documentation and coding effect in 


sroberts on DSKD5P82C1PROD with RULES
43970 Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 

FY 2007. In the FY 2010 IPPS/RY 2010 

LTCH PPS proposed rule, we invited 

public comment on our proposed 

methodology and analysis. A summary 

of the public comments we received on 

the proposed adjustment for changes in 

LTCHs’ CMI due to changes in 

documentation and coding practices 

that occurred in a prior period based on 

our evaluation of FY 2007 LTCH claims 

data, including any public comments on 

our proposed methodology and analysis, 

and our responses, as well as a 

statement of our final policy can be 

found in section VIII.C.3.d. of this 

preamble. 

c. Evaluation of FY 2008 Claims Data 

In prior years, we based 

documentation and coding adjustments 

on an analysis of the most recent 

available LTCH data and have 

established the adjustments in a timely 

manner, as the data became available, to 

account for each prior period where 

LTCHs were paid based on case-mix 

changes that do not reflect increased 

patients’ severity of illness. Most 

recently, in updating the LTCH PPS 

payment rates for RY 2009, we 

accounted for the effects of 

documentation and coding 

improvements that occurred in FY 2006. 

Due to the change in the LTCH update 

cycle in RY 2010, we now have data 

available to analyze case-mix changes 

for FY 2008, as well as FY 2007. 

Accordingly, analogous to our 

evaluation of the FY 2007 LTCH claims 

data as discussed above, for the 

proposed rule (74 FR 24230), we 

analyzed the FY 2008 LTCH claims data 

from the December 2008 update of the 

MedPAR files as well. That is, we first 

divided the CMI obtained by grouping 

the FY 2008 LTCH claims through the 

FY 2008 GROUPER (Version 25.0) by 

the CMI obtained by grouping these 

same FY 2008 LTCH claims through the 

FY 2007 GROUPER (Version 24.0). This 

resulted in a value of 1.011. We 

estimated the measurement effect from 

the calibration of the GROUPER by 

dividing the CMI obtained by grouping 

the FY 2007 LTCH claims through the 

FY 2008 GROUPER by the CMI obtained 

by grouping these same LTCH claims 

through the FY 2007 GROUPER. This 

resulted in a value of 0.999. We then 

divided the combined effect of the 

changes in documentation and coding 

measurement (1.011) by the 

measurement effect (0.999) to yield 

1.013. Therefore, based on the results of 

the analysis discussed in the proposed 

rule, the documentation and coding 

increase that occurred in FY 2008 was 

1.3 percent. We now have data available 

from the March 2009 update of the 

MedPAR files. Applying this analytical 

methodology to the FY 2008 LTCH 

claims data from the March 2009 update 

of the MedPAR files confirms the 

documentation and coding increase that 

occurred in FY 2008 is 1.3 percent. 

As noted above, the FY 2007 and FY 

2008 MedPAR files are available to the 

public to allow independent analysis of 

the documentation and coding effect in 

FY 2008. In the FY 2010 IPPS/RY 2010 

LTCH PPS proposed rule, we invited 

public comment on our methodology 

and analysis. A summary of the public 

comments we received on the proposed 

adjustment for changes in LTCHs’ CMI 

due to changes in documentation and 

coding practices that occurred in a prior 

period based on our evaluation of FY 

2008 LTCH claims data, including any 

public comments on our proposed 

methodology and analysis, and our 

responses, as well as a statement of our 

final policy can be found in section 

VIII.C.3.d. of this preamble. 

d. RY 2010 Documentation and Coding 

Adjustment 

In the FY 2010 IPPS/RY 2010 LTCH 

PPS proposed rule, based on analysis of 

the most recent available LTCH claims 

data as described above, we proposed to 

apply a cumulative adjustment for 

changes in documentation and coding 

that do not reflect an increase in 

patients’ severity of illness of ¥1.8 

percent (that is, ¥0.5 percent for FY 

2007 plus ¥1.3 percent for FY 2008). 

Accordingly, as discussed in section 

V.A.2. of the Addendum to that 

proposed rule, we proposed to update 

the RY 2010 LTCH PPS standard 

Federal rate by 0.6 percent based on the 

most recent estimate of the market 

basket increase at that time (2.4 percent) 

and an adjustment to account for 

changes in documentation and coding 

practices (¥1.8 percent). We note that 

an analysis of data from the March 2009 

update of the FY 2007 and FY 2008 

MedPAR files confirmed the cumulative 

effect of changes in documentation and 

coding that do not reflect an increase in 

patients’ severity of illness of 1.8 

percent (that is, 0.5 percent for FY 2007 

and 1.3 percent for FY 2008.). In this 

final rule, as we discuss in greater detail 

below in this section, in determining the 

RY 2010 update to the LTCH PPS 

standard Federal rate, we are applying 

an adjustment for changes in 

documentation and coding that do not 

reflect an increase in patients’ severity 

of illness of ¥0.5 percent. That is, we 

are are finalizing our proposal to apply 

an adjustment of ¥0.5 percent to 

account for the documentation and 

coding increase that occurred in FY 

2007. However, after consideration of 

the public comments, and consistent 

with the decision to postpone the 

application of the prospective 

adjustment for estimated FY 2008 

documentation and coding increases 

under the IPPS (discussed in section 

II.D.5. of this preamble), we have 

decided to delay the application of the 

FY 2008 documentation and coding 

adjustment of ¥1.3 percent that was 

proposed under the LTCH PPS for RY 

2010. We intend to address any future 

documentation and coding adjustment 

to the LTCH PPS standard Federal rate 

based on our analysis of the FY 2008 

LTCH claims data in the FY 2011 

rulemaking cycle through the noticeand-comment rulemaking process. 

Below we present a summary of the 

public comments received on our 

proposed documentation and coding 

adjustment for RY 2010 and our 

responses to those comments. 

Comment: Some commenters stated 

that section 7(b)(1) of Pub. L. 110–90 

provides authority for CMS to impose 

adjustments for documentation and 

coding changes for hospitals subject to 

the IPPS but does not specifically refer 

to hospitals under the LTCH PPS. The 

commenters argued that the absence of 

any reference to the LTCH PPS in Public 

Law 110–90 suggests that CMS does not 

have the authority to make such 

adjustments, despite the broad authority 

under section 123(a)(1) of Pub. L. 106– 

113, as amended by section 307(b) of 

Public Law 1106–554. 

Response: As we noted in the FY 2010 

IPPS/RY 2010 LTCH PPS proposed rule 

(74 FR 24229 through 24230), beginning 

in RY 2007 and for every annual update 

to the LTCH PPS standard Federal rate 

since RY 2007, we have accounted for 

increases in payments from a past 

period due to changes in documentation 

and coding practices that have occurred 

since we first implemented the LTCH 

PPS in 2003. As we have stated 

previously, section 123(a)(1) of Public 

Law 106–113 (BBRA), as amended by 

section 307(b) of Public Law 106–554 

(BIPA), provides broad authority to the 

Secretary in developing the LTCH PPS, 

including the authority for establishing 

appropriate adjustments. Consequently, 

we did not need additional authority 

provided under Public Law 110–90 in 

order to make these adjustments for 

documentation and coding practices. In 

the discussion in the proposed rule, we 

included a reference to Public Law 110– 

90, which specifies the MS–DRG 

documentation and coding adjustments 

for the IPPS for FY 2008, FY 2009, and 

FY 2010. However, we did not apply the 

documentation and coding adjustments 

as prescribed in Public Law 110–90 to 

the LTCH PPS for RY 2009 and RY 2010 


sroberts on DSKD5P82C1PROD with RULES
Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 43971 

because we believed Public Law 110–90 

did not apply to the LTCH PPS. Instead, 

we adhered to our historical practice of 

basing documentation and coding 

adjustments on an analysis of the most 

recent available LTCH data to account 

for each prior period where LTCHs were 

paid, based on case-mix changes that do 

not reflect increased patients’ severity of 

illness. We noted in the proposed rule 

that due to the change in the LTCH 

update cycle in RY 2010, the data to 

analyze case-mix changes for FY 2008 as 

well as FY 2007 were available to us at 

the time we were proposing LTCH PPS 

rates for RY 2010 (74 FR 24230). 

Comment: Several commenters 

questioned the proposed methodology 

for the evaluation of the FY 2007 and 

FY 2008 claims data which resulted in 

the adjustments due to documentation 

and coding changes. The commenters 

raised concerns that the calculations of 

the documentation and coding effect 

were unsupported and did not fully 

consider other potential causes for the 

observed increases in CMI. Specifically, 

the commenters noted that the 

methodology used in the proposed rule 

assumed that the calculated CMI 

contains both a measurement effect from 

calibrating the GROUPER and the effect 

of coding and documentation changes. 

That is, to derive the coding and 

documentation effect, the proposed rule 

subtracted (1) the measurement effect 

from (2) the combined effects of 

measurement and coding and 

documentation. 

One commenter protested that the 

methodology assumed that real case-mix 

changes are not included in the 

calculated CMI. In addition, the 

commenter asserted that the 

methodology assumed that no real casemix changes occurred during the period 

prior to the implementation of the MS– 

LTC–DRG in FY 2008. The commenter 

commissioned an analysis of the period 

prior to the implementation of MS– 

LTC–DRGs, stating that ‘‘expanding the 

years of reviewed claims data is 

important because it expands the period 

of time analyzed during which there 

was, by CMS’ own admission, no 

incentive for LTCHs to improve the 

coding of claims.’’ In referring to this 

study that employed a different 

methodology to consider coding 

behavior over a longer period of time, 

the commenter believed this study was 

able to capture real case mix changes 

before and after the introduction of the 

MS–LTC–DRG. Specifically, the 

commenter stated that the study applied 

two different GROUPERs for claims data 

from 2005 through 2008 and observed 

that in the pre-implementation period 

(2005 through 2007) ‘‘the [CMI] rate of 

increase for the 2005–2007 period using 

v25 [Version 25] GROUPER is sharper 

than the rate of increase for these years 

derived from running claims data 

through the v24 [Version 24] 

GROUPER.’’ From this observation, the 

commenter concluded that ‘‘the two 

GROUPERs measure claims data 

differently, which is what one would 

expect due to implementation of a 

newer, more refined GROUPER.’’ 

Response: Although the commenters 

argued that the methodology made 

assumptions that were unsupported, we 

note that the methodology was also 

validated by MedPAC’s independent 

analysis of claims data. In response to 

the commenter who protested that the 

methodology assumed that real case-mix 

changes was not included in the 

calculated CMI, we note that, although 

overall case-mix growth is 

predominately comprised of three 

factors (real case-mix growth, a 

documentation and coding effect, and a 

measurement effect), the methodology 

we have used to quantify the 

documentation and coding adjustment 

negates the need to consider the 

confounding effect of real case-mix 

growth in the calculated CMI 

differences. Because the same year of 

claims data is utilized in the 

comparisons, there is no component of 

real case-mix that needs to be identified. 

That is, there can be no case-mix growth 

measured if the same year’s claims are 

used. We note that while commenters 

disagreed with the use of the more 

refined methodology for deriving the 

documentation and coding effect 

presented in the proposed rule, the 

commenters did not provide specific 

alternatives to use in the final rule. 

Instead, one commenter attempted to 

compare the effects of applying the 

Version 24 (FY 2007) and Version 25 

(FY 2008) GROUPERs to claims data 

from 2005 through 2008, believing that 

this methodology would show real casemix changes over the years. Using this 

methodology, the commenter observed 

that, in the period before MS–LTC– 

DRGs were implemented (2005–2007), 

‘‘the [CMI] rate of increase for the 2005– 

2007 period using v25 GROUPER is 

sharper than the rate of increase for 

these years derived from running claims 

data through the v24 GROUPER.’’ We 

believe what the commenter is actually 

observing is the measurement effect 

between grouping claims in the two 

different GROUPERs, which is 

accounted for in our more refined 

methodology that was presented in the 

proposed rule. Indeed, we do not 

disagree with the commenters’ 

conclusion that ‘‘the two GROUPERs 

measure claims data differently, which 

is what one would expect due to 

implementation of a newer, more 

refined GROUPER [that is, Version 25],’’ 

and we believe this supports our 

implementation of the MS–LTC–DRG 

classification system because it better 

captures patient severity of illness. 

Contrary to the commenters’ 

statement that we have asserted that 

there were no financial incentives for 

documentation and coding 

improvements prior to the change to 

MS–LTC–DRGs, CMS never asserted 

that LTCHs had no financial incentives 

to improve documentation and coding 

prior the introduction of the MS–LTC– 

DRGs in 2008. In fact, to the contrary, 

analyses conducted by both CMS and 

MedPAC have found evidence of 

apparent case-mix increases during this 

period. It is for this reason that we have 

historically adjusted for CMI increases 

due to documentation and coding 

changes, including adjustments to 

account for apparent CMI increases that 

were found in FY 2004 (4.0 percent), FY 

2005 (2.49 percent), and 2006 (0.9 

percent). Consequently, we believe that 

the evidence does not support the 

commenters’ assumption that the 

increases in CMI found when claims 

were grouped to Version 25 GROUPER 

were due solely to real case-mix 

increases. We continue to believe that 

the CMI increases over that period are 

attributable to both real case-mix 

changes due to increased patient 

severity of illness and documentation 

and coding changes and that the more 

refined methodology utilized in the 

proposed rule, and finalized in this final 

rule, accurately and appropriately 

quantifies the appropriate 

documentation and coding adjustments 

that should be applied to account for the 

effects of documentation and coding 

that occurred in FY 2007 and FY 2008. 

Comment: Many commenters were 

disappointed that CMS was unable to 

obtain relevant findings based on CDAC 

data to quantify real case-mix change. 

Response: As we stated in the 

proposed rule, when we attempted to 

use the CDAC data to distinguish real 

increase in case-mix growth from 

documentation and coding in the 

overall case-mix number, we found 

aberrant data and significant variation 

across the FY 1999 through FY 2007 

analysis period. It was not possible to 

distinguish changes in documentation 

and coding from changes in real casemix in the CDAC data. Therefore, we 

concluded that the CDAC data would 

not support analysis of real case-mix 

growth that could be used in our 

retrospective evaluation of the FY 2008 

claims data. While we acknowledge the 

disappointment of the commenters, we 


sroberts on DSKD5P82C1PROD with RULES
43972 Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 

note that we did not receive any public 

comments suggesting an alternative 

analysis directly measuring real casemix growth that did not rely on 

assumptions with respect to the other 

factors that influence overall case-mix 

growth. 

Comment: Several commenters stated 

that CMS premised the documentation 

and coding adjustment on the existence 

of changes in severity level within each 

MS–LTC–DRG family. The commenters 

indicated that two-thirds of the case-mix 

change was attributable to changes 

across MS–LTC–DRGs. The commenters 

believed that these across MS–LTC– 

DRG changes refute CMS’ 

documentation and coding analysis. 

Response: Neither our MS–DRG nor 

our MS–LTC–DRG documentation and 

coding analysis was premised on the 

existence of changes in severity level 

within each DRG family. For the MS– 

DRGs, the analysis of changes in 

severity level was supplemental to the 

primary analysis and methodology 

described in the proposed rule. As we 

stated in the proposed rule concerning 

the MS–DRG analysis: ‘‘We sought to 

corroborate (emphasis added) this 2.5 

percent estimate by examining the 

increases in the within-base DRGs as 

compared to the increases in the across 

base DRGs * * *’’ (74 FR 24094). 

The fact that within MS–DRG changes 

are supportive of the MS–DRG 

documentation and coding analysis 

does not mean that lesser within MS– 

LTC–DRG changes refute the MS–LTC– 

DRG documentation and coding 

analysis. Across MS–LTC–DRG changes 

can occur for a variety of reasons, 

including documentation and coding. A 

higher proportion of across MS–LTC– 

DRG changes does not imply that 

documentation and coding increases 

were nonexistent. We note that the FY 

2008 documentation and coding 

estimate for MS–LTC–DRGs was less 

than half of the FY 2008 estimate for 

MS–DRGs. This is entirely consistent 

with the differences in within and 

across base DRG changes observed 

under the two systems. Furthermore, we 

note that our analysis has found 

examples of across MS–LTC–DRG 

changes that would contribute to the 

documentation and coding increases. 

For example, documentation and coding 

changes that involve moving respiratory 

failure, pneumonia, and complicated 

heart failure from principal to secondary 

diagnosis slots would result in higher 

payments because each of these would 

serve as an MCC and would be assigned 

to the highest severity group. That is, 

this resequencing will not only change 

the base DRG assignment, but it will 

also frequently change the Major 

Diagnosis Category (MDC) assignment. 

Accordingly, given that across MS– 

LTC–DRG changes can occur for a 

variety of reasons, including 

documentation and coding, we disagree 

with commenters that the across MS– 

LTC–DRG changes observed between FY 

2007 and FY 2008 refute our 

documentation and coding analysis. 

Comment: Several commenters noted 

that the proposed rule did not account 

for DRG validations performed by CMS 

agents, such as QIOs, MACs, and RACs. 

During the validation process, these 

agents can make revisions to coding and 

recover funds. The commenters also 

expressed concerns that the proposed 

adjustments for coding and 

documentation would subject LTCHs to 

additional recovery of funds in cases 

where the DRG validation process 

resulted in a redesignation of the case to 

a lower MS–LTC–DRG severity level. 

Response: We recognize that DRG 

validation reviews by the CMS 

contractors can identify cases that 

require changes in DRG assignment, 

which may ultimately reduce a 

hospital’s average case-mix. However, 

these validations are performed on a 

sample basis and are not done for all 

LTCH claims. More significantly, they 

are done primarily to capture fraudulent 

coding activities, not to address changes 

in documentation and coding practices 

that skew the data, resulting in increases 

in the average MS–LTC–DRG relative 

weights that are not reflective of 

hospitals’ treatment of more resource 

intensive patients. As we have noted 

previously, apparent CMI increase is 

defined as the increase in CMI due to 

changes in documentation and coding 

practices (including better 

documentation of the medical record by 

physicians and more complete coding of 

the medical record by coders). These 

types of changes in documentation and 

coding practices would not be 

addressed in the validations performed 

by the CMS contractors. 

Comment: A number of commenters 

presented concern, in general, with the 

proposal to apply a documentation and 

coding adjustment in determining the 

update to the LTCH PPS rate for RY 

2010. The commenters expressed 

concern that such an adjustment would 

reduce LTCH PPS payments and 

compound the economic woes that 

LTCHs are experiencing in the current 

economy. 

Response: As discussed above, we 

fully understand that this 

documentation and coding adjustment 

would reduce the increased level of 

LTCH PPS payments that affected 

LTCHs are receiving in absence of the 

adjustment. As discussed above, we 

believe that it is appropriate to make 

adjustments to the LTCH PPS standard 

Federal rate to account for the changes 

in documentation and coding practices 

(rather than patients’ severity of illness 

and costs). Therefore, we are finalizing 

our proposal to apply an adjustment of 

¥0.5 percent in determining the RY 

2010 update to the LTCH PPS standard 

Federal rate to account for the 

documentation and coding increase that 

occurred in FY 2007. In FY 2007, the 

CMS LTC–DRGs was the patient 

classification system used under the 

LTCH PPS. Making an adjustment to 

account for the documentation and 

coding increase that occurred in FY 

2007 is consistent with our historical 

approach in accounting for increases in 

payments from a past period due to 

changes in documentation and coding 

practices that have occurred under the 

CMS LTC–DRGs since we first 

implemented the LTCH PPS in 2003. 

After consideration of the public 

comments received and consistent with 

the decision to postpone the application 

of the prospective adjustment for 

estimated FY 2008 documentation and 

coding increases under the IPPS 

(discussed in section II.D.5. of this 

preamble), we have decided to delay the 

application of the FY 2008 

documentation and coding adjustment 

that was proposed under the LTCH PPS 

for RY 2010. We intend to address any 

future documentation and coding 

adjustment to the LTCH PPS standard 

Federal rate based on our analysis of the 

FY 2008 LTCH claims data in the FY 

2011 rulemaking cycle through the 

notice-and-comment rulemaking 

process. 

In this final rule, we are applying an 

adjustment for changes in 

documentation and coding that do not 

reflect an increase in patients’ severity 

of illness of ¥0.5 percent to account for 

the documentation and coding increase 

that occurred in FY 2007. Accordingly, 

as discussed in section V.A.2. of the 

Addendum to this final rule, we are 

updating the RY 2010 LTCH PPS 

standard Federal rate by 2.0 percent, 

which is based on the most recent 

estimate of the market basket increase 

(2.5 percent) and an adjustment to 

account for changes in documentation 

and coding practices (¥0.5 percent). 

D. Technical Corrections of LTCH PPS 

Regulations 

While we did not propose any new 

payment policy changes in the FY 2010 

IPPS/RY 2010 LTCH PPS proposed rule, 

we took the opportunity to propose two 

technical corrections to regulation text 

that we believe will clarify our existing 

policy at § 412.525 relating to 


sroberts on DSKD5P82C1PROD with RULES
Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 43973 

adjustments to the Federal prospective 

payment to LTCHs (74 FR 24232). 

First, at § 412.525(a)(2), the 

regulations currently state that ‘‘The 

fixed-loss amount is determined for the 

long-term care hospital rate year using 

the LTC–DRG relative weights that are 

in effect on July 1 of the rate year.’’ As 

stated earlier, in the RY 2009 LTCH PPS 

final rule, we revised the LTCH PPS 

payment rate update cycle in order to 

consolidate the timing of the annual 

update of the payment rates with the 

update of the MS–LTC–DRG 

classifications to October 1, beginning 

October 1, 2009 (73 FR 26792 through 

26798). At that time, at § 412.503, we 

specified a new definition for ‘‘longterm care hospital prospective payment 

system rate year.’’ Under § 412.503, the 

term ‘‘long-term care hospital 

prospective payment system rate year’’ 

means: (1) From July 1, 2003, and 

ending on or before June 30, 2008, the 

12-month period of July 1 through June 

30; (2) from July 1, 2008, and ending on 

September 30, 2009, the 15-month 

period of July 1, 2008, through 

September 30, 2009; and (3) beginning 

on or after October 1, 2009, the 12- 

month period of October 1 through 

September 30. At §§ 412.535(b) and (c), 

we described the resulting new 

publication schedule of Federal 

prospective payment rates. However, we 

neglected to make a conforming change 

to the regulations at § 412.525(a)(2) to 

reflect this new schedule. Currently, the 

language of § 412.525(a)(2) still links the 

determination of the fixed-loss amount 

to a July 1 effective date. The annual 

calculation of the fixed-loss amount, 

which is the amount used to limit the 

loss that a hospital will incur under the 

outlier policy for a case with unusually 

high costs, is directly linked to the 

calculation of the annual update of the 

Federal prospective payment rate (73 FR 

26821). When we changed the annual 

update of the LTCH PPS rate year to 

coincide with the update in the MS– 

LTC–DRG relative weights to October 1, 

we should have changed the language at 

§ 412.525(a)(2) regarding the calculation 

of the fixed-loss amount to conform 

with this new schedule. 

We did not receive any public 

comments on our proposal to make this 

technical correction. Therefore, we are 

finalizing, without modification, our 

proposal to revise § 412.525(a)(2) to 

accurately reflect the basis (effective 

LTC–DRG relative weights) for 

calculating the annual fixed-loss 

amount for high-cost outlier payments, 

in order to cover the various update 

cycles that have been in effect under the 

LTCH PPS. Specifically, we are revising 

§ 412.525(a)(2) to specify that the fixedloss amount is determined for the LTCH 

rate year using the MS–LTC–DRG 

relative weights that are in effect at the 

start of the applicable LTCH PPS rate 

year, as defined in § 412.503. (We note 

that the regulation text at § 412.525(a)(2) 

uses the term ‘‘LTC–DRG’’ rather than 

‘‘MS–LTC–DRG’’ because the term 

‘‘LTC–DRG’’ includes ‘‘MS–LTC–DRG’’ 

generally applicable to any year. 

Specifically, in our regulations at 

§ 412.503, we state that ‘‘[a]ny reference 

to the term ‘LTC–DRG’ shall be 

considered a reference to the term ‘MS– 

LTC–DRG’ when applying the 

provisions of this subpart for policy 

descriptions and payment calculations 

for discharges from a long-term care 

hospital occurring on or after October 1, 

2007.’’) 

We also proposed in the FY 2010 

IPPS/RY 2010 LTCH PPS proposed rule 

a clarification of our existing policy at 

§ 412.525(d) that would more accurately 

reflect existing policy regarding 

payment adjustments under the LTCH 

PPS. In paragraph (d) of § 412.525, we 

provide that CMS adjusts the Federal 

prospective payment to account for—(1) 

short-stay outliers at § 412.529; (2) a 3- 

day or less interruption of stay and a 

greater than 3-day interruption of stay, 

as provided for in § 412.531; (3) patients 

who are transferred to onsite providers 

and readmitted to a LTCH as provided 

for in § 412.532; and (4) long-term care 

HwHs and satellite facilities of LTCHs 

as provided in § 412.534. 

We finalized the policy at 

§ 412.525(d)(4), which refers to the 

percentage threshold payment 

adjustment for co-located long-term care 

HwHs and satellite facilities in the FY 

2005 IPPS final rule (69 FR 49191 

through 49214), and it was codified in 

the FY 2007 IPPS final rule (71 FR 

48122). We adopted a similar policy in 

the RY 2008 LTC PPS final rule (72 FR 

26910 through 26944) that provides for 

an adjustment to the LTCH PPS 

payment for LTCHs and satellite 

facilities of LTCHs that discharge 

Medicare patients admitted from 

hospitals not located in the same 

building or on the same campus as the 

LTCH or the satellite facility of the 

LTCH, as specified at § 412.536. We 

inadvertently omitted the inclusion of 

this policy in the regulation text at 

§ 412.525(d). 

We did not receive any public 

comments on our proposed clarification. 

Therefore, in order to ensure that the 

applicable regulatory text reflects 

existing policy, we are finalizing, 

without modification, our proposal to 

make this technical correction by 

adding a paragraph (d)(5) to § 412.525 to 

specifically provide that CMS adjusts 

the Federal LTCH PPS payment amount 

for LTCHs and satellite facilities of 

LTCHs that discharged Medicare 

patients admitted from a hospital not 

located in the same building or on the 

same campus as the LTCH or the 

satellite facility of the LTCH, as 

provided in § 412.536. 

IX. Revisions to the FY 2009 Medicare 

Severity-Long-Term Care DiagnosisRelated Group (MS–LTC–DRG) Relative 

Weights: Finalization of an Interim 

Final Rule With Comment Period 

A. Overview 

On June 3, 2009, we published in the 

Federal Register (74 FR 26546), an 

interim final rule with comment period 

that implemented revised MS–LTC– 

DRG relative weights for payment under 

the LTCH PPS for FY 2009. We revised 

the MS–LTC–DRG relative weights for 

FY 2009 due to the misapplication of 

our established methodology in the 

calculation of the budget neutrality 

factor. The revised FY 2009 MS–LTC– 

DRG relative weights are effective for 

the remainder of FY 2009 (that is, from 

June 3, 2009, through September 30, 

2009). Below we summarize the 

provisions of the June 3, 2009 interim 

final rule with comment period, present 

a summary of the public comments 

received on the interim final rule with 

comment period and our responses, and 

state our final policy. 

B. Changes to the FY 2009 MS–LTC– 

DRG Relative Weights 

Beginning with the FY 2008 update, 

we established a budget neutrality 

requirement for the annual update to the 

MS–LTC–DRG classifications and 

relative weights at § 412.517(b) of our 

regulations (in conjunction with 

§ 412.503), such that estimated aggregate 

LTCH PPS payments would be 

unaffected, that is, would be neither 

greater than nor less than the estimated 

aggregate LTCH PPS payments that 

would have been made without the 

classification and relative weight 

changes. (We refer readers to the May 

11, 2007 LTCH PPS final rule (72 FR 

26882 through 26884).) 

Consistent with § 412.517(b), in the 

FY 2009 IPPS final rule (73 FR 48550 

through 48551), using the most recent 

data available at that time (FY 2007 

LTCH claims data from the March 2008 

update of the MedPAR files), we 

established the MS–LTC–DRG 

classifications and relative weights for 

FY 2009 based on the application of 

budget neutrality adjustment factors 

determined using the two-step 

methodology of calculating and 

applying a normalization factor and a 


sroberts on DSKD5P82C1PROD with RULES
43974 Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 

budget neutrality factor, as initially 

established in the FY 2008 IPPS final 

rule (August 22, 2007, (72 FR 47295 

through 47296)). Specifically, for FY 

2009, under the first step of the 

established two-step budget neutrality 

methodology, after recalibrating the 

MS–LTC–DRG relative weights, we 

calculated and applied a normalization 

factor of 1.03887 to those relative 

weights to ensure that the average casemix index (CMI) is not influenced by 

changes in the composition of case 

types or the changes to the classification 

system, such that the recalibration 

process itself neither increases nor 

decreases the average CMI. In doing so, 

each (recalibrated) MS–LTC–DRG 

relative weight was multiplied by 

1.03887 to produce ‘‘normalized relative 

weights.’’ 

Under the second step of the 

established two-step budget neutrality 

methodology, we calculated and applied 

a ‘‘budget neutrality adjustment factor’’ 

to ensure that estimated aggregate LTCH 

PPS payments after reclassification and 

recalibration would be equal to 

estimated aggregate LTCH PPS 

payments before reclassification and 

recalibration. Specifically, as described 

in the FY 2009 IPPS final rule (73 FR 

48551), we calculated a budget 

neutrality factor of 1.04186 by 

comparing estimated total payments 

using the normalized FY 2009 relative 

weights under GROUPER Version 26.0 

to estimated total payments using the 

FY 2008 GROUPER (Version 25.0) and 

FY 2008 MS–LTC–DRG relative weights. 

Then, each of the normalized relative 

weights was multiplied by that budget 

neutrality factor to determine the budget 

neutral relative weight for each MS– 

LTC–DRG for FY 2009. Thus, the FY 

2009 MS–LTC–DRG relative weights 

established in Table 11 of the 

Addendum of the FY 2009 IPPS final 

rule reflect the application of both the 

normalization factor of 1.03887 and the 

budget neutrality factor of 1.04186. 

As we stated in the June 3, 2009 

interim final rule with comment period, 

we discovered that, in determining the 

published FY 2009 MS–LTC–DRG 

relative weights, we did not properly 

apply the established methodology for 

calculating the budget neutrality factor 

(the second step of the budget neutrality 

methodology, as set forth in the FY 2009 

IPPS final rule (73 FR 48550 through 

48551). Specifically, upon recent review 

of the calculation of the budget 

neutrality factor of 1.04186, we found 

that it was determined using the 

unadjusted recalibrated relative weights 

rather than using the normalized 

relative weights. This is inconsistent 

with our stated methodology for the 

calculation of the FY 2009 budget 

neutrality factor (that is, the second step 

of the budget neutrality methodology). 

As described above and as we stated in 

the FY 2009 IPPS final rule (73 FR 

48551), the FY 2009 budget neutrality 

factor is to be determined based on 

estimated total payments using the 

normalized (recalibrated) relative 

weights under GROUPER Version 26.0 

(not the unadjusted recalibrated relative 

weights as were used in calculating the 

budget neutrality factor of 1.04186 

published in the FY 2009 IPPS final 

rule). This misapplication of the rule’s 

established methodology for calculating 

the budget neutrality factors resulted in 

relative weights that are higher, by 

approximately 3.9 percent. We estimate 

aggregate annualized LTCH PPS 

payments in FY 2009 (that is, for 

discharges occurring on or after October 

1, 2008 through September 30, 2009) 

based on the MS–LTC–DRG relative 

weights published in the FY 2009 IPPS 

final rule to be approximately $130 

million greater than what the increase 

would have been had the FY 2009 

budget neutrality factor been calculated 

consistent with the established 

methodology described in that final 

rule. Thus, the FY 2009 MS–LTC–DRG 

relative weights shown in Table 11 of 

the FY 2009 IPPS final rule (73 FR 

49041 through 49062) were inconsistent 

with the established budget neutrality 

methodology used for the annual update 

to the MS–LTC–DRG classifications and 

relative weights. 

Consistent with our general and 

longstanding policy in PPS contexts, we 

do not make retroactive changes to 

correct past errors in PPS ratesetting, 

regardless of whether an error resulted 

in higher payments to providers (as in 

this situation) or lower payments to 

providers. We also do not make 

prospective adjustments to PPS rates to 

account for errors that occurred in prior 

periods, regardless of whether an error 

resulted in higher payments or lower 

payments to providers. In this instance, 

in the June 3, 2009 interim final rule 

with comment period, we revised the 

FY 2009 MS–LTC–DRG relative weights 

to ensure proper application of the 

established budget neutrality 

methodology in updating the FY 2008 

MS–LTC–DRG relative weights to FY 

2009 during the fiscal year that will be 

effective for the remainder of the fiscal 

year. We note that this prospective 

revision to the FY 2009 MS–LTC–DRG 

relative weights does not reflect a 

change in the established budget 

neutrality methodology itself but, rather, 

reflects the proper calculation of the 

relative weights under the rule’s stated 

methodology. 

In the June 3, 2009 interim final rule 

with comment period, we calculated 

revised FY 2009 MS–LTC–DRG relative 

weights (effective prospectively for the 

remainder of FY 2009) based on the 

proper application of the established 

budget neutrality methodology. 

Specifically, using the same data (FY 

2007 LTCH claims data from the March 

2008 update of the MedPAR files) and 

methodology presented in the FY 2009 

IPPS final rule (73 FR 48551) described 

above, we determined a budget 

neutrality factor of 1.0030401, which 

was applied to the normalized relative 

weights (that is, the recalibrated relative 

weights adjusted by the normalization 

factor of 1.03887, as described above). 

As a result, we established revised FY 

2009 MS–LTC–DRG relative weights 

(shown in Table 11 of the June 3, 2009 

interim final rule with comment period) 

that are effective for LTCH PPS 

discharges occurring on or after June 3, 

2009, through September 30, 2009. The 

revised FY 2009 MS–LTC–DRG relative 

weights in Table 11 of the June 3, 2009 

interim final rule with comment period 

reflect the application of the revised FY 

2009 budget neutrality factor 1.0030401 

and the FY 2009 normalization factor of 

1.03887 (established in the FY 2009 

IPPS final rule (73 FR 48551)). (For the 

convenience of the reader, in addition to 

the revised budget neutral FY 2009 MS– 

LTC–DRG relative weights effective June 

3, 2009 through September 30, 2009, we 

also included in Table 11 the geometric 

mean length of stay and five-sixths of 

the geometric mean length of stay (SSO 

threshold for payments under § 412.529) 

for each MS–LTC–DRG for FY 2009. The 

revision to the FY 2009 budget 

neutrality factor did not affect the 

calculations of the geometric mean 

length of stay and the SSO threshold for 

FY 2009 that were presented in Table 11 

of the FY 2009 IPPS final rule.) (As 

noted previously in section VII.C. of this 

preamble, the revisions to the published 

FY 2009 MS–LTC–DRG relative weights 

discussed in the June 3, 2009 interim 

final rule with comment period affected 

the determination of the proposed RY 

2010 MS–LTC–DRG relative weights 

and the proposed RY 2010 HCO fixedloss amount that were presented in the 

FY 2010 IPPS/RY 2010 LTCH PPS 

proposed rule. Therefore, we also 

presented proposed RY 2010 MS–LTC– 

DRG relative weights and the proposed 

RY 2010 HCO fixed-loss amount in the 

RY 2010 LTCH PPS supplemental 

proposed rule published in the Federal 

Register on June 3, 2009 (74 FR 26600 

through 26635).) 


sroberts on DSKD5P82C1PROD with RULES
Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 43975 

C. Summary of Public Comments 

Received on the June 3, 2009 Interim 

Final Rule With Comment Period and 

Our Responses 

We received 11 timely pieces of 

correspondence in response to the June 

3, 2009 interim final rule with comment 

period. A summary of those public 

comments and our responses follow: 

Comment: Several commenters 

objected to our revision of the FY 2009 

MS–LTC–DRG relative weights. The 

commenters asserted that the revision 

that CMS made to the MS–LTC–DRG 

relative weights for the remainder of RY 

2009 (June 3, 2009 through September 

30, 2009) constituted ‘‘impermissible 

retroactive rulemaking’’ which is 

contrary to the principles underlying 

prospective payments as well as to 

quoted preamble language in the 1983 

and 2007 IPPS final rules. One 

commenter questioned CMS’ authority 

in establishing a ‘‘retrospective 

evaluation and correction to a LTCH– 

PPS rate year,’’ citing case law from the 

D.C. Circuit that the commenter 

suggested restricts CMS from making 

‘‘retroactive’’ correction to published 

rates because of the prospective nature 

of a PPS. 

Response: First, the revision to the FY 

2009 MS–LTC–DRG relative weights is 

not retroactive in application. Rather, 

the revision is effective prospectively, 

based on the date of publication of the 

interim final rule with comment period 

in the Federal Register, that is, June 3, 

2009 through September 30, 2009. 

Moreover, the revision does not reflect 

a correction to LTCH PPS payment rates 

in a previous year. Second, as provided 

for in section 1886(m) of the Act 

(discussing the statutory authority for 

the LTCH PPS), CMS has broad legal 

authority with respect to the LTCH PPS. 

We note that, as explained in the 

interim final rule with comment period, 

the prospective revision of the FY 2009 

MS–LTC–DRG relative weights does not 

reflect a change in the established 

budget neutrality methodology itself, 

but rather reflects the proper calculation 

of the relative weights under the 

established methodology set forth in the 

FY 2009 IPPS final rule (73 FR 48550 

through 48551). 

Third, the principles underlying 

prospective payment systems often 

reflect competing considerations (for 

example, prospectivity, finality, 

certainty, and accuracy). We agree that, 

generally, mid-year revisions should be 

disfavored in a PPS. However, balancing 

the competing considerations under the 

unique circumstances presented in this 

situation, we believe that a mid-year 

prospective revision to the FY 2009 

MS–LTC–DRG relative weights to 

ensure the proper application of the 

established budget neutrality 

methodology in updating the FY 2009 

MS–LTC–DRG classifications and 

relative weights to FY 2009 is 

appropriate. For these reasons, we 

believe that the court decisions cited by 

the commenter are not on point. 

Comment: Several commenters 

questioned CMS’ use of the March 2008 

update of the FY 2007 data in our 

recalculation of the budget neutrality 

factor to determine the revised FY 2009 

MS–LTC–DRG relative weights. Citing 

section 307(b) of the BIPA of 2000, the 

commenters stated that CMS was 

required by statute to use ‘‘the best 

available data’’ and that because newer 

hospital discharge data, from the 

December 2008 update of the FY 2008 

claims data, were available for our 

revised calculations, CMS was in 

violation of the statutory mandate by 

continuing to use the March 2008 

update of the FY 2007 data. Data from 

FY 2008, the commenters asserted, 

capture changes in case-mix that 

occurred in 2008 and, therefore, more 

accurately reflect increases in patient 

resource use related to an increase in 

patient case-mix severity. Moreover, the 

commenters noted that use of the more 

recent data would result in estimated 

RY 2009 LTCH payments ‘‘not 

significantly different than what RY 

2009 LTCH payments are estimated to 

be without correcting the budget 

neutrality error’’ for the remainder of FY 

2009. The commenters state that using 

these FY 2008 data, therefore, would 

render the revision to the FY 2009 MS– 

LTC–DRG relative weights presented in 

the June 3, 2009 interim final rule with 

comment period unnecessary. 

Response: We do not agree that we are 

violating section 307(b) of the BIPA of 

2000 in using the March 2008 update of 

the FY 2007 MedPAR files in our 

revised calculation of the FY 2009 MS– 

LTC–DRG relative weights when FY 

2008 claims data from the December 

2008 update of the LTCH files were 

available at the time the misapplication 

of our established budget neutrality 

methodology was discovered. Section 

307(b) of the BIPA of 2000 did indeed 

require that in developing the LTCH 

PPS system, in addition to accounting 

for ‘‘different resource use of long-term 

care hospital patients,’’ in setting DRG 

weights, we use the ‘‘most recently 

available hospital discharge data.’’ 

Consistent with our historical policy of 

using the best available data, our annual 

updates to each data-driven element of 

the LTCH PPS, such as relative weights, 

payment rates, market basket 

percentages, and HCO thresholds, are 

based on the most recently available 

hospital discharge data at the time those 

elements are developed. Thus, when we 

revised the FY 2009 MS–LTC–DRG 

relative weights in the interim final rule 

with comment period, the calculations 

were based on the specific data set used 

at the time the FY 2009 MS–LTC–DRG 

relative weights were initially 

established (73 FR 48550 through 

48551). As noted in the interim final 

rule with comment period, we failed to 

follow our established methodology at 

that time, and we believe it is 

appropriate in revising the FY 2009 

MS–LTC–DRG relative weights 

prospectively, to apply the correct 

methodology to the same data set. 

Therefore, we are not adopting the 

commenters’ suggestion to utilize the 

December 2008 update of the FY 2008 

MedPAR claims in determining the 

revised FY 2009 MS–LTC–DRG relative 

weights, as that was not the most 

recently available set of data used at the 

time the FY 2009 MS–LTC–DRG relative 

weights were established. However, we 

note that any changes in patient 

resource that may exist based on the FY 

2008 LTCH claims data will be reflected 

in the RY 2010 MS–LTC–DRG relative 

weights, which were determined based 

upon those data, as discussed in section 

VIII.B.3. of this final rule. 

Comment: Several commenters 

asserted that the June 3, 2009 interim 

final rule with comment period violated 

‘‘notice and comment’’ rulemaking 

procedures as required by the Social 

Security Act and the Administrative 

Procedure Act (APA). A number of these 

commenters maintained that without 

notice and comment rulemaking, the 

public has not been given a sufficient 

opportunity to review the new 

methodology and determine if CMS’ 

most recent effort to calculate budget 

neutrality for FY 2009 is correct. The 

commenters disagreed with the waiver 

of proposed rulemaking, the delay of the 

effective date, and the 60-day comment 

period and were not convinced that 

good cause was present in order to 

justify the use of emergency rulemaking 

procedures. In light of these concerns, 

two commenters suggested that CMS 

withdraw the interim final rule with 

comment period or at least convert it to 

a proposed rule which would serve as 

appropriate ‘‘notice and comment.’’ 

Response: We do not agree with the 

commenters that we have violated the 

‘‘notice and comment’’ rulemaking 

requirements of section 553(d) of the 

APA and section 1871 of the Social 

Security Act. As we noted in the June 

3, 2009 interim final rule with comment 

period, we ordinarily publish a 

proposed rule and provide a period for 


sroberts on DSKD5P82C1PROD with RULES
43976 Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 

public comment before the effective 

date of the rule. We also typically 

provide a 30-day delay in the effective 

date of a rule in accordance with section 

553(d) of the APA, and section 1871 of 

the Act. However, both the prior noticeand-comment procedure and the delay 

in the effective date can be waived if the 

Secretary, for good cause, finds that it is 

impracticable, unnecessary, or contrary 

to the public interest and incorporates a 

statement of the finding and its reasons 

in the notice issued. In the instant case, 

we believe that it was unnecessary to 

undertake prior notice-and-comment 

rulemaking or provide a delay in the 

effective date because the June 3, 2009 

interim final rule with comment simply 

reflected the appropriate application of 

the established methodology set forth in 

the FY 2009 IPPS final rule (73 FR 

48550 through 48551). Because section 

307(b)(1) of the BIPA of 2000 authorizes 

the Secretary to provide for an annual 

update of the LTCH PPS MS–LTC–DRG 

relative weights, and the methodology 

used to update the MS–LTC–DRG 

relative weights have been previously 

subject to public comment, we do not 

believe that an additional comment 

period or a delay in the effective date 

was necessary. (We also note that, 

historically, our annual proposed 

update of the LTCH PPS proposed 

payment rates and MS–LTC–DRG 

relative weights are based upon 

established methodology, and it is 

expected that these numbers will be 

updated in the final rule based on more 

recent data, without being subject to 

additional public comment.) We 

continue to believe that an interim final 

rule with comment period was the 

appropriate vehicle for establishing the 

revised FY 2009 MS–LTC–DRG relative 

weights. 

As noted in earlier responses, our 

revision of these relative weights was 

necessitated by a recently discovered 

misapplication of our established 

budget neutrality methodology. In 

response to the commenters who 

express concern that the absence of a 

60-day comment period deprived them 

of an opportunity to review the new 

application of the methodology to 

determine if CMS’ most recent effort to 

calculate the budget neutral FY 2009 

MS–LTC–DRG relative weights is 

correct, we note that the methodology 

used to calculate budget neutrality for 

the MS–LTC–DRGs was originally 

established in the FY 2008 IPPS final 

rule (72 FR 26882 through 26884). 

In addition, we continue to believe 

that it is impracticable to undertake 

prior notice-and-comment rulemaking 

or provide a delay in the effective date 

because, as stated above, the June 3, 

2009 interim final rule with comment 

period makes a prospective revision to 

the FY 2009 MS–LTC–DRG relative 

weights to reflect proper application of 

the applicable established methodology 

and, therefore, should be applied in as 

timely a manner as possible. Therefore, 

we believe that we have good cause to 

waive notice-and-comment rulemaking 

procedures, as well as the 30-day delay 

in the effective date. 

Comment: One commenter requested 

that CMS consider phasing in the 

revised MS–LTC–DRG relative weights 

over a 3-year period, given the 

anticipated impact on LTCHs of the 

estimated reduction in Medicare 

payments. 

Response: We do not believe that a 

phase-in of the revised FY 2009 MS– 

LTC–DRG relative weights is either 

necessary or appropriate. For the first 

two-thirds of FY 2009, Medicare 

payments to LTCHs were higher than 

what they would have been had the 

misapplication of the budget neutrality 

methodology not occurred. In revising 

the FY 2009 MS–LTC–DRG relative 

weights, Medicare payments will be 

based on our established methodology 

and data analysis, and we believe that 

we will be properly making payments 

reflecting the actual LTCH resource use 

for LTCH cases for each MS–LTC–DRG. 

Therefore, we are not adopting the 

commenters’ suggestion to phase in the 

revised MS–LTC–DRG relative weights. 

We note that the public comments 

that we received on the RY 2010 LTCH 

PPS supplemental proposed rule, which 

was published on June 3, 2009 in the 

Federal Register, regarding the 

proposed RY 2010 MS–LTC–DRG 

relative weights and the proposed HCO 

fixed-loss amount for RY 2010 are 

addressed in section VIII.C.3 of the 

preamble and section V. of the 

Addendum to this final rule. 

D. Finalization of the June 3, 2009 

Interim Final Rule With Comment 

Period 

After consideration of the public 

comments we received on the June 3, 

2009 interim final rule with comment 

period, we are finalizing, without 

modification, the FY 2009 MS–LTC– 

DRG relative weights presented in that 

interim final rule with comment period, 

which are currently in effect. 

E. Regulatory Impact Analysis for the 

June 3, 2009 Interim Final Rule With 

Comment Period 

As we stated in the June 3, 2009 

interim final rule with comment period, 

we examined the impacts of that interim 

final rule with comment period as 

required by Executive Order 12866 

(September 1993, Regulatory Planning 

and Review), the Regulatory Flexibility 

Act (RFA) (September 19, 1980, Pub. L. 

96–354), section 1102(b) of the Social 

Security Act, the Unfunded Mandates 

Reform Act of 1995 (Pub. L. 104–4), 

Executive Order 13132 on Federalism, 

and the Congressional Review Act (5 

U.S.C. 804 (2)). 

The regulatory impact analysis 

presented in the June 3, 2009 interim 

final rule with comment period remains 

the same. Therefore, we are not 

reprinting it in this document. We refer 

readers to that interim final rule with 

comment period (74 FR 26549 through 

24950) for the details of that analysis. 

In accordance with the provisions of 

Executive Order 12866, this regulation 

was reviewed by the Office of 

Management and Budget. 

X. Finalization of Two Interim Final 

Rules With Comment Period That 

Implemented Certain Provisions of 

Section 114 of the Medicare, Medicaid, 

and SCHIP Extension Act of 2007 (Pub. 

L. 110–173) Relating to Payments to 

LTCHs and LTCH Satellite Facilities 

A. Background 

On May 6, 2008, we published in the 

Federal Register (73 FR 24871) an 

interim final rule with comment period 

to implement certain provisions of 

section 114 of the Medicare, Medicaid, 

and SCHIP Extension Act of 2007 

(MMSEA) (Pub. L. 110–173) relating to 

LTCHs. Specifically, the May 6, 2008 

interim final rule with comment period 

(CMS–1493–IFC) implemented section 

114(c)(3) and sections 114(e)(1) and 

(e)(2) of the MMSEA. Section 114(c)(3) 

of the MMSEA established a 3-year 

delay in the application of certain 

provisions regarding the payment 

adjustment for short-stay outliers. 

Sections 114(e)(1) and (e)(2) of the 

MMSEA made revisions to the RY 2008 

standard Federal rate. 

On May 22, 2008, we published in the 

Federal Register (73 FR 29699) another 

interim final rule with comment period 

to implement other provisions of section 

114 of the MMSEA relating to LTCHs 

and LTCH satellite facilities. 

Specifically, the May 22, 2008 interim 

final rule with comment period (CMS– 

1493–IFC2) implemented sections 

114(c)(1) and (c)(2) and section 114(d) of 

the MMSEA. Sections 114(c)(1) and 

(c)(2) of the MMSEA established a 3- 

year delay in the application of certain 

payment policies that apply payment 

adjustments for discharges from LTCHs 

and LTCH satellites that were admitted 

from certain referring hospitals in 

excess of various percentage thresholds. 

Section 114(d) of the MMSEA 


sroberts on DSKD5P82C1PROD with RULES
Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 43977 

established a 3-year moratorium on the 

establishment of new LTCHs and LTCH 

satellite facilities; and on increases in 

beds in existing LTCHs and LTCH 

satellite facilities, with certain 

exceptions. 

The American Recovery and 

Reinvestment Act of 2009 (ARRA) (Pub. 

L. 111–5) modified several of the LTCHrelated provisions set forth in sections 

114(c) and (d) of the MMSEA 

implemented in the May 22, 2008 

interim final rule with comment period. 

Specifically, section 4302 of the ARRA 

amended sections 114(c)(1), (c)(2), and 

(d)(3) of the MMSEA. We have issued 

instructions to the fiscal intermediaries 

and MACs interpreting the ARRA 

amendments (Change Request 6444). 

Section XI. of this document contains an 

interim final rule that addresses the 

specific modifications that section 4302 

of the ARRA made to sections 114(c)(1), 

(c)(2) and (d)(3) of the MMSEA. 

In this section of this final rule, we 

respond to comments and finalize 

policies implemented in the May 6 and 

the May 22, 2008 interim final rules 

with comment period relating to those 

provisions of sections 114(c), (d), and (e) 

of the MMSEA that were not otherwise 

modified by section 4302 of the ARRA. 

B. May 6, 2008 Interim Final Rule With 

Comment Period Provisions 

Implementing Section 114(c)(3) of the 

MMSEA Regarding Certain Short-Stay 

Outlier Cases 

1. Background 

In the RY 2003 LTCH PPS final rule 

(67 FR 55995), we established at 

§ 412.529 a special payment policy for 

short-stay outlier (SSO) cases. SSO cases 

are cases with a covered LOS that is less 

than or equal to five-sixths of the 

geometric average LOS for each LTC– 

DRG (67 FR 55995 through 56000). 

Under the SSO policy, we adjusted the 

per discharge payment for SSO cases 

under the LTCH PPS by the least of the 

following three options: (1) 120 percent 

of the estimated cost of the case; (2) 120 

percent of the LTC–DRG specific per 

diem amount multiplied by the covered 

LOS of that discharge; or (3) the full 

LTC–DRG payment. Since the 

implementation of the LTCH PPS, we 

have continued to collect and evaluate 

data from the LTCH PPS claims, which 

revealed that a large percentage of SSO 

cases had a covered LOS of 14 days or 

less. Based on these findings, we further 

revised our payment policy for SSO 

cases in the RY 2007 LTCH PPS final 

rule for LTCHs defined by section 

1886(d)(1)(B)(iv)(I) of the Act. (We refer 

the reader to the LTCH PPS final rule for 

RY 2007 (71 FR 27845 through 27870) 

for a detailed description of the 

revisions to our SSO policy for RY 

2007.) 

In the RY 2008 LTCH PPS final rule, 

we further revised the SSO policy based 

upon additional analysis of FY 2005 

MedPAR data. At that time, we stated 

that LTCH SSO cases with LOS that are 

equal to or less than the IPPS average 

LOS plus one standard deviation for the 

same DRGs under the IPPS appeared to 

be comparable to typical stays at acute 

care hospitals (72 FR 26904 through 

26918). Accordingly, in the RY 2008 

LTCH PPS final rule we established an 

additional payment option for SSO 

cases under the LTCH PPS for 

discharges occurring on or after July 1, 

2007. Specifically, the covered LOS of a 

SSO case which has been assigned to a 

particular MS–LTC–DRG is compared to 

the average LOS plus one standard 

deviation for the same DRG under the 

IPPS, which we call the ‘‘IPPS 

comparable threshold’’ (72 FR 26870 

and 26906). Thus, for a LTCH SSO case 

that is within the ‘‘IPPS comparable 

threshold,’’ we added an additional 

payment option based on an amount 

comparable to the hospital IPPS per 

diem amount determined under 

§ 412.529(d)(4). (For a detailed 

discussion of the RY 2008 revision to 

the SSO policy, we refer the reader to 

the RY 2008 LTCH PPS final rule (72 FR 

26904 through 26918). 

In summary, as established in 

§ 412.529, for LTCH discharges 

occurring on or after July 1, 2008 from 

a LTCH defined under section 

1886(d)(1)(B)(iv)(I), Medicare pays the 

least of the following: 

• 100 percent of the estimated cost of 

the case; 

• 120 percent of the LTC–DRG 

specific per diem amount multiplied by 

the covered LOS of the particular case; 

• The full LTC–DRG payment; or by 

• Comparing the covered LOS for a 

SSO case and the ‘‘IPPS comparable 

threshold’’ in one of the following 

manners: 

• The blend of the 120 percent of the 

LTC–DRG specific per diem amount and 

an amount comparable to the IPPS per 

diem amount specified in 

§ 412.529(c)(2)(iv) for cases where the 

covered LOS for a SSO case is greater 

than the ‘‘IPPS comparable threshold’’; 

or 

• An amount comparable to the 

hospital IPPS per diem amount 

determined under § 412.529(d)(4) for 

cases where the covered LOS for a SSO 

is less than or equal to the ‘‘IPPS 

comparable threshold.’’ 

Revisions to the SSO policy payment 

options that were finalized in RY 2007 

and RY 2008 were not applied to the 

unique situation of a hospital 

designated as a LTCH by Congress 

under section 1886(d)(1)(B)(iv)(II) of the 

Act, that is, (a ‘‘subclause (II)’’ LTCH) 

(71 FR 27863 and 72 FR 26907). 

2. Public Comments Received on the 

May 6, 2008 Interim Final Rule With 

Comment Period Provisions 

Implementing Sections 114(e)(1) and 

(e)(2) of the MMSEA 

Section 114(c)(3) of the MMSEA 

provides that ‘‘[t]he Secretary shall not 

apply, for the 3-year period beginning 

on the date of the enactment of this Act, 

the amendments finalized on May 11, 

2007 (72 FR 26904, 26992) made to the 

short-stay outlier payment provision for 

long-term care hospitals contained in 

section 412.529(c)(3)(i) of title 42, Code 

of Federal Regulations, or any similar 

provision.’’ Accordingly, we stated in 

the May 6, 2008 interim final with 

comment period that, ‘‘for discharges 

beginning on or after December 29, 2007 

and before December 29, 2010, the 

fourth SSO payment option based on 

the ‘IPPS comparable threshold’ as 

discussed above shall not apply’’ (73 FR 

24875). 

Specifically, in that interim final with 

comment period we noted that, ‘‘during 

the 3-year period specified above, for 

each SSO case treated as a LTCH 

defined under section 

1886(d)(1)(B)(iv)(I) of the Act, Medicare 

will pay the least of: (1) 100 percent of 

the estimated cost of the case; (2) 120 

percent of the LTC–DRG specific per 

diem amount multiplied by the covered 

LOS of the particular case; (3) the full 

LTC–DRG payment; or (4) the blend of 

the 120 percent of the LTC–DRG 

specific per diem amount and an 

amount comparable to the IPPS per 

diem amount specified in 

§ 412.529(c)(2)(iv)’’ (73 FR 24875). 

Comment: All of the commenters 

strongly supported our implementation 

of the modification to the SSO policy 

required by section 114(c)(3) of the 

MMSEA. 

Response: We appreciate these 

comments. 

Accordingly, we are finalizing our 

changes at §§ 412.529(c) and (f) of the 

regulations pertaining to the payment of 

SSO cases that implemented section 

114(c)(3) of the MMSEA. Specifically, 

we are finalizing the following changes 

to our regulation text made in the May 

6, 2008 interim final rule with comment 

period: revising paragraphs (c)(1) 

through (c)(3), redesignating paragraph 

(c)(4) as paragraph (f), and revising 

newly redesignated paragraph (f). 

In the May 6, 2008 interim final rule 

with comment period, we also noted 

that we had not made any substantive 


sroberts on DSKD5P82C1PROD with RULES
43978 Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 

changes to the policy for reconciliation 

of SSO payment (other than those 

associated with implementing section 

114(c)(3) of the MMSEA) and that the 

redesignation of the paragraph (c)(4) as 

paragraph (f), in addition the heading 

changes, are simply reorganizational 

changes intended to make the 

regulations in this section more 

accessible. 

In the May 6, 2008 interim final rule 

with comment period, we also noted 

that in amending the regulations, we 

discovered that several citations under 

existing paragraph (c)(4) were incorrect, 

originating from the RY 2008 final rule 

when we redesignated this paragraph 

from (c)(3) to (c)(4) (which was also an 

organizational change and not a 

substantive policy change to the policy 

on reconciliation of SSO payment) but 

inadvertently did not change the 

citations to correspond to the 

redesignation. We are therefore 

finalizing the corrected citations in the 

redesignated paragraph (f) (73 FR 

24875). 

C. May 6, 2008 Interim Final Rule With 

Comment Period Provisions 

Implementing Sections 114(e)(1) and 

(e)(2) of the MMSEA Regarding the 

Standard Federal Rate for the 2008 

LTCH PPS Rate Year 

1. Background 

Section 114(e)(1) of the MMSEA 

provides that the base rate for RY 2008 

‘‘shall be the same as the base rate for 

discharges for the hospital occurring 

during the rate year ending in 2007.’’ 

Furthermore, section 114(e)(2) of the 

MMSEA provides that section 

1886(m)(2) shall not be applicable to 

discharges occurring on or after July 1, 

2007, and before April 1, 2008. We 

implemented this provision in the May 

6, 2008 interim final rule with comment 

period at which time we also solicited 

public comments. 

In the RY 2009 LTCH PPS proposed 

rule (73 FR 5362), we noted that 

consistent with our historical practice, 

we proposed to update the standard 

Federal rate for RY 2009 from the 

previous year based on our 

interpretation of section 114(e) of the 

MMSEA, as discussed in the interim 

final rule with comment period (73 FR 

24871 through 24875). This proposed 

rate was finalized in the RY 2009 LTCH 

PPS final rule (73 FR 26804 through 

26807). (For a description and 

chronology of our ratesetting policy 

under the LTCH PPS, we refer readers 

to section V.A.1. of the Addendum to 

this final rule.) 

Section 114(e)(1) of the MMSEA 

revises the base rate for RY 2008. 

Specifically, section 114(e)(1) of the 

MMSEA adds a new section 1886(m)(2) 

to the Act, which provides that the base 

rate for RY 2008 ‘‘shall be the same as 

the base rate for discharges for the 

hospital occurring during the rate year 

ending in 2007.’’ In addition, section 

114(e)(2) of the MMSEA indicates that 

section 1886(m)(2) of the Act ‘‘shall not 

apply to discharges occurring on or after 

July 1, 2007, and before April 1, 2008’’ 

(that is, the first 9 months of RY 2008). 

In the May 6, 2008 interim final rule 

with comment period, we noted that the 

statute uses the term ‘‘base rate,’’ which 

is not a defined term in either section 

1886(m) of the Act or in 42 CFR part 

412, Subpart O. As we explained in the 

LTCH PPS RY 2009 final rule (73 FR 

26805), we interpret that term to refer to 

the standard Federal rate. 

Under this interpretation, the 

standard Federal rate for RY 2008 would 

be the same as the standard Federal rate 

for RY 2007, that is, the 0.71 percent 

update finalized in the RY 2008 LTCH 

PPS final rule would be reversed. (In the 

RY 2008 LTCH PPS final rule (72 FR 

26887 through 26890), we established 

(at § 412.523(c)(3)(iv) of the regulations) 

the revised standard Federal rate for RY 

2008 at $38,086.04, the same as it had 

been for RY 2007.) As specified by 

section 114(e)(2) of the MMSEA, 

Medicare payments beginning on and 

after July 1, 2007, and before April 1, 

2008 would be calculated based on the 

standard Federal rate that we 

established, in the RY 2008 LTCH PPS 

final rule, effective from July 1, 2007, 

through June 30, 2008, at $38,356.45 (72 

FR 26890). 

As we stated in the May 6, 2008 

interim final rule with comment period, 

we do not believe that the term ‘‘base 

rate’’ could refer to the ‘‘unadjusted 

rate’’ because the unadjusted rate for RY 

2008 would be updated by the current 

year’s update factor in order to 

determine the standard Federal rate for 

RY 2008 (that is, to determine the 

standard Federal rate for any given rate 

year, the previous year’s standard 

Federal rate, which we refer to as the 

‘‘unadjusted rate,’’ is updated by the 

current year’s update factor), and doing 

so would result in the same Federal rate 

for RY 2008 as was adopted in the RY 

2008 LTCH PPS final rule. To illustrate 

this scenario mathematically, if ‘‘base 

rate’’ is interpreted to mean ‘‘unadjusted 

rate,’’ the ‘‘unadjusted rate’’ for RY 2008 

($38,086.04) would be the same as the 

RY 2007 ‘‘unadjusted rate’’ ($38,086.04). 

The RY 2008 ‘‘unadjusted rate’’ of 

$38,086.04 would subsequently be 

updated by the 0.71 percent update 

factor finalized in the RY 2008 final 

rule, resulting in a standard Federal rate 

for RY 2008 of $38,356.45, which is the 

same standard Federal rate that was 

originally finalized in the RY 2008 final 

rule. If we adopted this interpretation, 

we believe that LTCH PPS payments 

would be unaffected by section 114(e)(1) 

of the MMSEA. Therefore, we believe 

that the term ‘‘base rate’’ used in section 

114(e)(1) of the MMSEA refers to the 

standard Federal rate. 

In the RY 2008 LTCH PPS final rule 

(72 FR 26890), we originally established 

a standard Federal rate of $38,356.45 for 

the 2008 LTCH PPS rate year that was 

based on the best available data and 

policies established in that final rule. As 

discussed above, section 114(e) of the 

MMSEA revised the standard Federal 

rate for RY 2008. Specifically, section 

114(e)(1) of the MMSEA provides that 

under the new section 1886(m)(2) of the 

Act, the standard Federal rate for RY 

2008 shall be the same as the standard 

Federal rate for RY 2007. The standard 

Federal rate for RY 2007 was $38,086.04 

(71 FR 27818). Thus, to implement 

114(e)(1) of the MMSEA, in the May 6, 

2008 interim final rule with comment 

period, we established that the RY 2008 

standard Federal rate is $38,086.04 (the 

same as the standard Federal rate for 

2007). 

However, section 114(e)(2) of the 

MMSEA expressly delays the 

application of the revised RY 2008 

standard Federal rate. Specifically, 

section 114(e)(2) of the MMSEA states 

that the revised RY 2008 standard 

Federal rate ‘‘shall not apply to 

discharges occurring on or after July 1, 

2007, and before April 1, 2008.’’ 

Therefore, we stated that LTCH 

payments for discharges occurring on or 

after July 1, 2007 through March 31, 

2008, would continue to include an 

adjustment of 0.71 percent, that is, 

payments would be based on the 

standard Federal rate in 

§ 412.523(c)(3)(iii), updated by 0.71 

percent. Accordingly, for discharges 

occurring on or after April 1, 2008 

through June 30, 2008, we would apply 

the revised RY 2008 standard Federal 

rate of $38,086.04, while payments for 

discharges occurring from July 1, 2007, 

through March 31, 2008 would be 

determined based on the standard 

Federal rate in § 412.523(c)(3)(iii) 

increased by 0.71 percent, that is, 

$38,356.45. In the May 6, 2008 interim 

final rule with comment period, we 

revised § 412.523(c)(iv) to conform to 

the revision of the standard Federal rate 

for RY 2008 under section 114(e) of the 

MMSEA and to specify how payments 

are determined during RY 2008. 

In the May 6, 2008 interim final rule 

with comment period, we also noted 

that section 114(e) of the MMSEA 


sroberts on DSKD5P82C1PROD with RULES
Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 43979 

affected the HCO fixed-loss amount 

currently in effect since it revises the 

standard Federal rate for RY 2008 and 

the standard Federal rate is used to 

determine the fixed-loss amount. 

Specifically, the fixed-loss amount that 

was applied when the MMSEA was 

enacted (December 29, 2007) was 

determined based on a standard Federal 

rate of $38,356.45. (See the RY 2008 

LTCH PPS final rule (72 FR 26896 

through 26899), as amended by the RY 

2008 correction notice (72 FR 36613) for 

a discussion of the methodology and 

data used to determine the current 

fixed-loss amount for RY 2008.) In that 

interim final rule with comment period, 

we stated that since payment for 

discharges occurring on or after April 1, 

2008, through June 30, 2008, will be 

based on the revised RY 2008 standard 

Federal rate of $38,086.04, consistent 

with the existing regulations at 

§ 412.525(a), in order to maintain 

estimated total payments for HCO cases 

at 8 percent of the estimated total 

payments, we were also revising the 

HCO fixed-loss amount. Accordingly, 

under the broad authority conferred 

upon the Secretary by section 123 of the 

BBRA, as amended by section 307(b) of 

the BIPA, to make appropriate 

adjustments to the LTCH PPS, the 

revised HCO fixed-loss amount effective 

for discharges occurring on or after 

April 1, 2008, through June 30 2008, 

was set at $20,707. This revised fixedloss amount was determined using the 

same data and methodology presented 

in the RY 2008 LTCH PPS final rule and 

takes into account the revised RY 2008 

standard Federal rate as provided for in 

the MMSEA (discussed above). 

2. Public Comments Received on the 

May 6, 2008 Interim Final Rule With 

Comment Period Provisions 

Comment: Several commenters 

disagreed with our interpretation of 

section 114(e)(2) of the MMSEA, which 

specifies that ‘‘for discharges occurring 

during the rate year ending in 2008 for 

a hospital, the base rate for such 

discharges for the hospital shall be the 

same as the base rate for discharges for 

the hospital occurring during the rate 

year ending in 2007.’’ The commenters 

urged CMS to base the RY 2009 

standard Federal rate update on the 

original RY 2008 rate when it finalizes 

the MMSEA provisions. The 

commenters further noted that section 

114(e) of the MMSEA provides that the 

RY 2007 base rate only be utilized for 

the last three months of RY 2008, and 

that the initial RY 2008 base rate be 

utilized for July 1, 2007, through April 

1, 2008. The commenters asserted that 

there is no statutory requirement that 

the RY 2009 standard Federal rate be 

calculated based on the RY 2007 rate. In 

fact, the commenters noted, that the 

language of the provision indicates that 

the RY 2007 standard Federal rate is to 

be applied only to ‘‘discharges occurring 

during the rate year ending in 2008.’’ 

They contended that when CMS used 

the ‘‘revised’’ RY 2008 standard Federal 

rate, this policy determination affected 

not only the RY 2009 standard Federal 

rate but every rate year thereafter and 

that Congress did not intend this. 

Therefore, the commenters asserted that 

our interpretation of section 114(e)(1) of 

the MMSEA constitutes retroactive 

rulemaking. Furthermore, the 

commenters stated that our 

interpretation of section 114(e)(2) of the 

MMSEA violates our existing 

regulations at §§ 412.523(a)(1) and (a)(2) 

that state that CMS uses the ‘‘best 

Medicare data available’’ to adjust the 

‘‘most recent estimate’’ of increases in 

the market basket when computing the 

standard Federal rate, which is based on 

using data from the previous rate year. 

Response: We disagree with the 

commenters that updating the RY 2008 

standard Federal rate based on the 

MMSEA revised RY 2008 standard 

Federal rate of $38,086.04 represents a 

misinterpretation of section 114(e)(1) of 

the MMSEA. As we noted in response 

to similar comments that we received on 

this issue after we published the RY 

2009 LTCH PPS proposed rule (73 FR 

3560 through 3562), we continue to 

believe that the approach that we 

finalized in the RY 2009 LTCH PPS final 

rule (73 FR 26805) for calculating the 

RY 2009 standard Federal rate is 

appropriate, and consistent with a plain 

reading of the statute and our historic 

methodology for calculating the 

standard Federal rate. 

Section 114(e)(1) of the MMSEA adds 

section 1886(m)(2) to the Act, which 

specifies the standard Federal rate for 

RY 2008. Specifically, section 

1886(m)(2) provides that ‘‘for discharges 

occurring during the rate year ending in 

2008 for a hospital, the base rate for 

such discharges for the hospital shall be 

the same as the base rate for discharges 

for the hospital occurring during the 

rate year ending in 2007.’’ Section 

1886(m)(2) of the Act, on its face, 

explicitly provides for a single revised 

RY 2008 standard Federal rate. With 

respect to section 114(e)(2) of the 

MMSEA, this section provides that 

section 1886(m)(2) of the Act shall not 

apply to discharges occurring on or after 

July 1, 2007, and before April 1, 2008. 

When read together, we believe that 

section 1886(m)(2) of the Act and 

section 114(e)(2) of the MMSEA provide 

that the revised RY 2008 standard 

Federal rate (which is the same as the 

RY 2007 standard Federal rate) is the 

standard Federal rate for all of RY 2008. 

However, for payment purposes, 

discharges occurring on or after July 1, 

2007, and before April 1, 2008 simply 

will not be paid based on that revised 

RY 2008 standard Federal rate. 

In contrast to the commenters’ belief 

that section 114(e)(2) of the MMSEA 

limits the reduced standard Federal rate 

in section 1886(m)(2) of the Act to 

merely a 3-month period (that is, the 

part of RY 2008 not included in ‘‘on or 

after July 1, 2007, and before April 1, 

2008’’), this section provides that the 

standard Federal rate specified in 

section 1886(m)(2) of the Act ‘‘shall not 

apply to discharges occurring on or after 

July 1, 2007, and before April 1, 2008.’’ 

To the extent the MMSEA directs that 

the revised standard Federal rate in 

section 1886(m)(2) of the Act shall not 

apply during a specified period, it also 

necessarily means that the standard 

Federal rate in section 1886(m)(2) of the 

Act would otherwise apply for the 

entire RY 2008. We note that section 

1886(m)(2) of the Act could have been 

explicitly revised to state this result. 

However, the actual structure of section 

114(e) of the MMSEA contained two 

distinct provisions: at section 

1886(m)(1) of the Act, an express 

indication of the statutory authority that 

established and implemented the LTCH 

PPS; and at section 1886(m)(2) of the 

Act, the establishment of the ‘‘Update 

for Rate Year 2008’’, which the statute 

specifically mandates ‘‘shall be the same 

as the base rate for discharges for the 

hospital occurring during the rate year 

ending 2007.’’ Following that statutory 

amendment at sections 1886(m)(1) and 

(m)(2) of the Act, specified in section 

114(e)(1) of the MMSEA, section 

114(e)(2) of the MMSEA (not included 

in the new subsection (m) of the Act) 

merely prohibits application of the 

revised RY 2008 standard Federal rate to 

discharges occurring prior to April 1, 

2008. Therefore, contrary to the 

commenters’ assertion, we believe a 

plain reading of the statute provides that 

the standard Federal rate for the longterm care hospital prospective payment 

system rate year beginning July 1, 2007 

and ending June 30, 2008 (that is, RY 

2008) is the same as the standard 

Federal rate for the previous long-term 

care hospital prospective payment 

system rate year updated by zero 

percent (that is, the same as the 

standard Federal rate for RY 2007). 

In addition, Congress is aware that we 

determine the standard Federal rate for 

a given year by taking the standard 

Federal rate from the previous year and 

updating it. Our calculation of the 


sroberts on DSKD5P82C1PROD with RULES
43980 Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 

proposed (and final) RY 2009 standard 

Federal rate is consistent with our longstanding practice of calculating the 

standard Federal rate. Since Congress 

did not expressly direct us to deviate 

from that historical practice, the natural 

presumption is that we would take the 

revised RY 2008 standard Federal rate 

specified in section 1886(m)(2) of the 

Act and update it in order to calculate 

the RY 2009 standard Federal rate. In 

response to the comment that the 

MMSEA did not specifically grant CMS 

the authority to update the RY 2009 

standard Federal rate based on the 

revised RY 2008 standard Federal rate 

specified in the MMSEA, we note that 

granting such authority was 

unnecessary. Congress had already 

conferred broad discretionary authority 

to the Secretary under § 307(b)(1) of 

Public Law 106–554 (also referenced 

under new section 1886(m)(1) of the 

Act) to provide for appropriate 

adjustment to the LTCH PPS, including 

updates. 

We also disagree with commenters’ 

assertions that the proposed RY 2009 

standard Federal rate would produce a 

retroactive effect and is tantamount to 

retroactive rulemaking. We note that the 

RY 2009 standard Federal rate will be 

prospectively applied to discharges 

beginning on July 1, 2008. 

In response to the commenters’ 

statements that we are violating our own 

existing regulations at § 412.523(a)(1) 

which sets forth the methodology for 

calculating the annual Federal 

prospective payment rates based on the 

‘‘best Medicare data available,’’ and 

utilizing ‘‘the most recent estimate of 

increases in the prices of an appropriate 

market basket * * *,’’ we note that the 

revised RY 2008 standard Federal rate, 

which we are required to use under 

section 1886(m)(2) of the Act for 

‘‘discharges occurring during the rate 

year ending in 2008’’ was originally 

calculated based on those regulatory 

principles. Furthermore, the 

determination of $39,114.36 as the RY 

2009 standard Federal rate was also 

established in full compliance with the 

established methodology set forth in our 

regulations at § 412.523, using, as 

Congress required, a RY 2008 rate which 

is ‘‘* * * the same as the base rate for 

discharges * * * occurring during the 

rate year ending in 2007’’ as set forth in 

the RY 2009 LTCH PPS final rule (73 FR 

26812). 

After consideration of these 

comments, we are finalizing the 

regulatory changes implementing 

sections 114(e)(1) and (e)(2) of the 

MMSEA made in the May 6, 2008 

interim final rule with comment period 

without modification. Specifically, we 

are amending § 412.500 by revising 

paragraph (a) and § 412.523 by revising 

paragraph (c)(3). 

D. May 22, 2008 Interim Final Rule With 

Comment Period Implementing Sections 

114(c)(1) and (c)(2) of the MMSEA 

Regarding Payment Adjustment to 

LTCHs and LTCH Satellite Facilities 

1. Background 

Our regulations at § 412.534, 

implemented for cost reporting periods 

beginning on or after FY 2005, address 

our concern that the co-location of 

LTCHs with other hospital-level 

providers (in particular, acute care 

hospitals) as HwHs and as satellites 

provide an incentive for early 

discharges from the acute care hospital 

immediately followed by admissions to 

the on-site LTCH, resulting in two 

Medicare payments for what was 

essentially one episode of treatment. 

Specifically, at § 412.534 of the 

regulations, we established the 

percentage threshold payment 

adjustment under which Medicare 

payments for discharges of patients from 

LTCHs who are admitted from the 

LTCHs’ co-located hosts that exceeded a 

specified percentage would be paid the 

lesser of the amount otherwise payable 

under the LTCH PPS or an amount 

payable under the LTCH PPS that was 

equivalent to the amount that would be 

otherwise determined under the IPPS. 

At that time we provided for a 4-year 

transition to the full percentage 

payment threshold and also established 

higher percentage thresholds for certain 

LTCHs, that is, those located with rural, 

MSA-dominant or urban single 

hospitals. (For a thorough discussion of 

the regulations at § 412.534, see the FY 

2005 IPPS final rule (69 FR 49292 

through 49214).) 

In the LTCH PPS RY 2008 final rule, 

we extended the percentage threshold 

payment adjustment to all LTCHs that 

had not already been governed under 

the original policy at § 412.534 (72 FR 

26919 through 26944), including 

grandfathered LTCH HwHs and LTCH 

satellites at § 412.534(h), and non-colocated LTCHs. The policy also 

governed Medicare discharges from 

LTCH HwHs and satellites that were 

admitted from referral sources other 

than their co-located hosts at 

§ 412.536(a)(1)(ii) and (iii). When we 

extended the policy in § 412.534 to 

grandfathered LTCH HwHs and LTCH 

satellite facilities in the RY 2008 LTCH 

PPS final rule, we provided for a 

parallel 3-year transition to the full 

percentage threshold for cost reporting 

periods beginning on or after July 1, 

2007 at § 412.534(h) for ‘‘grandfathered’’ 

LTCHs and LTCH satellite facilities 

discharging patients admitted from their 

host hospitals and at § 412.536(f) for 

discharges that were admitted to a 

LTCH or LTCH satellite facility from 

any referring hospital with which they 

were not co-located (72 FR 26944). 

2. Payment Adjustment to LTCHs and 

LTCH Satellite Facilities Specified by 

Section 114(c) of the MMSEA 

The enactment of section 114(c) of the 

MMSEA required several modifications 

to payment provisions applicable to 

various types of LTCHs under the 

regulations at §§ 412.534 and 412.536. 

(Throughout this section, ‘‘LTCH’’ or 

‘‘LTCH satellite facility’’ refers 

exclusively to ‘‘subclause (I)’’ LTCHs 

and LTCH satellite facilities, that is, 

LTCHs defined by section 

1886(d)(1)(B)(iv)(I) of the Act. This is 

the case because the policies established 

at §§ 412.534 and 412.536 do not apply 

to a ‘‘subclause (II)’’ LTCH defined 

under section 1886(d)(1)(B)(iv)(II) (69 

FR 49205 and 72 FR 26924).) 

In the May 22, 2008 interim final rule 

with comment period, we revised our 

regulations at §§ 412.534 and 412.536 to 

implement the requirements of sections 

114(c)(1) and (c)(2) of the MMSEA (73 

FR 29699 through 29704). 

On February 17, 2009, the ARRA of 

2009 was enacted, which affected 

several of the policies established by the 

MMSEA that we implemented in the 

May 22, 2008 interim final rule with 

comment period. In the following 

discussion, we review the policies that 

we implemented in the May 22, 2008 

interim final with comment period, note 

changes made by section 4302 of the 

ARRA, and respond to public comments 

that we received on our implementation 

of the MMSEA provisions that were not 

otherwise revised by the ARRA. In 

section XI. of this document, we have 

implemented the amendments made by 

section 4302 of the ARRA to certain 

provisions of section 114(c) and (d) of 

the MMSEA in an interim final rule 

with comment period. 

We note that the modifications to our 

regulations at §§ 412.534 and 412.536 

made by section 114(c) of the MMSEA 

were originally effective for cost 

reporting periods beginning on or after 

December 29, 2007, for a 3-year period. 

As discussed in greater detail in the 

interim final rule with comment period 

for the ARRA in section XI. of this 

document, sections 4302 (a)(1)(B) and 

(a)(2)(B) of the ARRA changed this 

effective date to cost reporting periods 

beginning on July 1, 2007 or October 1, 

2007, as applicable. Therefore, the 

discussion below focuses on policy 

changes made by section 114(c) of the 


sroberts on DSKD5P82C1PROD with RULES
Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 43981 

MMSEA to our regulations at §§ 412.534 

and 412.536, implemented in the May 

22, 2008 interim final rule with 

comment period, that were otherwise 

unaffected by the amendments in 

section 4302 of the ARRA. (For a 

detailed description of each provision 

originally promulgated in section 114(c) 

of the MMSEA, the reader is directed to 

the May 22, 2008 interim final rule with 

comment period (73 FR 29699, 29701 

through 29704).) 

Section 114(c) of the MMSEA 

provided the following changes 

affecting our regulations at §§ 412.534 

and 412.536: 

• Section 114(c)(1)(A) of the MMSEA 

generally exempted ‘‘freestanding’’ 

LTCHs (that is, as newly defined in 

§ 412.23(e)(5), from the percentage 

threshold payment adjustment at 

412.536 (or any similar provision) for a 

3-year period; 

• Section 114(c)(1)(B) of the MMSEA 

exempted ‘‘grandfathered’’ LTCH HwHs 

(that is, ‘‘a long-term care hospital 

identified by the amendment made by 

section 4417(a) of the Balanced Budget 

Act of 1997 (Pub L. 105–33)’’) from the 

applicable percentage threshold policy 

established at § 412.536 or § 412.534, or 

any similar provision for a 3-year 

period; 

• Section 114(c)(2)(A) of the MMSEA 

exempts certain LTCH HwHs and LTCH 

satellite facilities located in a rural area 

or which are co-located with an urban 

single or MSA-dominant hospital under 

§ 412.534(d)(1), (e)(1), and (e)(4) that 

meet the definition of an ‘‘applicable 

long-term care hospital or satellite 

facility,’’ from certain payment 

adjustments if no more than 75 percent 

of the hospital’s Medicare discharges 

(other than discharges described in 

§ 412.534(d)(2) or (e)(3), for example, 

HCO cases at the referring hospital) are 

admitted from a co-located hospital for 

a 3-year period; and 

• Section 114(c)(2)(B)(i) of the 

MMSEA exempts an applicable longterm care hospital or satellite facility 

which is co-located with another 

hospital from certain payment 

adjustments under § 412.534, if no more 

than 50 percent of the hospital’s 

Medicare discharges (other than 

discharges described in paragraph (c)(3) 

of such section, for example, HCO cases 

at the referring hospital) are admitted 

from a co-located hospital. Section 

114(c)(2)(B)(ii) defined an ‘‘applicable 

long-term care hospital or satellite 

facility’’ as a hospital or satellite facility 

that is subject to the transition rules 

under § 412.534(g). We direct the reader 

to the May 22, 2008 interim final rule 

with comment period, which included a 

detailed description of those aspects of 

our regulations at §§ 412.534 and 

412.536 that were unaffected by the 

MMSEA changes and specifies which 

LTCHs and LTCH satellites remain 

subject to the existing regulations (73 FR 

29701 through 29704). (We note, 

however, that this description predated 

the amendments made by section 4302 

of the ARRA to section 114(c) of the 

MMSEA, discussed in section XI. of this 

document.) 

As noted above, section 4302(a)(1)(B) 

of the ARRA modified this provision by 

separating the establishment of the 3- 

year exemption from the 

implementation of the percentage 

threshold payment adjustments at 

§ 412.534 and § 412.536 from the date of 

enactment of the MMSEA, that is, 

December 19, 2007. Specifically, section 

4302(a)(1)(B) strikes ‘‘the date of 

enactment of this Act * * *’’ from 

section 114(c)(1) of the MMSEA, and 

inserts ‘‘* * * July 1, 2007.’’ This 

change is discussed in greater detail in 

the interim final rule with comment 

period on section 4302 of the ARRA, at 

section XI. of this document. Therefore, 

while regulations describing the 3-year 

delay in application of the 25 percent 

patient threshold payment adjustment 

for ‘‘freestanding’’ LTCHs and 

‘‘grandfathered’’ LTCH HwHs 

implemented in the May 22, 2008 

interim final rule with comment period 

are being finalized at this time, the 

change in the effective date of this 

provision is being implemented through 

the mechanism of the interim final rule 

with comment period found in section 

XI. of this document. 

3. Public Comments Received on the 

May 22, 2008 Interim Final Rule With 

Comment Period Implementing Section 

114(c)(1) and (c)(2) of the MMSEA 

Regarding Payment Adjustment to 

LTCHs and LTCH Satellite Facilities 

We received a number of comments 

on the provisions of the May 22, 2008 

interim final rule with comment period 

implementing sections 114(c)(1) and 

(c)(2) of the MMSEA, some of which 

were mooted by the subsequent 

enactment of the ARRA. For example, 

we received several public comments 

expressing concern that linking the 

MMSEA modifications to the percentage 

threshold payment adjustment (both the 

exemption from the policy at section 

114(c)(1) of the MMSEA and the 

percentage increase at 114(c)(2) of the 

MMSEA) to cost reporting periods 

beginning on or after the December 29, 

2007 date of enactment of the MMSEA 

forestalled relief to a significant number 

of LTCHs. Specifically, freestanding 

LTCHs and ‘‘grandfathered’’ LTCH 

HwHs with cost reporting periods 

beginning between October 1, 2007 and 

December 29, 2007 and to ‘‘applicable’’ 

LTCH HwHs and satellites with cost 

reporting periods beginning between 

July 1, 2007 and December 29, 2007 

would become eligible for the MMSEA 

relief at only the start of their next cost 

reporting period. Sections 4302(a)(1)(B) 

and (a) (2)(B) of the ARRA amended 

sections 114(c)(1) and (c)(2) of the 

MMSEA, respectively, modifying the 

effective dates of the changes to the 

percentage threshold payment 

adjustment. Therefore, comments on 

this issue and others noted throughout 

this section that were addressed by the 

ARRA modifications of the MMSEA will 

not be addressed in this final rule. The 

ARRA provisions will be discussed and 

implemented through the interim final 

rule with comment period in section XI. 

of this document. 

Comment: MedPAC indicated that it 

was aware that the percentage threshold 

payment policy was established ‘‘to 

help ensure that LTCHs do not function 

as units of acute care hospitals, and that 

decisions about admission, treatment, 

and discharge in both acute care 

hospitals and LTCHs are made for 

clinical rather than financial reasons.’’ 

MedPAC continued: ‘‘[s]ome LTCHs— 

both freestanding and those with formal 

ties to other hospitals—may function as 

de facto step-down units of acute care 

hospitals. Research by MedPAC and 

others has found that patients who use 

LTCHs have shorter acute care hospital 

lengths of stay than similar patients who 

do not use these facilities, suggesting 

that LTCHs substitute for at least part of 

the acute care hospital stay.’’ The 

Commission expressed concerns about 

the impact of such behavior on 

Medicare costs. Describing the 

percentage threshold policy as a ‘‘useful 

but blunt tool’’ until criteria can be 

developed, the commenter further stated 

that ‘‘MedPAC favors using criteria to 

define the level of care typically 

furnished in LTCHs (as well as in stepdown units of many acute-care 

hospitals, and some specialized skilled 

nursing and inpatient rehabilitation 

facilities) and to help ensure that 

beneficiaries receive appropriate, highquality care in the least costly setting 

consistent with their clinical 

conditions.’’ 

Response: We thank MedPAC for their 

clear description of the rationale for our 

development of the percentage 

threshold payment adjustment and for 

endorsing its underlying principle. We 

also appreciate MedPAC’s restatement 

of our two-fold mandate: our 

responsibility both to establish payment 

systems to pay providers for appropriate 

and high quality beneficiary care as well 


sroberts on DSKD5P82C1PROD with RULES
43982 Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 

as to ensure that Medicare funds are 

spent wisely and appropriately. In 

establishing payment adjustments, such 

as the ‘‘25 percent’’ threshold policy, we 

are responding to the same data cited by 

the commenter above regarding the 

phenomenon of shortened acute care 

hospital stays followed by admissions to 

on-site or near-by LTCHs, resulting in 

two separate Medicare payments for 

what, in effect, was one episode of 

treatment. 

We are aware that MedPAC 

recommended the development of 

criteria for LTCH patients and facilities, 

as a more effective way to ensure that 

LTCHs meeting certain criteria treat a 

particular level of patients, specifically 

as set forth in its June 2004 Report to 

Congress. In response to MedPAC’s 

recommendations, we awarded a 

contract to Research Triangle 

International (RTI) for a comprehensive 

evaluation of the feasibility of 

developing patient and facility level 

criteria for LTCHs that could distinguish 

LTCH patients from those treated in 

other hospitals. (Reports on this 

research are posted on our Web site at 

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

Hospital PPS/ 

02a_RTIReports.asp#TopOfPage.) 

We also refer readers to the comment 

that MedPAC submitted on the RY 2009 

LTCH PPS proposed rule which 

explained the rationale behind its June 

2004 recommendation—‘‘beneficiaries 

treated in LTCHs cost Medicare more 

than those treated in alternative settings; 

however, the cost differences narrowed 

considerably if LTCH care was targeted 

to patients who appeared most suitable 

for this level of care. That leads us to 

conclude that Medicare should ensure 

that LTCHs treat only appropriate 

patients.’’ At that time, MedPAC took 

the significant step of amending its June 

2004 recommendation by stating that: 

‘‘The types of cases treated by LTCHs 

can be (and are) treated in other settings, 

particularly in step-down units of many 

acute-care hospitals. Therefore, it is not 

possible (nor desirable) to develop 

criteria defining patients who can be 

cared for exclusively in LTCHs. Rather, 

CMS should seek to define the level of 

care typically furnished in LTCHs, stepdown units of many acute-care 

hospitals, and some specialized skilled 

nursing facilities (SNFs) and inpatient 

rehabilitation facilities (IRFs).’’ (73 FR 

26829) 

A review of the annual proposed and 

final rules since 2005 indicates that 

RTI’s research led it to similar 

conclusions (71 FR 4704 through 4726, 

71 FR 27884, 72 FR 4818, 72 FR 4884 

through 4886, 72 FR 26947 through 

26948, 73 FR 5374 through 5376, 73 FR 

26829). In this light, we would also note 

that section 114(b) of the MMSEA 

directs the Secretary to conduct a study 

and submit a report to the Congress on 

the establishment of national LTCH 

facility and patient criteria. The statute 

stipulates that in conducting the study 

and preparing the report, the Secretary 

shall consider the recommendations 

made by MedPAC in its June 2004 

report as well as ongoing work by the 

Secretary to evaluate and determine the 

feasibility of such recommendations. In 

accord with this requirement, a report to 

Congress which takes into consideration 

MedPAC’s original recommendations as 

well as both RTI’s and the Commission’s 

further analyses and findings is being 

prepared for submission by our Office of 

Research, Development, and 

Information by early Fall. 

Comment: Six commenters challenged 

our implementation of the MMSEA 

changes to the percentage payment 

threshold policy presented in the May 

22, 2008 interim final rule with 

comment period. A number of the 

commenters argued that we have 

interpreted the statutory language in the 

‘‘narrowest way possible’’ with the 

result being the creation of ‘‘different 

classes of LTCHs,’’ only some of which 

benefit from the MMSEA provisions. 

Three commenters urged the Secretary 

to use discretion to apply both elements 

of sections 114(c)(1)(A) and (c)(2)(B) of 

the MMSEA to all LTCHs such that 

there would be a 3-year delay in any 

application of the regulations at 

§ 412.536 to any type of LTCH and that 

for 3 years the percentage threshold 

increase would apply to all co-located 

LTCHs and LTCH satellites governed 

under the regulations at § 412.534. 

Several commenters urged CMS to use 

its discretionary authority to extend the 

percentage increase policy established 

by section 114(c)(2) to ‘‘grandfathered’’ 

satellites as described in our regulations 

at § 412.22(h)(3)(i). One commenter 

opined that the establishment of 

different classes of LTCHs by section 

114(c) of the MMSEA was both 

inequitable and administratively 

burdensome for CMS. This commenter 

suggested that if CMS believed that the 

Secretary did not have the authority to 

interpret the relief provided by section 

114(c) of the MMSEA to other LTCHs 

not addressed by the statute, that a 

legislative proposal be submitted to 

Congress urging passage of a more 

equitable and administratively 

reasonable policy. Two commenters also 

recommended that after 3 years the 

regulations at § 412.536 should not be 

‘‘reimposed’’ and that § 412.534 should 

also be retired once criteria were 

developed. One of these commenters 

further suggested that once the 3-year 

exemption for LTCH HwHs and 

‘‘freestanding’’ LTCHs sunsets, even if 

we reinstate the percentage threshold 

payment policy, we should also 

reinstate the 3-year transition period to 

the full 25 percent threshold for these 

groups. 

Response: We believe that the 

regulations that we published in the 

May 22, 2008 interim final rule with 

comment period represented an 

accurate reading and appropriate 

interpretation of section 114(c) of the 

MMSEA. In that provision, Congress 

targeted specific types of LTCHs for 

particular sorts of relief. Specifically, 

the language at section 114(c)(1) of the 

MMSEA clearly provided a 3-year delay 

in application of §§ 412.534 and 412.536 

to only two categories of LTCHs in 

section 114(c)(1)(A) of the MMSEA to 

freestanding LTCHs; and in section 

114(c)(1)(B) to ‘‘grandfathered’’ LTCH 

HwHs. 

Similarly, the 3-year relief from the 

full implementation of § 412.534 that 

Congress granted in section 114(c)(2) in 

the form of increased thresholds from 50 

percent to 75 percent for LTCHs or 

LTCH satellites co-located with a rural, 

urban single, or MSA-dominant hospital 

and from 25 percent to 50 percent for 

LTCHs and LTCH satellites was 

narrowly targeted to only those 

‘‘applicable’’ LTCHs and LTCH 

satellites, that is, those ‘‘subject to the 

transition rules under section 

§ 412.534(g) of title 42 Code of Federal 

Regulations.’’ The percentage threshold 

payment adjustment policies were 

established to provide disincentives for 

LTCH and LTCH satellites to admit 

patients from referring hospitals with 

which they were either co-located in the 

case of § 412.534 or separate from, as in 

the case of § 412.536, for financial rather 

than clinical benefit. We continue to 

believe that it is inappropriate for 

Medicare to generate two payments, one 

to the referring (typically) acute care 

hospital and one to the LTCH, for what 

is essentially one episode of treatment. 

Congress was specific in providing areas 

and timeframes for relief. We have 

implemented those statutory provisions 

based on the plain language of the 

statute. The statutory directives parallel 

our existing policies. 

In addition, section 4302 of the ARRA 

amended section 114(c) of the MMSEA. 

These amendments extended both types 

of relief, that is, the 3-year delay in 

implementation and the increase in the 

percentage threshold, to two additional 

specific categories of LTCHs. 

Specifically, section 4302(a)(1)(C) of the 

ARRA amended section 114(c)(1)(A) of 


sroberts on DSKD5P82C1PROD with RULES
Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 43983 

the MMSEA to provide a 3-year delay in 

the application of § 412.536 of the 

regulations, that is the 25 percent 

patient threshold payment adjustment 

to ‘‘* * * 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 Social Security 

Act at the off-campus location * * *,’’ 

as well as freestanding LTCHs. 

Additionally, section 4302(a)(2)(A) of 

the ARRA specifies that section 

114(c)(2) of the MMSEA, regarding the 

increase of the percentage threshold 

established by the regulations at 

§ 412.534, shall also apply to a hospital 

or satellite facility described in 

§ 412.22(h)(3)(i) of the regulations (that 

is, grandfathered satellites). (Section 

4302 of the ARRA is being implemented 

through the interim final rule with 

comment period in section XI. of this 

document.) These amendments to the 

MMSEA once again demonstrated 

Congress’ ability to act in a clear and 

deliberate manner in providing relief for 

particular categories of LTCHs and 

LTCH satellites while leaving other 

aspects of §§ 412.534 and 412.536 in 

place. 

For these reasons, we do not believe 

that a legislative proposal to Congress 

urging further expansion of either the 3- 

year delay in implementation or the 3- 

year increase in the percentage 

threshold is either necessary or 

appropriate. Furthermore, at present, we 

do not believe that the MMSEA policy 

changes or the ARRA amendments 

constitute an additional administrative 

burden for us. In response to the 

commenters’ recommendations that 

both §§ 412.534 and 412.536 be retired 

once LTCH criteria are established, we 

are not considering such an action at 

this time. As noted above, the study on 

‘‘the establishment of national long-term 

care hospital facility and patient criteria 

* * *’’ and the resulting report to 

Congress required by section 114(b) of 

the MMSEA is presently under way by 

our Office of Research, Development, 

and Information. 

Finally, with regard to the suggestion 

that once the 3-year exemption from 

§§ 412.534 and 412.536 sunsets, that we 

reinstate the 3-year transition period to 

the full 25 percent threshold payment 

adjustment for freestanding LTCHs and 

‘‘grandfathered’’ LTCH HwHs, we 

would note that we typically provide 

phase-ins or transitions to the full 

implementation of new or revised 

payment policies in order to give 

providers more time than the 60-day (or 

in some cases, 30-day) period between 

publication of our final rule and the 

implementation date of the new policies 

in order to fully understand them and 

to make whatever administrative and 

financial adjustments that are required. 

‘‘Freestanding’’ LTCHs and 

‘‘grandfathered’’ LTCH HwHs have had 

notice of our policies at § 412.534(h) 

and § 412.536 of the regulations since 

they were implemented for cost 

reporting periods beginning on or after 

July 1, 2007. Despite the fact that these 

policies were suspended for these types 

of LTCHs until cost reporting periods 

beginning on or after July 1, 2010 

(resulting from the amendments made 

by section 4302(a)(1)(B) of the ARRA to 

section 114(c)(1) of the MMSEA), the 

LTCH industry has full knowledge and 

understanding of the percentage 

threshold payment adjustment. 

Therefore, we do not intend to propose 

such an action as we do not believe it 

is either necessary or appropriate. 

Comment: Two commenters asserted 

that we incorrectly interpreted the 

increase in percentage thresholds for 

LTCHs or LTCH satellites co-located 

with MSA-dominant hospitals in 

section 114(c)(2)(A) of the MMSEA. The 

commenters argued that the statute sets 

the threshold percentage at 75 percent, 

but that under the policy that we set 

forth in the May 22, 2008 interim final 

rule with comment period, we inserted 

the 75 percent specified by the statute 

into the existing payment formula for 

LTCHs or LTCH satellites co-located 

with MSA-dominant hospitals in the 

regulations at § 412.534. In the interim 

final rule with comment period, we 

revised § 412.534(e)(2)(ii), which stated: 

‘‘(ii) Payments for long-term care 

hospitals and long-term care hospital 

satellite facilities subject to paragraph 

(g) of this section are determined using 

the methodology specified in paragraph 

(e)(1) of this section except that 75 

percent is substituted for 50 percent.’’ 

The methodology for setting the 

threshold for LTCHs HwHs or LTCH 

satellites co-located with MSAdominant hospitals, as set forth in the 

regulations at § 412.534(e)(1), states, in 

pertinent part: 

‘‘(ii) For purposes of paragraph 

(e)(1)(i) of this paragraph, the percentage 

used is the percentage of total Medicare 

discharges in the Metropolitan 

Statistical Area in which the hospital is 

located that are from the co-located 

hospital for the cost reporting period for 

which the adjustment was made, but in 

no case is less than 25 percent or more 

than 50 percent.’’ 

The commenters urged us to revisit 

our interpretation of section 114(c)(2)(A) 

of the MMSEA and to revise our 

regulations at § 412.534(e)(1)(ii) 

accordingly. 

Response: We agree with the 

commenters’ reading of the statute. The 

way in which we revised the regulations 

would appear to indicate that 

establishing the appropriate percentage 

threshold for LTCHs HwH or LTCH 

satellites co-located with a MSAdominant hospitals set by the regulatory 

language at § 412.534 (e)(2)(ii) of the 

regulations referencing (e)(1)(ii) after the 

enactment of the MMSEA, would be 

based on the percentage ‘‘* * * of total 

Medicare discharges in the Metropolitan 

Statistical Area in which the hospital is 

located that are from the co-located 

hospital for the cost reporting period for 

which the adjustment was made, but in 

no case is less than 25 percent or more 

than 50 percent.’’ We agree that the 

section 114(c)(2)(A) of the MMSEA 

establishes the threshold for such LTCH 

facilities at 75 percent for 3-years, and 

we are making an appropriate technical 

correction to the regulations at 

§ 412.534(e)(2)(ii). (We also note that 

section 4302(a)(2)(B) of the ARRA, 

discussed in our interim final rule with 

comment period in section XI. of this 

document, modified the effective date of 

this provision from cost reporting 

periods beginning on or after December 

29, 2007, to cost reporting periods 

beginning on or after October 1, 2007, or 

July 1, 2007 in the case of satellite 

facilities described in § 412.22(h)(3)(i) of 

the regulations, that is grandfathered 

satellite facilities.) 

Comment: Two commenters 

challenged our interpretation of section 

114(c)(1)(A) of the MMSEA, which 

suspends the application of the 

percentage threshold payment 

adjustment at § 412.536 of the 

regulations (or any similar provision) to 

‘‘freestanding’’ LTCHs for 3 years. The 

commenters asserted that this provision 

should also apply to discharges from 

LTCHs and LTCH satellites that were 

admitted from hospitals which are colocated with another LTCH or LTCH 

satellite. One commenter additionally 

rejects ‘‘CMS’ assertion’’ that a LTCH 

located on a different campus from a 

referring hospital is functioning as a 

step-down unit. This commenter argues 

that our regulations at § 412.534 were 

directed at movement of patients 

between co-located LTCHs admitted 

from their host hospitals and our 

regulations at § 412.536 were developed 

to address the relationship between 

LTCH hospitals that were 

‘‘freestanding’’ and their referring 

hospitals. This commenter additionally 

rejects ‘‘CMS’ assertion’’ that a LTCH 

located on a different campus from a 

referring hospital can function as ‘‘a 


sroberts on DSKD5P82C1PROD with RULES
43984 Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 

step-down unit’’ of the referring 

hospital. One of the commenters 

requested that even if CMS does not 

exempt LTCH facilities co-located with 

a different host from the regulations at 

§ 412.536 for 3 years, that CMS include 

LTCHs that are located on hospital 

campuses where there is no inpatient 

acute care hospital in the 3-year 

exemption from the regulations under 

§ 412.536. Another commenter urged 

CMS to revisit our definition of 

‘‘freestanding’’ at § 412.23(e)(5) of our 

regulations so that a LTCH or LTCH 

satellite that was co-located with a 

provider that did not offer inpatient care 

in the building or campus where the 

LTCH was located, could still be 

considered ‘‘freestanding’’, and 

therefore, covered by the 3-year 

exemption from the regulations at 

§ 412.536, maintaining that this was 

Congress’ intent in section 114(c)(1)(A) 

of the MMSEA. 

Response: We disagree with the 

commenters’ assertion that LTCH HwHs 

that are co-located with another 

hospital, as defined in our regulations at 

§ 412.22(e) should be considered 

‘‘freestanding’’ regarding patients 

admitted from referring hospitals with 

which they are not co-located. We 

believe that our existing regulations at 

§ 412.22(e) which identify a HwH as 

‘‘* * * a hospital that occupies space in 

a building also used by another hospital, 

or in one or more separate buildings 

located on the same campus as 

buildings used by another hospital 

* * *’’ are clear and unambiguous. 

Section 114(c)(1)(A) of the MMSEA is 

directed at ‘‘freestanding long-term care 

hospitals,’’ and is equally clear and 

unambiguous. Although we initially 

focused on the movement of patients 

between ‘‘host’’ acute care hospitals and 

the co-located LTCH HwHs or satellites 

when we implemented the regulations 

at § 412.534 in the FY 2005 IPPS final 

rule (69 FR 48916), a comment that we 

received from MedPAC at that time, 

discussed previously in this section, 

identified similar problems between 

acute care hospitals and LTCHs with 

which they were not co-located (69 FR 

49211). 

We first expressed our concerns in the 

RY 2006 LTCH PPS final rule (71 FR 

27798) that some LTCHs and referring 

hospitals (typically, acute care 

hospitals) with which they were not colocated had ‘‘arrangements’’ that, in 

effect, allowed both facilities to benefit 

financially from an early acute care 

discharge and admission to the LTCH. 

We recognized that these 

‘‘arrangements’’ were strikingly similar 

to what we knew occurred between a 

‘‘host’’ acute care hospital and its onsite LTCH, that is, as a step-down unit 

(71 FR 27878). At that time, we noted 

that we ‘‘* * * had become increasingly 

aware that the intent of our existing 

policy is being thwarted by creative 

patient-shifting in some communities 

where there is more than one LTCH 

HwH or LTCH satellite. We have come 

to understand, based upon specific 

inquiries from LTCHs, and their 

attorneys or agents, and also from 

questions posed by our fiscal 

intermediaries (FIs), that some host 

hospitals within the same community 

are arranging to cross-refer to another’s 

co-located LTCH * * *.’’ (71 FR 27878). 

It was with these concerns in mind, that 

in the RY 2008 LTCH PPS proposed and 

final rules, our preamble discussion was 

entitled ‘‘Expansion of Special Payment 

Provisions for LTCH Hospitals Within 

Hospitals (HwHs) and LTCH Satellites: 

Expansion of the 25 Percent Rule to 

Certain Situations Not Currently 

Covered Under Existing § 412.534’’ (72 

FR 4809; 72 FR 26919). Furthermore, 

when we developed our regulation at 

§ 412.536 in the RY 2007 LTCH PPS 

final rule (72 FR 26870), we entitled the 

regulation, ‘‘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.’’ Clearly, it was 

always our intention for § 412.536 to 

apply the percentage threshold payment 

adjustment to patient shifting between 

LTCHs and LTCH satellites and 

referring hospitals with which they 

were not co-located, a fact that further 

supports our implementation of section 

114(c)(1) of the MMSEA. 

In response to the commenter who 

requested that even if we were not 

willing to exempt LTCHs co-located 

with a different host from the 

percentage threshold payment 

adjustment at § 412.536, we should 

include co-located LTCHs that are 

situated on hospital campuses where 

there is no inpatient acute care hospital 

in the 3-year exemption from regulation 

under § 412.536, we would note section 

4302(a)(1)(C) of the ARRA addressed 

this concern and amended section 

114(c)(1)(A) of the MMSEA to specify 

that LTCHs and LTCH satellites meeting 

this description be exempted from the 

percentage threshold payment 

adjustment at § 412.536 or any similar 

provision. (We discuss this provision in 

the interim final rule with comment 

period for section 4203 of the ARRA, in 

section XI. of this document.) 

Finally, in response to the commenter 

that urged us to revisit our definition of 

‘‘freestanding’’ at § 412.23(e)(5) so that a 

LTCH or LTCH satellite facility that was 

co-located with a provider that did not 

offer inpatient care in the building or 

campus where the LTCH was located, 

could still be considered ‘‘freestanding,’’ 

so that it would be exempted from 

compliance with § 412.536, we would 

note that such a change would directly 

contradict our long-standing, existing 

definitions of HwHs and satellites at 

§ 412.22(e) and § 412.22(h), respectively. 

At § 412.22(e), we define a HwH as 

‘‘* * * a hospital that occupies space in 

a building also used by another hospital, 

or in one or more separate buildings 

located on the same campus as 

buildings used by another hospital 

* * *’’ At § 412.22(h),we define a 

satellite as ‘‘* * * a part of a hospital 

that provides inpatient services in a 

building also used by another hospital, 

or in one or more entire buildings 

located on the same campus as 

buildings used by another hospital.’’ 

Neither of these definitions limits the 

buildings with which a HwH or a 

satellite is co-located to solely providing 

inpatient services. 

When Congress enacted the ARRA, it 

amended section 114(a)(1)(A) of the 

MMSEA to delay the application of the 

percentage threshold payment 

adjustments at §§ 412.534 and 412.536 

to certain LTCHs for 3-years. 

Specifically, at section 4302(a)(1)(C), the 

statute includes the following type of 

facility: ‘‘* * *. a LTCH 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 Social Security Act at the 

off-campus location * * *’’ The statute 

expressly targets ‘‘services payable 

under section 1886(d) of the Act,’’ not 

‘‘inpatient services,’’ in general and the 

plain language of the statute does not 

indicate that such a LTCH or satellite 

facility would be considered 

‘‘freestanding.’’ Rather, the amendment 

identifies another category of LTCH or 

satellite facility that would be exempt 

from the percentage threshold payment 

adjustment for 3 years. Therefore, we 

believe that, in amending section 

114(c)(1)(A) of the MMSEA through 

section 4302(a)(1)(C) of the ARRA, 

Congress expanded the 3-year 

exemption from the percentage 

threshold payment adjustment to a 

narrow category of LTCHs, while still 

maintaining the policy for LTCHs 

otherwise meeting the definition of 

either a HwH at § 412.22(e) or a satellite 

at § 412.22(h) of the regulations. 

Because Congress did not further 


sroberts on DSKD5P82C1PROD with RULES
Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 43985 

expand this exemption by way of 

statutory amendment, we do not believe 

that it would be appropriate for us to do 

so through the regulatory process. 

Comment: Several commenters 

requested guidance regarding the 

procedures that CMS has in place to 

implement the changes to the 

percentage threshold payment 

adjustment required by the MMSEA. In 

particular, some of these commenters 

asked how CMS would recommend that 

they get information regarding the 

discharge percentages of MSA-dominant 

referring hospitals if the LTCH is 

serviced by a different fiscal 

intermediary/MAC than the referring 

hospital. 

Response: We have provided our 

fiscal intermediaries/MACs with 

guidance on the actual implementation 

of this payment adjustment, which takes 

place upon cost report settlement, when 

all of the LTCHs data from a particular 

cost reporting period has been 

submitted and is being evaluated. 

Regarding the question of how a LTCH 

or satellite can acquire information 

about its MSA-dominant referring 

hospital’s ‘‘market share’’ of Medicare 

patients if the facilities are serviced by 

a different fiscal intermediary/MAC, we 

have been informed that portals to 

communicate this figure, and much 

more, are typically open on an ongoing 

basis among hospitals that have referral 

arrangements, and therefore, we would 

encourage the sharing of such 

information for the benefit of both the 

discharging and the admitting hospitals. 

In compliance with section 114(c) of 

the MMSEA and section 4302 of the 

ARRA, we have revised §§ 412.534 and 

412.536 of the regulations to implement 

the 3-year delay in the application of the 

percentage patient threshold payment 

adjustment to ‘‘freestanding and 

grandfathered LTCHs’’ and the 3-year 

revision in the percentage payment 

thresholds adjustments for ‘‘applicable’’ 

LTCHs and satellite facilities. We have 

also revised the regulations at 

§ 412.534(b) in order to clarify the 

effective dates of the percentage patient 

threshold policy for discharges from a 

LTCH HwH or from a LTCH satellite 

that were admitted from the hospital 

with which it is co-located. 

We are finalizing the regulatory 

changes made in the May 22, 2008 

interim final rule with comment period 

at §§ 412.534 and 412.536, which 

implemented the provisions of section 

114(c) of the MMSEA that were 

otherwise unchanged by section 4302 of 

the ARRA. We also are implementing 

section 4302 of the ARRA through an 

interim final rule with comment period 

in section XI. of this document. 

E. May 22, 2008 Interim Final Rule With 

Comment Period Implementing Section 

114(d) of the MMSEA Regarding 

Moratorium on the Establishment of 

LTCHs, LTCH Satellite Facilities, and on 

the Increase in Number of Beds in 

Existing LTCHs or LTCH Satellite 

Facilities 

1. Background 

Section 114(d) of the MMSEA 

provides a 3-year moratorium with two 

distinct aspects, one regarding the 

establishment of new LTCHs and LTCH 

satellite facilities, and the other 

regarding the increase of hospital beds 

in existing LTCHs and LTCH satellite 

facilities. Specifically, section 

114(d)(1)(A) of the MMSEA provides 

that the Secretary shall impose a 

moratorium ‘‘subject to paragraph (2), 

on the establishment and classification 

of a long-term care hospital or satellite 

facility, other than an existing long-term 

care hospital or facility.’’ Section 

114(d)(1)(B) of the MMSEA provides 

that, the Secretary shall impose a 

moratorium ‘‘subject to paragraph (3), 

on an increase of long-term care hospital 

beds in existing long-term care hospitals 

or satellite facilities.’’ 

Sections 114(d)(2) and (d)(3) of the 

MMSEA provide for exceptions to both 

moratoria imposed by section 114(d)(1) 

of the MMSEA. The three exceptions 

specified in section 114(d)(2) of the 

MMSEA apply exclusively to the 

establishment and classification of 

certain LTCHs or LTCH satellite 

facilities while the exception at section 

114(d)(3)(A) of the MMSEA only applies 

to the moratorium on increases in beds 

at certain existing LTCHs or LTCH 

satellites facilities. In the May 22, 2008 

interim final rule with comment period, 

we implemented section 114(d) of the 

MMSEA. 

Section 4302(b) of the ARRA 

amended section 114(d)(3)(A) of the 

MMSEA to establish an additional 

exception to the moratorium on 

increases in beds at LTCHs and LTCH 

satellite facilities at section 114(d)(3)(A) 

by stating that ‘‘* * * if the hospital or 

facility obtained a certificate of need for 

an increase in beds that is in a State for 

which certificate of need is required and 

that was issued on or after April 1, 2005, 

and before December 29, 2007’’. This 

additional exception is being 

implemented through the interim final 

rule with comment period that is found 

in section XI. of this document. 

2. Provisions of the May 22, 2008 

Interim Final Rule With Comment 

Period Implementing Section 114(d) of 

the MMSEA That Established Moratoria 

on New LTCHs and LTCH Satellite 

Facilities and on Bed Increases in 

Existing LTCHs and LTCH Satellite 

Facilities 

Section 114(d)(1)(A) of the MMSEA 

provides for a 3-year moratorium 

effective beginning on the date of 

enactment of the MMSEA, December 29, 

2007, through December 28, 2010, on 

the establishment and classification of a 

long-term care hospital or satellite 

facility, other than an existing LTCH or 

facility. (The term ‘‘existing,’’ with 

respect to a hospital or satellite facility, 

is defined in section 114(d)(4) of the 

MMSEA as ‘‘a hospital or satellite 

facility that received payment under the 

provisions of subpart O of part 412 of 

title 42, Code of Federal Regulations, as 

of the date of the enactment of this 

Act.’’) Section 114(d)(2) of the MMSEA 

specified that the moratorium on the 

establishment and classification of a 

LTCH or LTCH satellite facility does not 

apply to a LTCH that, as of December 

29, 2007, met one of the following three 

exceptions: 

• The LTCH began ‘‘its qualifying 

period for payment as a long-term care 

hospital under section 412.23(e) of title 

42, Code of Federal regulations, on or 

before the date of enactment of this Act’’ 

(section 114(d)(2)(A) of the MMSEA). 

• The LTCH has a binding written 

agreement with an outside, unrelated 

party for the actual construction, 

renovation, lease, or demolition for a 

LTCH and has expended before 

December 29, 2007, at least 10 percent 

of the estimated cost of the project or, 

if less, $2,500,000 (section 114(d)(2)(B) 

of the MMSEA). 

• The LTCH has obtained an 

approved certificate of need in a State 

where one is required on or before 

December 29, 2007 (section 114(d)(2)(C) 

of the MMSEA). 

In the May 22, 2008 interim final rule 

with comment period, we noted that in 

implementing the provisions of section 

114(d) of the MMSEA, we found that, in 

light of the unique nature of LTCHs as 

a category of Medicare providers, some 

of the terminology in the provision was 

internally inconsistent. Therefore, in 

that interim final rule with comment 

period, we included a comprehensive 

description of inconsistent terminology 

and our interpretations of the provisions 

in a way we believed reasonably 

reconciled seemingly inconsistent 

provisions and that resulted in an 

application of the provisions that is 

logical and workable and we would 


sroberts on DSKD5P82C1PROD with RULES
43986 Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 

direct the reader to that discussion (73 

FR 29705). 

The first exception to the moratorium 

at section 114(d)(2)(A) of the MMSEA 

addressed the circumstance of an 

existing hospital that was already in its 

qualifying period for LTCH designation, 

as governed by our regulations at 

§ 412.23(e) on or before December 29, 

2007 (73 FR 29705). 

At section 114(d)(2)(B) of the 

MMSEA, a second exception to the 

moratorium was made for a long-term 

care hospital that, as of the date of the 

enactment of the MMSEA (December 29, 

2007), satisfied the two prongs of the 

exception: (1) it has a binding written 

agreement with an outside, unrelated 

party for the actual construction, 

renovation, lease, or demolition for a 

long-term care hospital; and (2) it has 

expended, before the date of enactment 

of this Act, at least 10 percent of the 

estimated cost of the project (or, if less, 

$2,500,000).’’ 

In the May 22, 2008 interim final rule 

with comment period, we implemented 

this provision in the following manner: 

With regard to the first prong, we 

believe that the use of the term ‘‘actual’’ 

in the context of the, ‘‘actual 

construction, renovation, lease, or 

demolition,’’ indicates that the 

provision focused only on the specific 

accomplishments cited in the MMSEA 

and did not include those that were 

contemplated or had not yet been 

executed. We noted that, although we 

were aware that a hospital or entity 

could have entered into binding written 

agreements regarding services and items 

(for example, feasibility studies or land 

purchase) and incur costs for those 

services and items prior to actual 

construction, renovation, lease or 

demolition, Congress did not include 

those services or items in the statute as 

a basis for the exception (73 FR 29706). 

With respect to the second prong, we 

understood the statute to specify that 

the hospital or entity must have 

expended before December 29, 2007, at 

least 10 percent of the estimated cost of 

the project (or, if less, $2.5 million). By 

‘‘cost of the project,’’ we believe the 

statute refers to the activities 

enumerated in the first prong: ‘‘The 

actual construction, renovation, lease, or 

demolition for a long-term care 

hospital.’’ The statute requires that the 

hospital or entity spend the amount 

specified in the statute on the actual 

construction, renovation, lease, or 

demolition for the contemplated LTCH. 

Furthermore, because the statute uses 

the phrase ‘‘has expended’’ we believe 

that the statute required that a hospital 

or entity would have actually 

transferred funds as payment for the 

project as opposed to merely obligating 

capital and posting the cost of the 

project on its books as of December 29, 

2007. We believe that the provision 

addressed the concept of ‘‘obligate’’ in 

the first prong of the test where the 

statute specifies ‘‘a binding written 

agreement * * * for the actual 

construction, renovation, lease, or 

demolition of the long-term care 

hospital* * *’’ and there is no reason to 

believe that the second prong of the test, 

which requires the ‘‘expenditure’’ of 10 

percent of the project or if less, 

$2,500,000, was intended as a 

redundancy. We noted that the ability to 

post the expense on the hospital’s or 

entity’s books could be satisfied by 

merely having a binding written 

agreement under the first prong of 

section 114(d)(2)(B) of the MMSEA. The 

fact that a second requirement was 

included that involved an expenditure 

indicated to us that an additional 

threshold had to be met. 

Finally, in the May 22, 2008 interim 

final rule with comment period, we 

stated that we believed that section 

114(d)(2)(C) of the MMSEA provided an 

exception for a long-term care hospital 

that, as of the date of the enactment of 

the MMSEA, ‘‘has obtained an approved 

certificate of need, in a State where one 

is required, on or before the date of the 

enactment of this Act.’’ We do not 

believe that the provision limited the 

exception to only an existing long-term 

care hospital that had obtained an 

approved certificate of need to create a 

new satellite of the LTCH. We noted 

that in many instances, prior to being 

classified as a LTCH, a hospital is built 

by an entity with the express intention 

of making it into a LTCH as soon as 

possible. In those instances, it is not 

uncommon for the entity to obtain a 

certificate of need from the State prior 

to the development of the hospital (73 

FR 29706). 

We understood the certificate of need 

exception to apply to a hospital or entity 

that was actively engaged in developing 

a LTCH, as evidenced by the fact that 

either an entity that wanted to create a 

LTCH but did not exist as a hospital as 

of December 29, 2007, had obtained a 

certificate of need for a hospital by the 

date of enactment, or that an existing 

hospital had obtained a certificate of 

need to convert the hospital into a new 

LTCH by that date. However, this 

exception would not apply to a hospital 

that was already in existence prior to 

the date of enactment and that had 

previously obtained an approved 

certificate of need for a hospital (other 

than a LTCH) on or before December 29, 

2007. The fact that a hospital may have 

had a certificate of need issued to it 

years before December 29, 2007, to 

operate a hospital (other than a LTCH) 

would not be a reason to grant it an 

exception, unless that certificate of need 

was specifically for a LTCH. Since the 

certificate of need process is controlled 

at the State level, in determining 

whether the hospital or entity has 

obtained an approved certificate of need 

on or before December 29, 2007, we 

stated that we would look to the State 

for that determination (73 FR 29706). 

3. Public Comments Received on the 

May 22, 2008 Interim Final Rule With 

Comment Period Provisions 

Implementing the Exception to the 

Moratorium on the Increase in Number 

of LTCHs Beds in Existing LTCHs and 

LTCH Satellite Facilities 

In the May 22, 2008 interim final rule 

with comment period, we implemented 

section 114(d)(1)(B) of the MMSEA, 

which imposed a moratorium on 

existing LTCHs or LTCH satellite 

facilities for the 3-year period beginning 

December 29, 2007, through December 

28, 2010. The moratorium was on an 

increase of LTCH beds in existing 

LTCHs or LTCH satellite facilities. 

Therefore, during the 3-year 

moratorium, an existing LTCH or LTCH 

satellite facility would not be able to 

increase the number of beds in excess of 

the number of Medicare-certified beds at 

the hospital on December 29, 2007. 

Section 114(d)(3) of the MMSEA 

provided one exception to the 

moratorium on an increase of beds. 

Specifically, section 114(d)(3)(A) of the 

MMSEA states that the moratorium on 

an increase in beds shall not apply if an 

existing LTCH or LTCH satellite facility 

is ‘‘located in a State where there is only 

one other long-term care hospital; and 

requests an increase in beds following 

the closure or the decrease in the 

number of beds of another long-term 

care hospital in the State.’’ 

Section 114(d)(3)(B) of the MMSEA 

also specified that the exception to the 

moratorium on the increase in bed 

numbers for existing LTCHs or LTCH 

satellite facilities did not apply to the 

existing limit on the number of beds in 

‘‘grandfathered’’ LTCH HwHs as 

specified at § 412.22(f), and LTCH 

satellite facilities, as specified at 

§ 412.22(h)(3) of the regulations. Under 

§ 412.22(f) and § 412.22(h)(3), 

respectively, ‘‘grandfathered’’ LTCH 

HwHs and LTCH satellite facilities, (that 

is, HwHs that were in existence on or 

before September 30, 1995, and LTCH 

satellite facilities that were in existence 

on or before September 30, 1999, and 

that meet certain specified conditions) 

are exempted from compliance with 

‘‘separateness and control’’ policies as 


sroberts on DSKD5P82C1PROD with RULES
Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 43987 

long as they do not increase their bed 

numbers. (See the FY 2007 IPPS final 

rule (71 FR 48106 through 48115).) 

Therefore, even if a ‘‘grandfathered’’ 

LTCH HwH or LTCH satellite facility 

was located in a State where there was 

only one other LTCH and it requests an 

increase in beds following the closure or 

the decrease in the number of beds of 

another long-term care hospital in the 

State, it would not be able to maintain 

its grandfathered status if it would 

increase the number of beds at the 

LTCH under this exception. 

We noted in the May 22, 2008 interim 

final rule with comment period that 

decisions regarding whether a specific 

situation would be considered to meet 

the exceptions to the establishment and 

classification of new LTCHs or new 

LTCH satellite facilities or the 

exceptions on increasing the number of 

beds in existing LTCHs or LTCH 

satellite facilities will be made on a 

case-by-case basis by the applicant’s 

fiscal intermediary/MAC and the CMS 

Regional Office (RO). After the 

publication of the May 22, 2008 interim 

final rule with comment period, we 

issued specific instructions on 

implementing the moratorium in the 

form of memoranda to State Survey 

Agency Directors, CMS ROs, and fiscal 

intermediaries/MACs, the policy was 

added to the manual in Pub. 100–20 as 

change request (CR) 6172, and we 

provided specific policy interpretations 

and guidance to the regional offices. 

As discussed more fully in section XI. 

of this document, section 4302(b) of the 

ARRA amended section 114(d)(3)(A) of 

the MMSEA by establishing an 

additional exception to the moratorium 

on the increase in beds at certain LTCHs 

and LTCH satellites. Specifically, this 

exception allows an existing LTCH to 

expand the number of beds at the 

hospital or satellite facility if it had 

obtained a certificate of need (CON) for 

an increase in beds in a State for which 

such a certificate of need is required and 

that was issued on or after April 1, 2005, 

and before December 29, 2007. This 

additional exception is being 

implemented through the interim final 

rule with comment period in section XI. 

of this document by amending 

§ 412.23(e)(7) of the regulations. 

Accordingly, we will not address those 

comments that urged us to establish this 

exception through regulation. 

In the May 22, 2008 interim final rule 

with comment period, we revised our 

regulations at § 412.23 to include a 

description of the moratorium on the 

establishment of new LTCHs and LTCH 

satellites and the moratorium on 

increasing the number of beds in 

existing LTCHs and existing LTCH 

satellites and statutory exceptions at 

§§ 412.23(e)(5) and (e)(6). Additionally, 

in § 412.23(e)(5), we defined a 

freestanding LTCH. 

Comment: Two commenters requested 

that CMS clarify its interpretation of 

section 114(d)(2)(C) of the MMSEA, 

which allowed the CON exception to 

apply to the development of a satellite. 

The particular circumstance described 

by the commenters involved issues of 

relocation of a planned satellite, for 

which a CON had been issued prior to 

December 29, 2007, but the planned 

host hospital had since been closed. 

Since the original CON had been issued 

prior to the enactment of the MMSEA, 

the commenters asked for an advance 

determination to allow the development 

of the planned satellite located in a 

hospital that has not as yet been 

determined. 

Response: In the May 22, 2008 interim 

final rule with comment period, 

regarding the CON exception for the 

establishment of new LTCHs and LTCH 

satellites we stated ‘‘[s]ince the 

certificate of need process is controlled 

at the State level, in determining 

whether the hospital or entity has 

obtained an approved certificate of need 

on or before December 29, 2007, we will 

look to the State for that determination’’ 

(73 FR 29706). Regarding the specific 

situation presented by the commenters, 

we would note that when we were first 

made aware of this problem, we were in 

contact with the State agency and were 

informed that the LTCH that had 

obtained the CON for the planned 

satellite had not yet found a new ‘‘host’’ 

for its planned satellite. We have 

evaluated the situation that the 

commenters described in concert with 

the State agency responsible for issuing 

the CON and have instructed State 

agencies that if a CON has been 

modified, revised, amended or 

otherwise altered, the State Survey 

Agency would need to indicate to CMS 

whether it considered this modified, 

revised, amended or otherwise altered 

CON to be the ‘‘same’’ CON for purposes 

of meeting the requirements for the 

exception to the moratorium. The CMS 

RO will review and evaluate the CON 

documentation and determine whether 

it qualifies for the exception. 

Comment: Two commenters endorsed 

CMS’ interpretation of the statutory 

language in section 114(d) of the 

MMSEA, which included applying the 

provisions of the section to satellite 

facilities and/or to ‘‘an entity that will 

develop a hospital that will ultimately 

become a LTCH.’’ 

Response: We thank the commenters 

for their support. 

Comment: One commenter stated that 

the exception to the moratorium 

stipulated in section 114(d)(2)(A) of the 

MMSEA for a LTCH in ‘‘ * * * 

qualifying period for payment under 

section 412.23(e) * * * on or before the 

date of enactment of this Act’’ should be 

extended to include satellite facilities if 

it can be demonstrated that the satellite 

was under development prior to 

December 29, 2007. 

Response: The exception to the 

moratorium specified at section 

114(d)(2)(A) of the MMSEA is not 

applicable to a LTCH satellite because 

there is no qualifying period for the 

establishment of a satellite (73 FR 

29705). Although there are delineated 

requirements that a LTCH must meet 

regarding the establishment of a satellite 

at § 412.22(h)(2) of the regulations, the 

‘‘qualifying period’’ for a LTCH, is 

established in our regulations at 

§ 412.23(e). Specifically, in order for to 

be designated as a LTCH, a facility must 

have a ‘‘provider agreement under Part 

489 [of the Medicare regulations] to 

participate as a hospital’’ and the 

hospital must have a Medicare average 

length of stay greater than 25 days based 

on data for the hospital’s most recent 

complete cost report. Once length of 

stay data are submitted to the hospital’s 

fiscal intermediary or MAC and verified, 

(unless the hospital is co-located with 

another hospital, and then it must also 

meet the HwH criteria at § 412.22(e) of 

the regulations), it will be designated as 

a LTCH and paid under the LTCH PPS 

beginning with its next cost reporting 

period. The period of time beginning 

when a hospital begins participation in 

the Medicare program as a hospital and 

when it is designated as an LTCH is the 

‘‘qualifying’’ period. A LTCH (or other 

excluded hospital) may establish a 

satellite if it demonstrates to its fiscal 

intermediary/MAC that it 

independently meets the regulatory 

requirements for the provider-type of 

the hospital of which it is a part at 

§ 412.22(h)(ii) and also meets the 

separateness and control requirements 

set forth in § 412.22(h)(iii). Because the 

LTCH of which the satellite is a part has 

met the regulatory requirements at 

§ 412.23(e), there would be no 

‘‘qualifying period’’ for a LTCH satellite. 

A new LTCH satellite, however, could 

qualify for an exception to the 

moratorium if it meets either of the 

exceptions established at section 

114(d)(2)(B) or section 114(d)(2)(C) of 

the MMSEA and implemented in our 

regulations at §§ 412.23(e)(6)(ii)(B) and 

412.23(e)(6)(ii)(C), respectively. Either 

of these exceptions could be applicable 

to a LTCH satellite. The regulations at 

§ 412.23(e)(6)(ii)(B) specify that the 


sroberts on DSKD5P82C1PROD with RULES
43988 Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 

moratorium is not applicable if on or 

before December 29, 2007, the LTCH 

‘‘[h]as a binding written agreement with 

an outside, unrelated party for the 

actual construction, renovation, lease or 

demolition for a long-term care hospital; 

and [h]as expended, before December 

29, 2007, at least 10 percent (or, if less, 

$2.5 million) of the estimated cost of the 

project specified in paragraph (ii)(B)(1) 

of this paragraph.’’ At 

§ 412.23(e)(6)(ii)(C) of our regulations, 

we specify that the moratorium is not 

applicable if on or before December 29, 

2007, the LTCH ‘‘[h]ad obtained an 

approved certificate of need from the 

State, when required by State law.’’ 

Therefore, although the ‘‘qualifying 

period’’ exception at section 

114(d)(2)(A) to the moratorium is not 

relevant to the development of a LTCH 

satellite, it is possible that a new 

satellite could be completed under the 

moratorium if either of the above 

described exceptions were met. 

Comment: Five commenters disagreed 

with CMS’ interpretation of section 

114(d)(2)(B) of the MMSEA. This 

section provides for an exception to the 

moratorium that specifies that the 

moratorium shall not apply to a LTCH 

(or satellite) that as of the date of 

enactment of the MMSEA (December 29, 

2007) ‘‘has a binding written agreement 

with an outside, unrelated party for the 

actual construction, renovation, lease, or 

demolition for a long-term care hospital, 

and has expended before the date of the 

enactment of this Act, at least 10 

percent of the estimated cost of the 

project (or if less, $2,500,000). * * *’’ 

Three commenters argued that the 

sentence structure indicates that the two 

prongs of this exception are separate 

and that the second prong is not 

dependent upon the first. Under their 

interpretation, the ‘‘binding contract’’ 

clause is entirely separate from the ‘‘has 

expended’’ clause. Furthermore, the 

commenters stated that when Congress 

chose the term ‘‘expended’’ to describe 

the level of financial commitment 

required on the ‘‘project’’ in order to 

meet the second prong’s test, the 

commenters believed that Congress 

meant to use the word ‘‘obligated.’’ 

Additionally, the five commenters 

stated that under their ‘‘correct’’ 

interpretation, Congress intended that 

the ‘‘* * * at least 10 percent of the 

estimated cost of the project (or, if less, 

$2,500,000)’’ refers to the entire costs of 

developing the planned LTCH, not the 

four activities specified in the first 

prong, that is, ‘‘the actual construction, 

renovation, lease, or demolition for a 

long-term care hospital * * *.’’ Several 

commenters argued that feasibility 

studies, land purchase, architectural 

fees, attorneys fees, appraisals, purchase 

of right-of-way, as well as other 

activities that occur during the 

development of a hospital, should be 

included in this definition. Several 

members of Congress urged CMS to 

extend the moratorium exceptions to 

several LTCHs in their districts that 

would otherwise not meet the second 

prong of the exception under our 

interpretation and note that opening 

these additional LTCHs is in the public 

interest. Two hospitals in a partnership 

to develop a LTCH and their 

Congressional representatives stated 

that, unless CMS revises its 

interpretation to include the purchase of 

land, these partnered hospitals would 

be subject to a great financial burden 

and their community would be deprived 

of a needed service. 

Response: We continue to believe that 

our interpretation of section 114(d)(2)(B) 

of the MMSEA, as implemented in the 

May 22, 2008 interim final rule with 

comment period, accurately implements 

the statute in establishing an exception 

to the moratorium on new LTCHs and 

satellites. The policy takes into 

consideration, as of the date of 

enactment of the statute, the ‘‘actual’’ 

level of financial expenditures on the 

four specific, verifiable activities taken 

in preparation of the development of a 

LTCH or satellite that are cited in the 

statute. This exception states that the 

moratorium shall not apply to ‘‘a longterm care hospital that as of the date of 

the enactment of this Act—* * *. (B) 

has a binding written agreement with an 

outside, unrelated party for the actual 

construction, renovation, lease, or 

demolition for a long-term care hospital, 

and has expended, before the date of the 

enactment of this Act, at least 10 

percent of the estimated cost of the 

project (or, if less, $2,500,000).* * *’’ 

We described this exception in the 

May 22, 2008 interim final rule with 

comment period, as having two prongs. 

The first prong is the clause prior to the 

‘‘and,’’ that is, the ‘‘binding written 

agreement with an outside, unrelated 

party for the ‘actual’ construction, 

renovation, lease, or demolition * * *.’’ 

The second prong is the ‘‘has 

expended’’ clause and its limit, 

following the term ‘‘and.’’ We disagree 

with the commenters’ assertions that in 

the second prong the ‘‘has expended’’ 

clause (following the ‘‘and’’ in the above 

statutory text) is separate from the first 

prong and not dependent upon it. The 

conjunctive ‘‘and’’ clearly makes 

meeting both prongs a requirement to 

qualify for this exception to the 

moratorium. We further disagree with 

the commenters’ hypothetical 

arguments that the ‘‘cost of the project’’ 

in the second prong does not refer to the 

cost of the four activities Congress 

specified in the first prong (‘‘actual 

construction, renovation, lease, or 

demolition * * *’’). 

We note again that Congress expressly 

specified only four ‘‘actual’’ activities in 

the statute. We also believe, as we stated 

in the May 22, 2008 interim final rule 

with comment period, that that the use 

of the term ‘‘actual’’ in the context of the 

phrase, ‘‘actual construction, 

renovation, lease, or demolition,’’ 

limited the activities that Congress 

considered to represent a significant 

benchmark in that particular project of 

developing a LTCH or a LTCH satellite 

facility. 

With respect to the second prong, we 

also continue to understand the statute 

to specify that the hospital or entity 

must have expended before December 

29, 2007, at least 10 percent of the 

estimated cost of the project (or, if less, 

$2,500,000). By ‘‘cost of the project,’’ we 

believe the statute refers to the activities 

enumerated in the first prong: ‘‘the 

actual construction, renovation, lease, or 

demolition for a long-term care 

hospital.’’ We believe the statute 

requires that the hospital or entity 

‘‘* * * has expended * * *;’’ the 

amount specified in the statute on the 

actual construction, renovation, lease, or 

demolition for the contemplated LTCH, 

not just that both prongs are met, with 

no intended interdependence. In other 

words, we believe that the two prongs 

of the exception at section 114(d)(2)(B) 

of the MMSEA are linked together, with 

the second clause detailing the 

conditions under which the first one 

would qualify. 

Furthermore, because the statute uses 

the phrase ‘‘has expended’’ we continue 

to believe, as we indicated in the May 

22, 2008 interim final rule with 

comment period, that the statute 

requires that a hospital or entity would 

have actually transferred funds as 

payment for the project as opposed to 

merely obligating capital and posting 

the cost of the project on its books as of 

December 29, 2007. As we noted, the 

ability to post the expense on the 

hospital’s or entity’s books could be 

satisfied by merely having a binding 

written agreement under the first prong 

of section 114(d)(2)(B) of the MMSEA. 

Had Congress allowed merely 

‘‘obligated’’ funds to be included in the 

calculation of the 10 percent of the 

estimated cost of the project (or, if less, 

$2,500,000) we believe that the term 

‘‘obligated’’ would have been chosen 

rather than the term ‘‘expended.’’ 

We understand the concerns 

expressed by several commenters, 


sroberts on DSKD5P82C1PROD with RULES
Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 43989 

including Congressional representatives, 

that our interpretation of the exception 

to the moratorium at section 

114(d)(2)(B) may cause hardship to 

LTCHs under development that could 

not meet the ‘‘expenditure’’ prong 

unless cost of the purchase of land is 

included. However, as explained earlier, 

we continue to believe the statute 

clearly indicates what costs may be 

included. Furthermore, we note that the 

ARRA made several changes to the 

language in section 114 of the MMSEA. 

If Congress intended that other costs, 

such as the cost of the land should be 

considered, it could have amended the 

MMSEA accordingly. 

Comment: One commenter urged 

CMS to use its discretion to authorize its 

fiscal intermediaries and MACs to 

evaluate and potentially approve other 

LTCH projects that do not fit perfectly 

within one of the enumerated 

exceptions to the moratorium but that 

‘‘meet the intent of the moratorium.’’ 

Response: When we implemented the 

moratorium provision in the May 22, 

2008 interim final rule with comment 

period, we noted that Congress was very 

specific in enumerating the conditions 

under which it granted exceptions to the 

moratorium on the development of new 

LTCHs and LTCH satellites and on the 

increase in the number of beds in 

existing LTCHs, in sections 114(d)(2) 

and (d)(3) of the MMSEA. The ARRA 

amended section 114(d)(3)(A) of the 

MMSEA, and established an additional 

CON exception for bed increases in 

LTCHs and LTCH satellites. (We discuss 

this amendment in detail in an interim 

final rule with comment period in 

section XI. of this document.) Congress 

made only the single change specified 

in the ARRA when it amended the 

moratorium provision in section 114(d) 

of the MMSEA. Because this was the 

sole change made by Congress in the 

exceptions to the moratorium 

established under section 114(d) of the 

MMSEA, we do not believe that it is 

appropriate for us to further interpret 

these exceptions through the regulatory 

process. 

Comment: Several commenters asked 

us to clarify what activities on the part 

of either an existing LTCH or an existing 

satellite would continue to be 

permissible under section 114(d)(1) of 

the MMSEA. Specifically, the 

commenters asked the following 

questions: (1) Is an existing LTCH or an 

existing satellite permitted to relocate; 

(2) may a LTCH under development that 

meets the moratorium exception at 

section 114(d)(2)(A), (B), or (C) undergo 

a change in ownership without 

imperiling the exception; (3) may an 

existing LTCH merge with another 

LTCH; (4) are two satellites of the same 

LTCH permitted to consolidate; (5) how 

does the moratorium affect a remote 

location of a LTCH; (6) is a LTCH 

permitted to reduce its bed numbers and 

open a remote location (not a satellite) 

with those beds so that there is no 

increase in bed numbers under the 

LTCH’s provider number; and (7) does 

the moratorium have any impact on the 

ability of a new IRF or IPF to co-locate 

with an existing LTCH without affecting 

its Medicare certification? 

Response: In response the 

commenters’ specific concerns 

regarding our implementation of section 

114(d) of the MMSEA, we will take this 

opportunity to set forth the policy 

determinations on permissible actions 

by LTCHs and satellites during the 

moratorium that we have given 

individually to a number of targeted 

inquiries from LTCHs, trade 

associations, consultants, and attorneys. 

Specifically, following the numbering of 

the questions in the comment above, our 

responses are below: 

(1) An existing LTCH or an existing 

LTCH satellite may relocate in 

accordance with State survey agency 

policies as long as there is no increase 

in the number of beds in the LTCH or 

in the satellite at the new site. For 

example, if the State surveyors would 

typically allow LTCH ‘‘A’’ with 100 

beds to move to a building 8 miles away 

and it maintains the same provider 

agreement, the moratorium would not 

preclude the re-opening of the 100 bed 

LTCH in the new location. However if 

the LTCH has a new provider agreement 

at the new location, it would be a new 

LTCH and therefore subject to the 

moratorium. 

(2) A new LTCH that meets one (or 

more of) the exceptions at sections 

114(d)(2)(A), (B) and (C) of the MMSEA, 

may undergo a change of ownership and 

may still qualify for the exception, if 

certain requirements are met. 

Specifically, if meeting the ‘‘qualifying 

period’’ exception at section 

114(d)(2)(A) of the MMSEA is the 

exception being claimed, a change of 

ownership where the new owner takes 

over the original provider agreement 

would not affect the hospital’s 

qualification for an exception. If the 

hospital or entity is claiming that it 

meets the exception set forth at section 

114(d)(2)(B), that is, that it has a 

‘‘binding written agreement * * * and 

* * * has expended * * * at least 10 

percent of the estimated cost of the 

project (or if less, $2,500,000) * * *,’’ 

but the developing entity was sold, 

eligibility for the exception can be 

granted to the original owner. However, 

a determination would be made by the 

CMS RO which initially granted the 

exception as to whether it is still the 

same LTCH or entity that would meet 

the requirements of section 114(c)(2)(B) 

of the MMSEA. Finally, if the hospital 

or entity that is developing the LTCH is 

basing its exception on section 

114(c)(2)(C) of the MMSEA, that is, that 

a CON was obtained in a State where 

one was required on or before December 

29, 2007, a determination would need to 

be made by the State Agency on 

whether the CON that was originally 

issued was transferable to a new owner 

or whether a new CON would be 

required in order to proceed. If a new 

CON is required, the hospital or entity 

would not meet the statutory December 

29, 2007 deadline and therefore, would 

not qualify for an exception to the 

moratorium. 

(3) We would apply CMS’ 

longstanding policy regarding hospital 

mergers so that the merger of two 

LTCHs would result in one LTCH’s 

provider number being voluntarily 

terminated and the other serving as the 

provider number for the new entity. The 

moratorium on the increase in hospital 

beds would apply to the sum of the beds 

that existed in both LTCHs as of 

December 29, 2007. This determination 

parallels our approach to determining 

appropriate caps on the number of 

residents under our GME payment 

adjustment when hospitals merge so 

that any additional statutory or 

regulatory limit on residency positions 

in the merged entity would be imposed 

on top of the sum of the positions that 

had been available in each hospital 

prior to the merger (64 FR 26329). 

(4) Two satellites of the same LTCH 

would not be permitted to consolidate 

during the 3-year moratorium. The 

reason for this is that the result of the 

satellites consolidating would be an 

increase in the number of beds in one 

satellite, which is precluded by section 

114(d)(1)(B) of the MMSEA. 

(5) Section 114(d) of the MMSEA does 

not subject remote locations of a LTCH 

to the moratorium, but we emphasize 

that it would be essential to determine 

that the facility in question is actually 

a ‘‘remote location’’ and not a satellite 

of a LTCH. If the ‘‘remote location’’ is 

located on the campus of another 

hospital, it is defined as a satellite, 

under § 412.22(h) of the regulations, 

and, therefore, subject to the 

moratorium. A remote location of a 

LTCH that was not a satellite, because 

it is provider-based and not co-located 

with another hospital, however, would 

operate under the provider number of 

its main LTCH. Therefore, where 

establishing a remote location adds beds 

under that provider number, in the 


sroberts on DSKD5P82C1PROD with RULES
43990 Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 

aggregate, it is subject to the 

moratorium. 

(6) If a LTCH adds a provider-based 

location that does not increase the 

aggregate number of beds at the LTCH, 

because it has decreased the number of 

beds at the main campus by at least an 

equivalent number of beds, the LTCH 

would not have violated the 

moratorium. 

(7) The moratorium provision at 

section 114(d) of the MMSEA would 

have no impact on whether an IRF or an 

IPF could co-locate with an existing 

LTCH. All providers that would be 

affected by the co-location, however, 

would be required to comply with 

‘‘separateness and control’’ regulations 

at § 412.22(e) and the existing LTCH 

would be required to meet the 

notification requirements at 

§ 412.22(e)(3). 

Comment: One commenter requested 

that CMS view ‘‘obtaining a new 

provider number’’ under circumstances 

where there is an acquisition of another 

facility as the same as when there is an 

assumption of an existing number and, 

therefore, covered by the exemption 

from the moratorium. 

Response: As we stated in the 

previous response, under our existing 

regulations at § 489.18, which govern 

change of ownership and its effect on 

provider agreements, there is a 

significant difference between whether a 

LTCH is acquired and it functions under 

the same provider agreement as prior to 

the acquisition compared to a situation 

where a new provider agreement is 

sought when a hospital changes 

ownership. Since the cessation of 

service under an existing provider 

agreement is considered a termination 

of the provider agreement for the 

duration of the moratorium, obtaining a 

new provider agreement for a LTCH 

would be tantamount to developing a 

new LTCH, an activity that is precluded 

unless one of the statutory exceptions, 

discussed in detail above, was met. We 

encourage the commenter to review our 

regulations at 42 CFR part 489 Subpart 

E. These regulations address the 

distinction between these two 

alternatives and specify the 

requirements and consequences of both. 

Comment: Three commenters stated 

that it is their understanding that an 

increase in ‘‘non-Medicare certified 

beds’’ is permitted under the 

moratorium established under section 

114(d)(3) of the MMSEA. 

Response: The commenters’ 

understanding is incorrect. All beds in 

a LTCH with an agreement to participate 

in the Medicare program must be 

available to Medicare beneficiaries. We 

used the term ‘‘Medicare certified beds’’ 

in the May 22, 2008 interim final rule 

with comment period in order to specify 

how we would count the actual number 

of beds in an existing LTCH or satellite 

after the MMSEA was enacted. At that 

time, we noted that we were using the 

number of beds certified by Medicare, 

because this number could be verified 

by CMS and its contractors and this was 

currently referenced in our regulations 

at § 412.22(h)(2)(i), and similarly 

referenced in § 412.22(f)(1) (73 FR 29706 

and 29707). We did not mean to imply 

that there could be some hospital beds 

that would be available for nonMedicare patients but would not be 

available for use by Medicare 

beneficiaries. 

After considering the public 

comments we received, we are 

finalizing the regulatory changes at 

§§ 412.22.(e)(5) and (e)(6) implementing 

section 114(d) of the MMSEA that we 

included in the May 22, 2008 interim 

final rule with comment period. 

We once again note that the 

amendments to both section 114(c) and 

(d) of the MMSEA made by the ARRA 

are being implemented in an interim 

final rule with comment period in 

section XI. of this document. 

XI. Interim Final Rule With Comment 

Period Implementing Section 4302 of 

the American Recovery and 

Reinvestment Act of 2009 (Pub. L. 111– 

5) Relating to Payments to LTCHs and 

LTCH Satellite Facilities 

A. Background 

Section 4302 of the American 

Recovery and Reinvestment Act (ARRA) 

(Pub. L. 111–5) affects several of the 

provisions of section 114 of the MMSEA 

(Pub. L. 110–173) that are discussed in 

section X. of the preamble of this 

document. Specifically, section 4302 of 

the ARRA amended several of the 

provisions of section 114 of the 

MMSEA, to be effective and applicable 

as if the amendments had been included 

in the MMSEA. Some of the ARRA 

amendments address issues raised by 

commenters regarding our May 22, 2008 

interim final rule with comment period 

(73 FR 29699). (In section X. of the 

preamble of the final rule in this 

document, we respond to comments 

received on the May 22, 2008 interim 

final rule with comment period, and 

finalize the policies implementing 

section 114(c) of the MMSEA that were 

not amended by the ARRA.) 

B. Amendments Relating to Payment 

Adjustment to LTCHs and LTCH 

Satellite Facilities Made by Section 4302 

of the ARRA 

Sections 114(c)(1)(A) and (B) of the 

MMSEA established a 3-year delay, for 

cost reporting periods beginning on or 

after December 29, 2007, for 

freestanding LTCHs (defined at 

§ 412.23(e)(5) of the regulations) and 

‘‘grandfathered’’ long-term care HwHs, 

from the application of the percentage 

threshold payment adjustment 

established under § 412.536 or 

§ 412.534, respectively, or any similar 

provision. Section 4302(a)(1) of the 

ARRA amended the provisions of 

sections 114(c)(1)(A) and (B) of the 

MMSEA as follows: 

First, under section 4302(a)(1)(A) of 

the ARRA, the heading of section 

114(c)(1) is changed to ‘‘Delay in 

Application of 25 Percent Patient 

Threshold Payment Adjustment’’ from 

the original ‘‘No Application of 25 

Percent Patient Threshold Payment 

Adjustment to Freestanding and 

Grandfathered LTCHs.’’ 

Second, under section 4302(a)(1)(B) of 

the ARRA, the effective date of the delay 

in application of the 25 percent patient 

threshold payment adjustment found in 

section 114(c)(1) of the MMSEA is 

changed from the date of enactment of 

the MMSEA (that is, December 29, 2007) 

to July 1, 2007. As a result, a 

‘‘grandfathered’’ long-term care HwH or 

a ‘‘freestanding’’ LTCH with a cost 

reporting period beginning before 

December 29, 2007, would no longer be 

subject to the applicable payment 

adjustments at § 412.534(h) and 

§ 412.536 until the start of its next cost 

reporting period. This is the case 

because our regulations at § 412.534(h), 

with respect to ‘‘grandfathered’’ LTCHs, 

and § 412.536 with respect to all LTCHs, 

were implemented for cost reporting 

periods beginning on or after July 1, 

2007. Therefore, the amendment made 

by section 4302(a)(1)(B) of the ARRA to 

section 114(c)(1) of the MMSEA results 

in a uniform start of the application of 

the statutory 3-year relief from the 25 

percentage threshold payment 

adjustment. 

Third, section 4302(a)(1)(C) of the 

ARRA adds, for 3 years, a third category 

of LTCHs that will not be subject to 

§§ 412.534 and 412.536 of the 

regulations, or any similar provision of 

the regulations for a 3-year period for 

cost reporting periods beginning on or 

after July 1, 2007. Specifically, section 

4302(a)(1)(C) of the ARRA extends the 

3-year exemption from the percentage 

threshold payment adjustments at 

§§ 412.534 and 412.536 to include 


sroberts on DSKD5P82C1PROD with RULES
Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 43991 

‘‘* * * 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 Social Security 

Act at the off-campus location * * *.’’ 

Therefore, no percentage threshold (and 

therefore, no payment adjustment) will 

be applied for patients discharged from 

an acute care hospital who are admitted 

to a LTCH or LTCH satellite facility that 

is co-located with an entity that is a 

provider-based, off-campus location of 

an acute care hospital (as set forth in our 

regulations at § 413.65) as long as there 

are no inpatient acute care hospital 

services payable under section 1886(d) 

of the Act offered at that off-campus 

location. For example, this would apply 

to a situation where an acute care 

hospital, that Medicare pays under the 

IPPS, is located on the main campus of 

a multicampus entity and, on a second 

campus of that acute care hospital, the 

LTCH shares a building with an IRF unit 

or an outpatient clinic that is providerbased to the acute care hospital but 

there are no services payable under the 

IPPS hospital provided at that second 

campus. 

Section 114(c)(2) of the MMSEA 

provided, for a 3-year period, increases 

in the percentage thresholds (‘‘payment 

adjustments’’) established under 

§ 412.534 of the regulations for 

‘‘applicable’’ LTCHs or satellite facilities 

for cost reporting periods beginning on 

or after December 29, 2007. Specifically, 

if the threshold percentage would have 

been 25 percent, for 3 years it will 

increase to 50 percent; and if the 

threshold would have been 50 percent 

prior to the enactment of the MMSEA, 

it will increase to 75 percent. The term 

‘‘applicable’’ was defined as ‘‘* * * a 

hospital or satellite facility that is 

subject to the transition rules under 

section 412.534(g) of title 42 of the Code 

of Federal Regulations.’’ The revisions 

made by section 114(c)(2) of the 

MMSEA were limited to a hospital or a 

satellite subject to the transition rules at 

§ 412.534(g) of the regulations. Because 

‘‘grandfathered’’ LTCH satellite facilities 

were subject to the transition at 

§ 412.534(h) of the regulations, not at 

§ 412.534(g), the percentage increase 

resulting from the application of section 

114(c)(2) did not apply to them (73 FR 

29703). 

Section 4302(a)(2)(A) of the ARRA 

modified the definition of ‘‘applicable 

long term care hospital or satellite 

facility.’’ This provision amended 

section 114(c)(2)(B)(ii) of the MMSEA 

by specifying that those ‘‘grandfathered 

satellites’’ described in § 412.22(h)(3)(i) 

of the regulations were to be included 

in the definition. (Under 

§ 412.22(h)(3)(i), ‘‘grandfathered’’ 

satellites were exempted from 

compliance with the ‘‘separateness and 

control’’ rules specified in § 412.22(h) if 

they had been structured as a satellite 

facility on or before September 30, 

1999.) However, we note that 

‘‘grandfathered satellites’’ under 

§ 412.22(h)(3) of the regulations 

continue to be subject to the applicable 

percentage thresholds outlined in 

§ 412.536 for patients admitted from any 

individual hospital with which they 

were not co-located because there were 

no exceptions for such entities for 

purposes of payment as described at 

§ 412.536 of the regulations. 

Section 114(c)(2)(C) of the MMSEA 

applied the 3-year increase in the 

percentage thresholds at § 412.534 of the 

regulations for cost reporting periods 

beginning on or after the date of 

enactment of the MMSEA (December 29, 

2007). Section 4302(a)(2)(B) of the 

ARRA revised the effective date of the 

MMSEA provisions to increase the 

applicable percentages to cost reporting 

periods beginning on or after October 1, 

2007, for LTCHs and LTCH satellite 

facilities that were subject to the 

transition rules under § 412.534(g) and 

also established the effective date as 

cost reporting periods beginning on or 

after July 1, 2007, ‘‘* * * in the case of 

a satellite facility described in section 

412.22(h)(3)(i) of title 42 of the Code of 

Federal Regulations.’’ (Different dates 

are applicable because the effective date 

for the 25 percent threshold payment 

adjustment policy for LTCHs and LTCH 

satellite facilities governed under 

§ 412.534(g) of the regulations was 

October 1, 2005, while the percent 

threshold for ‘‘grandfathered’’ LTCH 

satellite facilities policy was effective 

for cost reporting periods beginning on 

or after July 1, 2007.) 

The result of this modification in the 

effective date of the 3-year increase in 

the percentage threshold for 

‘‘applicable’’ LTCHs and LTCH satellite 

facilities (now including ‘‘grandfathered 

satellites’’) is that LTCHs and LTCH 

satellite facilities will not have the fully 

phased-in 25 percentage threshold 

payment adjustment applied for cost 

reporting periods beginning on or after 

October 1, 2007, and ‘‘grandfathered’’ 

satellite facilities will not be subject to 

the transition to the 25 percentage 

threshold for cost reporting periods 

beginning on or after July 1, 2007. 

To implement the provisions of 

section 4302 of the ARRA, in this 

interim final rule with comment period, 

we are revising our regulations at 

§§ 412.534 and 412.536 to reflect the 

statutory revisions described above. 

C. Amendment to the Moratorium on 

the Increase in Number of Beds in 

Existing LTCHs or LTCH Satellite 

Facilities Made by Section 4302 of the 

ARRA 

Section 114(d) of the MMSEA 

provided a 3-year moratorium on the 

increase of hospital beds in existing 

LTCHs and LTCH satellite facilities. 

(The definition of an existing LTCH and 

LTCH satellite facility for purposes of 

this policy is codified at § 412.23(e)(7)(i) 

of our regulations.) Section 114(d) of the 

MMSEA includes exceptions to the 

moratorium on the increase in hospital 

beds in existing LTCHs and LTCH 

satellite facilities. Specifically, section 

114(d)(3)(A) of the MMSEA provided 

that the moratorium on the increase in 

beds in an existing LTCH or LTCH 

satellite facility would not apply to an 

increase in beds if an existing LTCH or 

LTCH satellite facility is ‘‘located in a 

State where there is only one other longterm care hospital; and requests an 

increase in beds following the closure or 

the decrease in the number of beds of 

another long-term care hospital in the 

State.’’ 

Section 4302(b) of the ARRA added 

an additional exception to the bedincrease moratorium in an existing 

LTCH or LTCH satellite facility ‘‘* * * 

if the hospital or facility obtained a 

certificate of need for an increase in 

beds that is in a State for which such 

certificate of need is required and that 

was issued on or after April 1, 2005, and 

before December 29, 2007.’’ 

Accordingly, in this interim final rule 

with comment period, we are revising 

our regulations at § 412.23(e)(7)(B) to 

include this new exception to the 

moratorium on an increase in the 

number of beds in existence in an 

existing LTCH or LTCH satellite facility 

beyond those in existence on December 

29, 2007. In the May 22, 2008 interim 

final rule with comment period, in our 

discussion of the original exception to 

the moratorium on bed increases at 

section 114(d)(3)(A) of the MMSEA, and 

in our regulations at 

§§ 412.23(e)(7)(ii)(A) and (e)(7)(ii)(B)(2) 

added in that interim final rule with 

comment period, we noted that the 

baseline number of beds that existed on 

December 29, 2007, was the number of 

Medicare-certified beds because this 

number can be verified by CMS and its 

contractors and this is currently 

referenced in our regulations at 

§ 412.22(h)(2)(i), and in a similar 

reference in § 412.22(f)(1) (73 FR 29706 

and 29707). However, we emphasize 

that, in employing the term ‘‘MedicareVerDate Nov<24>2008 19:22 Aug 26, 2009 Jkt 217001 PO 00000 Frm 00239 Fmt 4701 Sfmt 4700 E:\FR\FM\27AUR2.SGM 27AUR2

sroberts on DSKD5P82C1PROD with RULES
43992 Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 

certified beds,’’ we are not implying that 

there is distinction between ‘‘Medicarecertified beds’’ and some additional 

group of beds in the hospital that are 

reserved for non-Medicare patients and, 

therefore, not included in this total. A 

hospital participates in the Medicare 

program in its entirety; that is, all beds 

in a hospital with a provider agreement 

with the Medicare program are available 

for use by Medicare beneficiaries. 

As we specified in our discussion in 

the May 22, 2008 interim final rule with 

comment period regarding 

implementation of the certificate of 

need exception to the development of 

new LTCHs and LTCH satellite facilities 

provided in section 114(d)(2)(C) of the 

MMSEA and codified at 

§ 412.23(e)(6)(ii)(C) of our regulations, 

decisions regarding whether a specific 

situation will be considered to meet the 

certificate of need exception established 

by the section 4302(b) of the ARRA, 

which modifies section 114(d)(3)(A) of 

the MMSEA, on the increase in the 

number of beds in existing LTCHs or 

LTCH satellite facilities, will be 

determined on a case-by-case basis by 

the applicant’s State agency, which will 

make recommendations to the CMS 

regional office. (The ARRA included no 

amendments to section 114(d) of the 

MMSEA regarding the moratorium on 

the development of new LTCHs and 

LTCH satellite facilities. Therefore, we 

have finalized our regulations regarding 

this provision at § 412.23(e)(6) as 

discussed in section X. of the preamble 

of the final rule in this document.) 

Finally, section 4302(c) of the ARRA 

specifies that the ‘‘* * * effective date 

of the amendments made by this section 

shall be effective and apply as if 

included in the enactment of the 

Medicare, Medicaid, and SCHIP 

Extension Act of 2007’’ (Pub. L. 110– 

173). 

Accordingly, in this interim final rule 

with comment period, we are revising 

our regulations at § 412.23 to include a 

description of the additional exception 

to the moratorium on the establishment 

of new beds in existing LTCHs and 

LTCH satellite facilities. 

D. Responses to Comments 

Because of the large number of public 

comments we normally receive on 

Federal Register documents, we are not 

able to acknowledge and respond to 

them individually. We will consider all 

comments we receive by the date and 

time specified in the DATES section of 

this document, and, when we proceed 

with a subsequent document, we will 

respond to the comments in the 

preamble of that document. 

E. Waiver of Proposed Rulemaking 

We ordinarily publish a notice of 

proposed rulemaking and invite public 

comment on a proposed rule in 

accordance with 5 U.S.C. 553(b) of the 

Administrative Procedure Act (APA). In 

addition, section 1871(b)(1) of the Act 

provides that the Secretary shall provide 

for notice of the proposed regulation in 

the Federal Register and a period of not 

less than 60 days for public comment 

thereon. Section 1871(b)(2) of the Act 

provides for an exception to the 

requirement that the Secretary provide 

for notice of a proposed rulemaking and 

a period of not less than 60 days for 

public comment. Specifically, section 

1871(b)(2)(B) of the Act provides an 

exception to these requirements when a 

law establishes a specific deadline for 

the implementation of a provision and 

the deadline is less than 150 days after 

the date of the enactment of the statute 

in which the deadline is contained. 

Section 4302 of the ARRA amended 

sections 114(c) and (d) of the MMSEA 

and changed existing LTCH PPS 

policies. It affected the adjustment 

policies in § 412.534 and § 412.536 of 

our regulations. It also revised a 

moratorium on bed increases in existing 

LTCHs and LTCH satellite facilities 

affecting policies in § 412.23 of our 

regulations. These changes were 

required to be implemented as if 

included in the enactment of the 

MMSEA 2007, that is, December 29, 

2007. Accordingly, these changes are 

required to be implemented: (1) 

Effective December 29, 2007 (section 

4302(c) of the ARRA); (2) beginning 

with cost reporting periods beginning 

on or after December 29, 2007 (section 

4302(b) of the ARRA); or beginning with 

cost reporting periods beginning on or 

after July 1, 2007, or October 1, 2007, as 

applicable (sections 4302(a)(1)(B) and 

(a)(2)(B) of the ARRA). The ARRA was 

enacted on February 17, 2009. Thus, 

section 4302 of the ARRA’s deadlines 

for implementation of the MMSEArelated policies contained in this 

interim final rule with comment period 

were less than 150 days after the date of 

the enactment of the statute in which 

the deadlines were contained. 

Therefore, under the authority of 

section 1871(b)(2)(B) of the Act, we are 

waiving notice and comment 

procedures for the AARA amendments 

to the MMSEA policy changes 

pertaining to §§ 412.534 and 412.536 of 

our regulations as well as the 

moratorium on increasing beds at an 

existing LTCH and an existing satellite 

facility of a LTCH in § 412.23. 

We also find good cause to waive the 

requirement for publication of a notice 

of proposed rulemaking and comment 

on the grounds that it is unnecessary, 

impracticable and contrary to the public 

interest under the authority of 5 U.S.C. 

553(b)(B). In general, this interim final 

rule with comment period sets forth 

nondiscretionary provisions of the 

amendments made by section 4302 of 

the ARRA to section 114 of the MMSEA 

with respect to a moratorium on the 

increase of long-term care hospital beds 

in existing LTCHs or LTCH satellite 

facilities, and payment policies 

pertaining to §§ 412.534 and 412.536 of 

our regulations. Therefore, we believe 

pursuing notice and comment is 

unnecessary. 

Moreover, because that process would 

prevent timely implementation of 

congressionally mandated policy 

changes that are to be effective, as 

described previously in this section, we 

believe notice and comment procedures 

are impracticable and contrary to the 

public interest. 

In addition, notice and comment 

would delay significantly the issuance 

of essential guidance to the public 

which is necessary to assist them in 

making complex, time-sensitive 

business decisions of significant 

financial consequence with respect to 

their efforts to comply with section 114 

of the MMSEA as amended by section 

4302 of the ARRA. Failure to provide 

this guidance would impede such 

business decisions. 

Section 1871(e)(1)(A) of the Act 

provides that a substantive change in 

regulations, manual instructions, 

interpretative rules, statements of 

policy, or guidelines of general 

applicability under this title shall not be 

applied (by extrapolation or otherwise) 

retroactively to items and services 

furnished before the effective date of the 

change unless the Secretary determines 

that (i) such retroactive application is 

necessary to comply with statutory 

requirements; or (ii) failure to apply the 

change retroactively would be contrary 

to the public interest. As explained 

above, the amendments made by section 

4302 of the ARRA to section 114 of the 

MMSEA requires the Secretary to 

implement various policy changes 

beginning with cost reporting periods 

beginning on or after July 1, 2007, 

October 1, 2007, or December 29, 2007 

as applicable. 

Therefore, under the authority of 

section 1871(e)(1)(A)(i) of the Act, we 

are making the provisions of this 

interim final rule with comment period 

that implement section 4302 of the 

ARRA effective for cost reporting 

periods beginning on or after July 1, 

2007, October 1, 2007, or December 29, 

2007, as applicable. Additionally, as 


sroberts on DSKD5P82C1PROD with RULES
Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 43993 

explained previously, the Secretary also 

finds that it would be contrary to the 

public interest if these provisions were 

not made effective on December 29, 

2007 or for cost reporting periods 

beginning on or after July 1, 2007, 

October 1, 2007, or December 29, 2007, 

as indicated above. Therefore, under the 

authority of section 1871(e)(1)(A)(ii) of 

the Act, we are making these changes 

effective under the timeframes noted 

above. 

For the same reasons noted above, we 

find good cause under section 553(d)(3) 

of the APA to waive the 30-day delay in 

the effective date of this interim final 

rule with comment period. 

F. Collection of Information 

Requirements 

This document does not impose 

information collection and 

recordkeeping requirements. 

Consequently, it need not be reviewed 

by the Office of Management and 

Budget under the authority of the 

Paperwork Reduction Act of 1995. 

G. Regulatory Impact Analysis 

We have examined the impacts of this 

rule as required by Executive Order 

12866 (September 1993, Regulatory 

Planning and Review), the Regulatory 

Flexibility Act (RFA) (September 19, 

1980, Pub. L. 96–354), section 1102(b) of 

the Social Security Act, the Unfunded 

Mandates Reform Act of 1995 (Pub. L. 

104–4), Executive Order 13132 on 

Federalism, and the Congressional 

Review Act (5 U.S.C. 804(2)). 

Executive Order 12866 directs 

agencies to assess all costs and benefits 

of available regulatory alternatives and, 

if regulation is necessary, to select 

regulatory approaches that maximize 

net benefits (including potential 

economic, environmental, public health 

and safety effects, distributive impacts, 

and equity). A regulatory impact 

analysis (RIA) must be prepared for 

major rules with economically 

significant effects ($100 million or more 

in any 1 year). 

The enactment of section 4302 of the 

ARRA, which amended provisions of 

sections 114(c) and (d) of the MMSEA, 

requires several modifications to the 

regulations at §§ 412.534 and 412.536, 

which, as discussed in section XI.C. of 

this interim final rule with comment 

period, exempts an additional category 

of LTCHs and LTCH satellites from the 

applicability of the regulations at 

§§ 412.534 and 412.536 for 3 years and 

for the same 3 years, adds 

‘‘grandfathered’’ LTCH satellites to 

those ‘‘applicable’’ LTCHs that, under 

the MMSEA, have an increase in the 

threshold percentage of patients that 

may be admitted from co-located 

referring hospitals (typically acute care 

hospitals) without a payment 

adjustment. The effective date of these 

MMSEA provisions was also amended 

by sections 4302(a)(1)(B) and (a)(2)(B) of 

the ARRA so that, rather than December 

29, 2007, the effective dates for the 

section 114 of the MMSEA changes to 

the regulations at §§ 412.534 and 

412.536 are set respectively, at July 1, 

2007, or October 1, 2007, as applicable. 

In the May 22, 2008 interim final rule 

with comment period, we estimated that 

the implementation of the MMSEA 

provisions pertaining to §§ 412.534 and 

412.536 would result in a projected 

increase of approximately $30 million 

in estimated aggregate LTCH PPS 

payments for RY 2008 (73 FR 29708). 

Although we are unable to quantify the 

impact of the ARRA amendments to the 

MMSEA provisions, we believe that 

there will be a small increase in the 

number of LTCHs and LTCH satellites 

that will now be included in the 3-year 

delay in the application of §§ 412.534 

and 412.536 and also the percentage 

threshold increase. We also believe that 

setting back the effective dates for those 

MMSEA provisions from December 29, 

2007 to either July 1, 2007 or October 

1, 2007, as applicable, will not, in the 

aggregate, have a significant impact on 

Medicare payments under the LTCH 

PPS. 

Section 4302(b) of the ARRA 

amended section 114(d) of the MMSEA, 

which provided for a moratorium on the 

establishment of LTCHs, LTCH satellite 

facilities, and on the increase of LTCH 

beds in existing LTCHs or satellite 

facilities for a period of 3 years, by 

adding another exception to the 3-year 

moratorium. In the May 22, 2008 

interim final with comment period, we 

noted that, in regard to section 114(d) of 

the MMSEA, we were unable to provide 

an estimate of the impact of the 

moratorium provisions because we had 

no way of determining how many 

LTCHs would have opened in the 

absence of the moratorium, nor did we 

have sufficient information at that time 

to determine how many new LTCHs 

will meet the exceptions criteria 

provided for in the statute (73 FR 

29708). For the same reason, we are 

unable to provide an estimate of the 

impact of section 4302(b) of the ARRA, 

which added an additional exception to 

the moratorium on an increase in beds 

in existing LTCHs and LTCH satellites. 

However, we do not believe that 

distributional effects and estimated 

changes to the Medicare program 

payments resulting from section 4302 of 

the ARRA, which amended sections 

114(c) and (d) of the MMSEA, would be 

greater than $100 million. Therefore, we 

have determined that this interim final 

rule with comment period would not be 

considered a major economic rule, as 

defined in this section. 

The RFA requires agencies to analyze 

options for regulatory relief of small 

businesses. For purposes of the RFA, 

small entities include small businesses, 

nonprofit organizations, and small 

governmental jurisdictions. Most 

hospitals and most other providers and 

suppliers are small entities, either by 

nonprofit status or by having revenues 

of $7 million to $34.5 million in any 1 

year. (For further information, see the 

Small Business Administration’s 

regulation at 70 FR 72577, December 6, 

2005.) Individuals and States are not 

included in the definition of a small 

entity. Because we lack data on 

individual hospital receipts, we cannot 

determine the number of small 

proprietary LTCHs. Therefore, we 

assume that all LTCHs are considered 

small entities for the purpose of this 

impact discussion. Medicare fiscal 

intermediaries and MACs are not 

considered to be small entities. As we 

discuss in detail throughout the 

preamble of this interim final rule with 

comment period, we believe that the 

provisions specified by the MMSEA 

presented in this interim final rule with 

comment period would result in an 

increase in estimated aggregate LTCH 

PPS payments. Accordingly, the 

Secretary certifies that this interim final 

rule with comment period would not 

have a significant economic impact on 

a substantial number of small entities. 

In addition, section 1102(b) of the Act 

requires us to prepare a regulatory 

impact analysis if a rule 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 604 of the 

RFA. For purposes of section 1102(b) of 

the Act, we define a small rural hospital 

as a hospital that is located outside of 

a Metropolitan Statistical Area for 

Medicare payment regulations and has 

fewer than 100 beds. As stated above, 

implementing the provisions specified 

by the ARRA that are discussed in this 

interim final rule with comment period 

will result in an increase in estimated 

aggregate LTCH PPS payments. 

Therefore, we believe this rule will not 

have a significant impact on small rural 

hospitals. Accordingly, the Secretary 

certifies that this interim final rule with 

comment period would not have a 

significant economic impact on the 

operations of a substantial number of 

small rural hospitals. 

Section 202 of the Unfunded 

Mandates Reform Act of 1995 also 


sroberts on DSKD5P82C1PROD with RULES
43994 Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 

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 2009, that threshold level is currently 

approximately $133 million. This 

interim final rule with comment period 

would not mandate any requirements 

for State, local, or tribal governments, 

nor would it result in expenditures by 

the private sector of $133 million or 

more in any 1 year. 

Executive Order 13132 establishes 

certain requirements that an agency 

must meet when it promulgates a 

proposed rule (and subsequent final 

rule) that imposes substantial direct 

requirement costs on State and local 

governments, preempts State law, or 

otherwise has Federalism implications. 

Because this regulation does not impose 

any costs on State or local governments, 

the requirements of Executive Order 

13132 are not applicable. 

In accordance with the provisions of 

Executive Order 12866, this interim 

final rule with comment period was 

reviewed by the Office of Management 

and Budget. 

XI. MedPAC Recommendations 

Under section 1886(e)(4)(B) of the 

Act, the Secretary must consider 

MedPAC’s recommendations regarding 

hospital inpatient payments. Under 

section 1886(e)(5) of the Act, the 

Secretary must publish in the annual 

proposed and final IPPS rules the 

Secretary’s recommendations regarding 

MedPAC’s recommendations. We have 

reviewed MedPAC’s March 2009 

‘‘Report to the Congress: Medicare 

Payment Policy’’ and have given the 

recommendations in the report careful 

consideration in conjunction with the 

policies set forth in this final rule. 

MedPAC’s Recommendation 2A–1 

states that ‘‘[t]he Congress should 

increase payment rates for the acute 

inpatient and outpatient prospective 

payment systems in 2010 by the 

projected rate of increase in the hospital 

market basket index, concurrent with 

implementation of a quality incentive 

payment program.’’ This 

recommendation is discussed in 

Appendix B to this final rule. 

MedPAC’s Recommendation 2A–2 

states that ‘‘[t]he Congress should 

reduce the indirect medical education 

adjustment in 2010 by 1 percentage 

point to 4.5 percent per 10 percent 

increment in the resident-to-bed ratio. 

The funds obtained by reducing the 

indirect medical education adjustment 

should be used to fund a quality 

incentive payment program.’’ 

Response to Recommendation 2A–2: 

Redirecting funds obtained by reducing 

the IME adjustment to fund a quality 

incentive payment program is consistent 

with the value-based purchasing 

initiatives to improve the quality of 

care. However, section 502(a) of Public 

Law 108–173 modified the formula 

multiplier (c) to be used in the 

calculation of the IME adjustment 

beginning midway through FY 2004 and 

provided for a new schedule of formula 

multipliers for FYs 2005 and thereafter. 

Consequently, given the existing 

statutory requirement regarding the IME 

formula multiplier, CMS does not have 

the authority to implement MedPAC’s 

recommendation to reduce the IME 

adjustment in FY 2010. 

Comment: One commenter objected to 

MedPAC’s recommendation 2A–2, 

although the commenter acknowledged 

that CMS does not have the authority to 

implement the recommendation. The 

commenter believed that it is ‘‘highly 

inappropriate’’ to reduce payments to 

teaching hospitals in order to fund a 

quality incentive program for all 

hospitals. The commenter stated that 

the impropriety of the recommendation 

is highlighted by MedPAC’s own 

analysis of margin variation in 

hospitals, which the commenter 

believed supported the assertion that 

teaching hospitals are ‘‘the class of 

hospitals least able to afford a 

reduction.’’ While the commenter 

commended this margin analysis by 

MedPAC, the commenter remained 

disappointed that MedPAC restated its 

recommendation 2A–2 from 2008. 

Response: We appreciate the 

commenter’s input regarding MedPAC’s 

recommendations. We remind the 

public that, as stated in the proposed 

rule, CMS does not have the authority 

to implement the changes to IME 

payments as recommended by MedPAC. 

For further information relating 

specifically to the MedPAC reports or to 

obtain a copy of the reports, contact 

MedPAC at (202) 653–7226, or visit 

MedPAC’s Web site at: http:// 

www.medpac.gov. 

XII. Other Required Information 

A. Requests for Data From the Public 

In order to respond promptly to 

public requests for data related to the 

prospective payment system, we have 

established a process under which 

commenters can gain access to raw data 

on an expedited basis. Generally, the 

data are now available on compact disc 

(CD) format. However, many of the files 

are available on the Internet at: http:// 

www.cms.hhs.gov/AcuteInpatientPPS. 

We listed the data files and the cost for 

each file, if applicable, in the FY 2010 

IPPS/RY 2010 LTCH PPS proposed rule 

(74 FR 24233 through 24234). 

Commenters interested in discussing 

any data used in constructing the 

proposed rule or this final rule should 

contact Nisha Bhat at (410) 786–5320. 

B. Collection of Information 

Requirements 

1. Legislative Requirement for 

Solicitation of Comments 

Under the Paperwork Reduction Act 

of 1995 (PRA), we are required to 

provide 30-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 PRA 

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. 

2. Requirements in Regulation Text 

In the FY 2010 IPPS/RY 2010 LTCH 

PPS proposed rule (74 FR 24234 

through 24236), we solicited public 

comments on each of the issues listed in 

section XII.B.1. of this preamble for the 

following sections of this document that 

contain information collection 

requirements (ICRs). We discuss and 

respond to any public comments we 

received in each individual section. 

a. ICRs Regarding Payment Adjustment 

for Medicare DSHs (§ 412.106) 

As discussed in section V.E. of the 

preamble of this final rule, 

§ 412.106(b)(4)(iv) permits hospitals to 

count Medicaid eligible inpatient days 

in the numerator of the Medicaid 

fraction of the DPP in the DSH payment 

adjustment calculation by one of the 

following methodologies, as long as no 

such days are counted more than once 

for any hospital in a cost reporting 

period: date of discharge; date of 

admission; or dates of service. To avoid 

‘‘double counting,’’ a hospital is 

required to report to CMS any changes 

to the methodology it uses to count days 

in the numerator of the Medicaid 

fraction of the DPP. The burden 


sroberts on DSKD5P82C1PROD with RULES
Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 43995 

associated with this requirement is the 

time and effort necessary for a hospital 

to report to CMS changes to the 

methodology it uses to count days in the 

numerator of its Medicaid fraction of the 

DPP. 

This requirement is subject to the 

PRA. While we believe the burden is 

minimal, we are unable to accurately 

quantify the burden because we cannot 

estimate the number of expected 

submissions from hospitals reporting 

changes to their respective methodology 

for counting days in the numerator of 

the Medicaid fraction of the DPP for the 

Medicare DSH payment adjustment 

calculation. 

We did not receive any public 

comments on this ICR. While we are 

still not able to accurately quantify the 

burden associated with this ICR, 

because we cannot estimate the number 

of expected submissions from hospitals, 

we will review each submission on a 

case-by-case basis. If we determine that 

the number of submissions may exceed 

the threshold of 10 or more persons in 

a 12-month period, as defined in 5 CFR 

1320.3(c)(4), we will develop an 

information collection request as part of 

the formal OMB approval process. 

b. ICRs Regarding Payments for GME 

(§ 413.75) 

Existing regulations at § 413.75(b) 

permit hospitals that share residents to 

elect to form a Medicare GME affiliated 

group if they are in the same or 

contiguous urban or rural areas, if they 

are under common ownership, or if they 

are jointly listed as program sponsors or 

major participating institutions in the 

same program. The purpose of a 

Medicare GME affiliated group is to 

provide flexibility to hospitals in 

structuring rotations under an aggregate 

FTE resident cap when they share 

residents. The existing regulations at 

§ 413.79(f)(1) specify that each hospital 

in a Medicare GME affiliated group 

must submit a Medicare GME affiliation 

agreement (as defined under § 413.75(b)) 

to the Medicare fiscal intermediary or 

MAC servicing the hospital and send a 

copy to CMS’ Central Office no later 

than July 1 of the residency program 

year during which the Medicare GME 

affiliation agreement will be in effect. 

In section V.G.3. of the preamble of 

this final rule, we discuss our proposed 

and final policy to amend the 

regulations to specify that a hospital 

that is new after July 1 and that begins 

training residents for the first time after 

the July 1 start date of that academic 

year is permitted to submit a Medicare 

GME affiliation agreement prior to the 

end of its cost reporting period in order 

to participate in an existing Medicare 

GME affiliated group for the remainder 

of the academic year. The burden 

associated with this requirement is the 

time and effort it would take for the new 

hospital to develop and submit the 

Medicare GME affiliation agreement. It 

is difficult for us to estimate the annual 

burden associated with this requirement 

because we cannot estimate the 

additional number of hospitals that will 

be permitted to submit Medicare GME 

affiliation agreements in any given year 

as a result of the change. However, we 

believe the number of affected hospitals 

will be very small because, under the 

change, a hospital will not only have to 

start training residents after July 1, but 

will also need to be a new hospital after 

July 1. We note that this requirement 

will merely apply established 

procedures to provide increased 

flexibility to a new hospital to join an 

existing GME affiliated group such that, 

in its first year, it may train and receive 

IME and direct GME payments relating 

to FTE for residents that could 

otherwise be counted for purposes of 

IME and direct GME at another hospital. 

We believe the expansion of the existing 

policy regarding the submission of 

Medicare GME affiliation agreements for 

hospitals that are new after July 1 and 

that begin to train residents after July 1 

will amount to a minimal paperwork 

burden. 

We did not receive any public 

comments on this ICR. While we are 

still not able to accurately quantify the 

burden because we cannot estimate the 

number of expected submissions from 

hospitals, we will review each 

submission on a case-by-case basis. If 

we determine that the number of 

submissions may exceed the threshold 

of 10 or more persons in a 12-month 

period, as defined in 5 CFR 1320.3(c)(4), 

we will develop an information 

collection request as part of the formal 

OMB approval process. 

C. Additional Information Collection 

Requirements 

This final rule imposes collection of 

information requirements as outlined in 

the regulation text and specified above. 

However, this final rule also makes 

reference to several associated 

information collections that are not 

discussed in the regulation text 

contained in this document. The 

following is a discussion of these 

information collections, some of which 

have already received OMB approval. 

1. Present on Admission (POA) 

Indicator Reporting 

Section II.F.6. of the preamble of this 

final rule discusses the POA indicator 

reporting program. As stated earlier, 

collection of POA indicator data is 

necessary to identify which conditions 

were acquired during hospitalization for 

the HAC payment provision and for 

broader public health uses of Medicare 

data. Through Change Request 5499 

dated May 11, 2007, CMS issued 

instructions that require IPPS hospitals 

to submit POA indicator data for all 

diagnosis codes on Medicare claims. 

The burden associated with this 

requirement is the time and effort 

necessary to place the appropriate POA 

indicator codes on Medicare claims. 

This requirement is subject to the PRA; 

however, the associated burden is 

currently approved under OMB control 

number 0938–0997 with an expiration 

date of August 31, 2009. 

2. Add-On Payments for New Services 

and Technologies 

Section II.I.1. of the preamble of 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 

2011 must submit a formal request. A 

formal request includes a full 

description of the clinical applications 

of the medical service or technology and 

the results of any clinical evaluations 

demonstrating that the new medical 

service or technology represents a 

substantial clinical improvement. In 

addition, the request must contain a 

significant sample of the data to 

demonstrate that the medical service or 

technology meets the high-cost 

threshold. We detailed the burden 

associated with this requirement in the 

September 7, 2001, IPPS final rule (66 

FR 46902). As stated in that final rule, 

collection of the information for this 

requirement is conducted on an 

individual case-by-case basis. We 

believe the associated burden is thereby 

exempt from the PRA as stipulated 

under 5 CFR 1320.3(h)(6). Similarly, we 

also believe the burden associated with 

this requirement is exempt from the 

PRA under 5 CFR 1320.3(c), which 

defines the agency collection of 

information subject to the requirements 

of the PRA as information collection 

imposed on 10 or more persons within 

any 12-month period. This information 

collection does not impact 10 or more 

entities in a 12-month period. In FYs 

2008, 2009, and 2010, we received 1, 4, 

and 5 applications, respectively. 

We did not receive any public 

comments on this ICF. 

3. Reporting of Hospital Quality Data for 

Annual Hospital Payment Update 

As discussed in section V.A. of the 

preamble of this final rule, the 


sroberts on DSKD5P82C1PROD with RULES
43996 Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 

RHQDAPU program was originally 

established to implement section 501(b) 

of Public Law 108–173, thereby 

expanding our voluntary Hospital 

Quality Initiative (HQI). The RHQDAPU 

program originally consisted of a 

‘‘starter set’’ of 10 quality measures. 

OMB approved the collection of data 

associated with the original starter set of 

quality measures under OMB control 

number 0938–0918, with a current 

expiration date of January 31, 2010. 

As part of our implementation of 

section 5001(a) of the DRA, we 

expanded the number of quality 

measures reported in the RHQDAPU 

program. Specifically, section 

1886(b)(3)(B)(viii)(III) of the Act, added 

by section 5001(a) of the DRA, requires 

that the Secretary expand the ‘‘starter 

set’’ of 10 quality measures that were 

established by the Secretary as of 

November 1, 2003, to include measures 

‘‘that the Secretary determines to be 

appropriate for the measurement of the 

quality of care furnished by hospitals in 

inpatient settings.’’ Under this 

provision, we established additional 

program measures to bring the total 

number of measures to 30. The burden 

associated with these reporting 

requirements is currently approved 

under OMB control number 0938–1022, 

with a current expiration date of June 

30, 2011. 

In the FY 2009 IPPS proposed rule (73 

FR 23527), we solicited public 

comments on several considerations for 

expanding and updating quality 

measures. We responded to the public 

comments received in the FY 2009 IPPS 

final rule (73 FR 48433). We also 

expanded and finalized the RHQDAPU 

program measure set for FY 2010. As 

part of the expansion effort, two 

measures were finalized in the CY 2009 

OPPS/ASC final rule with comment 

period (73 FR 68781). In this FY 2010 

IPPS final rule, as we proposed, we are 

adding a total of four new measures, to 

harmonize two existing measures, and 

to retire one measure, which will 

increase the total number of measures in 

the RHQDAPU program from 42 in FY 

2010 to 46 in FY 2011. Specifically, we 

are adding four new measures, two new 

chart abstracted measures, and two new 

structural measures. The new chart 

abstracted measures include the 

addition of SCIP-Infection-9: 

Postoperative Urinary Catheter Removal 

on Postoperative Day 1 or 2, and 

SCIPInfection-10: Perioperative 

Temperature Management to the 

existing SCIP measure set. As stated in 

V.A.3. of the preamble of this final rule, 

the new structural measures include (1) 

Participation in a Systematic Clinical 

Database Registry for Stroke Care; and 

(2) Participation in a Systematic Clinical 

Database Registry for Nursing Sensitive 

Care. We are submitting a revised 

version of the information collection 

request approved under OMB control 

number 0938–1022, to obtain approval 

for the new measures. 

Section V.A.9. of the preamble of the 

proposed rule and this final rule 

addresses the reconsideration and 

appeal procedures for a hospital that we 

believe did not meet the RHQDAPU 

program requirements. If a hospital 

disagrees with our determination, it may 

submit a written request to CMS to 

reconsider our decision. The hospital’s 

letter must explain the reasons why it 

believes it did meet the RHQDAPU 

program requirements. While this is a 

reporting requirement, the burden 

associated with it is not subject to the 

PRA under 5 CFR 1320.4(a)(2). The 

burden associated with information 

collection requirements imposed 

subsequent to an administrative action 

is not subject to the PRA. 

4. Occupational Mix Adjustment to the 

FY 2010 Index (Hospital Wage Index 

Occupational Mix Survey) 

Section II.D. of the preamble of this 

final rule discusses the occupational 

mix adjustment to the FY 2010 wage 

index. While the preamble does not 

contain any new ICRs, it is important to 

note that there is an OMB approved 

information collection request 

associated with the hospital wage index. 

Section 304(c) of Public Law 106–554 

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

Act to require CMS to collect data at 

least once every 3 years on the 

occupational mix of employees for each 

short-term, acute care hospital 

participating in the Medicare program 

in order to construct an occupational 

mix adjustment to the wage index. We 

collect the data via the occupational mix 

survey. 

The burden associated with this 

information collection requirement is 

the time and effort required to collect 

and submit the data in the Hospital 

Wage Index Occupational Mix Survey to 

CMS. The aforementioned burden is 

subject to the PRA; however, it is 

currently approved under OMB control 

number 0938–0907, with an expiration 

date of February 28, 2011. 

We did not receive any public 

comments of this provision in the 

proposed rule. 

5. Hospital Applications for Geographic 

Reclassifications by the MGCRB 

Section III.I.3. of the preamble of this 

final rule discusses revisions to the 

wage index based on hospital 

redesignations. As stated in that section, 

under section 1886(d)(10) of the Act, the 

MGCRB has the authority to accept 

short-term IPPS hospital applications 

requesting geographic reclassification 

for wage index or standardized payment 

amounts and to issue decisions on these 

requests by hospitals for geographic 

reclassification for purposes of payment 

under the IPPS. The burden associated 

with this application process is the time 

and effort necessary for an IPPS hospital 

to complete and submit an application 

for reclassification to the MGCRB. While 

this requirement is subject to the PRA, 

it is currently approved under OMB 

control number 0938–0573, with an 

expiration date of December 31, 2011. 

We did not receive any public 

comments on the ICR for this provision 

in the proposed rule. 

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 415 

Health facilities, Health professions, 

Medicare, Reporting and recordkeeping 

requirements. 

42 CFR Part 485 

Grant programs—health, Health 

facilities, Medicaid, Medicare, 

Reporting and recordkeeping 

requirements. 

42 CFR Part 489 

Health facilities, Medicare, Reporting 

and recordkeeping requirements. 

■ For the reasons stated in the preamble 

of this final rule, the Centers for 

Medicare & Medicaid Services is 

amending 42 CFR Chapter IV as follows: 

PART 412—PROSPECTIVE PAYMENT 

SYSTEMS FOR INPATIENT HOSPITAL 

SERVICES 

■ 1. The authority citation for Part 412 

continues to read as follows: 

Authority: Secs. 1102 and 1871 of the 

Social Security Act (42 U.S.C. 1302 and 

1395hh), and sec. 124 of Public Law 106–113 

(113 Stat. 1501A–332). 

■ 2. Section 412.22 is amended by 

revising paragraph (h)(2)(iii)(A) to read 

as follows: 

§ 412.22 Excluded hospitals and hospital 

units: General rules. 

* * * * * 


sroberts on DSKD5P82C1PROD with RULES
Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 43997 

(h) * * * 

(2) * * * 

(iii) * * * 

(A) Effective for cost reporting periods 

beginning on or after October 1, 2002, it 

is not under the control of the governing 

body or chief executive officer of the 

hospital in which it is located, and it 

furnishes inpatient care through the use 

of medical personnel who are not under 

the control of the medical staff or chief 

medical officer of the hospital in which 

it is located. 

(1) Except as provided in paragraph 

(h)(2)(iii)(A)(2) of this section, effective 

for cost reporting periods beginning on 

or after October 1, 2009, the governing 

body of the hospital of which the 

satellite facility is a part is not under the 

control of any third entity that controls 

both the hospital of which the satellite 

facility is a part and the hospital with 

which the satellite facility is co-located. 

(2) If a hospital and its satellite 

facility were excluded from the 

inpatient prospective payment system 

under the provisions of this section for 

the most recent cost reporting period 

beginning prior to October 1, 2009, the 

hospital does not have to meet the 

requirements of paragraph 

(h)(2)(iii)(A)(1) of this section, with 

respect to that satellite facility, in order 

to retain its IPPS-excluded status. 

(3) A hospital described in paragraph 

(h)(2)(iii)(A)(2) of this section that 

establishes an additional satellite 

facility in a cost reporting period 

beginning on or after October 1, 2009, 

must meet the criteria in this section, 

including the provisions of paragraph 

(h)(2)(iii)(A)(1) of this section with 

respect to the additional satellite 

facility, in order to be excluded from the 

inpatient prospective payment system. 

* * * * * 

■ 3. Section 412.23 is amended by 

revising paragraph (e)(7)(ii) to read as 

follows: 

§ 412.23 Excluded hospitals: 

Classifications. 

* * * * * 

(e) * * * 

(7) Moratorium on increasing the 

number of beds in existing long-term 

care hospitals and existing long-term 

care hospital satellite facilities. 

* * * * * 

(ii) Effective for the period beginning 

December 29, 2007 and ending 

December 28, 2010— 

(A) Except as specified in paragraph 

(e)(7)(ii)(B) and (C) of this section, the 

number of Medicare-certified beds in an 

existing long-term care hospital or an 

existing long-term care hospital satellite 

facility as defined in paragraph (e)(7)(i) 

of this section must not be increased 

beyond the number of Medicarecertified beds on December 29, 2007. 

(B) Except as specified in paragraph 

(e)(7)(ii)(C) of this section, the 

moratorium specified in paragraph 

(e)(7)(ii)(A) of this section is not 

applicable to— 

(1) An existing long-term care hospital 

or existing long-term care hospital 

satellite facility as defined in paragraph 

(e)(7)(i) of this section that meets both 

of the following requirements: 

(i) Is located in a State where there is 

only one other long-term care hospital 

that meets the criteria specified in 

§ 412.23(e) of this subpart. 

(ii) Requests an increase in the 

number of Medicare-certified beds after 

the closure or decrease in the number of 

Medicare-certified beds of another longterm care hospital in the State; or 

(2) An existing long-term care hospital 

or existing long-term care hospital 

satellite facility as defined in paragraph 

(e)(7)(i) of this section that obtained a 

certificate of need for an increase in 

beds and that meets both of the 

following requirements: 

(i) Is in a State for which such 

certificate of need is required, and 

(ii) Such certificate was issued on or 

after April 1, 2005, and before December 

29, 2007. 

(C) The exceptions specified in 

paragraph (e)(7)(ii)(B) of this section do 

not affect the limitation on increasing 

beds under § 412.22(f) and 

§ 412.22(h)(3) of subpart. 

* * * * * 

■ 4. Section 412.64 is amended by 

revising paragraph (c) to read as follows: 

§ 412.64 Federal rates for inpatient 

operating costs for Federal fiscal year 2005 

and subsequent fiscal years. 

* * * * * 

(c) Computing the standardized 

amount. CMS computes an average 

standardized amount that is applicable 

to all hospitals located in all areas, 

updated by the applicable percentage 

increase specified in paragraph (d) of 

this section. CMS standardizes the 

average standardized amount by 

excluding an estimate of indirect 

medical education payments. 

* * * * * 

§ 412.87 [Amended] 

■ 5. In § 412.87, paragraph (b)(1), 

remove the word ‘‘relating’’ and add in 

its place the word ‘‘relative’’. 

■ 6. Section 412.103 is amended by 

adding a new paragraph (a)(5) to read as 

follows: 

§ 412.103 Special treatment: Hospitals 

located in urban areas and that apply for 

reclassification as rural. 

(a) * * * 

(5) For any period after September 30, 

2009, and before October 1, 2011, a CAH 

in a county that, in FY 2009, was not 

part of an MSA as defined by the Office 

of Management and Budget, but, as of 

FY 2010, was included as part of an 

MSA as a result of the most recent 

census data and implementation of the 

new MSA definitions announced by 

OMB on November 20, 2008, may be 

reclassified as being located in a rural 

area for purposes of meeting the rural 

location requirement in § 485.610(b) of 

this chapter if it meets any of the 

requirements under paragraph (a)(1), 

(a)(2), or (a)(3) of this section. 

* * * * * 

■ 7. Section 412.105 is amended by 

revising paragraph (b)(4) to read as 

follows: 

§ 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 or skilled nursing 

swing-bed services, or ancillary labor/ 

delivery services; 

* * * * * 

■ 8. Section 412.106 is amended by— 

■ a. Revising paragraph (a)(1)(ii)(B). 

■ b. Adding a new paragraph (b)(4)(iv). 

The revision and addition read as 

follows: 

§ 412.106 Special treatment: Hospitals that 

service a disproportionate share of lowincome patients. 

(a) * * * 

(1) * * * 

(ii) * * * 

(B) Beds otherwise countable under 

this section used for outpatient 

observation services or skilled nursing 

swing-bed services; 

* * * * * 

(b) * * * 

(4) * * * 

(iv) For cost reporting periods 

beginning on or after October 1, 2009, 

the hospital must report the days in the 

numerator of the fraction in the second 

computation in a cost reporting period 

based on the date of discharge, the date 

of admission, or the dates of service. If 

a hospital seeks to change its 

methodology for reporting days in the 

numerator of the fraction in the second 

computation, the hospital must notify 

CMS, through its fiscal intermediary or 

MAC, in writing at least 30 days before 

the beginning of the cost reporting 


sroberts on DSKD5P82C1PROD with RULES
43998 Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 

period in which the change would 

apply. The written notification must 

specify the methodology the hospital 

will use, the cost reporting period to 

which the requested change would 

apply, and the current methodology 

being used. Such a change will be 

effective only on the first day of a cost 

reporting period. If a hospital changes 

its methodology for reporting such days, 

CMS or the fiscal intermediary or MAC 

may adjust the number of days reported 

for a cost reporting period if it 

determines that any of those days have 

been counted in a prior cost reporting 

period. 

* * * * * 

§ 412.113 [Amended] 

■ 9. In paragraph (c)(2)(i)(B) of 

§ 412.113, the cross-reference ‘‘§ 410.66’’ 

is removed and the cross-reference 

‘‘§ 410.69’’ is added in its place. 

§ 412.322 [Amended] 

■ 10. Section 412.322 is amended by 

removing and reserving paragraphs (c) 

and (d) to read as follows: 

■ 11. Section 412.523 is amended by 

adding a new paragraph (c)(3)(vi) to 

read as follows: 

§ 412.523 Methodology for calculating the 

Federal prospective payment rates. 

* * * * * 

(c) * * * 

(3) * * * 

(vi) For long-term care hospital 

prospective payment system rate year 

beginning October 1, 2009 and ending 

September 30, 2010. The standard 

Federal rate for long-term care hospital 

prospective payment system rate year 

beginning October 1, 2009 and ending 

September 30, 2010 is the standard 

Federal rate for the previous long-term 

care hospital prospective payment 

system rate year updated by 2.0 percent. 

The standard Federal rate is adjusted, as 

appropriate, as described in paragraph 

(d) of this section. 

* * * * * 

■ 12. Section 412.525 is amended by— 

■ a. Revising paragraph (a)(2). 

■ b. Revising paragraph (d)(1). 

■ c. Adding a new paragraph (d)(5). 

The revisions and addition read as 

follows: 

§ 412.525 Adjustments to the Federal 

prospective payment. 

(a) * * * 

(2) The fixed-loss amount is 

determined for the long-term care 

hospital rate year using the LTC–DRG 

relative weights that are in effect on the 

start of the applicable long-term care 

hospital prospective payment system 

rate year, as defined in § 412.503. 

* * * * * 

(d) * * * 

(1) Short-stay outliers, as provided for 

in § 412.529. 

* * * * * 

(5) 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, as provided in 

§ 412.536. 

■ 13. Section 412.534 is amended by 

revising paragraphs (c) through (e), and 

(h) to read as follows: 

§ 412.534 Special payment provisions for 

long-term care hospitals within hospitals 

and satellites of long-term care hospitals. 

* * * * * 

(c) Patients admitted from the 

hospital located in the same building or 

on the same campus as the long-term 

care hospital or satellite facility. Except 

for a long-term care hospital or a longterm care hospital satellite facility that 

meets the requirements of paragraphs 

(d) or (e) of this section, payments to the 

long-term care hospital for patients 

admitted to it or to its long-term care 

hospital satellite facility from the colocated hospital are made under either 

of the following: 

(1) For cost reporting periods 

beginning on or after October 1, 2004 

and before October 1, 2007 and for cost 

reporting periods beginning on or after 

October 1, 2010. (i) Except as provided 

in paragraphs (g) and (h) of this section, 

for any cost reporting period beginning 

on or after October 1, 2004 and before 

October 1, 2007 and for cost reporting 

periods beginning on or after October 1, 

2010 in which the long-term care 

hospital or its satellite facility has a 

discharged Medicare inpatient 

population of whom no more than 25 

percent were admitted to the hospital or 

its satellite facility from the co-located 

hospital, payments are made under the 

rules at §§ 412.500 through 412.541 in 

this subpart with no adjustment under 

this section. 

(ii) Except as provided in paragraph 

(g) or (h) of this section, for any cost 

reporting period beginning on or after 

October 1, 2004 and before October 1, 

2007 and for cost reporting periods 

beginning on or after October 1, 2010 in 

which the long-term care hospital or 

satellite facility has a discharged 

Medicare inpatient population of whom 

more than 25 percent were admitted to 

the hospital or satellite facility from the 

co-located hospital, payments for the 

patients who are admitted from the colocated hospital and who cause the 

long-term care hospital or satellite 

facility to exceed the 25 percent 

threshold for discharged patients who 

have been admitted from the co-located 

hospital are the lesser of the amount 

otherwise payable under this subpart or 

the amount payable under this subpart 

that is equivalent, as set forth in 

paragraph (f) of this section, to the 

amount that would be determined under 

the rules at § 412.1(a). Payments for the 

remainder of the long-term care 

hospital’s or satellite facility’s patients 

are made under the rules in this subpart 

at §§ 412.500 through 412.541 with no 

adjustment under this section. 

(iii) In determining the percentage of 

patients admitted to the long-term care 

hospital or its satellite from the colocated hospital under paragraphs 

(c)(1)(i) and (c)(1)(ii) of this section, 

patients on whose behalf an outlier 

payment was made to the co-located 

hospital are not counted towards the 25 

percent threshold. 

(2) For cost reporting periods 

beginning on or after October 1, 2007 

and before October 1, 2010. (i) Except 

for a long-term care hospital or a longterm care hospital satellite facility 

subject to paragraph (g) or (h) of this 

section, payments are determined using 

the methodology specified in paragraph 

(c)(1) of this section. 

(ii) Payments for a long-term care 

hospital or long-term care hospital 

satellite facility subject to paragraph (g) 

of this section are determined using the 

methodology specified in paragraph 

(c)(1) of this section except that 25 

percent is substituted with 50 percent. 

(3) For cost reporting periods 

beginning on or after July 1, 2007 and 

before July 1, 2010. Payments for a longterm care hospital satellite facility 

described in § 412.22(h)(3)(i) are 

determined using the methodology 

specified in paragraph (c)(1) of this 

section except that 25 percent is 

substituted with 50 percent. 

(d) Special treatment of rural 

hospitals. (1) For cost reporting periods 

beginning on or after October 1, 2004 

and before October 1, 2007 and for cost 

reporting periods beginning on or after 

October 1, 2010. (i) Subject to 

paragraphs (g) and (h) of this section, in 

the case of a long-term care hospital or 

satellite facility that is located in a rural 

area as defined in § 412.503 and is colocated with another hospital for any 

cost reporting period beginning on or 

after October 1, 2004 and before October 

1, 2007 and for any cost reporting 

period beginning on or after October 1, 

2010 in which the long-term care 

hospital or long-term care satellite 


sroberts on DSKD5P82C1PROD with RULES
Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 43999 

facility has a discharged Medicare 

inpatient population of whom more 

than 50 percent were admitted to the 

long-term care hospital or satellite 

facility from the co-located hospital, 

payments for the patients who are 

admitted from the co-located hospital 

and who cause the long-term care 

hospital or satellite facility to exceed the 

50 percent threshold for discharged 

patients who were admitted from the colocated hospital are the lesser of the 

amount otherwise payable under this 

subpart or the amount payable under 

this subpart that is equivalent, as set 

forth in paragraph (f) of this section, to 

the amount that were otherwise payable 

under § 412.1(a). Payments for the 

remainder of the long-term care 

hospital’s or long-term care hospital 

satellite facility’s patients are made 

under the rules in this subpart at 

§§ 412.500 through 412.541 with no 

adjustment under this section. 

(ii) In determining the percentage of 

patients admitted from the co-located 

hospital under paragraph (d)(1)(i) of this 

section, patients on whose behalf outlier 

payment was made at the co-located 

hospital are not counted toward the 50 

percent threshold. 

(2) For cost reporting periods 

beginning on or after October 1, 2007, 

and before October 1, 2010. (i) Except 

for a long-term care hospital or a longterm care hospital satellite facility 

subject to paragraph (g) or (h) of this 

section, payments are determined using 

the methodology specified in paragraph 

(d)(1) of this section. 

(ii) Payments for long-term care 

hospitals and long-term care hospital 

satellite facilities subject to paragraph 

(g) of this section are determined using 

the methodology specified in paragraph 

(d)(1) of this section except that 50 

percent is substituted with 75 percent. 

(3) For cost reporting periods 

beginning on or after July 1, 2007 and 

before July 1, 2010. Payments for a longterm care hospital satellite facility 

described in § 412.22(h)(3)(i) are 

determined using the methodology 

specified in paragraph (d)(1) of this 

section except that 50 percent is 

substituted with 75 percent. 

(e) Special treatment of urban single 

or MSA-dominant hospitals. (1) For cost 

reporting periods beginning on or after 

October 1, 2004 and before October 1, 

2007 and for cost reporting periods 

beginning on or after October 1, 2010. (i) 

Subject to paragraphs (g) and (h) of this 

section, in the case of a long-term care 

hospital or a long-term care hospital 

satellite facility that is co-located with 

the only other hospital in the MSA or 

with a MSA-dominant hospital as 

defined in paragraph (e)(1)(iv) of this 

section, for any cost reporting period 

beginning on or after October 1, 2004, 

and before October 1, 2007 and for any 

cost reporting periods beginning on or 

after October 1, 2010, in which the longterm care hospital or long-term care 

hospital satellite facility has a 

discharged Medicare inpatient 

population of whom more than the 

percentage calculated under paragraph 

(e)(1)(ii) of this section were admitted to 

the hospital from the co-located 

hospital, payments for the patients who 

are admitted from the co-located 

hospital and who cause the long-term 

care hospital to exceed the applicable 

threshold for discharged patients who 

have been admitted from the co-located 

hospital are the lesser of the amount 

otherwise payable under this subpart or 

the amount under this subpart that is 

equivalent, as set forth in paragraph (f) 

of this section, to the amount that 

otherwise would be determined under 

§ 412.1(a). Payments for the remainder 

of the long-term care hospital’s or 

satellite facility’s patients are made 

under the rules in this subpart with no 

adjustment under this section. 

(ii) For purposes of paragraph (e)(1)(i) 

of this section, the percentage used is 

the percentage of total Medicare 

discharges in the Metropolitan 

Statistical Area in which the hospital is 

located that are from the co-located 

hospital for the cost reporting period for 

which the adjustment was made, but in 

no case is less than 25 percent or more 

than 50 percent. 

(iii) In determining the percentage of 

patients admitted from the co-located 

hospital under paragraph (e)(1)(i) of this 

section, patients on whose behalf outlier 

payment was made at the co-located 

hospital are not counted toward the 

applicable threshold. 

(iv) For purposes of this paragraph, an 

‘‘MSA-dominant hospital’’ is a hospital 

that has discharged more than 25 

percent of the total hospital Medicare 

discharges in the MSA in which the 

hospital is located. 

(2) For cost reporting periods 

beginning on or after October 1, 2007 

and before October 1, 2010. (i) Except 

for a long-term care hospital or a longterm care hospital satellite facility 

subject to paragraph (g) or (h) of this 

section, payments are determined using 

the methodology specified in paragraph 

(e)(1) of this section. 

(ii) Payments for a long-term care 

hospital or long-term care hospital 

satellite facilities subject to paragraph 

(g) of this section are determined using 

the methodology specified in paragraph 

(e)(1) of this section except that the 

percentage of Medicare discharges that 

may be admitted from the co-located 

hospital without being subject to the 

payment adjustment at paragraph (e)(1) 

of this section is 75 percent. 

(3) For cost reporting periods 

beginning on or after July 1, 2007 and 

before July 1, 2010. Payments for a longterm care hospital satellite facility 

described in § 412.22(h)(3)(i), are 

determined using the methodology 

specified in paragraph (d)(1) of this 

section except that the payment 

adjustment under paragraph (e)(1) of 

this section is 75 percent. 

* * * * * 

(h) Effective date of policies in this 

section for certain co-located LTCH 

hospitals and satellites of LTCHs. The 

policies set forth in this section apply to 

Medicare patient discharges that were 

admitted from a hospital located in the 

same building or on the same campus as 

a long-term care hospital described in 

§ 412.23(e)(2)(i) that meets the criteria in 

§ 412.22(f) and a satellite facility of a 

long-term care hospital as described 

under § 412.22(h)(3)(i) for discharges 

occurring in cost reporting periods 

beginning on or after July 1, 2007. 

(1) Except as specified in paragraph 

(h)(4) of this section, in the case of a 

long-term care hospital or long-term 

care hospital satellite facility that is 

described under this paragraph (h), the 

thresholds applied at paragraphs (c), (d), 

and (e) of this section are not less than 

the following percentages: 

(i) For cost reporting periods 

beginning on or after July 1, 2007 and 

before July 1, 2008, the lesser of 75 

percent of the total number of Medicare 

discharges that were admitted to the 

long-term care hospital or long-term 

care hospital satellite facility from its 

co-located hospital during the cost 

reporting period or the percentage of 

Medicare discharges that had been 

admitted to the long-term care hospital 

or satellite from that co-located hospital 

during the long-term care hospital’s or 

satellite’s RY 2005 cost reporting period. 

(ii) For cost reporting periods 

beginning on or after July 1, 2008 and 

before July 1, 2009, the lesser of 50 

percent of the total number of Medicare 

discharges that were admitted to the 

long-term care hospital or the long-term 

care hospital satellite facility from its 

co-located hospital or the percentage of 

Medicare discharges that had been 

admitted from that co-located hospital 

during the long-term care hospital’s or 

satellite’s RY 2005 cost reporting period. 

(iii) For cost reporting periods 

beginning on or after July 1, 2009, 25 

percent of the total number of Medicare 

discharges that were admitted to the 

long-term care hospital or satellite from 

its co-located hospital during the cost 

reporting period. 


sroberts on DSKD5P82C1PROD with RULES
44000 Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 

(2) 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 this threshold. 

(3) Except as specified in paragraph 

(h)(4) of this section, for cost reporting 

periods beginning on or after July 1, 

2007, payments to long term care 

hospitals described in § 412.23(e)(2)(i) 

that meet the criteria in § 412.22(f) and 

satellite facilities of long-term care 

hospitals described at § 412.22(h)(3)(i) 

are subject to the provisions of § 412.536 

for discharges of Medicare patients who 

are admitted from a hospital not located 

in the same building or on the same 

campus as the LTCH or LTCH satellite 

facility. 

(4) For a long-term care hospital 

described in § 412.23(e)(2)(i) that meets 

the criteria in § 412.22(f), the policies 

set forth in this paragraph and in 

§ 412.536 of this part do not apply for 

discharges occurring in cost reporting 

periods beginning on or after July 1, 

2007 and before July 1, 2010. 

(5) 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 offcampus location, the policies set forth 

in this paragraph and in § 412.536 of 

this part do not apply for discharges 

occurring in cost reporting periods 

beginning on or after July 1, 2007 and 

before July 1, 2010. 

■ 14. Section 412.536 is amended by 

revising paragraph (a)(2) to read as 

follows: 

§ 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) Scope. * * * 

(2) For cost reporting periods 

beginning on or after July 1, 2007 and 

before July 1, 2010, the policies set forth 

in this section are not applicable to 

discharges from: 

(i) A long-term care hospital described 

in § 412.23(e)(5) of this part; or 

(ii) A long-term care hospital 

described in § 412.23(e)(2)(i) of this part 

and that meet the criteria specified in 

§ 412.22(f) of this part; or 

(iii) 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 offcampus location. 

* * * * * 

PART 413—PRINCIPLES OF 

REASONABLE COST 

REIMBURSEMENT; PAYMENT FOR 

END-STAGE RENAL DISEASE 

SERVICES; OPTIONAL 

PROSPECTIVELY DETERMINED 

PAYMENT RATES FOR SKILLED 

NURSING FACILITIES 

■ 15. The authority citation for Part 413 

continues to read as follows: 

Authority: Secs. 1102, 1812(d), 1814(b), 

1815, 1833(a), (i), and (n), 1861(v), 1871, 

1881, 1883, and 1886 of the Social Security 

Act (42 U.S.C. 1302, 1395d(d), 1395f(b), 

1395g, 1395l(a), (i), and (n), 1395x(v), 

1395hh, 1395rr, 1395tt, and 1395ww); and 

sec. 124 of Public Law 106–133 (113 Stat. 

1501A–332). 

■ 16. Section 413.65 is amended by— 

■ a. Revising paragraph (a)(1)(ii)(G). 

■ b. Revising paragraph (a)(1)(ii)(H). 

The revisions read as follows: 

§ 413.65 Requirements for a determination 

that a facility or an organization has 

provider-based status. 

(a) * * * 

(1) * * * 

(ii) * * * 

(G) Independent diagnostic testing 

facilities furnishing only services paid 

under a fee schedule, such as facilities 

that furnish only screening 

mammography services (as defined in 

section 1861(jj) of the Act), facilities that 

furnish only clinical diagnostic 

laboratory tests, other than those 

clinical diagnostic laboratories 

operating as parts of CAHs on or after 

October 1, 2010, or facilities that furnish 

only some combination of these 

services. 

(H) Facilities, other than those 

operating as parts of CAHs, furnishing 

only physical, occupational, or speech 

therapy to ambulatory patients, 

throughout any period during which the 

annual financial cap amount on 

payment for coverage of physical, 

occupational, or speech therapy, as 

described in section 1833(g)(2) of the 

Act, is suspended by legislation. 

* * * * * 

■ 17. Section 413.70 is amended by— 

■ a. Revising paragraph (b)(1)(i). 

■ b. Removing paragraph (b)(2)(iii). 

■ c. Revising the heading of paragraph 

(b)(3). 

■ d. Revising paragraph (b)(3)(ii)(A). 

■ e. Adding a new paragraph (b)(7). 

The revisions and addition read as 

follows: 

§ 413.70 Payment for services of a CAH. 

* * * * * 

(b) * * * 

(1) * * * 

(i) Unless the CAH elects to be paid 

for services to its outpatients under the 

method specified in paragraph (b)(3) of 

this section, the amount of payment for 

outpatient services of a CAH is 

determined under paragraph (b)(2) of 

this section. 

* * * * * 

(3) Election to be paid reasonable 

costs for facility services plus fee 

schedule for professional services. 

* * * 

(ii) * * * 

(A) For cost reporting periods 

beginning on or after October 1, 2009, 

for facility services not including any 

services for which payment may be 

made under paragraph (b)(3)(ii)(B) of 

this section, the reasonable costs of the 

services as determined in accordance 

with the provisions of section 

1861(v)(1)(A) of the Act and the 

applicable principles of cost 

reimbursement specified in this part 

and in Part 415 of this subchapter, 

except that the lesser of costs or charges 

principle and the RCE payment 

principle are excluded when 

determining payment for CAH 

outpatient services; and 

* * * * * 

(7) Payment for clinical diagnostic 

laboratory tests included as outpatient 

CAH services. (i) Payment for clinical 

diagnostic laboratory tests is not subject 

to the Medicare Part B deductible and 

coinsurance amounts. 

(ii) Subject to the provisions of 

paragraphs (b)(7)(iii) through (b)(7)(vi) 

of this section, payment to a CAH for 

clinical diagnostic laboratory tests will 

be made at 101 percent of reasonable 

costs of the services as determined in 

accordance paragraph (b)(2)(i) of this 

section. 

(iii) For services furnished before July 

1, 2009, payment to a CAH for clinical 

diagnostic laboratory tests will be made 

under paragraph (b)(7)(ii) of this section 

only if the individual is an outpatient of 

the CAH, as defined in § 410.2 of this 

chapter, and is physically present in the 

CAH at the time the specimen is 

collected. 

(iv) Except as provided in paragraphs 

(b)(7)(iii) and (b)(7)(v) of this section, 

payment to a CAH for clinical 

diagnostic laboratory tests will be made 

under paragraph (b)(7)(ii) of this section 

only if the individual is an outpatient of 

the CAH, as defined in § 410.2 of this 

chapter, without regard to whether the 

individual is physically present in the 

CAH at the time the specimen is 


sroberts on DSKD5P82C1PROD with RULES
Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 44001 

collected and at least one of the 

following conditions is met: 

(A) The individual is receiving 

outpatient services in the CAH on the 

same day the specimen is collected; or 

(B) The specimen is collected by an 

employee of the CAH. 

(v) Notwithstanding paragraph 

(b)(7)(iv) of this section, payment for 

outpatient clinical diagnostic laboratory 

tests will not be made under paragraph 

(b)(7)(ii) of this section if the billing 

rules under § 411.15(p) of this chapter 

apply. 

(vi) Payment for clinical diagnostic 

laboratory tests for which payment may 

not be made under paragraph (b)(7)(iii) 

or paragraph (b)(7)(iv) of this section 

will be made in accordance with the 

provisions of sections 1833(a)(1)(D) and 

1833(a)(2)(D) of the Act. 

* * * * * 

■ 18. Section 413.79 is amended by— 

■ a. Revising paragraph (f)(1). 

■ b. Redesignating paragraph (f)(6) and 

paragraph (f)(7). 

■ c. Adding a new paragraph (f)(6). 

■ d. Moving paragraph (l), currently 

incorrectly placed between paragraphs 

(k)(6) and (7), so that it appears after 

paragraph (k)(7) and is the last 

paragraph in the section. 

The revisions and addition read as 

follows: 

§ 413.79 Direct GME payments: 

Determination of the weighted number of 

FTE residents. 

* * * * * 

(f) * * * 

(1) Except as provided in paragraph 

(f)(6) of this section, each hospital in the 

Medicare GME affiliated group must 

submit the Medicare GME affiliation 

agreement, as defined under § 413.75(b) 

of this section, to the CMS fiscal 

intermediary or MAC servicing the 

hospital and send a copy to the CMS 

Central Office no later than July 1 of the 

residency program year during which 

the Medicare GME affiliation agreement 

will be in effect. 

* * * * * 

(6) Effective October 1, 2009, a 

hospital that is new after July 1 and 

begins training residents for the first 

time after the July 1 start date of an 

academic year may receive a temporary 

adjustment to its FTE resident cap to 

reflect its participation in an existing 

Medicare GME affiliated group by 

submitting the Medicare GME affiliation 

agreement, as defined under § 413.75(b), 

to the CMS fiscal intermediary or MAC 

servicing the hospital and sending a 

copy to the CMS Central Office by the 

earlier of June 30 of the residency 

program year during which the 

Medicare GME affiliation agreement 

will be in effect or the end of the first 

cost reporting period during which the 

hospital begins training residents. The 

Medicare GME affiliation agreement 

must specify the effective period for the 

agreement, which may begin no earlier 

than the date the affiliation agreement is 

submitted to CMS. Each of the other 

hospitals participating in the Medicare 

GME affiliated group must submit an 

amended Medicare GME affiliation 

agreement that reflects the participation 

of the new hospital to the CMS fiscal 

intermediary or MAC servicing the 

hospital and send a copy to the CMS 

Central Office no later than June 30 of 

the residency program year during 

which the Medicare GME affiliation 

agreement will be in effect. For 

purposes of this paragraph, a new 

hospital is one for which a new 

Medicare provider agreement takes 

effect in accordance with § 489.13 of 

this chapter. 

* * * * * 

PART 415—SERVICES FURNISHED BY 

PHYSICIANS IN PROVIDERS, 

SUPERVISING PHYSICIANS IN 

TEACHING SETTINGS, AND 

RESIDENTS IN CERTAIN SETTINGS 

■ 19. The authority citation for Part 415 

continues to read as follows: 

Authority: Secs. 1102 and 1871 of the 

Social Security Act (42 U.S.C. 1302 and 

1395hh). 

§ 415.152 [Amended] 

■ 20. In § 415.152, under paragraph (1) 

of the definition of ‘‘Approved graduate 

medical education (GME) program’’, 

remove the phrase ‘‘the Committee on 

Hospitals of the Bureau of Professional 

Education of’’. 

PART 485—CONDITIONS OF 

PARTICIPATION: SPECIALIZED 

PROVIDERS 

■ 21. The authority citation for part 485 

continues to read as follows: 

Authority: Secs. 1102 and 1871 of the 

Social Security Act (42 U.S.C. 1302 and 

1395(hh)). 

■ 22. Section 485.610 is amended by— 

■ a. Revising paragraph (b)(3). 

■ b. Adding a new paragraph (b)(4). 

The addition and revision read as 

follows: 

§ 485.610 Condition of participation: 

Status and location. 

* * * * * 

(b) * * * 

(3) Effective for October 1, 2004 

through September 30, 2006, the CAH 

does not meet the location requirements 

in either paragraph (b)(1) or (b)(2) of this 

section and is located in a county that, 

in FY 2004, was not part of a 

Metropolitan Statistical Area as defined 

by the Office of Management and 

Budget, but as of FY 2005 was included 

as part of such a Metropolitan Statistical 

Area as a result of the most recent 

census data and implementation of the 

new Metropolitan Statistical Area 

definitions announced by the Office of 

Management and Budget on June 3, 

2003. 

(4) Effective for October 1, 2009 

through September 30, 2011, the CAH 

does not meet the location requirements 

in either paragraph (b)(1) or (b)(2) of this 

section and is located in a county that, 

in FY 2009, was not part of a 

Metropolitan Statistical Area as defined 

by the Office of Management and 

Budget, but, as of FY 2010, was 

included as part of such a Metropolitan 

Statistical Area as a result of the most 

recent census data and implementation 

of the new Metropolitan Statistical Area 

definitions announced by the Office of 

Management and Budget on November 

20, 2008. 

* * * * * 

PART 489—PROVIDER AGREEMENTS 

AND SUPPLIER APPROVAL 

■ 23. The authority citation for Part 489 

continues to read as follows: 

Authority: Secs. 1102, 1819, 1820(e), 1861, 

1864(m), 1866, 1869, and 1871 of the Social 

Security Act (42 U.S.C. 1302, 1395i–3, 1395x, 

1395aa(m), 1395cc, 1395ff, and 1395hh). 

■ 24. Section 489.24 is amended by 

revising paragraph (a)(2) to read as 

follows: 

§ 489.24 Special responsibilities of 

Medicare hospitals in emergency cases. 

(a) * * * 

(2)(i) When a waiver has been issued 

in accordance with section 1135 of the 

Act that includes a waiver under section 

1135(b)(3) of the Act, sanctions under 

this section for an inappropriate transfer 

or for the direction or relocation of an 

individual to receive medical screening 

at an alternate location do not apply to 

a hospital with a dedicated emergency 

department if the following conditions 

are met: 

(A) The transfer is necessitated by the 

circumstances of the declared 

emergency in the emergency area during 

the emergency period. 

(B) The direction or relocation of an 

individual to receive medical screening 

at an alternate location is pursuant to an 

appropriate State emergency 

preparedness plan or, in the case of a 

public health emergency that involves a 


sroberts on DSKD5P82C1PROD with RULES
44002 Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 

pandemic infectious disease, pursuant 

to a State pandemic preparedness plan. 

(C) The hospital does not discriminate 

on the basis of an individual’s source of 

payment or ability to pay. 

(D) The hospital is located in an 

emergency area during an emergency 

period, as those terms are defined in 

section 1135(g)(1) of the Act. 

(E) There has been a determination 

that a waiver of sanctions is necessary. 

(ii) A waiver of these sanctions is 

limited to a 72-hour period beginning 

upon the implementation of a hospital 

disaster protocol, except that, if a public 

health emergency involves a pandemic 

infectious disease (such as pandemic 

influenza), the waiver will continue in 

effect until the termination of the 

applicable declaration of a public health 

emergency, as provided under section 

1135(e)(1)(B) of the Act. 

* * * * * 

(Catalog of Federal Domestic Assistance 

Program No. 93.773, Medicare—Hospital 

Insurance; and Program No. 93.774, 

Medicare—Supplementary Medical 

Insurance Program) 

Dated: July 27, 2009. 

Charlene Frizzera, 

Acting Administrator, Centers for Medicare 

& Medicaid Services. 

Dated: July 29, 2009. 

Kathleen Sebelius, 

Secretary. 

[Editorial Note: The following Addendum 

and appendixes will not appear in the Code 

of Federal Regulations.] 

Addendum—Schedule of Standardized 

Amounts, Update Factors, and Rate-ofIncrease Percentages Effective With 

Cost Reporting Periods Beginning On or 

After October 1, 2009 

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 capitalrelated costs for FY 2010 for acute care 

hospitals. We also are setting forth the rateof-increase percentages for updating the 

target amounts for certain hospitals excluded 

from the IPPS for FY 2010. 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 

establishing 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, 2009. 

In addition, we are setting forth a 

description of the methods and data we used 

to determine the standard Federal rate that 

will be applicable to Medicare LTCHs for RY 

2010. 

In general, except for SCHs, MDHs, and 

hospitals located in Puerto Rico, each 

hospital’s payment per discharge under the 

IPPS is based on 100 percent of the Federal 

national rate, also known as the national 

adjusted standardized amount. This amount 

reflects the national average hospital cost per 

case from a base year, updated for inflation. 

Currently, SCHs are paid based on 

whichever of the following rates yields the 

greatest aggregate payment: the Federal 

national rate; the updated hospital-specific 

rate based on FY 1982 costs per discharge; 

the updated hospital-specific rate based on 

FY 1987 costs per discharge; the updated 

hospital-specific rate based on FY 1996 costs 

per discharge; or for cost reporting periods 

beginning on or after January 1, 2009, the 

updated hospital-specific rate based on the 

FY 2006 costs per discharge. 

Under section 1886(d)(5)(G) of the Act, 

MDHs historically have been paid based on 

the Federal national rate or, if higher, the 

Federal national rate plus 50 percent of the 

difference between the Federal national rate 

and the updated hospital-specific rate based 

on FY 1982 or FY 1987 costs per discharge, 

whichever was higher. (MDHs did not have 

the option to use their FY 1996 hospitalspecific rate.) However, section 5003(a)(1) of 

Public Law 109–171 extended and modified 

the MDH special payment provision that was 

previously set to expire on October 1, 2006, 

to include discharges occurring on or after 

October 1, 2006, but before October 1, 2011. 

Under section 5003(b) of Public Law 109– 

171, if the change results in an increase to 

an MDH’s target amount, we must rebase an 

MDH’s hospital-specific rates based on its FY 

2002 cost report. Section 5003(c) of Public 

Law 109–171 further required that MDHs be 

paid based on the Federal national rate or, if 

higher, the Federal national rate plus 75 

percent of the difference between the Federal 

national rate and the updated hospitalspecific rate. Further, based on the provisions 

of section 5003(d) of Pub. L. 109–171, MDHs 

are no longer subject to the 12-percent cap on 

their DSH payment adjustment factor. 

For hospitals located in Puerto Rico, the 

payment per discharge is based on the sum 

of 25 percent of an updated Puerto Ricospecific 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 2010. 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 2010. In 

section IV. of this Addendum, we are setting 

forth our changes for determining the rate-ofincrease limits for certain hospitals excluded 

from the IPPS for FY 2010. In section V. of 

this Addendum, we are making changes in 

the determination of the standard Federal 

rate for LTCHs under the LTCH PPS for RY 

2010. The tables to which we refer in the 

preamble of this final rule are presented in 

section VI. of this Addendum. 

II. Changes to Prospective Payment Rates for 

Hospital Inpatient Operating Costs for Acute 

Care Hospitals for FY 2010 

The basic methodology for determining 

prospective payment rates for hospital 

inpatient operating costs for acute care 

hospitals for FY 2005 and subsequent fiscal 

years is set forth at § 412.64. The basic 

methodology for determining the prospective 

payment rates for hospital inpatient 

operating costs for hospitals located in Puerto 

Rico for FY 2005 and subsequent fiscal years 

is set forth at §§ 412.211 and 412.212. Below 

we discuss the factors used for determining 

the prospective payment rates for FY 2010. 

In summary, the standardized amounts set 

forth in Tables 1A, 1B, and 1C of section VI. 

of this Addendum reflect— 

• Equalization of the standardized 

amounts for urban and other areas at the 

level computed for large urban hospitals 

during FY 2004 and onward, as provided for 

under section 1886(d)(3)(A)(iv)(II) of the Act, 

updated by the applicable percentage 

increase required under sections 

1886(b)(3)(B)(i)(XX) and 1886(b)(3)(B)(viii) of 

the Act. 

• The labor-related share that is applied to 

the standardized amounts and Puerto Ricospecific 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. 

• Updates of 2.1 percent for all areas (that 

is, the estimated full market basket 

percentage increase of 2.1 percent), as 

required by section 1886(b)(3)(B)(i)(XX) of 

the Act, as amended by section 5001(a)(1) of 

Public Law 109–171, and reflecting the 

requirements of section 1886(b)(3)(B)(viii) of 

the Act, as added by section 5001(a)(3) of 

Public Law 109–171, to reduce the applicable 

percentage increase by 2.0 percentage points 

for a hospital that fails to submit data, in a 

form and manner, and at the time specified 

by the Secretary, relating to the quality of 

inpatient care furnished by the hospital. 

• An update of 2.1 percent to the Puerto 

Rico-specific standardized amount (that is, 

the full estimated rate-of-increase in the 

hospital market basket for IPPS hospitals), as 

provided for under § 412.211(c), which states 

that we update the Puerto Rico-specific 

standardized amount using the percentage 

increase specified in § 412.64(d)(1), or the 

percentage increase in the market basket 

index for prospective payment hospitals for 

all areas. 

• An adjustment to the standardized 

amount to ensure budget neutrality for DRG 

recalibration and reclassification, as provided 

for under section 1886(d)(4)(C)(iii) of the Act. 

• An adjustment to ensure the wage index 

and labor share update and changes are 

budget neutral, as provided for under section 

1886(d)(3)(E)(i) of the Act. We note that 

section 1886(d)(3)(E)(i) of the Act requires 

that we do not consider the labor-related 

share of 62 percent to compute wage index 

budget neutrality. 

• An adjustment to ensure the effects of 

geographic reclassification are budget 

neutral, as provided for in section 


sroberts on DSKD5P82C1PROD with RULES
Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 44003 

1886(d)(8)(D) of the Act, by removing the FY 

2009 budget neutrality factor and applying a 

revised factor. 

• An adjustment to remove the FY 2009 

outlier offset and apply an offset for FY 2010, 

as provided for in section 1886(d)(3)(B) of the 

Act. 

• An adjustment to ensure the effects of 

the rural community hospital demonstration 

required under section 410A of Public Law 

108–173 are budget neutral, as required 

under section 410A(c)(2) of Public Law 108– 

173. 

We note that in this final rule, as discussed 

below and in section II. of the preamble to 

this final rule, we are opting to postpone 

adopting documentation and coding 

adjustments to the national standardized 

amount, as authorized under section 7(a) of 

Public Law 110–90 and section 

1886(d)(3)(A)(vi) of the Act, and to the 

hospital-specific rates and Puerto Ricospecific standardized amount under our 

special exceptions and adjustment authority 

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

a full analysis of FY 2009 case-mix changes 

can be completed. 

We note that, beginning in FY 2008, we 

applied the budget neutrality adjustment for 

the rural floor to the hospital wage indices 

rather than the standardized amount. As we 

did for FY 2009, for FY 2010, we are 

continuing to apply the rural floor budget 

neutrality adjustment to hospital wage 

indices rather than the standardized amount. 

In addition, instead of applying the budget 

neutrality adjustment for the imputed floor 

adopted under section 1886(d)(3)(E) of the 

Act to the standardized amount, for FY 2010, 

we are continuing to apply the imputed floor 

budget neutrality adjustment to the wage 

indices. As we did for FY 2009, we also are 

continuing to apply the budget neutrality 

adjustments for the rural floor and imputed 

rural floor at the State level rather than the 

national level. For a complete discussion of 

the budget neutrality changes concerning the 

rural floor and the imputed floor, including 

the within-State budget neutrality 

adjustment, we refer readers to section 

III.B.2.b. of the preamble of the FY 2009 IPPS 

final rule and this final rule. 

A. Calculation of the Adjusted Standardized 

Amount 

1. Standardization of Base-Year Costs or 

Target Amounts 

In general, the national standardized 

amount is based on per discharge averages of 

adjusted hospital costs from a base period 

(section 1886(d)(2)(A) of the Act), updated 

and otherwise adjusted in accordance with 

the provisions of section 1886(d) of the Act. 

For Puerto Rico hospitals, the Puerto Ricospecific 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 lowincome patients. 

In accordance with section 1886(d)(3)(E) of 

the Act, the Secretary estimates, from timeto-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 nonlaborrelated amounts; only the proportion 

considered to be the labor-related amount is 

adjusted by the wage index. Section 

1886(d)(3)(E) of the Act requires that 62 

percent of the standardized amount be 

adjusted by the wage index, unless doing so 

would result in lower payments to a hospital 

than would otherwise be made. (Section 

1886(d)(9)(C)(iv)(II) of the Act extends this 

provision to the labor-related share for 

hospitals located in Puerto Rico.) 

For FY 2010, we are rebasing and revising 

the national and Puerto Rico-specific laborrelated and nonlabor-related shares from the 

percentages established for FY 2009. 

Specifically, under section 1886(d)(3)(E) of 

the Act, the Secretary estimates from time to 

time the proportion of payments that are 

labor-related: ‘‘The Secretary shall adjust the 

proportion (as estimated by the Secretary 

from time to time) of hospitals’ costs which 

are attributable to wages and wage-related 

costs of the DRG prospective payment rates. 

* * *’’ We refer to the proportion of 

hospitals’ costs that are attributable to wages 

and wage-related costs as the ‘‘labor-related 

share.’’ For FY 2010, as discussed in section 

IV.B.4. of the preamble of this final rule, we 

are establishing a labor-related share of 68.8 

percent 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 nonPuerto Rico hospitals whose wage indexes 

are less than or equal to 1.0000. For all nonPuerto Rico 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 

hospitals located in Puerto Rico whose 

Puerto Rico-specific wage index values are 

greater than 1.0000, we are applying a laborrelated share of 62.1 percent. For hospitals 

located in Puerto Rico, we are applying a 

labor-related share of 62 percent if its Puerto 

Rico-specific wage index is less than or equal 

to 1.0000. 

The standardized amounts for operating 

costs appear in Tables 1A, 1B, and 1C of the 

Addendum to this final rule. 

2. Computing the Average Standardized 

Amount 

Section 1886(d)(3)(A)(iv)(II) of the Act 

requires that, beginning with FY 2004 and 

thereafter, an equal standardized amount be 

computed for all hospitals at the level 

computed for large urban hospitals during FY 

2003, updated by the applicable percentage 

update. Section 1886(d)(9)(A)(ii)(II) of the 

Act equalizes the Puerto Rico-specific urban 

and rural area rates. Accordingly, we are 

calculating the FY 2010 national and Puerto 

Rico standardized amounts irrespective of 

whether a hospital is located in an urban or 

rural location. 

3. Updating the Average Standardized 

Amount 

In accordance with section 

1886(d)(3)(A)(iv)(II) of the Act, we are 

updating the equalized standardized amount 

for FY 2010 by the full estimated market 

basket percentage increase for hospitals in all 

areas, as specified in section 

1886(b)(3)(B)(i)(XX) of the Act, as amended 

by section 5001(a)(1) of Public Law 109–171. 

The percentage increase in the market basket 

reflects the average change in the price of 

goods and services comprising routine, 

ancillary, and special care unit hospital 

inpatient services. The most recent forecast 

of the hospital market basket increase for FY 

2010 is 2.1 percent. Thus, for FY 2010, the 

update to the average standardized amount is 

2.1 percent for hospitals in all areas. The 

estimated market basket increase of 2.1 

percent is based on Global Insight, Inc.’s 

2009 first quarter forecast of the hospital 

market basket increase (as discussed in 

Appendix B of this final rule). 

Section 1886(b)(3)(B) of the Act specifies 

the mechanism to be used to update the 

standardized amount for payment for 

inpatient hospital operating costs. Section 

1886(b)(3)(B)(viii) of the Act, as added by 

section 5001(a)(3) of Public Law 109–171, 

provides for a reduction of 2.0 percentage 

points from the update percentage increase 

(also known as the market basket update) for 

FY 2007 and each subsequent fiscal year for 

any ‘‘subsection (d) hospital’’ that does not 

submit quality data, as discussed in section 

V.A. of the preamble of this final rule. The 

standardized amounts in Tables 1A through 

1C of section VI. of this Addendum reflect 

these differential amounts. 

Section 412.211(c) states that we update 

the Puerto Rico-specific standardized amount 

using the percentage increase specified in 

§ 412.64(d)(1), or the percentage increase in 

the market basket index for prospective 

payment hospitals for all areas. We are 

applying the full rate-of-increase in the 

hospital market basket for IPPS hospitals to 

the Puerto Rico-specific standardized 

amount. Therefore, the update to the Puerto 

Rico-specific standardized amount is 2.1 

percent. 

Although the update factors for FY 2010 

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 2010 for 

both IPPS hospitals and hospitals and 

hospital units excluded from the IPPS. 

Section 1886(e)(5)(A) of the Act requires that 


sroberts on DSKD5P82C1PROD with RULES
44004 Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 

we publish our proposed recommendations 

in the Federal Register for public comment. 

Our recommendation on the update factors is 

set forth in Appendix B of this final rule. 

4. Other Adjustments to the Average 

Standardized Amount 

As in the past, we are adjusting the FY 

2010 standardized amount to remove the 

effects of the FY 2009 geographic 

reclassifications and outlier payments before 

applying the FY 2010 updates. We then 

apply budget neutrality offsets for outliers 

and geographic reclassifications to the 

standardized amount based on FY 2010 

payment policies. 

We do not remove the prior year’s budget 

neutrality adjustments for reclassification 

and recalibration of the DRG weights and for 

updated wage data because, in accordance 

with sections 1886(d)(4)(C)(iii) and 

1886(d)(3)(E) of the Act, estimated aggregate 

payments after updates in the DRG relative 

weights and wage index should equal 

estimated aggregate payments prior to the 

changes. If we removed the prior year’s 

adjustment, we would not satisfy these 

conditions. 

Budget neutrality is determined by 

comparing aggregate IPPS payments before 

and after making changes that are required to 

be budget neutral (for example, changes to 

DRG classifications, recalibration of the DRG 

relative weights, updates to the wage index, 

and different geographic reclassifications). 

We include outlier payments in the 

simulations because they may be affected by 

changes in these parameters. 

In section II. of the preamble of this final 

rule, we discussed that we received some 

comments on whether Medicare Advantage 

claims were used in the FY 2010 IPPS 

proposed rule to calculate the MS–DRG 

relative weights. We responded to those 

comments by explaining that, historically, we 

have excluded data from Medicare 

Advantage claims from the calculation of the 

relative weights. However, the December 31, 

2008 update of the FY 2008 MedPAR data 

that was used as the source for calculating 

the proposed FY 2010 relative weights 

contained a significant number of Medicare 

Advantage claims. This is because hospitals 

were required to submit informational only 

claims for all Medicare Advantage patients 

they treated for discharges occurring on or 

after October 1, 2006, under Change Request 

5647 (Transmittal 1311). As a result, we 

inadvertently included claims from 

discharges of patients enrolled in Medicare 

Advantage plans in the calculation of the 

proposed FY 2010 relative weights. For this 

final rule, we have excluded the discharges 

of patients enrolled in Medicare Advantage 

plans in the calculation of the FY 2010 

relative weights. 

Similarly, in the proposed rule, we 

inadvertently included Medicare Advantage 

claims in the budget neutrality calculations. 

Thus, we unintentionally included the 

estimated full IPPS payments for the 

Medicare Advantage claims in the budget 

neutrality calculations and outlier payment 

estimates for the proposed rule. Although we 

are excluding Medicare Advantage claims 

from the relative weight calculations in this 

final rule, it is necessary to include IME 

payments for Medicare Advantage enrollees 

in the budget neutrality calculations (except 

for computing the outlier threshold, which 

we explain in section II.A.4.e. of this 

Addendum). Under § 412.105(g) of the 

regulations and as implemented in 

Transmittal A–98–21 (Change Request 332), 

hospitals that are paid under the IPPS and 

train residents in approved GME programs 

may submit claims associated with Medicare 

Advantage enrollees to the fiscal 

intermediary/MAC for the purpose of 

receiving an IME payment. No IPPS MS–DRG 

payments (or other add-on payment, such as 

DSH or outliers) are made for these Medicare 

Advantage enrollees. 

As described in detail below, we make 

various budget neutrality adjustments to the 

standardized amount. Specifically, the 

budget neutrality adjustment under section 

1886(d)(4)(C)(iii) of the Act requires that we 

ensure that the recalibration of the relative 

weights does not increase aggregate payments 

made under section 1886(d) of the Act. 

Similarly, section 1886(d)(3)(E) of the Act 

requires that the adjustment to the wage 

index shall be made in a manner that does 

not increase or decrease aggregate payments 

under section 1886(d) of the Act (subject to 

the requirement, explained below, that we 

must assume a uniform labor-related share). 

In addition, we make an adjustment to the 

wage index to ensure that aggregate payments 

after implementation of the rural floor under 

section 4410 of the BBA (Pub. L. 105–33) and 

the imputed floor under § 412.64(h)(4) of the 

regulations are made in a manner that 

ensures that aggregate payments to hospitals 

are not affected. 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 for certain 

geographic reclassification under 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. As discussed below, we 

also are adjusting the standardized amount 

for FY 2010 by an estimated amount to 

ensure that aggregate payments made by the 

Secretary under section 1886(d) of the Act do 

not exceed the amount of payments that 

would have been made in the absence of the 

rural community hospital demonstration 

program, consistent with section 410A of 

Public Law 108–173. Because IME Medicare 

Advantage payments are made to IPPS 

hospitals under section 1886(d) of the Act, 

we believe these payments must be part of 

these budget neutrality calculations. 

However, we note that it is not necessary to 

include Medicare Advantage IME payments 

in the outlier threshold calculation or the 

outlier offset to the standardized amount 

because the statute requires that outlier 

payments be not less than 5 percent nor more 

than 6 percent of total ‘‘operating DRG 

payments,’’ which does not include IME and 

DSH payments. 

In order to account for these Medicare 

Advantage IME payments in determining the 

budget neutrality adjustments for this final 

rule, we identified Medicare Advantage 

claims from IPPS teaching hospitals in the 

MedPAR data. The GHO Paid indicator with 

a value of ‘‘1’’ on the MedPAR file indicates 

that the claim was paid by a Medicare 

Advantage plan (other than the IPPS IME 

payment specified at § 412.105(g)). For these 

Medicare Advantage claims from IPPS 

teaching hospitals, we computed a transferadjusted CMI by provider based on the FY 

2009 MS–DRG GROUPER Version 26.0 

assignment and relative weights. We also 

computed a transfer-adjusted CMI for these 

Medicare Advantage claims from IPPS 

teaching hospitals based on the FY 2010 MS– 

DRG GROUPER Version 27.0 assignments 

and relative weights. These transfer-adjusted 

CMIs (and corresponding case counts) were 

used to calculate an IME teaching add-on 

payment in accordance with § 412.105(g). 

The total Medicare Advantage IME payment 

amount was then added to the total Federal 

payment amount for each provider (where 

applicable) in order to account for the 

Medicare Advantage IME payment in 

determining the budget neutrality 

adjustments. We note that we did not include 

Medicare Advantage IME claims when 

estimating outlier payments for providers 

because Medicare Advantage claims are not 

eligible for outlier payments under the IPPS. 

We also are adjusting the standardized 

amount for FY 2010 by an estimated amount 

to ensure that aggregate payments made by 

the Secretary do not exceed the amount of 

payments that would have been made in the 

absence of the rural community hospital 

demonstration program, as required under 

section 410A of Public Law 108–173. This 

demonstration is required to be budget 

neutral under section 410A(c)(2) of Public 

Law 108–173. For FY 2010, we are not 

applying budget neutrality for the imputed 

floor to the standardized amount, but instead 

are applying it to the wage index, as 

discussed in section III.B.2. of the preamble 

of this final rule. 

Comment: One commenter requested that 

CMS completely and adequately describe the 

FY 2010 methods and data elements used in 

each budget neutrality adjustment 

calculation to allow a determination that the 

proposed budget neutrality adjustments and 

methodologies are appropriate and are not 

duplicated across the various budget 

neutrality adjustments. The commenter 

specifically requested clarification on 

whether the pre- or post-labor share adjusted 

rate is used in the budget neutrality 

calculations. The commenter also urged CMS 

to assure that any data necessary for 

commenters are available during the 

comment period (such as the data used to 

develop the CCR adjustment factors). 

Response: In the discussion below, we 

explain our methodology for computing each 

individual budget neutrality adjustment. In 

addition, as stated above, budget neutrality is 

determined by comparing aggregate IPPS 

payments before and after making changes 

that are required to be budget neutral (for 

example, changes to MS–DRG classifications, 

recalibration of the MS–DRG relative 

weights, updates to the wage index, and 

different geographic reclassifications). We 

include outlier payments in the simulations 

because they may be affected by changes in 

these parameters. We also take extra caution 

to ensure that all variables are correctly 


sroberts on DSKD5P82C1PROD with RULES
Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 44005 

inputted in our budget neutrality calculations 

in order that the various budget neutrality 

adjustments are not duplicated. In addition, 

because the commenter’s remarks are very 

general, we are not sure where the 

inadequacy lies that the commenter 

references. However, we did clarify in the 

budget neutrality calculations below in 

which instances we used FY 2009 or FY 2010 

pre- and post-reclassified wage indices, FY 

2009 or FY 2010 relative weights, and FY 

2009 or FY 2010 labor-related share 

percentages. We believe the discussions 

above and below adequately describe the 

methodology for budget neutrality. 

In reference to the comment on assuring 

that any data necessary for the commenters 

are available during the comment period, we 

strive to ensure that all files are available to 

the public. Most data files are available on 

the CMS Web site, as we specified in the 

proposed. In addition, we have reorganized 

the IPPS Web site to make it easier for the 

end user to locate relevant data files for the 

proposed rule and this final rule in one 

central location. 

a. Recalibration of DRG Weights and Updated 

Wage Index—Budget Neutrality Adjustment 

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

specifies that, beginning in FY 1991, the 

annual DRG reclassification and recalibration 

of the relative weights must be made in a 

manner that ensures that aggregate payments 

to hospitals are not affected. As discussed in 

section II. of the preamble of this final rule, 

we normalized the recalibrated DRG weights 

by an adjustment factor so that the average 

case weight after recalibration is equal to the 

average case weight prior to recalibration. 

However, equating the average case weight 

after recalibration to the average case weight 

before recalibration does not necessarily 

achieve budget neutrality with respect to 

aggregate payments to hospitals because 

payments to hospitals are affected by factors 

other than average case weight. Therefore, as 

we have done in past years, we are 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. In addition, under 

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

established in the FY 2006 IPPS final rule (70 

FR 47395), we are implementing the revised 

and rebased labor share in a budget neutral 

manner. Specifically, section 1886(d)(3)(E)(i) 

of the Act directs us to determine a laborrelated share that reflects the ‘‘proportion 

* * * of hospitals’ costs which are 

attributable to wages and wage-related costs.’’ 

In addition, 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, 

these two sections of the statute require that 

we implement the revision of the laborrelated share of 68.8 percent (compared to 

69.7 percent for FY 2009) (as well as the 

wage index updates) in a budget neutral 

manner, but that our budget neutrality 

adjustment should not take into account the 

requirement that we set the labor-related 

share for hospitals with indices less than or 

equal to 1.0 at the more advantageous level 

of 62 percent. Therefore, for purposes of this 

budget neutrality adjustment, section 

1886(d)(3)(E)(i) of the Act prohibits us from 

taking into account the fact that hospitals 

with a wage index less than or equal to 1.0 

are paid using a labor-related share of 62 

percent. Consistent with current policy, for 

FY 2010, we are adjusting 100 percent of the 

wage index factor for occupational mix. We 

describe the occupational mix adjustment in 

section III.D. of the preamble of this final 

rule. 

For FY 2010, to comply with the 

requirement that DRG reclassification and 

recalibration of the relative weights be budget 

neutral for the Puerto Rico standardized 

amount and the hospital-specific rates, we 

used FY 2008 discharge data to simulate 

payments and compared aggregate payments 

using the FY 2009 labor-related share 

percentages, the FY 2009 relative weights, 

and the FY 2009 pre-reclassified wage data 

to aggregate payments using the FY 2009 

labor-related share percentages, the FY 2010 

relative weights, and the FY 2009 prereclassified wage data. Based on this 

comparison, we computed a budget 

neutrality adjustment factor equal to 

0.997941. As discussed in section IV. of this 

Addendum, we would also apply the DRG 

reclassification and recalibration budget 

neutrality factor of 0.997941 to the hospitalspecific rates that are to be effective for cost 

reporting periods beginning on or after 

October 1, 2009. 

In order to meet the statutory requirements 

that we do not take into account the laborrelated share of 62 percent when computing 

wage index budget neutrality and that we 

budget neutralize any changes in payments 

as a result of the FY 2010 rebased and revised 

labor-related share, it was necessary to use a 

three-step process to comply with the 

requirements that DRG reclassification and 

recalibration of the relative weights and the 

updated wage index and labor-related share 

have no effect on aggregate payments for 

IPPS hospitals. We first determined a DRG 

reclassification and recalibration budget 

neutrality factor of 0.997941 by using the 

same methodology described above to 

determine the 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 2008 

discharge data to simulate payments and 

compared aggregate payments using FY 2010 

relative weights and FY 2009 pre-reclassified 

wage indices, and applied the FY 2009 laborrelated share of 69.7 percent to all hospitals 

(regardless of whether the hospital’s wage 

index was above or below 1.0) to aggregate 

payments using the FY 2010 relative weights 

and the FY 2010 pre-reclassified wage 

indices, and applied the rebased and revised 

labor-related share for FY 2010 of 68.8 

percent to all hospitals (regardless of whether 

the hospital’s wage index was above or below 

1.0). In addition, we applied the 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 2009 to FY 2010. By applying this 

methodology, we determined a budget 

neutrality factor for the wage index and 

labor-related share changes of 1.000407. 

Finally, we multiplied the DRG 

reclassification and recalibration budget 

neutrality factor of 0.997941 (derived in the 

first step) by the budget neutrality factor for 

wage index changes of 1.000407 (derived in 

the second step) to determine the DRG 

reclassification and recalibration and 

updated wage index and labor-related share 

budget neutrality factor of 0.998347. 

Comment: One commenter requested that 

CMS explain why it has made changes to the 

budget neutrality calculation to segment 

various aspects of those calculations. 

Response: As discussed above, in order to 

meet the statutory requirements of section 

1886(d)(3)(E)(i) of the Act that we do not take 

into account the labor-related share of 62 

percent when computing wage index budget 

neutrality and that we budget neutralize any 

changes in payments as a result of the FY 

2010 rebased and revised labor-related share, 

it was necessary to use a three-step process 

(or segment various aspects of the 

calculation) to comply with the requirements 

for DRG reclassification and recalibration, 

wage index and labor-related share budget 

neutrality. 

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 under section 

1886(d)(13) of the Act are not budget neutral. 

Section 1886(d)(13)(H) of the Act provides 

that any increase in a wage index under 

section 1886(d)(13) shall not be taken into 

account ‘‘in applying any budget neutrality 

adjustment with respect to such index’’ 

under section 1886(d)(8)(D) of the Act. To 

calculate the budget neutrality factor for FY 

2010, we used FY 2008 discharge data to 

simulate payments and compared total IPPS 

payments with FY 2010 relative weights, FY 

2010 labor share percentages, and FY 2010 


sroberts on DSKD5P82C1PROD with RULES
44006 Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 

wage data prior to any reclassifications under 

sections 1886(d)(8)(B) and (C) and 

1886(d)(10) of the Act to total IPPS payments 

with FY 2010 relative weights, FY 2010 labor 

share percentages, and FY 2010 wage data 

after such reclassifications. Based on these 

simulations, we calculated an adjustment 

factor of 0.991297 to ensure that the effects 

of these provisions are budget neutral, 

consistent with the statute. 

The FY 2010 budget neutrality adjustment 

factor is applied to the standardized amount 

after removing the effects of the FY 2009 

budget neutrality adjustment factor. We note 

that the FY 2010 budget neutrality 

adjustment reflects FY 2010 wage index 

reclassifications approved by the MGCRB or 

the Administrator. 

c. Rural Floor and Imputed Floor Budget 

Neutrality Adjustment 

CMS makes an adjustment to the wage 

index to ensure that aggregate payments after 

implementation of the rural floor under 

section 4410 of the BBA (Pub. L. 105–33) and 

the imputed floor under § 412.64(h)(4) of the 

regulations are made in a manner that 

ensures that aggregate payments to hospitals 

are not affected. As discussed in section III.B. 

of the preamble of the FY 2009 IPPS final 

rule (73 FR 48570 through 48574), we 

adopted as final State-level budget neutrality 

for the rural and imputed floors, effective 

beginning with the FY 2009 wage index. In 

response to the public’s concerns and taking 

into account the potentially significant 

payment cuts that could occur to hospitals in 

some States if we implemented this change 

with no transition, we decided to phase in, 

over a 3-year period, the transition from the 

national rural floor budget neutrality 

adjustment on the wage index to the Statelevel rural floor budget neutrality adjustment 

on the wage index. In FY 2009, hospitals 

received a blended wage index that was 

comprised of 20 percent of the wage index 

adjusted by applying the State-level rural and 

imputed floor budget neutrality adjustment 

and 80 percent of the wage index adjusted by 

applying the national budget neutrality 

adjustment. For FY 2010, the blended wage 

index is determined by adding 50 percent of 

the wage index adjusted by applying the 

State-level rural and imputed floor budget 

neutrality adjustment and 50 percent of the 

wage index adjusted by applying the national 

budget neutrality adjustment. In FY 2011, the 

adjustment will be completely transitioned to 

the State-level methodology, such that the 

wage index will be determined by applying 

100 percent of the State-level budget 

neutrality adjustment. As stated earlier, we 

note that the rural floor budget neutrality 

adjustment is applied to the wage index and 

not the standardized amount. However, 

because these blended wage indices 

reflecting the 50 percent State-level rural and 

imputed floor budget neutrality adjustment 

and the 50 percent national rural and 

imputed floor budget neutrality adjustment 

are used in calculating the FY 2010 outlier 

threshold (as discussed below), we are 

explaining our calculation of the rural floor 

budget neutrality adjustments (in this 

section) below. 

In order to compute a budget neutral wage 

index that is a blend of 50 percent of the 

wage index adjusted by the State-level rural 

and imputed floor budget neutrality 

adjustment and 50 percent of the wage index 

adjusted by the national rural and imputed 

floor budget neutrality adjustment, similar to 

our calculation of the FY 2009 wage index 

(73 FR 48570 through 48574), we used FY 

2008 discharge data with FY 2010 relative 

weights, FY 2010 labor share percentages, 

and FY 2010 post reclassified wage indices 

to simulate IPPS payments. First, we 

compared the national simulated payments 

without the rural and imputed floors applied 

to national simulated payments with the 

rural and imputed floors applied to 

determine the national rural and imputed 

floor budget neutrality adjustment factor of 

0.996705. This national adjustment was then 

applied to the FY 2010 post reclassified wage 

indices to produce a national rural and 

imputed floor budget neutral wage index, 

which was used in determining the FY 2010 

blended post reclassified wage indices for the 

second year of the transition (as described 

below). We then used the same methodology 

to determine each State’s rural or imputed 

floor budget neutrality adjustment by 

comparing each State’s total simulated 

payments with and without the rural or 

imputed floor applied. These State-level rural 

and imputed floor budget neutrality factors 

were then applied to the wage indices to 

produce a State-level rural and imputed floor 

budget neutral wage index, which was used 

in determining the FY 2010 blended wage 

indices for the second year of the transition 

(as described below). 

To determine the FY 2010 wage indices for 

the second year of the transition, we then 

blended the national and State-level post 

reclassified wage index values (computed 

above) by taking 50 percent of the national 

rural and imputed floor budget neutral post 

reclassified wage index and 50 percent of the 

State-level rural and imputed floor budget 

neutral post reclassified wage index. Because 

of interactive effects between the payment 

factors applied under the IPPS and/or 

rounding issues, the blended post reclassified 

wage index calculated above does not 

necessarily result in overall budget 

neutrality. That is, aggregate IPPS payments 

simulated using the blended budget neutral 

post reclassified wage index may not be 

equal to aggregate IPPS payments simulated 

using the post reclassified wage index prior 

to the application of the rural and imputed 

floors. Therefore, in order to ensure that 

national payments overall remain budget 

neutral after application of the rural and 

imputed floors, an additional adjustment 

factor of 0.999995 must be applied to the 

blended post reclassified wage indices 

calculated as described above. 

Comment: Several commenters pointed out 

that in the proposed rule CMS stated on page 

24243 of the rule that it applied an additional 

budget neutrality factor of 1.00016 to the 

blended wage indexes, while on page 24663 

of the rule CMS stated that this same 

additional budget-neutrality factor was 

1.000017. The commenter requested that 

CMS clarify which factor is the correct 

additional budget neutrality factor related to 

the rural floor. 

Response: We thank the commenter for 

pointing out the two different factors that 

were published in the proposed rule. The 

correct factor for the proposed rule is 

1.00016. For this final rule, as described 

above, we applied an adjustment factor of 

0.999995 to the blended wage indices 

calculated. 

d. Case-Mix Budget Neutrality Adjustment 

(1) Adjustment to the FY 2010 IPPS 

Standardized Amount 

As stated earlier, beginning in FY 2008, we 

adopted the MS–DRG patient classification 

system for the IPPS to better recognize 

patients’ severity of illness in Medicare 

payment rates. In the FY 2008 IPPS final rule 

with comment period (73 FR 47175 through 

47186), we indicated that we believe the 

adoption of the MS–DRGs had the potential 

to lead to increases in aggregate payments 

without a corresponding increase in actual 

patient severity of illness due to the 

incentives for changes in documentation and 

coding. In that final rule, using the 

Secretary’s authority under section 

1886(d)(3)(A)(vi) of the Act to maintain 

budget neutrality by adjusting the national 

standardized amounts to eliminate the effect 

of changes in documentation and coding that 

do not reflect real change in case-mix, we 

established prospective documentation and 

coding adjustments of ¥1.2 percent for FY 

2008, ¥1.8 percent for FY 2009, and ¥1.8 

percent for FY 2010 (for a total adjustment 

of ¥4.8 percent). On September 29, 2007, 

Public Law 110–90 was enacted. Section 7 of 

Public Law 110–90 included a provision that 

reduces the documentation and coding 

adjustment for the MS–DRG system that we 

adopted in the FY 2008 IPPS final rule with 

comment period to ¥0.6 percent for FY 2008 

and ¥0.9 percent for FY 2009. To comply 

with the provision of section 7(a) of Public 

Law 110–90, in a final rule that appeared in 

the Federal Register on November 27, 2007 

(72 FR 66886), we changed the IPPS 

documentation and coding adjustment for FY 

2008 to ¥0.6 percent, and revised the FY 

2008 national standardized amounts (as well 

as other payment factors and thresholds) 

accordingly, with these revisions being 

effective as of October 1, 2007. For FY 2009, 

section 7(a) of Public Law 110–90 required a 

documentation and coding adjustment of 

¥0.9 percent instead of the ¥1.8 percent 

adjustment specified in the FY 2008 IPPS 

final rule with comment period. As required 

by statute, we applied a documentation and 

coding adjustment of ¥0.9 percent to the FY 

2009 IPPS national standardized amounts. 

The documentation and coding adjustments 

established in the FY 2008 IPPS final rule 

with comment period are cumulative. As a 

result, the ¥0.9 percent documentation and 

coding adjustment in FY 2009 was in 

addition to the ¥0.6 percent adjustment in 

FY 2008, yielding a combined effect of ¥1.5 

percent. 

In the proposed rule, we discussed our 

analysis of FY 2008 claims data which shows 

an increase in case-mix of 2.5 percent due to 

changes in documentation and coding that do 

not reflect real changes in case-mix for 

discharges occurring during FY 2008. For FY 

2010, we proposed to reduce the average 

standardized amounts under section 1886(d) 

of the Act in FY 2010 by ¥1.9 percent, 


sroberts on DSKD5P82C1PROD with RULES
Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 44007 

which represents the difference between 

changes in documentation and coding that do 

not reflect real changes in case-mix for 

discharges occurring during FY 2008 and the 

prospective adjustment applied under Public 

Law 110–90. As discussed in section II.D. of 

the preamble of this final rule, after 

consideration of the public comments we 

received on our analysis and proposals 

presented in the proposed rule, we have 

decided to postpone adopting documentation 

and coding adjustments as authorized under 

section 7(a) of Public Law 110–90 and 

section 1886(d)(3)(A)(vi) of the Act until a 

full analysis of FY 2009 case-mix changes 

can be completed. Accordingly, in this final 

rule, for FY 2010, we did not apply any 

additional documentation and coding 

adjustments to the average standardized 

amounts under section 1886(d) of the Act. 

(2) Adjustment to the FY 2010 HospitalSpecific Rates for SCHs and MDHs 

As discussed in section II.D. of the 

preamble of the FY 2010 IPPS/RY 2010 LTCH 

PPS proposed rule and this final rule, 

because hospitals (SCHs and MDHs) paid 

based in whole or in part on the hospitalspecific rate use the same MS–DRG system as 

other hospitals, we believe they have the 

potential to realize increased payments from 

documentation and coding changes that do 

not reflect real increases in patients’ severity 

of illness. Under section 1886(d)(3)(A)(vi) of 

the Act, Congress stipulated that hospitals 

paid based on the standardized amount 

should not receive additional payments 

based on the effect of documentation and 

coding changes that do not reflect real 

changes in case-mix. Similarly, we believe 

that hospitals paid based on the hospitalspecific rate should not have the potential to 

realize increased payments due to 

documentation and coding changes that do 

not reflect real increases in patients’ severity 

of illness. While we continue to believe that 

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

provide explicit authority for application of 

the documentation and coding adjustment to 

the 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. 

As discussed in the proposed rule, we 

found that, independently for both SCHs and 

MDHs, the change due to documentation and 

coding that did not reflect real changes in 

case-mix for discharges occurring during FY 

2008 slightly exceeded the 2.5 percent result 

discussed earlier, but did not significantly 

differ from that result. 

Therefore, we proposed to use our 

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

Act to prospectively adjust the hospitalspecific rates by ¥2.5 percent in FY 2010 for 

our estimated documentation and coding 

effect in FY 2008 that does not reflect real 

changes in case-mix. We also noted that, 

unlike the national standardized rates, the FY 

2009 hospital-specific rates were not 

previously reduced in order to account for 

anticipated changes in documentation and 

coding that do not reflect real changes in 

case-mix resulting from the adoption of the 

MS–DRGs. 

Consistent with our approach for 

determining the national average 

standardized amounts discussed earlier, after 

consideration of the public comments we 

received on our analysis and proposals 

presented in the proposed rule, we also are 

postponing adoption of a documentation and 

coding adjustment to the hospital-specific 

rate until a full analysis of FY 2009 case-mix 

changes can be completed. Accordingly, in 

this final rule, for FY 2010, we will not apply 

a documentation and coding adjustment to 

the hospital-specific rates. 

(3) Adjustment to the FY 2010 Puerto Rico 

Standardized Amount 

As stated in section II.D. of the preamble 

of this final rule, we believe that we have the 

authority to apply the documentation and 

coding adjustment to the Puerto Rico-specific 

standardized amount using our special 

exceptions and adjustment authority under 

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

SCHs and MDHs that are paid based on the 

hospital-specific rate, we believe that Puerto 

Rico hospitals that are paid based on the 

Puerto 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 patients’ severity of illness. In 

the proposed rule, we discussed our analysis 

of FY 2008 claims data for Puerto Rico 

hospitals, which shows that, for Puerto Rico 

hospitals, the increase in payments for 

discharges occurring during FY 2008 due to 

documentation and coding changes that did 

not reflect real changes in case-mix for 

discharges occurring during FY 2008 was 

approximately 1.1 percent. We note that, 

unlike the national standardized rates, the FY 

2009 Puerto Rico-specific standardized 

amount was not previously reduced in order 

to account for anticipated changes in 

documentation and coding that do not reflect 

real changes in case-mix resulting from the 

adoption of the MS–DRGs. Therefore, we 

proposed to use our authority under section 

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

Rico-specific standardized amount by ¥1.1 

percent in FY 2010 to account for the FY 

2008 documentation and coding changes that 

are not due to changes in real case-mix and 

to leave that adjustment in place for 

subsequent fiscal years. 

Consistent with our approach for 

determining the national average 

standardized amounts and hospital-specific 

rates of SCHs and MDHs discussed above, 

after consideration of the public comments 

we received on our analysis and proposals 

presented in the proposed rule, we also are 

postponing adoption of a documentation and 

coding adjustment to the Puerto Rico-specific 

rates until a full analysis of FY 2009 case-mix 

changes can be completed. Accordingly, in 

this final rule, for FY 2010, we will not apply 

a documentation and coding adjustment to 

the Puerto Rico-specific rates. 

e. 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 2010 is 80 percent, the same 

marginal cost factor we have used since FY 

1995 (59 FR 45367). 

In accordance with section 

1886(d)(5)(A)(iv) of the Act, outlier payments 

for any year are projected to be not less than 

5 percent nor more than 6 percent of total 

operating DRG payments plus outlier 

payments. We note that the statute requires 

outlier payments to be not less than 5 percent 

nor more than 6 percent of total ‘‘operating 

DRG payments’’ (which does not include IME 

and DSH payments) plus outlier payments. 

When setting the outlier threshold, we 

compute the 5.1 percent target by dividing 

the total operating outlier payments by the 

total operating DRG payments plus outlier 

payments. We do not include any other 

payments such as IME and DSH within the 

outlier target amount. Therefore, it is not 

necessary to include Medicare Advantage 

IME payments in the outlier threshold 

calculation. Section 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/Acute

InpatientPPS/04_outlier.asp#TopOfPage. 

(1) FY 2010 Outlier Fixed-Loss Cost 

Threshold 

For FY 2010, we proposed to continue to 

use the same methodology used for FY 2009 

(73 FR 48763 through 48766) to calculate the 

outlier threshold. Similar to the methodology 

used in the FY 2009 IPPS final rule, for FY 

2010, 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 2010 outlier threshold we 

simulated payments by applying FY 2010 

rates and policies using cases from the FY 

2008 MedPAR files. Therefore, in order to 

determine the proposed FY 2010 outlier 

threshold, we inflated the charges on the 

MedPAR claims by 2 years, from FY 2008 to 

FY 2010. 

We proposed to continue to use a refined 

methodology that takes into account the 


sroberts on DSKD5P82C1PROD with RULES
44008 Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 

lower inflation in hospital charges that are 

occurring as a result of the outlier final rule 

(68 FR 34494), which changed our 

methodology for determining outlier 

payments by implementing the use of more 

current CCRs. Our refined methodology uses 

more recent data that reflect the rate-ofchange in hospital charges under the new 

outlier policy. 

Using the most recent data available, we 

calculated the 1-year average annualized rateof-change in charges-per-case from the last 

quarter of FY 2007 in combination with the 

first quarter of FY 2008 (July 1, 2007 through 

December 31, 2007) to the last quarter of FY 

2008 in combination with the first quarter of 

FY 2009 (July 1, 2008 through December 31, 

2008). This rate of change was 7.29 percent 

(1.0729) or 15.11 percent (1.1511) over 2 

years. 

As we have done in the past, we 

established the proposed FY 2010 outlier 

threshold using hospital CCRs from the 

December 2008 update to the ProviderSpecific File (PSF)—the most recent available 

data at the time of the proposed rule. This 

file includes CCRs that reflect 

implementation of the changes to the policy 

for determining the applicable CCRs that 

became effective August 8, 2003 (68 FR 

34494). 

As discussed in the FY 2007 IPPS final rule 

(71 FR 48150), we worked with the Office of 

Actuary to derive the methodology described 

below to develop the CCR adjustment factor. 

For FY 2010, we proposed to continue to use 

the same methodology to calculate the CCR 

adjustment by using the FY 2008 operating 

cost per discharge increase in combination 

with the actual FY 2008 operating market 

basket percentage increase determined by 

IHS Global Insight, Inc., as well as the charge 

inflation factor described above to estimate 

the adjustment to the CCRs. (We note that the 

FY 2008 actual (otherwise referred to as 

‘‘final’’) operating market basket percentage 

increase reflects historical data, whereas the 

published FY 2008 operating market basket 

update factor was based on IHS Global 

Insight, Inc.’s 2007 third quarter forecast with 

historical data through the first quarter of 

2008.) 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 2010, we determined 

the adjustment by taking the percentage 

increase in the operating costs per discharge 

from FY 2006 to FY 2007 (1.0460) from the 

cost report and dividing it by the final 

operating market basket percentage increase 

from FY 2007 (1.0360). 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 2004 to FY 2005 

percentage increase of operating costs per 

discharge of 1.0584 divided by the FY 2005 

final operating market basket percentage 

increase of 1.0390, the FY 2005 to FY 2006 

percentage increase of operating costs per 

discharge of 1.0578 divided by FY 2006 final 

operating market basket percentage increase 

of 1.0400). For FY 2010, we averaged the 

differentials calculated for FY 2005, FY 2006, 

and FY 2007, which resulted in a mean ratio 

of 1.0151. We multiplied the 3-year average 

of 1.0151 by the FY 2008 final operating 

market basket percentage increase of 1.0400, 

which resulted in an operating cost inflation 

factor of 5.56 percent or 1.056. We then 

divided the operating cost inflation factor by 

the 1-year average change in charges 

(1.072893) and applied an adjustment factor 

of 0.9840 to the operating CCRs from the PSF. 

As stated in the FY 2009 IPPS final rule (73 

FR 48763), we continue to believe it is 

appropriate to apply only a 1-year adjustment 

factor to the CCRs. On average, it takes 

approximately 9 months for a fiscal 

intermediary or MAC to tentatively settle a 

cost report from the fiscal year end of a 

hospital’s cost reporting period. The average 

‘‘age’’ of hospitals’ CCRs from the time the 

fiscal intermediary or the MAC inserts the 

CCR in the PSF until the beginning of FY 

2009 is approximately 1 year. Therefore, as 

stated above, we believe a 1-year adjustment 

factor to the CCRs is appropriate. 

We used the same methodology for the 

capital CCRs and determined the adjustment 

by taking the percentage increase in the 

capital costs per discharge from FY 2006 to 

FY 2007 (1.0488) from the cost report and 

dividing it by the final capital market basket 

percentage increase from FY 2007 (1.0130). 

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 2004 to FY 2005 percentage increase 

of capital costs per discharge of 1.0329 

divided by the FY 2005 final capital market 

basket percentage increase of 1.0090, the FY 

2005 to FY 2006 percentage increase of 

capital costs per discharge of 1.0467 divided 

by the FY 2006 final capital market basket 

percentage increase of 1.0110). For FY 2010, 

we averaged the differentials calculated for 

FY 2005, FY 2006, and FY 2007, which 

resulted in a mean ratio of 1.0314. We 

multiplied the 3-year average of 1.0314 by 

the FY 2008 final capital market basket 

percentage increase of 1.0140, which resulted 

in a capital cost inflation factor of 4.59 

percent or 1.0459. We then divided the 

capital cost inflation factor by the 1-year 

average change in charges (1.072893) and 

applied an adjustment factor of 0.9748 to the 

capital CCRs from the PSF. 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. Therefore, we believe 

it is appropriate to apply the charge factor to 

both the operating and capital CCRs. 

As stated above, for FY 2010, we applied 

the proposed FY 2010 rates and policies 

using cases from the FY 2008 MedPAR files 

in calculating the proposed outlier threshold. 

Therefore, for purposes of estimating the 

proposed outlier threshold for FY 2010, it is 

necessary to take into account the remaining 

projected case-mix growth when calculating 

the outlier threshold that results in outlier 

payments being 5.1 percent of total payments 

for FY 2010. As discussed above and in 

section II.D. of the preamble of this final rule, 

our actuaries estimate that maintaining 

budget neutrality for changes in case-mix due 

to the adoption of the MS–DRGs requires an 

adjustment of ¥4.8 percent to the national 

standardized amount. For FY 2008, our 

estimate of the case-mix increase due to 

documentation and coding in FY 2008 is 2.5 

percent, which is already included within 

the claims data (FY 2008 MedPAR files) used 

to calculate the proposed FY 2010 threshold. 

In addition, we stated that, even with our 

assumption that there will be no continued 

changes in documentation and coding in FY 

2009, the use of the FY 2009 relative weights 

will result in an additional 0.7 percent casemix increase due to the documentation and 

coding effect in FY 2009. Therefore, we 

projected that an additional 1.6 percent casemix growth occurred since 2008 (4.8 percent 

¥2.5 percent (case-mix growth in FY 2008) 

¥0.7 percent (FY 2009 relative weights 

effect) = 1.6 percent). As a result, we inflated 

the FY 2008 claims data by an additional 1.6 

percent for the additional case-mix growth 

projected to have occurred since FY 2008. If 

we did not take into account the remaining 

1.6 percent projected case-mix growth, our 

estimate of total FY 2010 payments would 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. While we assume 1.6 percent casemix growth for IPPS hospitals in our outlier 

threshold calculations, the FY 2010 national 

standardized amounts used to calculate the 

proposed outlier threshold reflect the 

proposed cumulative adjustment of -3.4 

percent (as described above in this section 

above). 

Using this methodology, we proposed an 

outlier fixed-loss cost threshold for FY 2010 

equal to the prospective payment rate for the 

DRG, plus any IME and DSH payments, and 

any add-on payments for new technology, 

plus $24,240. 

In the proposed rule, we stated that as we 

did in establishing the FY 2009 outlier 

threshold (73 FR 57891), in our projection of 

FY 2010 outlier payments, we did not make 

any adjustments for the possibility that 

hospitals’ CCRs and outlier payments may be 

reconciled upon cost report settlement. We 

continue to believe that, due to the policy 

implemented in the June 9, 2003 outlier final 

rule (68 FR 34494), CCRs will no longer 

fluctuate significantly and, therefore, few 

hospitals will actually have these ratios 

reconciled upon cost report settlement. In 

addition, it is difficult to predict the specific 

hospitals that will have CCRs and outlier 

payments reconciled in any given year. We 

also noted that reconciliation occurs because 

hospitals’ actual CCRs for the cost reporting 

period are different than the interim CCRs 

used to calculate outlier payments when a 

bill is processed. Our simulations assume 

that CCRs accurately measure hospital costs 

based on information available to us at the 

time we set the outlier threshold. For these 

reasons, we proposed not to make any 


sroberts on DSKD5P82C1PROD with RULES
Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 44009 

assumptions about the effects of 

reconciliation on the outlier threshold 

calculation. 

We also noted in the proposed rule that 

there were some factors that contributed to a 

higher proposed fixed loss outlier threshold 

for FY 2010 compared to FY 2009. First, as 

stated below in section II.A.4.e.(3) of this 

Addendum, we are currently projecting 5.4 

percent of total IPPS payment will be paid as 

outliers in FY 2009 or 0.3 percentage points 

greater than the 5.1 percent originally 

estimated. If we do not increase the FY 2009 

threshold in FY 2010, we would continue to 

make outlier payments in excess of the 5.1 

percent target. In addition, because overall 

payments are projected to be lower in FY 

2010 compared to FY 2009, even more cases 

would qualify for outlier payments. In order 

to maintain outlier payments at 5.1 percent, 

the outlier threshold must be further 

increased to decrease the amount of cases 

that would qualify as outliers. Together, we 

believe that the above factors cumulatively 

contributed to a higher proposed fixed-loss 

outlier threshold in FY 2010 compared to FY 

2009. 

Comment: Some commenters stated that it 

appears CMS is making conservative 

estimates and assumptions in the numbers 

and cost of outlier cases in order to be within 

or materially below the 5.1 percent target. 

Another commenter stated that CMS should 

not use FY 2009 projections to determine the 

FY 2010 threshold and instead CMS should 

use FY 2008 actual payments. The 

commenter further stated that underpayment 

in FY 2008 indicates that the proposed 

increase in the FY 2010 threshold is 

overstated. 

One commenter objected to CMS’ proposal 

to raise the outlier threshold in FY 2010 

(compared to FY 2009). The commenter 

explained that it does not understand why 

CMS is proposing to raise the threshold if the 

FY 2009 threshold has clearly achieved 

Congress’ stated goal. The commenter 

believed that raising the threshold will 

jeopardize CMS’ ability to meet the outlier 

target for FY 2010. The commenter also noted 

that because there is a planned reduction to 

the rate for documentation and coding, CMS 

should lower the outlier threshold. 

Response: As explained above, we use the 

most recent data available to set the outlier 

threshold. Specifically, to calculate the FY 

2010 outlier threshold, we simulated 

payments by applying FY 2010 rates and 

policies using cases from the FY 2008 

MedPAR files. Therefore, we did not use the 

FY 2009 projection in the modeling of the 

outlier threshold. In our discussion in the 

proposed rule of why we believe the 

threshold increased from FY 2009 to FY 

2010, we observed from our analysis that the 

threshold we set in FY 2009 is currently 

projecting an outlier estimate of 5.4 percent 

for FY 2009. Based on this observation, it 

would seem if we maintained the FY 2009 

threshold for FY 2010, we would continue to 

miss the 5.1 percent target and overpay 

outliers. Upon modeling the proposed outlier 

threshold using FY 2008 MedPAR claims and 

the methodology described above (not 

including the FY 2009 projection of the 

outlier estimate), the result was indeed an 

increased outlier threshold for FY 2010. 

We note that in the proposed rule we 

proposed to reduce the proposed 

standardized amount by 1.9 percent due to 

documentation and coding. As stated above, 

the proposed FY 2010 national standardized 

amounts used to calculate the proposed 

outlier threshold reflected the proposed 

cumulative adjustment of ¥3.4 percent. We 

believe that the proposed cumulative 

documentation and coding adjustment 

applied to the proposed FY 2010 national 

standardized amounts to calculate the 

proposed outlier threshold also contributed 

to an increase in the proposed FY 2010 

outlier threshold from FY 2009. Specifically, 

as a result of the reduction to the 

standardized amount for documentation and 

coding in the proposed rule, more cases 

would qualify for outliers. Therefore, it was 

necessary to increase the outlier threshold in 

the proposed rule to maintain outlier 

payments at 5.1 percent of overall payments. 

However, as stated below, for this final rule, 

the FY 2010 national standardized amounts 

used to calculate the final outlier threshold 

reflect the cumulative adjustment of ¥1.5 

percent (from FY 2008 and FY 2009) with no 

further documentation and coding 

adjustment for FY 2010. Because we are no 

longer applying additional documentation 

and coding adjustments for FY 2010, fewer 

cases will qualify for outlier payments. 

Therefore, for this final rule, our use of a FY 

2010 national standardized amount that 

reflects a cumulative adjustment of ¥1.5 

percent rather than ¥3.4 percent resulted in 

a lower outlier threshold from the proposed 

rule in order to maintain outlier payments at 

5.1 percent of overall payments. 

Comment: One commenter recommended 

that CMS make a mid-year change to the 

outlier threshold if it appears that the 5.1 

percent target will not be met. The 

commenter suggested that CMS use more 

recent CCR data for a mid-year correction to 

the outlier threshold and use thresholds such 

as if outlier payments less than 95 percent or 

greater than 105 percent of the 5.1 percent 

target to trigger a mid-year adjustment. 

Response: We responded to a similar 

comment in the FY 2006 IPPS final rule (70 

FR 47495). We refer readers to that final rule. 

Comment: One commenter recommended 

that CMS use a multiyear trend analysis 

using actual outlier payments rather than 

estimating payments based a portion of 

payments from FY 2009 to determine the FY 

2010 outlier threshold. The commenter noted 

that actual outlier payments for hospitals in 

its city do not match CMS’ projections. The 

commenter opposed the increase to the 

outlier threshold and requested that CMS 

develop a methodology that better predicts 

the outlier threshold with less variability. 

Response: The commenter did not provide 

an explanation on how to use actual 

payments to determine the outlier threshold 

for the coming fiscal year. Also, considering 

actual outlier payments in the modeling of 

the outlier threshold would result in our 

modeling the threshold based on high cost 

cases that are not relevant to the upcoming 

fiscal year. In addition, we use the latest data 

available (that is, the FY 2008 MedPAR) to 

model the FY 2010 outlier threshold as if we 

were making payments within FY 2010. We 

believe our outlier policies are consistent 

with the statute and the goals of the IPPS. 

In response to the comments that actual 

outlier payments for hospitals in the 

commenter’s city do not match CMS’ 

projections, when we compute the outlier 

threshold, we set the threshold to meet the 

5.1 percent target in the aggregate (on a 

national basis) and not on an individual 

hospital basis. It is possible that some 

hospitals may treat sicker patients than 

others, thus resulting in an individual outlier 

percentage that is higher than 5.1 percent, 

while other hospitals may treat more healthy 

patients, which results in an outlier 

percentage that is less than 5.1 percent. Our 

goal is to set an outlier threshold that meets 

the 5.1 percent target on a national level. In 

addition, for FY 2009, we are currently 

projecting outlier payment to be 5.4 percent 

of total payments, which is greater than the 

5.1 percent target. We believe that the current 

methodology, which also adjusts the CCRs, 

has led to better accuracy in determining the 

outlier threshold in order to maintain outlier 

payments at 5.1 percent. 

Comment: Many commenters stated that 

CMS currently estimates outlier payments in 

FY 2008 at 4.8 percent of total payments. The 

commenters commended CMS for making 

refinements such as applying an adjustment 

factor to CCRs when computing the outlier 

threshold but noted that, because CMS is still 

not reaching the 5.1 percent target, there is 

still room for improvement. The commenters 

further stated that although CMS currently 

projects outlier payments in FY 2009 to be 

estimated at 5.4 percent of total payments, 

which exceeds the 5.1 percent target, this 

estimate is based on discharges from a prior 

year and will likely not reflect the actual 

result. The commenters noted that in prior 

years when CMS provided its projected 

estimate of outlier payments for a given fiscal 

year, once the actual claims were available to 

determine the actual outlier payment (in the 

following fiscal year), the estimate declined 

between 0.2 percent and 0.3 percent from the 

projection. The commenters suggested that 

the methodology to develop the adjustment 

factor to the CCRs is unnecessarily 

complicated and does not lead to a more 

accurate result. The commenters urged CMS 

to adopt a methodology that uses recent 

historical industry wide average rate of 

change, similar to the methodology used to 

develop the charge inflation factor. Further, 

in addition to applying an adjustment to the 

CCRs based on historical data, the 

commenters suggested that the CCRs should 

be projected over different periods of time, 

some less or more than one year, based on 

variations in hospital fiscal year ends. The 

commenters believed this methodology 

would more accurately project the decline in 

CCRs. The commenters also compared its 

method and CMS’ method to the actual FY 

2008 rate of change in CCRs and found a 

variance of 0.6 percent (for the commenters’ 

methodology) compared to 1.6 percent (CMS’ 

methodology). 

Response: For this final rule, similar to our 

response in the FY 2008 final rule (72 FR 

47418), in response to the comment that 

CCRs should be projected over different 

periods of time, it is possible that some of the 


sroberts on DSKD5P82C1PROD with RULES
44010 Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 

CCRs in the March PSF will be used in FY 

2009 for actual outlier payments, while other 

CCRs may be one year old. Therefore, we 

apply a 1-year adjustment to the CCRs. With 

respect to the comment on our methodology 

used to adjust the CCRs, as we stated in the 

FY 2008 IPPS final rule with comment period 

(72 FR 47418), we continue to believe this 

calculation of an adjustment to the CCRs is 

more accurate and stable than the 

commenter’s methodology because it takes 

into account the costs per discharge and the 

market basket percentage increase when 

determining a cost adjustment factor. There 

are times where the market basket and the 

cost per discharge will be constant, while 

other times these values will differ from each 

other, depending on the fiscal year. 

Therefore, as mentioned above, using the 

market basket in conjunction with the cost 

per discharge takes into account two sources 

that measure potential cost inflation and 

ensures a more accurate and stable cost 

adjustment factor. 

In addition, as stated below, we are 

currently projecting FY 2009 payments at an 

estimate of 5.4 percent of overall payments. 

As the commenters noted, however, in the 

past, once actual data is available to 

determine actual outlier payment, actual 

outlier payments tend to decline by 0.2 

percent or 0.3 percent from CMS’ original 

projection. If this trend holds for FY 2009, 

actual FY 2009 outlier payments would be 

very close to our target of 5.1 percent of 

overall payments. Therefore, we continue to 

believe that our methodology for adjusting 

the CCRs is an appropriate method for use in 

determining the outlier threshold. 

Comment: One commenter was concerned 

that CMS did not include outlier 

reconciliations in developing the outlier 

threshold. The commenter requested that 

CMS disclose in the final rule and future 

proposed and final IPPS rules the amount of 

money it has recovered through 

reconciliation. The commenter explained 

that this information will allow others to 

comment specifically on how this provision 

would impact the threshold. 

Response: We thank the commenter for the 

concern regarding not including outlier 

reconciliation within the development of the 

outlier 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 finalizing our 

policy not to make any assumptions about 

the effects of reconciliation on the outlier 

threshold calculation. 

Comment: Commenters questioned 

whether CMS Medicare Advantage claims 

were used in the FY 2010 IPPS proposed rule 

to calculate the outlier threshold. 

Commenters also questioned if the charges 

for organ acquisition costs and antihemophilic blood factor were excluded from 

the modeling of the outlier threshold. 

Response: As stated above, we 

inadvertently included Medicare Advantage 

claims in the budget neutrality calculations. 

For this final rule, we have corrected this 

oversight in the calculation of the FY 2010 

final relative weights. 

In addition, in the proposed rule, we 

inadvertently included charges for organ 

acquisition costs within the budget neutrality 

calculations and the calculation of the outlier 

threshold. For the final rule, we excluded 

charges for organ acquisition costs within the 

budget neutrality calculations and the 

calculation of the outlier threshold. 

Finally, charges for anti-hemophilic blood 

factor were included in the proposed budget 

neutrality calculations and the calculation of 

the outlier threshold. We examined the 

MedPAR file and have determined that 

charges for anti-hemophilic blood factor are 

contained within the pharmacy charges. 

Unfortunately, we are currently unable to 

break out charges for anti-hemophilic blood 

factor from the pharmacy charges within 

MedPAR. We will explore the possibility of 

identifying for anti-hemophilic blood factor 

charges in future fiscal years. 

Because we are not making any changes to 

our methodology for this final rule, for FY 

2010, we are using the same methodology we 

proposed to calculate the outlier threshold. 

We used the blended wage indices (as 

discussed above) when we simulated 

payments in our outlier modeling to 

determine the final outlier threshold for FY 

2010. 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 2008 in combination with 

the second quarter of FY 2008 (October 1, 

2007 through March 31, 2008) to the first 

quarter of FY 2009 in combination with the 

second quarter of FY 2009 (October 1, 2008 

through March 31, 2009). This rate of change 

was 6.8570 percent (1.068570) or 14.184 

percent (1.14184) over 2 years. 

As we have done in the past, we 

established the final FY 2010 outlier 

threshold using hospital CCRs from the 

March 2009 update to the PSF—the most 

recent available data at the time of this final 

rule. This file includes CCRs that reflected 

implementation of the changes to the policy 

for determining the applicable CCRs that 

became effective August 8, 2003 (68 FR 

34494). 

For FY 2009, we calculated the CCR 

adjustment by using the operating cost per 

discharge increase in combination with the 

market basket increase determined by IHS 

Global Insight, Inc., as well as the charge 

inflation factor described above to estimate 

the adjustment to the CCRs. We determined 

the operating CCR adjustment by taking the 

percentage increase in the operating costs per 

discharge from FY 2006 to FY 2007 (1.0463) 

from the cost report and dividing it by the 

final market basket increase from FY 2007 

(1.036). This operation removes the measure 

of pure price increase (the market basket) 

from the percentage increase in operating 

cost per discharge, leaving the non-price 

factors in the cost increase (that is, quantity 

and changes in the mix of goods and 

services) to increase the projected market 

basket for estimating the future cost increase. 

We repeated this calculation for 2 prior years 

to determine the 3-year average of the rate of 

adjusted change in costs between the market 

basket rate-of-increase and the increase in 

cost per case from the cost report (FY 2004 

to FY 2005 percentage increase of operating 

costs per discharge of 1.0585 divided by FY 

2005 final market basket increase of 1.039, 

FY 2005 to FY 2006 percentage increase of 

operating costs per discharge of 1.0574 

divided by FY 2006 final market basket 

increase of 1.04). For FY 2010, we averaged 

the differentials calculated for FY 2005, FY 

2006, and FY 2007 which resulted in a mean 

ratio of 1.0151. We multiplied the 3-year 

average of 1.0151 by the FY 2008 final market 

basket percentage increase of 1.04, which 

resulted in an operating cost inflation factor 

of 5.58 percent or 1.0558. We then divided 

the operating cost inflation factor by the 1- 

year average change in charges (1.068570) 

and applied an adjustment factor of 0.988 to 

the operating CCRs from the PSF. 

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 2006 to 

FY 2007 (1.0502) from the cost report and 

dividing it by the final capital market basket 

increase from FY 2007 (1.013). 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 rate-of-increase and the increase in 

cost per case from the cost report (FY 2004 

to FY 2005 percentage increase of capital 

costs per discharge of 1.0323 divided by FY 

2005 final capital market basket increase of 

1.009, FY 2005 to FY 2006 percentage 

increase of capital costs per discharge of 

1.0464 divided by FY 2006 final capital 

market basket increase of 1.0110). For FY 

2010, we averaged the differentials calculated 

for FY 2005, FY 2006, and FY 2007, which 

resulted in a mean ratio of 1.0316. We 

multiplied the 3-year average of 1.0316 by 

the FY 2008 final capital market basket 

percentage increase of 1.0140, which resulted 

in a capital cost inflation factor of 4.61 

percent or 1.0461. We then divided the 

capital cost inflation factor by the 1-year 

average change in charges (1.068570) and 

applied an adjustment factor of 0.9789 to the 

capital CCRs from the PSF. 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. Therefore, we believe 

it is appropriate to apply the charge factor to 

both the operating and capital CCRs. 

As stated above, for FY 2010, we applied 

the final FY 2010 rates and policies using 

cases from the FY 2008 MedPAR files in 

calculating the outlier threshold. Therefore, 

for purposes of estimating the outlier 

threshold for FY 2010, it is necessary to take 

into account the remaining projected casemix growth when calculating the outlier 

threshold that results in outlier payments 

being 5.1 percent of total payments for FY 


sroberts on DSKD5P82C1PROD with RULES
Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 44011 

13These figures represent 3.0 standard deviations 

from the mean of the log distribution of CCRs for 

all hospitals. 

2010. As discussed above and in section II.D. 

of the preamble of this final rule, our 

actuaries estimate that maintaining budget 

neutrality for changes in case-mix due to the 

adoption of the MS–DRGs requires an 

adjustment of ¥4.8 percent to the national 

standardized amount. For FY 2008, our 

estimate of the case-mix increase due to 

documentation and coding in FY 2008 is 2.5 

percent, which is already included within 

the claims data (FY 2008 MedPAR files) used 

to calculate the proposed FY 2010 threshold. 

Based on the updated data used for this final 

rule (the March 2009 update to the FY 2008 

MedPAR), even with our assumption that 

there will be no continued changes in 

documentation and coding in FY 2009, we 

now estimate that the use of the FY 2009 

relative weights will result in an additional 

0.76 percent case-mix increase due to the 

documentation and coding effect in FY 2009. 

(In the proposed rule, we estimated an 

additional 0.7 percent case-mix increase due 

to the documentation and coding effect in FY 

2009). Therefore, for this final rule, we are 

projecting an additional 1.54 percent casemix growth to have occurred since 2008 (4.8 

percent ¥2.5 percent (case-mix growth in FY 

2008) ¥0.76 percent (FY 2009 relative 

weights effect) = 1.54 percent). As a result, 

we inflated the FY 2008 claims data by an 

additional 1.54 percent for the additional 

case-mix growth projected to have occurred 

since FY 2008. If we did not take into 

account the remaining 1.54 percent projected 

case-mix growth, our estimate of total FY 

2010 payments would be too low, and as a 

result, our outlier threshold would be too 

high, such that estimated outlier payments 

would be less than our projected 5.1 percent 

of total payments. While we assume 1.54 

percent case-mix growth for IPPS hospitals in 

our outlier threshold calculations, as stated 

above, we are opting to postpone adopting 

documentation and coding adjustments as 

authorized under section 7(a) of Public Law 

110–90 and section 1886(d)(3)(A)(vi) of the 

Act until a full analysis of FY 2009 case-mix 

changes can be completed. Therefore, the FY 

2010 national standardized amounts used to 

calculate the final outlier threshold reflect 

the cumulative adjustment of ¥1.5 percent 

(from FY 2008 and FY 2009) with no further 

documentation and coding adjustment for FY 

2010. 

Using this methodology, we calculated a 

final outlier fixed-loss cost threshold for FY 

2010 equal to the prospective payment rate 

for the DRG, plus any IME and DSH 

payments, and any add-on payments for new 

technology, plus $23,140. With this 

threshold, we project that outlier payments 

will equal 5.1 percent of total IPPS payments. 

As we stated above and as we established 

the FY 2009 outlier threshold (72 FR 47419), 

in our projection of FY 2010 outlier 

payments, we are not making any 

adjustments for the possibility that hospitals’ 

CCRs and outlier payments may be 

reconciled upon cost report settlement. We 

continue to believe that, due to the policy 

implemented in the outlier final rule (68 FR 

34494, June 9, 2003), CCRs will no longer 

fluctuate significantly and, therefore, few 

hospitals will actually have these ratios 

reconciled upon cost report settlement. In 

addition, it is difficult to predict the specific 

hospitals that will have CCRs and outlier 

payments reconciled in any given year. We 

also noted that reconciliation occurs because 

hospitals’ actual CCRs for the cost reporting 

period are different than the interim CCRs 

used to calculate outlier payments when a 

bill is processed. Our simulations assume 

that CCRs accurately measure hospital costs 

based on information available to us at the 

time we set the outlier threshold. For these 

reasons, we are not making any assumptions 

about the effects of reconciliation on the 

outlier threshold calculation. 

We also note that the final threshold for FY 

2010 is lower than the FY 2010 proposed 

outlier threshold. As stated above, we are 

opting to postpone adopting documentation 

and coding adjustments as authorized under 

section 7(a) of Public Law 110–90 and 

section 1886(d)(3)(A)(vi) of the Act until a 

full analysis of FY 2009 case-mix changes 

can be completed. Because we are not further 

reducing the standardized amount for 

documentation and coding in FY 2010, fewer 

cases will qualify for outlier payments thus 

requiring us to lower the threshold from the 

proposed rule to this final rule. 

(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 2010 will result in outlier 

payments that will equal 5.1 percent of 

operating DRG payments and 5.2 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 2010 

standardized amount by the same percentage 

to account for the projected proportion of 

payments paid as outliers. 

The outlier adjustment factors that will be 

applied to the standardized amount for the 

FY 2010 outlier threshold are as follows: 

Operating 

standardized 

amounts 

Capital 

Federal 

rate 

National ............. 0.948994 0.947689 

Puerto Rico ....... 0.957524 0.935958 

We are applying the outlier adjustment 

factors to the FY 2010 rates after removing 

the effects of the FY 2009 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. 

The June 9, 2003 outlier final rule (68 FR 

34494) eliminated the application of the 

statewide average CCRs for hospitals with 

CCRs that fell below 3 standard deviations 

from the national mean CCR. However, for 

those hospitals for which the fiscal 

intermediary or MAC computes operating 

CCRs greater than 1.179 or capital CCRs 

greater than 0.148, or hospitals for whom the 

fiscal intermediary or MAC is unable to 

calculate a CCR (as described at § 412.84(i)(3) 

of our regulations), we still use statewide 

average CCRs to determine whether a 

hospital qualifies for outlier payments.13

Table 8A in this Addendum 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, 2009, these 

statewide average ratios will replace the 

ratios published in the IPPS final rule for FY 

2009 (73 FR 48994 through 48995). Table 8B 

in this Addendum contains the comparable 

statewide average capital CCRs. Again, the 

CCRs in Tables 8A and 8B will be used 

during FY 2010 when hospital-specific CCRs 

based on the latest settled cost report are 

either not available or are outside the range 

noted above. For an explanation of Table 8C, 

we refer readers to section V. of this 

Addendum. 

We finally note that we published a 

manual update (Change Request 3966) to our 

outlier policy on October 12, 2005, which 

updated Chapter 3, Section 20.1.2 of the 

Medicare Claims Processing Manual. The 

manual update covered an array of topics, 

including CCRs, reconciliation, and the time 

value of money. We encourage hospitals that 

are assigned the statewide average operating 

and/or capital CCRs to work with their fiscal 

intermediary or MAC on a possible 

alternative operating and/or capital CCR as 

explained in Change Request 3966. Use of an 

alternative CCR developed by the hospital in 

conjunction with the fiscal intermediary or 

MAC can avoid possible overpayments or 

underpayments at cost report settlement, 

thus ensuring better accuracy when making 

outlier payments and negating the need for 

outlier reconciliation. We also note that a 

hospital may request an alternative operating 

or capital CCR ratio at any time as long as 

the guidelines of Change Request 3966 are 

followed. To download and view the manual 

instructions on outlier and CCRs, we refer 

readers to CMS Web site: http:// 

www.cms.hhs.gov/manuals/downloads/ 

clm104c03.pdf. 

(3) FY 2008 and FY 2009 Outlier Payments 

In the FY 2009 IPPS final rule (73 FR 

48766), we stated that, based on available 

data, we estimated that actual FY 2008 

outlier payments would be approximately 4.7 

percent of actual total DRG payments. This 

estimate was computed based on simulations 

using the FY 2007 MedPAR file (discharge 

data for FY 2007 claims). That is, the 

estimate of actual outlier payments did not 

reflect actual FY 2008 claims, but instead 

reflected the application of FY 2008 rates and 

policies to available FY 2007 claims. 


sroberts on DSKD5P82C1PROD with RULES
44012 Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 

Our current estimate, using available FY 

2008 claims data, is that actual outlier 

payments for FY 2008 were approximately 

4.8 percent of actual total DRG payments. 

Thus, the data indicate that, for FY 2008, the 

percentage of actual outlier payments relative 

to actual total payments is higher than we 

projected before FY 2008. 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 2008 are 

equal to 5.1 percent of total DRG payments. 

We currently estimate that actual outlier 

payments for FY 2009 will be approximately 

5.4 percent of actual total DRG payments, 0.3 

percentage points higher than the 5.1 percent 

we projected in setting the outlier policies for 

FY 2009. This estimate is based on 

simulations using the FY 2008 MedPAR file 

(discharge data for FY 2008 claims). We used 

these data to calculate an estimate of the 

actual outlier percentage for FY 2009 by 

applying FY 2009 rates and policies, 

including an outlier threshold of $20,045 to 

available FY 2008 claims. 

Comment: One commenter simulated CMS’ 

estimate of the FY 2008 outlier payment and 

determined an outlier payment percentage of 

4.57 percent. The commenter noted that it is 

has consistently determined different actual 

outlier payout percentages for the last couple 

of years. The commenter requested that CMS 

revisit its calculations and publish an 

explanation to explain the discrepancy in FY 

2008. 

Response: We are not sure why there is a 

discrepancy between our estimate of the FY 

2008 outlier payment and the commenter’s 

estimate of the FY 2008 outlier payment. 

Perhaps the commenter used different data 

trims than we used when computing the FY 

2008 outlier estimate. Without knowing the 

specifics of how the commenter computed 

their estimate, it is possible that CMS and the 

commenter can reach two different estimates. 

We invite the commenter to share its analysis 

in detail with us so we can distinguish any 

differences between CMS’ calculation of the 

outlier estimate and the commenter’s 

calculation of the outlier estimate. 

f. Rural Community Hospital Demonstration 

Program Adjustment (Section 410A of Pub. L. 

108–173) 

Section 410A of Public Law 108–173 

requires the Secretary to establish a 

demonstration that will modify 

reimbursement for inpatient services for up 

to 15 small rural hospitals. Section 

410A(c)(2) 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.’’ As discussed 

in section V.I. of the preamble of this final 

rule, we have satisfied this requirement by 

making an adjustment to the national IPPS 

rates by a factor that is sufficient to account 

for the added costs of this demonstration. We 

estimate that the average additional annual 

payment that will be made to each 

participating hospital under the 

demonstration will be approximately 

$1,371,023. We based this estimate on the 

recent historical experience of the difference 

between inpatient cost and payment for 

hospitals that are participating in the 

demonstration program. For 11 participating 

hospitals, the projected total annual impact 

of the demonstration program for FY 2010 is 

$15,081,251. In addition, because the cost 

reports of all hospitals participating in the 

demonstration in its first and second years 

(that is, FY 2005 and FY 2006) have been 

finalized, we are able to determine how 

much the cost of the demonstration program 

exceeded the amount that was offset by the 

budget neutrality adjustment for FY 2005 and 

FY 2006. For all 13 hospitals that 

participated in the demonstration in FY 

2005, the amount is $7,856,617. For the 10 

hospitals that participated in the 

demonstration in FY 2006, the amount is 

$4,203,947. Therefore, the projected total 

annual impact of the demonstration program 

for FY 2010 is $27,141,815. The budget 

neutrality adjustment factor applied to the 

Federal rate to calculate Medicare inpatient 

prospective payments as a result of the 

demonstration is 0.999739. 

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, consistent with past practice. 

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. 

5. FY 2010 Standardized Amount 

The adjusted standardized amount is 

divided into labor-related and nonlaborrelated portions. Tables 1A and 1B of this 

Addendum contain the national standardized 

amounts that we are applying to all hospitals, 

except hospitals located in Puerto Rico, for 

FY 2010. The Puerto Rico-specific amounts 

are shown in Table 1C of this Addendum. 

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 revised 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 laborrelated 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 

standardized amounts reflecting the full 2.1 

percent update for FY 2010, and the 

standardized amounts reflecting the 2.0 

percentage point reduction to the update (a 

0.1 percent update) applicable for hospitals 

that fail to submit quality data consistent 

with section 1886(b)(3)(B)(viii) of the Act. 

Under section 1886(d)(9)(A)(ii) of the Act, 

the Federal portion of the Puerto Rico 

payment rate is based on the dischargeweighted average of the national large urban 

standardized amount (this amount is set forth 

in Table 1A). The labor-related and nonlaborrelated portions of the national average 

standardized amounts for Puerto Rico 

hospitals for FY 2010 are set forth in Table 

1C of this Addendum. 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 Pub. L. 108–173, provides 

that the labor-related share for hospitals 

located in Puerto Rico be 62 percent, unless 

the application of that percentage would 

result in lower payments to the hospital.) 

The following table illustrates the changes 

from the FY 2009 national standardized 

amount. The second column shows the 

changes from the FY 2009 standardized 

amounts for hospitals that satisfy the quality 

data submission requirement for receiving 

the full update (2.1 percent). The third 

column shows the changes for hospitals 

receiving the reduced update (0.1 percent). 

The first row of the table shows the updated 

(through FY 2009) average standardized 

amount after restoring the FY 2008 offsets for 

outlier payments, demonstration budget 

neutrality and the geographic reclassification 

budget neutrality. The DRG reclassification 

and recalibration wage index budget 

neutrality factors are cumulative. Therefore, 

the FY 2009 factor is not removed from this 

table. Additionally, the documentation and 

coding adjustments for FY 2008 and FY 2009 

are cumulative. Therefore, the FY 2008 and 

FY 2009 adjustment factors are not removed 

from this table. We also have added separate 

rows to this table to reflect the different 

labor-related shares that apply to hospitals. 


sroberts on DSKD5P82C1PROD with RULES
Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 44013 

COMPARISON OF FY 2009 STANDARDIZED AMOUNTS TO THE FY 2010 STANDARDIZED AMOUNT WITH FULL AND REDUCED

UPDATE

Full update (2.1 percent); wage index is 

greater than 1.0000 

Full update (2.1 percent); wage index is 

less than or equal to 

1.0000 

Reduced update (0.1 

percent); wage index 

is greater than 1.0000 

Reduced update (0.1 

percent); wage index 

is less than or equal 

to 1.0000 

FY 2009 Base Rate, after removing geographic reclassification budget neutrality, 

demonstration budget neutrality and outlier 

offset (based on the labor-related share 

percentage for FY 2010).

Labor: $3,748.52 .......

Nonlabor: $1,699.91 ..

Labor: $3,378.40 .......

Nonlabor: $2,070.40 ..

Labor: $3,748.52 .......

Nonlabor: $1,699.91 ..

Labor: $3,378.03. 

Nonlabor: $2,070.40. 

FY 2010 Update Factor .................................. 1.021 .......................... 1.021 .......................... 1.001 .......................... 1.001. 

FY 2010 DRG Recalibration and Wage Index 

Budget Neutrality Factor.

0.998347 .................... 0.998347 .................... 0.998347 .................... 0.998347. 

FY 2010 Reclassification Budget Neutrality 

Factor.

0.991297 .................... 0.991297 .................... 0.991297 .................... 0.991297. 

FY 2010 Outlier Factor ................................... 0.948994 .................... 0.948994 .................... 0.948994 .................... 0.948994. 

Rural Demonstration Budget Neutrality Factor.0.999739 .................... 0.999739 .................... 0.999739 .................... 0.999739. 

Rate for FY 2010 ............................................ Labor: $3,593.52 .......

Nonlabor: $1,629.62 ..

Labor: $3,238.35 .......

Nonlabor: $1,984.79 ..

Labor: $3,523.13 .......

Nonlabor: $1,597.70 ..

Labor: $3,174.91. 

Nonlabor: $1,945.92. 

Under section 1886(d)(9)(A)(ii) of the Act, 

the Federal portion of the Puerto Rico 

payment rate is based on the dischargeweighted average of the national 

standardized amount (as set forth in Table 1A 

of this Addendum). The labor-related and 

nonlabor-related portions of the national 

average standardized amounts for Puerto 

Rico hospitals are set forth in Table 1C of this 

Addendum. This table also includes the 

Puerto Rico standardized amounts. The 

labor-related share applied to the Puerto Rico 

standardized amount is 62.1 percent, or 62 

percent, depending on which results in 

higher payments to the hospital. (Section 

1886(d)(9)(C)(iv) of the Act, as amended by 

section 403(b) of Pub. L. 108–173, provides 

that the labor-related share for hospitals in 

Puerto Rico will be 62 percent, unless the 

application of that percentage would result in 

lower payments to the hospital.) 

B. Adjustments for Area Wage Levels and 

Cost-of-Living 

Tables 1A through 1C, as set forth in this 

Addendum, contain the labor-related and 

nonlabor-related shares that we are using to 

calculate the prospective payment rates for 

hospitals located in the 50 States, the District 

of Columbia, and Puerto Rico for FY 2010. 

This section addresses two types of 

adjustments to the standardized amounts that 

are made in determining the proposed 

prospective payment rates as described in 

this Addendum. 

1. 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 2010 wage 

index. 

2. Adjustment for Cost-of-Living in Alaska 

and Hawaii 

Section 1886(d)(5)(H) of the Act authorizes 

the Secretary to make an adjustment to take 

into account the unique circumstances of 

hospitals in Alaska and Hawaii. Higher laborrelated costs for these two States are taken 

into account in the adjustment for area wages 

described above. For FY 2010, we are 

adjusting the payments for hospitals in 

Alaska and Hawaii by multiplying the 

nonlabor-related portion of the standardized 

amount by the applicable adjustment factor 

contained in the table below. These factors 

were obtained from the U.S. Office of 

Personnel Management (OPM) and are 

currently also used under the IPPS. 

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

Area 

Cost of living 

adjustment 

factor 

Alaska: 

City of Anchorage and 80-kilometer (50-mile) radius by road ..................................................................................................... 1.23 

City of Fairbanks and 80-kilometer (50-mile) radius by road ...................................................................................................... 1.23 

City of Juneau and 80-kilometer (50-mile) radius by road .......................................................................................................... 1.23 

Rest of Alaska .............................................................................................................................................................................. 1.25 

Hawaii: 

City and County of Honolulu ........................................................................................................................................................ 1.25 

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

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

County of Maui and County of Kalawao ...................................................................................................................................... 1.25 

(The above factors are based on data obtained from the U.S. Office of Personnel Management Web site at: http://www.opm.gov/oca/cola/ 

rates.asp.) 

C. MS–DRG Relative Weights 

As discussed in section II.H. of the 

preamble of this final rule, we have 

developed relative weights for each MS–DRG 

that reflect the resource utilization of cases 

in each MS–DRG relative to Medicare cases 

in other MS–DRGs. Table 5 of this 

Addendum contains the relative weights that 

we will apply to discharges occurring in FY 

2010. These factors have been recalibrated as 

explained in section II. of the preamble of 

this final rule. 


sroberts on DSKD5P82C1PROD with RULES
44014 Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 

D. Calculation of the Prospective Payment 

Rates 

General Formula for Calculation of the 

Prospective Payment Rates for FY 2010 

In general, the operating prospective 

payment rate for all hospitals paid under the 

IPPS located outside of Puerto Rico, except 

SCHs and MDHs, for FY 2010 equals the 

Federal rate. 

Currently, SCHs are paid based on 

whichever of the following rates yields the 

greatest aggregate payment: the Federal 

national rate; the updated hospital-specific 

rate based on FY 1982 costs per discharge; 

the updated hospital-specific rate based on 

FY 1987 costs per discharge; the updated 

hospital-specific rate based on FY 1996 costs 

per discharge; or for cost reporting periods 

beginning on or after January 1, 2009, 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 2010 equals the higher of the applicable 

Federal rate, or the hospital-specific rate as 

described below. The prospective payment 

rate for MDHs for FY 2010 equals the higher 

of the Federal rate, or the Federal rate plus 

75 percent of the difference between the 

Federal rate and the hospital-specific rate as 

described below. The prospective payment 

rate for hospitals located in Puerto Rico for 

FY 2010 equals 25 percent of the Puerto Rico 

rate plus 75 percent of the applicable 

national rate. 

1. Federal Rate 

The Federal rate is determined as follows: 

Step 1—Select the applicable average 

standardized amount depending on whether 

the hospital submitted qualifying quality data 

(full update for qualifying hospitals, update 

minus 2.0 percentage points for 

nonqualifying hospitals). 

Step 2—Multiply the labor-related portion 

of the standardized amount by the applicable 

wage index for the geographic area in which 

the hospital is located or the area to which 

the hospital is reclassified. 

Step 3—For hospitals in Alaska and 

Hawaii, multiply the nonlabor-related 

portion of the standardized amount by the 

applicable cost-of-living adjustment factor. 

Step 4—Add the amount from Step 2 and 

the nonlabor-related portion of the 

standardized amount (adjusted, if applicable, 

under Step 3). 

Step 5—Multiply the final amount from 

Step 4 by the relative weight corresponding 

to the applicable MS–DRG (see Table 5 of 

this Addendum). 

The Federal rate as determined in Step 5 

may then be further adjusted if the hospital 

qualifies for either the IME or DSH 

adjustment. In addition, for hospitals that 

qualify for a low-volume payment adjustment 

under section 1886(d)(12) of the Act and 42 

CFR 412.101(b), the payment in Step 5 would 

be increased by 25 percent. 

2. Hospital-Specific Rate (Applicable Only to 

SCHs and MDHs) 

a. Calculation of Hospital-Specific Rate 

Section 1886(b)(3)(C) of the Act provides 

that, for cost reporting periods beginning 

prior to January 1, 2009, 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 

for cost reporting periods beginning on or 

after January 1, 2009, the updated hospitalspecific rate based on the FY 2006 costs per 

discharge to determine the rate that yields 

the greatest aggregate payment. 

As discussed previously, we are required 

to rebase MDHs hospital-specific rates to 

their FY 2002 cost reports if doing so results 

in higher payments. In addition, effective for 

discharges occurring on or after October 1, 

2006, MDHs are to be paid based on the 

Federal national rate or, if higher, the Federal 

national rate plus 75 percent (changed from 

50 percent) of the difference between the 

Federal national rate and the greater of the 

updated hospital-specific rates based on 

either FY 1982, FY 1987 or FY 2002 costs per 

discharge. Further, MDHs are no longer 

subject to the 12-percent cap on their DSH 

payment adjustment factor. 

Hospital-specific rates have been 

determined for each of these hospitals based 

on the FY 1982 costs per discharge, the FY 

1987 costs per discharge, or, for SCHs, the FY 

1996 costs per discharge or the FY 2006 costs 

per discharge, and for MDHs, the FY 2002 

cost per discharge. For a more detailed 

discussion of the calculation of the hospitalspecific rates, we refer the reader to the FY 

1984 IPPS interim final rule (48 FR 39772); 

the April 20, 1990 final rule with comment 

period (55 FR 15150); the FY 1991 IPPS final 

rule (55 FR 35994); and the FY 2001 IPPS 

final rule (65 FR 47082). In addition, for both 

SCHs and MDHs, the hospital-specific rate is 

adjusted by the budget neutrality adjustment 

factor as discussed in section III. of this 

Addendum. The resulting rate will be used 

in determining the payment rate an SCH or 

MDH will receive for its discharges beginning 

on or after October 1, 2009. 

b. Updating the FY 1982, FY 1987, FY 1996, 

FY 2002, and FY 2006 Hospital-Specific 

Rates for FY 2010 

We are increasing the hospital-specific 

rates by 2.1 percent (the hospital market 

basket percentage increase) for FY 2010 for 

those SCHs and MDHs that submit qualifying 

quality data and by 0.1 percent for SCHs and 

MDHs that fail to submit qualifying quality 

data. Section 1886(b)(3)(C)(iv) of the Act 

provides that the update factor applicable to 

the hospital-specific rates for SCHs is equal 

to the update factor provided under section 

1886(b)(3)(B)(iv) of the Act, which, for SCHs 

in FY 2009, is the market basket percentage 

increase for hospitals that submit qualifying 

quality data and the market basket percentage 

increase minus 2 percent for hospitals that 

fail to submit qualifying quality data. Section 

1886(b)(3)(D) of the Act provides that the 

update factor applicable to the hospitalspecific rates for MDHs also equals the 

update factor provided for under section 

1886(b)(3)(B)(iv) of the Act, which, for FY 

2009, is the market basket percentage 

increase for hospitals that submit qualifying 

quality data and the market basket percentage 

increase minus 2 percent for hospitals that 

fail to submit qualifying quality data. 

3. General Formula for Calculation of 

Prospective Payment Rates for Hospitals 

Located in Puerto Rico Beginning On or After 

October 1, 2009, and Before October 1, 2010 

Section 1886(d)(9)(E)(iv) of the Act 

provides that, effective for discharges 

occurring on or after October 1, 2004, 

hospitals located in Puerto Rico are paid 

based on a blend of 75 percent of the national 

prospective payment rate and 25 percent of 

the Puerto Rico-specific rate. 

a. Puerto Rico Rate 

The Puerto Rico prospective payment rate 

is determined as follows: 

Step 1—Select the applicable average 

standardized amount considering the 

applicable wage index (Table 1C of this 

Addendum). 

Step 2—Multiply the labor-related portion 

of the standardized amount by the applicable 

Puerto Rico-specific wage index. 

Step 3—Add the amount from Step 2 and 

the nonlabor-related portion of the 

standardized amount. 

Step 4—Multiply the amount from Step 3 

by the applicable MS–DRG relative weight 

(Table 5 of this Addendum). 

Step 5—Multiply the result in Step 4 by 25 

percent. 

b. National Rate 

The national prospective payment rate is 

determined as follows: 

Step 1—Select the applicable average 

standardized amount. 

Step 2—Multiply the labor-related portion 

of the standardized amount by the applicable 

wage index for the geographic area in which 

the hospital is located or the area to which 

the hospital is reclassified. 

Step 3—Add the amount from Step 2 and 

the nonlabor-related portion of the national 

average standardized amount. 

Step 4—Multiply the amount from Step 3 

by the applicable MS–DRG relative weight 

(Table 5 of this Addendum). 

Step 5—Multiply the result in Step 4 by 75 

percent. 

The sum of the Puerto Rico rate and the 

national rate computed above equals the 

prospective payment for a given discharge for 

a hospital located in Puerto Rico. This rate 

would then be further adjusted if the hospital 

qualifies for either the IME or DSH 

adjustment. 

III. Changes to Payment Rates for Acute Care 

Hospital Inpatient Capital-Related Costs for 

FY 2010 

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 


sroberts on DSKD5P82C1PROD with RULES
Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 44015 

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 2010, which will be effective for 

discharges occurring on or after October 1, 

2009. 

The 10-year transition period ended with 

hospital cost reporting periods beginning on 

or after October 1, 2001 (FY 2002). Therefore, 

for cost reporting periods beginning in FY 

2002, all hospitals (except ‘‘new’’ hospitals 

under § 412.304(c)(2)) are paid based on the 

capital Federal rate. For FY 1992, we 

computed the standard Federal payment rate 

for capital-related costs under the IPPS by 

updating the FY 1989 Medicare inpatient 

capital cost per case by an actuarial estimate 

of the increase in Medicare inpatient capital 

costs per case. Each year after FY 1992, we 

update the capital standard Federal rate, as 

provided at § 412.308(c)(1), to account for 

capital input price increases and other 

factors. The regulations at § 412.308(c)(2) 

provide that the capital Federal rate be 

adjusted annually by a factor equal to the 

estimated proportion of outlier payments 

under the capital Federal rate to total capital 

payments under the capital Federal rate. In 

addition, § 412.308(c)(3) requires that the 

capital Federal rate be reduced by an 

adjustment factor equal to the estimated 

proportion of payments for (regular and 

special) exceptions under § 412.348. Section 

412.308(c)(4)(ii) requires that the capital 

standard Federal rate be adjusted so that the 

effects of the annual DRG reclassification and 

the recalibration of DRG weights and changes 

in the geographic adjustment factor (GAF) are 

budget neutral. 

For FYs 1992 through 1995, § 412.352 

required that the capital Federal rate also be 

adjusted by a budget neutrality factor so that 

aggregate payments for inpatient hospital 

capital costs were projected to equal 90 

percent of the payments that would have 

been made for capital-related costs on a 

reasonable cost basis during the respective 

fiscal year. That provision expired in FY 

1996. Section 412.308(b)(2) describes the 7.4 

percent reduction to the capital Federal rate 

that was made in FY 1994, and 

§ 412.308(b)(3) describes the 0.28 percent 

reduction to the capital Federal rate made in 

FY 1996 as a result of the revised policy for 

paying for transfers. In FY 1998, we 

implemented section 4402 of Public Law 

105–33, which required that, for discharges 

occurring on or after October 1, 1997, the 

budget neutrality adjustment factor in effect 

as of September 30, 1995, be applied to the 

unadjusted capital standard Federal rate and 

the unadjusted hospital-specific rate. That 

factor was 0.8432, which was equivalent to 

a 15.68 percent reduction to the unadjusted 

capital payment rates. An additional 2.1 

percent reduction to the rates was effective 

from October 1, 1997 through September 30, 

2002, making the total reduction 17.78 

percent. As we discussed in the FY 2003 

IPPS final rule (67 FR 50102) and 

implemented in § 412.308(b)(6), the 2.1 

percent reduction was restored to the 

unadjusted capital payment rates effective 

October 1, 2002. 

To determine the appropriate budget 

neutrality adjustment factor and the regular 

exceptions payment adjustment during the 

10-year transition period, we developed a 

dynamic model of Medicare inpatient 

capital-related costs; that is, a model that 

projected changes in Medicare inpatient 

capital-related costs over time. With the 

expiration of the budget neutrality provision, 

the capital cost model was only used to 

estimate the regular exceptions payment 

adjustment and other factors during the 

transition period. As we explained in the FY 

2002 IPPS final rule (66 FR 39911), beginning 

in FY 2002, an adjustment for regular 

exception payments is no longer necessary 

because regular exception payments were 

only made for cost reporting periods 

beginning on or after October 1, 1991, and 

before October 1, 2001 (see § 412.348(b)). 

Because payments are no longer made under 

the regular exception policy effective with 

cost reporting periods beginning in FY 2002, 

we discontinued use of the capital cost 

model. The capital cost model and its 

application during the transition period are 

described in Appendix B of the FY 2002 IPPS 

final rule (66 FR 40099). 

Section 412.374 provides for blended 

payments to hospitals located in Puerto Rico 

under the IPPS for acute care hospital 

inpatient capital-related costs. Accordingly, 

under the capital PPS, we compute a separate 

payment rate specific to hospitals located in 

Puerto Rico using the same methodology 

used to compute the national Federal rate for 

capital-related costs. In accordance with 

section 1886(d)(9)(A) of the Act, under the 

IPPS for acute care hospital operating costs, 

hospitals located in Puerto Rico are paid for 

operating costs under a special payment 

formula. Prior to FY 1998, hospitals located 

in Puerto Rico were paid a blended operating 

rate that consisted of 75 percent of the 

applicable standardized amount specific to 

Puerto Rico hospitals and 25 percent of the 

applicable national average standardized 

amount. Similarly, prior to FY 1998, 

hospitals located in Puerto Rico were paid a 

blended capital rate that consisted of 75 

percent of the applicable capital Puerto Ricospecific rate and 25 percent of the applicable 

capital Federal rate. However, effective 

October 1, 1997, in accordance with section 

4406 of Public Law 105–33, the methodology 

for operating payments made to hospitals 

located in Puerto Rico under the IPPS was 

revised to make payments based on a blend 

of 50 percent of the applicable standardized 

amount specific to Puerto Rico hospitals and 

50 percent of the applicable national average 

standardized amount. In conjunction with 

this change to the operating blend 

percentage, effective with discharges 

occurring on or after October 1, 1997, we also 

revised the methodology for computing 

capital payments to hospitals located in 

Puerto Rico to be based on a blend of 50 

percent of the Puerto Rico capital rate and 50 

percent of the national capital Federal rate. 

As we discussed in the FY 2005 IPPS final 

rule (69 FR 49185), section 504 of Public Law 

108–173 increased the national portion of the 

operating IPPS payments for hospitals 

located in Puerto Rico from 50 percent to 

62.5 percent and decreased the Puerto Rico 

portion of the operating IPPS payments from 

50 percent to 37.5 percent for discharges 

occurring on or after April 1, 2004 through 

September 30, 2004 (refer to the March 26, 

2004 One-Time Notification (Change Request 

3158)). In addition, section 504 of Public Law 

108–173 provided that the national portion of 

operating IPPS payments for hospitals 

located in Puerto Rico is equal to 75 percent 

and the Puerto Rico-specific portion of 

operating IPPS payments is equal to 25 

percent for discharges occurring on or after 

October 1, 2004. Consistent with that change 

in operating IPPS payments to hospitals 

located in Puerto Rico, for FY 2005 (as we 

discussed in the FY 2005 IPPS final rule), we 

revised the methodology for computing 

capital payments to hospitals located in 

Puerto Rico to be based on a blend of 25 

percent of the Puerto Rico-specific capital 

rate and 75 percent of the national capital 

Federal rate for discharges occurring on or 

after October 1, 2004. 

A. Determination of Federal Hospital 

Inpatient Capital-Related Prospective 

Payment Rate Update 

In the Federal Register notice setting out 

the final wage indices for FY 2009 (73 FR 

57892), we established the final capital 

Federal rate of $424.17 for FY 2009. In the 

discussion that follows, we explain the 

factors that we used to determine the capital 

Federal rate for FY 2010. In particular, we 

explain why the FY 2010 capital Federal rate 

will increase approximately 1.4 percent, 

compared to the FY 2009 capital Federal rate. 

Furthermore, we estimate that aggregate 

capital payments will increase during this 

same period (approximately $171 million), 

primarily due to the increase in the capital 

Federal rate. Total payments to hospitals 

under the IPPS are relatively unaffected by 

changes in the capital prospective payments. 

Because capital payments constitute about 10 

percent of hospital payments, a 1-percent 

change in the capital Federal rate yields only 

about a 0.1 percent change in actual 

payments to hospitals. 

1. Projected Capital Standard Federal Rate 

Update 

a. Description of the Update Framework 

Under § 412.308(c)(1), the capital standard 

Federal rate is updated on the basis of an 

analytical framework that takes into account 

changes in a capital input price index (CIPI) 

and several other policy adjustment factors. 

Specifically, we have adjusted 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 2010 

under that framework is 1.40 percent based 

on the best data available at this time. The 

update factor under that framework is based 

on a projected 1.4 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 2008 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 2010 CIPI 


sroberts on DSKD5P82C1PROD with RULES
44016 Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 

projection in that same section of this 

Addendum. We note, as discussed in section 

VI.E.1. of the preamble of this final rule, we 

are not applying any additional adjustments 

to the capital rates in FY 2010 to account for 

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 applied in the update 

framework for FY 2010. 

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 

weight DRG assignments (‘‘coding effects’’); 

and 

• The annual DRG reclassification and 

recalibration changes may not be budget 

neutral (‘‘reclassification effect’’). 

We define real case-mix change as actual 

changes in the mix (and resource 

requirements) of Medicare patients as 

opposed to changes in documentation and 

coding behavior that result in assignment of 

cases to higher weighted DRGs but do not 

reflect higher resource requirements. The 

capital update framework includes the same 

case-mix index adjustment used in the 

former operating IPPS update framework (as 

discussed in the May 18, 2004 IPPS proposed 

rule for FY 2005 (69 FR 28816)). (We no 

longer use an update framework to make a 

recommendation for updating the operating 

IPPS standardized amounts as discussed in 

section II. of Appendix B in the FY 2006 IPPS 

final rule (70 FR 47707).) 

Absent the projected increase in case-mix 

resulting from changes in documentation and 

coding due to the adoption of the MS–DRGs, 

for FY 2010, we projected a 1.0 percent total 

increase in the case-mix index. We estimated 

that the real case-mix increase will also equal 

1.0 percent for FY 2010. The net adjustment 

for change in case-mix is the difference 

between the projected real increase in casemix and the projected total increase in casemix. Therefore, the net adjustment for casemix change in FY 2010 is 0.0 percentage 

points. 

The capital update framework also 

contains an adjustment for the effects of DRG 

reclassification and recalibration. This 

adjustment is intended to remove the effect 

on total payments of prior year’s changes to 

the DRG classifications and relative weights, 

in order to retain budget neutrality for all 

case-mix index-related changes other than 

those due to patient severity. Due to the lag 

time in the availability of data, there is a 2- 

year lag in data used to determine the 

adjustment for the effects of DRG 

reclassification and recalibration. For 

example, we have data available to evaluate 

the effects of the FY 2008 DRG 

reclassification and recalibration as part of 

our update for FY 2010. To adjust for 

reclassification and recalibration effects, 

under our historical methodology, we run the 

FY 2008 cases through the FY 2007 

GROUPER and through the FY 2008 

GROUPER. The resulting ratio of the casemix indices should equate to 1.0. If not, 

under our historical methodology, in the 

update framework for FY 2010, we would 

make an adjustment to adjust for the 

reclassification and recalibration effects in 

FY 2008. As discussed in detail in section 

II.B. of the preamble of this final rule, 

however, when we adopted the MS–DRGs for 

FY 2008 to better recognize severity of illness 

in Medicare payment rates, we also 

recognized that changes in documentation 

and coding could potentially lead to 

increases in aggregate payments without a 

corresponding increase in patients’ severity 

of illness (that is, increased case-mix index 

other than real case-mix index increase). To 

maintain budget neutrality for the adoption 

of the MS–DRGs, in the proposed rule, we 

proposed to apply a –1.9 percent adjustment 

to the capital Federal rate in FY 2010 to 

account for the effect of documentation and 

coding changes unrelated to changes in real 

case-mix in FY 2008. Therefore, in that same 

proposed rule, we proposed not to adjust for 

reclassification and recalibration effects from 

FY 2008 in the update framework for FY 

2010 because it was already accounted for in 

the proposed documentation and coding 

adjustment to the capital Federal rates for FY 

2010. 

As discussed in greater detail in section 

II.D. of the preamble of this final rule, we are 

delaying any additional documentation and 

coding adjustment to the capital Federal rates 

until a full analysis of case-mix changes can 

be completed (as noted in section VI.E.1. of 

the preamble of this final rule, the capital 

Federal rate has already been adjusted by 

¥0.6 percent and ¥0.9 percent to account 

for the effects of documentation and coding 

in FY 2008 and FY 2009, respectively, for a 

cumulative adjustment of ¥1.5 percent). 

Therefore, as proposed, we are not making 

any adjustment for the effects of FY 2008 

DRG reclassification and recalibration in the 

update framework for FY 2010 because we 

will be accounting for it when an adjustment 

to the capital Federal rates for the additional 

documentation and coding effect that 

occurred in FY 2008 is made in future 

rulemaking. 

The capital update framework also 

contains an adjustment for forecast error. The 

input price index forecast is based on 

historical trends and relationships 

ascertainable at the time the update factor is 

established for the upcoming year. In any 

given year, there may be unanticipated price 

fluctuations that may result in differences 

between the actual increase in prices and the 

forecast used in calculating the update 

factors. In setting a prospective payment rate 

under the framework, we make an 

adjustment for forecast error only if our 

estimate of the change in the capital input 

price index for any year is off by 0.25 

percentage points or more. There is a 2-year 

lag between the forecast and the availability 

of data to develop a measurement of the 

forecast error. A forecast error of 0.1 

percentage point was calculated for the FY 

2010 update. That is, current historical data 

indicate that the forecasted FY 2008 CIPI (1.3 

percent) used in calculating the FY 2008 

update factor slightly understated the actual 

realized price increases (1.4 percent) by 0.1 

percentage point. This slight underprediction 

was mostly due to the incorporation of newly 

available source data for fixed asset prices 

and moveable asset prices into the market 

basket. However, because this estimation of 

the change in the CIPI is less than 0.25 

percentage points, it is not reflected in the 

update recommended under this framework. 

Therefore, we made a 0.0 percent adjustment 

for forecast error in the update for FY 2010. 

Under the capital IPPS update framework, 

we also make an adjustment for changes in 

intensity. We calculate this adjustment using 

the same methodology and data that were 

used in the past under the framework for 

operating IPPS. The intensity factor for the 

operating update framework reflects how 

hospital services are utilized to produce the 

final product, that is, the discharge. This 

component accounts for changes in the use 

of quality-enhancing services, for changes 

within DRG severity, and for expected 

modification of practice patterns to remove 

noncost-effective services. 

We calculate case-mix constant intensity as 

the change in total charges per admission, 

adjusted for price level changes (the CIPI for 

hospital and related services) and changes in 

real case-mix. The use of total charges in the 

calculation of the intensity factor makes it a 

total intensity factor; that is, charges for 

capital services are already built into the 

calculation of the factor. Therefore, we have 

incorporated the intensity adjustment from 

the operating update framework into the 

capital update framework. 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. 

We have developed a Medicare-specific 

intensity measure based on a 5-year average. 

Past studies of case-mix change by the RAND 

Corporation (Has DRG Creep Crept Up? 

Decomposing the Case Mix Index Change 

Between 1987 and 1988 by G. M. Carter, J. 

P. Newhouse, and D. A. Relles, R–4098– 

HCFA/ProPAC (1991)) suggest that real casemix change was not dependent on total 

change, but was usually a fairly steady 

increase of 1.0 to 1.5 percent per year. 

However, we used 1.4 percent as the upper 

bound because the RAND study did not take 

into account that hospitals may have induced 

doctors to document medical records more 

completely in order to improve payment. 

As we noted above, in accordance with 

§ 412.308(c)(1)(ii), we began updating the 

capital standard Federal rate in FY 1996 

using an update framework that takes into 

account, among other things, allowable 

changes in the intensity of hospital services. 


sroberts on DSKD5P82C1PROD with RULES
Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 44017 

For FYs 1996 through 2001, we found that 

case-mix constant intensity was declining, 

and we established a 0.0 percent adjustment 

for intensity in each of those years. For FYs 

2002 and 2003, we found that case-mix 

constant intensity was increasing, and we 

established a 0.3 percent adjustment and 1.0 

percent adjustment for intensity, 

respectively. For FYs 2004 and 2005, we 

found that the charge data appeared to be 

skewed (as discussed in greater detail below) 

as a result of hospitals attempting to 

maximize outlier payments, while lessening 

costs, and we established a 0.0 percent 

adjustment in each of those years. 

Furthermore, we stated that we would 

continue to apply a 0.0 percent adjustment 

for intensity until any increase in charges can 

be tied to intensity rather than attempts to 

maximize outlier payments. 

On June 9, 2003, we published in the 

Federal Register revisions to our outlier 

policy for determining the additional 

payment for extraordinarily high-cost cases 

(68 FR 34494 through 34515). These revised 

policies were effective on August 8, 2003, 

and October 1, 2003. While it does appear 

that a response to these policy changes is 

beginning to occur, that is, the increase in 

charges for FYs 2004 and 2005 are somewhat 

less than the previous 4 years, they still show 

a significant annual increase in charges 

without a corresponding increase in hospital 

case-mix. Specifically, the percent change in 

hospitals’ charges in FY 2004 is 

approximately 12 percent, which is similar in 

magnitude to the large increases in charges 

that we found in the 4 years prior to FY 2004 

and before our revisions to the outlier policy 

in FY 2003. For FY 2005, there is 

approximately an 8 percent change in 

charges, which is somewhat lower than the 

percent change in FY 2004. Nevertheless, the 

percent change in charges in both FYs 2004 

and 2005 are still relatively high as compared 

to the change in charges prior to FY 2001. 

Moreover, the percent change in hospitals’ 

case-mix in those years is not in proportion 

to the higher charges. The remaining 3 years 

in the 5-year average indicate that the change 

in hospitals’ charges appears to be slightly 

moderating, and is lower than FYs 2004 and 

2005. (We refer readers to a discussion 

regarding the intensity factor in the FY 2004 

IPPS final rule (68 FR 45482), the FY 2005 

IPPS final rule (69 FR 49285), the FY 2006 

IPPS final rule (70 FR 47500), the FY 2007 

IPPS final rule (72 FR 47500), the FY 2008 

IPPS final rule with comment period (72 FR 

47426), and the FY 2009 IPPS final rule (73 

FR 48771.) 

Our intensity measure is based on a 5-year 

average, and therefore, the intensity 

adjustment for FY 2010 is based on data from 

the 5-year period beginning with FY 2004 

and extending through FY 2008. Based on the 

increases in charges for FYs 2004 through 

2005 that remain in the 5-year average used 

for the intensity adjustment, we believe 

residual effects of hospitals’ charge practices 

prior to the implementation of the outlier 

policy revisions established in the June 9, 

2003 final rule continue to appear in the 

data, as it may have taken hospitals some 

time to adopt changes in their behavior in 

response to the new outlier policy. Thus, we 

believe that the FY 2004 and possibly the FY 

2005 charge data may still be skewed. 

The change in hospitals’ charges for FY 

2004 and to a somewhat lesser extent, FY 

2005, remains similar to the considerable 

increase in hospitals’ charges that we found 

when examining hospitals’ charge data in 

determining the intensity factor in the update 

recommendations for the past few years. If 

hospitals were treating new or different types 

of cases, which would result in an 

appropriate increase in charges per 

discharge, then we would expect hospitals’ 

case-mix to increase proportionally, and it 

did not. 

Although it appears that the change in 

hospitals’ charges is more reasonable 

compared to data used in recent past 

rulemaking, using a 5-year average of the data 

tends to smooth out what might otherwise be 

more obvious effects of particular years such 

as FYs 2004 and 2005. Therefore, 

notwithstanding the gradual effect of the 

outlier policy over time, we believe the effect 

from hospitals attempting to maximize 

outlier payments prior to the implementation 

of the outlier policy continues, albeit to a 

smaller degree, to skew the charge data used 

in determining the intensity adjustment. 

As we discussed most recently in the FY 

2009 IPPS final rule (73 FR 48771), because 

our intensity calculation relies heavily upon 

charge data and we believe that these charge 

data for at least 1 if not 2 years of the 5-year 

average may be inappropriately skewed, as 

we proposed, we are establishing a 0.0 

percent adjustment for intensity for FY 2010, 

as we did for FYs 2004 through 2009. 

In the past (FYs 1996 through 2001) when 

we found intensity to be declining, we 

believed a zero (rather than negative) 

intensity adjustment was appropriate. 

Similarly, we believe that it is appropriate to 

apply a zero intensity adjustment for FY 2010 

until any increase in charges during the 5- 

year period upon which the intensity 

adjustment is based can be tied to intensity 

rather than to attempts to maximize outlier 

payments. 

Above, we described the basis of the 

components used to develop the 1.4 percent 

capital update factor under the capital update 

framework for FY 2010 as shown in the table 

below. 

CMS FY 2010 UPDATE FACTOR TO

THE CAPITAL FEDERAL RATE

Capital Input Price Index .................. 1.4 

Intensity ............................................ 0.0 

Case-Mix Adjustment Factors: 

Real Across DRG Change ............ ¥1.0 

Projected Case-Mix Change ......... 1.0 

Subtotal ..................................... 1.4 

Effect of FY 2008 Reclassification 

and Recalibration .......................... 0.0 

Forecast Error Correction ................. 0.0 

Total Update .............................. 1.4 

b. Comparison of CMS and MedPAC Update 

Recommendation 

In its March 2009 Report to Congress, 

MedPAC did not make a specific update 

recommendation for capital IPPS payments 

for FY 2010. (MedPAC’s Report to the 

Congress: Medicare Payment Policy, March 

2009, Section 2A.) 

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 capitalrelated PPS payments. The outlier thresholds 

are set so that operating outlier payments are 

projected to be 5.1 percent of total operating 

IPPS DRG payments. 

In the Federal Register notice setting out 

the final wage indices for FY 2009 (73 FR 

57891), we estimated that outlier payments 

for capital will equal 5.35 percent of 

inpatient capital-related payments based on 

the capital Federal rate in FY 2009. 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 

5.23 percent for inpatient capital-related 

payments based on the capital Federal rate in 

FY 2010. Therefore, we applied an outlier 

adjustment factor of 0.9477 in determining 

the capital Federal rate. Thus, we estimate 

that the percentage of capital outlier 

payments to total capital standard payments 

for FY 2010 will be lower than the percentage 

for FY 2009. This decrease in capital outlier 

payments is primarily due to the increase in 

estimated aggregate capital IPPS payments. 

That is, because overall payments are 

projected to be higher in FY 2010 compared 

to FY 2009, as discussed in section VIII. of 

Appendix A to this final rule, fewer 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 

2010 outlier adjustment of 0.9477 is a 0.13 

percent change from the FY 2009 outlier 

adjustment of 0.9465. Therefore, the net 

change in the outlier adjustment to the 

capital Federal rate for FY 2010 is 1.0013 

(0.9477/0.9465). Thus, the outlier adjustment 

increases the FY 2010 capital Federal rate by 

0.13 percent compared with the FY 2009 

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 


sroberts on DSKD5P82C1PROD with RULES
44018 Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 

DRG reclassifications and recalibration 

nationally and for Puerto Rico. Separate 

adjustments were unnecessary for FY 1998 

and earlier because the GAF for Puerto Rico 

was implemented in FY 1998. 

In the past, we used the actuarial capital 

cost model (described in Appendix B of the 

FY 2002 IPPS final rule (66 FR 40099)) to 

estimate the aggregate payments that would 

have been made on the basis of the capital 

Federal rate with and without changes in the 

DRG classifications and weights and in the 

GAF to compute the adjustment required to 

maintain budget neutrality for changes in 

DRG weights and in the GAF. During the 

transition period, the capital cost model was 

also used to estimate the regular exception 

payment adjustment factor. As we explain in 

section III.A. of this Addendum, beginning in 

FY 2002, an adjustment for regular exception 

payments is no longer necessary. Therefore, 

we no longer use the capital cost model. 

Instead, we are using historical data based on 

hospitals’ actual cost experiences to 

determine the exceptions payment 

adjustment factor for special exceptions 

payments. 

To determine the factors for FY 2010, we 

compared (separately for the national capital 

rate and the Puerto Rico capital rate) 

estimated aggregate capital Federal rate 

payments based on the FY 2009 MS–DRG 

classifications and relative weights and the 

FY 2009 GAF to estimated aggregate capital 

Federal rate payments based on the FY 2010 

MS–DRG classifications and relative weights 

and the FY 2010 GAFs. In making the 

comparison, we set the exceptions reduction 

factor to 1.00. To achieve budget neutrality 

for the changes in the national GAFs, based 

on calculations using updated data, we 

applied an incremental budget neutrality 

adjustment of 0.9995 for FY 2010 to the 

previous cumulative FY 2009 adjustment of 

0.9917, yielding an adjustment of 0.9912, 

through FY 2010. For the Puerto Rico GAFs, 

we applied an incremental budget neutrality 

adjustment of 1.0014 for FY 2010 to the 

previous cumulative FY 2009 adjustment of 

0.9960, yielding a cumulative adjustment of 

0.9974 through FY 2010. 

We then compared estimated aggregate 

capital Federal rate payments based on the 

FY 2009 DRG relative weights and the FY 

2010 GAFs to estimated aggregate capital 

Federal rate payments based on the 

cumulative effects of the FY 2010 MS–DRG 

classifications and relative weights and the 

FY 2010 GAFs. The incremental adjustment 

for DRG classifications and changes in 

relative weights is 0.9995 both nationally and 

for Puerto Rico. The cumulative adjustments 

for MS–DRG classifications and changes in 

relative weights and for changes in the GAFs 

through FY 2010 are 0.9907 nationally and 

0.9969 for Puerto Rico. The following table 

summarizes the adjustment factors for each 

fiscal year: 

BUDGET NEUTRALITY ADJUSTMENT FOR DRG RECLASSIFICATIONS AND RECALIBRATION AND THE GEOGRAPHIC

ADJUSTMENT FACTORS

Fiscal 

year 

National Puerto Rico 

Incremental adjustment 

Cumulative 

Incremental adjustment 

Geographic Cumulative 

adjustment 

factor 

DRG Reclassifications 

and recalibration 

Combined 

Geographic 

adjustment 

factor 

DRG Reclassifications 

and recalibration 

Combined 

1992 ................. 1.00000 ......................

1993 ................. ...................... ...................... 0.99800 0.99800 ...................... ...................... ...................... ......................

1994 ................. ...................... ...................... 1.00531 1.00330 ...................... ...................... ...................... ......................

1995 ................. ...................... ...................... 0.99980 1.00310 ...................... ...................... ...................... ......................

1996 ................. ...................... ...................... 0.99940 1.00250 ...................... ...................... ...................... ......................

1997 ................. ...................... ...................... 0.99873 1.00123 ...................... ...................... ...................... ......................

1998 ................. ...................... ...................... 0.99892 1.00015 ...................... ...................... ...................... 1.00000 

1999 ................. 0.99944 1.00335 1.00279 1.00294 0.99898 1.00335 1.00233 1.00233 

2000 ................. 0.99857 0.99991 0.99848 1.00142 0.99910 0.99991 0.99901 1.00134 

2001 1 ............... 0.99782 1.00009 0.99791 0.99933 1.00365 1.00009 1.00374 1.00508 2 2001 ............... 3 0.99771 3 1.00009 3 0.99780 0.99922 3 1.00365 3 1.00009 3 1.00374 1.00508 

2002 ................. 4 0.99666 4 0.99668 4 0.99335 0.99268 4 0.98991 4 0.99668 4 0.99662 0.99164 

2003 5 ............... 0.99915 0.99662 0.99577 0.98848 1.00809 0.99662 1.00468 0.99628 

2003 6 ............... 7 0.99896 7 0.99662 7 0.99558 0.98830 1.00809 0.99662 1.00468 0.99628 

2004 8 ............... 9 1.00175 9 1.00081 9 1.00256 0.99083 1.00028 1.00081 1.00109 0.99736 

2004 10 ............. 9 1.00164 9 1.00081 9 1.00245 0.99072 1.00028 1.00081 1.00109 0.99736 

2005 11 ............. 12 0.99967 1.00094 12 1.00061 0.99137 0.99115 1.00094 0.99208 0.98946 

2005 13 ............. 13 0.99946 1.00094 12 1.00040 0.99117 0.99115 1.00094 0.99208 0.98946 

2006 ................. 14 1.00185 0.99892 14 1.00076 0.99198 1.00762 0.99892 1.00653 0.99592 

2007 ................. 1.00000 0.99858 0.99858 0.99057 1.00234 0.99858 1.00092 0.99683 

2008 ................. 1.00172 0.99792 0.99963 0.99021 1.00079 0.99792 0.99870 0.99554 

15 ...................... 1.00206 0.99945 1.00150 0.99170 1.00097 0.99945 1.00041 0.99595 

2010 16 ............. 0.99950 0.99953 0.99902 0.99073 1.00141 0.99953 1.00094 0.99688 

1Factors effective for the first half of FY 2001 (October 2000 through March 2001). 

2Factors effective for the second half of FY 2001 (April 2001 through September 2001). 

3 Incremental factors are applied to FY 2000 cumulative factors. 

4 Incremental factors are applied to the cumulative factors for the first half of FY 2001. 

5Factors effective for the first half of FY 2003 (October 2002 through March 2003). 

6Factors effective for the second half of FY 2003 (April 2003 through September 2003). 

7 Incremental factors are applied to FY 2002 cumulative factors. 

8Factors effective for the first half of FY 2004 (October 2003 through March 2004). 

9 Incremental factors are applied to the cumulative factors for the second half of FY 2003. 

10Factors effective for the second half of FY 2004 (April 2004 through September 2004). 11Factors effective for the first quarter of FY 2005 (September 2004 through December 2004). 12 Incremental factors are applied to average of the cumulative factors for the first half (October 1, 2003 through March 31, 2004) and second 

half (April 1, 2004 through September 30, 2004) of FY 2004. 13Factors effective for the last three quarters of FY 2005 (January 2005 through September 2005). 14 Incremental factors are applied to average of the cumulative factors for 2005. 15Final factors for FY 2009, including the implementation of section 124 of Public Law 110–275, which affects wage indices and GAFs for FY 

2009, as discussed above in this section. 16Final factors for FY 2010. 


sroberts on DSKD5P82C1PROD with RULES
Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 44019 

The methodology used to determine the 

recalibration and geographic adjustment 

factor (DRG/GAF) budget neutrality 

adjustment is similar to the methodology 

used in establishing budget neutrality 

adjustments under the IPPS for operating 

costs. One difference is that, under the 

operating IPPS, the budget neutrality 

adjustments for the effect of geographic 

reclassifications are determined separately 

from the effects of other changes in the 

hospital wage index and the DRG relative 

weights. Under the capital IPPS, there is a 

single DRG/GAF budget neutrality 

adjustment factor (the national capital rate 

and the Puerto Rico capital rate are 

determined separately) for changes in the 

GAF (including geographic reclassification) 

and the DRG relative weights. In addition, 

there is no adjustment for the effects that 

geographic reclassification has on the other 

payment parameters, such as the payments 

for DSH or IME. 

For FY 2009, we calculated a final GAF/ 

DRG budget neutrality factor of 1.0015 (73 FR 

57892). For FY 2010, we established a GAF/ 

DRG budget neutrality factor of 0.9990. The 

GAF/DRG budget neutrality factors are built 

permanently into the capital rates; that is, 

they are applied cumulatively in determining 

the capital Federal rate. This follows the 

requirement that estimated aggregate 

payments each year be no more or less than 

they would have been in the absence of the 

annual DRG reclassification and recalibration 

and changes in the GAFs. The incremental 

change in the adjustment from FY 2009 to FY 

2010 is 0.9990. The cumulative change in the 

capital Federal rate due to this adjustment is 

0.9907 (the product of the incremental factors 

for FYs 1995 though 2009 and the 

incremental factor of 0.9990 for FY 2010). 

(We note that averages of the incremental 

factors that were in effect during FYs 2005 

and 2006, respectively, were used in the 

calculation of the cumulative adjustment of 

0.9907 for FY 2010.) 

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 2010 geographic 

reclassification decisions made by the 

MGCRB compared to FY 2009 decisions. 

However, it does not account for changes in 

payments due to changes in the DSH and 

IME adjustment factors. 

4. Exceptions Payment Adjustment Factor 

Section 412.308(c)(3) of our regulations 

requires that the capital standard Federal rate 

be reduced by an adjustment factor equal to 

the estimated proportion of additional 

payments for both regular exceptions and 

special exceptions under § 412.348 relative to 

total capital PPS payments. In estimating the 

proportion of regular exception payments to 

total capital PPS payments during the 

transition period, we used the actuarial 

capital cost model originally developed for 

determining budget neutrality (described in 

Appendix B of the FY 2002 IPPS final rule 

(66 FR 40099)) to determine the exceptions 

payment adjustment factor, which was 

applied to both the Federal and hospitalspecific capital rates. 

An adjustment for regular exception 

payments is no longer necessary in 

determining the FY 2010 capital Federal rate 

because, in accordance with § 412.348(b), 

regular exception payments were only made 

for cost reporting periods beginning on or 

after October 1, 1991 and before October 1, 

2001. Accordingly, as we explained in the FY 

2002 IPPS final rule (66 FR 39949), in FY 

2002 and subsequent fiscal years, no 

payments are made under the regular 

exceptions provision. However, in 

accordance with § 412.308(c), we still need to 

compute a budget neutrality adjustment for 

special exception payments under 

§ 412.348(g). We describe our methodology 

for determining the exceptions adjustment 

used in calculating the FY 2010 capital 

Federal rate below. 

Under the special exceptions provision 

specified at § 412.348(g)(1), eligible hospitals 

include SCHs, urban hospitals with at least 

100 beds that have a disproportionate share 

percentage of at least 20.2 percent or qualify 

for DSH payments under § 412.106(c)(2), and 

hospitals with a combined Medicare and 

Medicaid inpatient utilization of at least 70 

percent. An eligible hospital may receive 

special exceptions payments if it meets the 

following criteria: (1) a project need 

requirement as described at § 412.348(g)(2), 

which, in the case of certain urban hospitals, 

includes an excess capacity test as described 

at § 412.348(g)(4); (2) an age of assets test as 

described at § 412.348(g)(3); and (3) a project 

size requirement as described at 

§ 412.348(g)(5). 

Based on information compiled from our 

fiscal intermediaries and MACs, six hospitals 

have qualified for special exceptions 

payments under § 412.348(g). One of these 

hospitals closed in May 2005. Because we 

have cost reports ending in FY 2007 for four 

of these five hospitals, we calculated the 

adjustment based on actual cost experience. 

(We note that the one hospital for which we 

do not have FY 2007 cost report data has had 

zero special exception payments for all 

available past cost reports. Consequently, we 

expect that this hospital would not have any 

special exceptions payments in FY 2007, and 

the lack of this hospital’s FY 2007 cost report 

data would not distort the calculation of the 

adjustment.) Using data from cost reports 

ending in FY 2007 from the June 2009 update 

of the HCRIS data, we divided the capital 

special exceptions payment amounts for the 

four available hospitals that qualified for 

special exceptions by the total capital PPS 

payment amounts (including special 

exception payments) for all hospitals. Based 

on the data from cost reports ending in FY 

2007, this ratio is rounded to 0.0002. We also 

computed the ratio for FYs 2005 and 2006, 

which rounds to 0.0002. Based on these data, 

we are making an adjustment of 0.0002. 

Because special exceptions are budget 

neutral, we offset the capital Federal rate by 

0.02 percent for special exceptions payments 

for FY 2010. Therefore, the exceptions 

adjustment factor is equal to 0.9998 (1— 

0.0002) to account for special exceptions 

payments in FY 2010. 

In the FY 2009 IPPS final rule (73 FR 

48773), we estimated that total (special) 

exceptions payments for FY 2009 would 

equal 0.01 percent of aggregate payments 

based on the capital Federal rate. Therefore, 

we applied an exceptions adjustment factor 

of 0.9999 (1¥0.0001) to determine the FY 

2009 capital Federal rate. As we stated above, 

we are applying an exceptions payment 

adjustment factor of 0.9998 (1¥0.0002) to the 

capital Federal rate for FY 2010 based on our 

estimate that exceptions payments in FY 

2010 will equal 0.02 percent of aggregate 

payments based on the FY 2010 capital 

Federal rate. The exceptions reduction 

factors are not built permanently into the 

capital rates; that is, the factors are not 

applied cumulatively in determining the 

capital Federal rate. Therefore, the net 

change in the exceptions adjustment factor 

used in determining the FY 2010 capital 

Federal rate is 0.9999 (0.9998/0.9999). 

5. Capital Standard Federal Rate for FY 2010 

For FY 2009, we established a final capital 

Federal rate of $424.17 (73 FR 57891). We are 

establishing an update of 1.4 percent in 

determining the FY 2010 capital Federal rate 

for all hospitals. As a result of the 1.4 percent 

update and other budget neutrality factors 

discussed above, we are establishing a 

national capital Federal rate of $430.15 for 

FY 2010. The national capital Federal rate for 

FY 2010 was calculated as follows: 

• The FY 2010 update factor is 1.0140, that 

is, the update is 1.4 percent. 

• The FY 2010 budget neutrality 

adjustment factor that is applied to the 

capital standard Federal payment rate for 

changes in the MS–DRG classifications and 

relative weights and changes in the GAFs is 

0.9990. 

• The FY 2010 outlier adjustment factor is 

0.9477. 

• The FY 2010 (special) exceptions 

payment adjustment factor is 0.9998. 

Because the capital Federal rate has 

already been adjusted for differences in casemix, wages, cost-of-living, indirect medical 

education costs, and payments to hospitals 

serving a disproportionate share of lowincome patients, we did not make additional 

adjustments in the capital standard 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. 

We are providing the following chart that 

shows how each of the factors and 

adjustments for FY 2010 affected the 

computation of the FY 2010 national capital 

Federal rate in comparison to the FY 2009 

national capital Federal rate. The FY 2010 

update factor has the effect of increasing the 

capital Federal rate by 1.4 percent compared 

to the FY 2009 capital Federal rate. The GAF/ 

DRG budget neutrality factor has the effect of 

decreasing the capital Federal rate by 0.10 

percent. The FY 2010 outlier adjustment 

factor has the effect of increasing the capital 

Federal rate by 0.13 percent compared to the 

FY 2009 capital Federal rate. The FY 2010 

exceptions payment adjustment factor has 

the effect of decreasing the capital Federal 

rate by 0.01 percent compared to the FY 2009 

capital Federal rate. (As discussed in section 

VI.E.1. of the preamble of this final rule, we 

are not applying an additional adjustment to 

the FY 2010 capital Federal rate for changes 

in documentation and coding that do not 

reflect real changes in patients’ severity of 

illness. A permanent cumulative adjustment 


sroberts on DSKD5P82C1PROD with RULES
44020 Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 

of ¥1.5 percent (that is, a factor of 0.985) was 

applied in determining the FY 2009 capital 

Federal rate for changes in documentation 

and coding that do not reflect real changes 

in patients’ severity of illness.) The combined 

effect of all the changes will increase the 

national capital Federal rate by 

approximately 1.4 percent compared to the 

FY 2009 national capital Federal rate. 

COMPARISON OF FACTORS AND ADJUSTMENTS: FY 2009 CAPITAL FEDERAL RATE AND FY 2010 CAPITAL FEDERAL RATE

h FY 2009 FY 2010 Change Percent 

change 

Update Factor 1 ................................................................................................ 1.0090 1.0140 1.0140 1.40 

GAF/DRG Adjustment Factor 1 ........................................................................ 1.0015 0.9990 0.9990 ¥0.10 

Outlier Adjustment Factor 2 .............................................................................. 0.9465 0.9477 1.0012 0.13 

Exceptions Adjustment Factor 2 ....................................................................... 0.9999 0.9998 0.9999 ¥0.01 

MS–DRG Documentation and Coding Adjustment Factor .............................. 0.985 1.0000 1.0000 0.0 

Capital Federal Rate ........................................................................................ $424.17 $430.20 1.0142 1.42 

1The update factor and the GAF/DRG budget neutrality factors are built permanently into the capital rates. Thus, for example, the incremental 

change from FY 2009 to FY 2010 resulting from the application of the 0.9990 GAF/DRG budget neutrality factor for FY 2010 is 0.9990. 2The outlier reduction factor and the exceptions adjustment factor are not built permanently into the capital rates; that is, these factors are not 

applied cumulatively in determining the capital rates. Thus, for example, the net change resulting from the application of the FY 2010 outlier adjustment factor is 0.9477/0.9465, or 1.0013. 

We also are providing the following chart 

that shows how the final FY 2010 capital 

Federal rate differs from the proposed FY 

2010 capital Federal rates as presented in the 

FY 2010 IPPS/RY 2010 LTCH PPS proposed 

rule (74 FR 24258). 

COMPARISON OF FACTORS AND ADJUSTMENTS: PROPOSED FY 2010 CAPITAL FEDERAL RATE AND FINAL FY 2010 

CAPITAL FEDERAL RATE

h Proposed 

FY 2010 

Final 

FY 2010 Change Percent Change 

Update Factor .................................................................................................. 1.0120 1.0140 1.0020 0.20 

GAF/DRG Adjustment Factor .......................................................................... 0.9994 0.9990 0.9996 ¥0.04 

Outlier Adjustment Factor ................................................................................ 0.9454 0.9477 1.002 0.24 

Exceptions Adjustment Factor ......................................................................... 0.9999 0.9998 0.9999 ¥0.01 

MS–DRG Upcoding Adjustment Factor ........................................................... 0.9670 1.0000 1.0341 3.41 

Capital Federal Rate ........................................................................................ $420.67 $430.20 1.0227 2.27 

6. Special Capital Rate for Puerto Rico 

Hospitals 

Section 412.374 provides for the use of a 

blended payment system for payments to 

hospitals located in Puerto Rico under the 

PPS for acute care hospital inpatient capitalrelated costs. Accordingly, under the capital 

PPS, we compute a separate payment rate 

specific to hospitals located in Puerto Rico 

using the same methodology used to compute 

the national Federal rate for capital-related 

costs. Under the broad authority of section 

1886(g) of the Act, as discussed in section VI. 

of the preamble of this final rule, beginning 

with discharges occurring on or after October 

1, 2004, capital payments to hospitals located 

in Puerto Rico are based on a blend of 25 

percent of the Puerto Rico capital rate and 75 

percent of the capital Federal rate. The 

Puerto Rico capital rate is derived from the 

costs of Puerto Rico hospitals only, while the 

capital Federal rate is derived from the costs 

of all acute care hospitals participating in the 

IPPS (including Puerto Rico). 

To adjust hospitals’ capital payments for 

geographic variations in capital costs, we 

apply a GAF to both portions of the blended 

capital rate. The GAF is calculated using the 

operating IPPS wage index, and varies 

depending on the labor market area or rural 

area in which the hospital is located. We use 

the Puerto Rico wage index to determine the 

GAF for the Puerto Rico part of the capitalblended rate and the national wage index to 

determine the GAF for the national part of 

the blended capital rate. 

Because we implemented a separate GAF 

for Puerto Rico in FY 1998, we also apply 

separate budget neutrality adjustments for 

the national GAF and for the Puerto Rico 

GAF. However, we apply the same budget 

neutrality factor for DRG reclassifications and 

recalibration nationally and for Puerto Rico. 

As we stated in section III.A.4. of this 

Addendum, both the national GAF budget 

neutrality factor and the DRG adjustment are 

0.9995, for a combined cumulative 

adjustment of 0.9990. 

In computing the payment for a particular 

Puerto Rico hospital, the Puerto Rico portion 

of the capital rate (25 percent) is multiplied 

by the Puerto Rico-specific GAF for the labor 

market area in which the hospital is located, 

and the national portion of the capital rate 

(75 percent) is multiplied by the national 

GAF for the labor market area in which the 

hospital is located (which is computed from 

national data for all hospitals in the United 

States and Puerto Rico). In FY 1998, we 

implemented a 17.78 percent reduction to the 

Puerto Rico capital rate as a result of Public 

Law 105–33. In FY 2003, a small part of that 

reduction was restored. 

For FY 2009, before application of the 

GAF, the special capital rate for hospitals 

located in Puerto Rico is $198.77 for 

discharges occurring on or after October 1, 

2008, through September 30, 2009 (73 FR 

57893). Consistent with our development of 

the FY 2009 Puerto Rico-specific operating 

standardized amount, we did not apply the 

additional ¥0.9 percent documentation and 

coding adjustment (or the cumulative ¥1.5 

percent adjustment) to the FY 2009 Puerto 

Rico-specific capital rate. We also noted in 

the FY 2009 IPPS final rule (73 FR 48449 

through 48550) that we may propose to apply 

such an adjustment to the Puerto Rico 

operating and capital rates in the future. 

With the changes we made to the other 

factors used to determine the capital rate, the 

FY 2010 special capital rate for hospitals in 

Puerto Rico is $204.01. As noted above and 

discussed in greater detail in section VI.E.1. 

of the preamble of this final rule, consistent 

with our development of the Puerto Ricospecific operating standardized amount, we 

are not applying an adjustment to account for 

changes in documentation and coding that 

resulted from the adoption of the MS–DRGs 

in determining the FY 2010 Puerto Ricospecific capital rate. 

B. Calculation of the Inpatient CapitalRelated Prospective Payments for FY 2010 

Because the 10-year capital PPS transition 

period ended in FY 2001, all hospitals 

(except ‘‘new’’ hospitals under § 412.324(b) 

and under § 412.304(c)(2)) are paid based on 

100 percent of the capital Federal rate in FY 

2010. 

For purposes of calculating payments for 

each discharge during FY 2010, the capital 

standard Federal rate is adjusted as follows: 

(Standard Federal Rate) x (DRG weight) x 

(GAF) x (COLA for hospitals located in 

Alaska and Hawaii) x (1 + DSH Adjustment 

Factor + IME Adjustment Factor, if 


sroberts on DSKD5P82C1PROD with RULES
Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 44021 

applicable). The result is the adjusted capital 

Federal rate. (As discussed in section VI.E.1. 

of this preamble of this final rule, at this 

time, we are no longer eliminating the IME 

adjustment under the capital IPPS.) 

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 2010 are in section II.A. of 

this Addendum. For FY 2010, a case will 

qualify as a cost outlier if the cost for the case 

plus the (operating) IME and DSH payments 

is greater than the prospective payment rate 

for the MS–DRG plus the fixed-loss amount 

of $23,140. 

An eligible hospital may also qualify for a 

special exceptions payment under 

§ 412.348(g) up through the 10th year beyond 

the end of the capital transition period if it 

meets the following criteria: (1) A project 

need requirement described at 

§ 412.348(g)(2), which in the case of certain 

urban hospitals includes an excess capacity 

test as described at § 412.348(g)(4); and (2) a 

project size requirement as described at 

§ 412.348(g)(5). Eligible hospitals include 

SCHs, urban hospitals with at least 100 beds 

that have a DSH patient percentage of at least 

20.2 percent or qualify for DSH payments 

under § 412.106(c)(2), and hospitals that have 

a combined Medicare and Medicaid inpatient 

utilization of at least 70 percent. Under 

§ 412.348(g)(8), the amount of a special 

exceptions payment is determined by 

comparing the cumulative payments made to 

the hospital under the capital PPS to the 

cumulative minimum payment level. This 

amount is offset by: (1) Any amount by 

which a hospital’s cumulative capital 

payments exceed its cumulative minimum 

payment levels applicable under the regular 

exceptions process for cost reporting periods 

beginning during which the hospital has 

been subject to the capital PPS; and (2) any 

amount by which a hospital’s current year 

operating and capital payments (excluding 75 

percent of operating DSH payments) exceed 

its operating and capital costs. Under 

§ 412.348(g)(6), the minimum payment level 

is 70 percent for all eligible hospitals. 

Currently, as provided in § 412.304(c)(2), 

we pay a new hospital 85 percent of its 

reasonable costs during the first 2 years of 

operation unless it elects to receive payment 

based on 100 percent of the capital Federal 

rate. Effective with the third year of 

operation, we pay the hospital based on 100 

percent of the capital Federal rate (that is, the 

same methodology used to pay all other 

hospitals subject to the capital PPS). 

C. Capital Input Price Index 

1. Background 

Like the operating input price index, the 

capital input price index (CIPI) is a fixedweight price index that measures the price 

changes associated with capital costs during 

a given year. The CIPI differs from the 

operating input price index in one important 

aspect—the CIPI reflects the vintage nature of 

capital, which is the acquisition and use of 

capital over time. Capital expenses in any 

given year are determined by the stock of 

capital in that year (that is, capital that 

remains on hand from all current and prior 

capital acquisitions). An index measuring 

capital price changes needs to reflect this 

vintage nature of capital. Therefore, the CIPI 

was developed to capture the vintage nature 

of capital by using a weighted-average of past 

capital purchase prices up to and including 

the current year. 

We periodically update the base year for 

the operating and capital input price indexes 

to reflect the changing composition of inputs 

for operating and capital expenses. In this 

final rule, 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.D. of the preamble of 

this final rule. The CIPI was last rebased to 

FY 2002 in the FY 2006 IPPS final rule (70 

FR 47387). 

2. Forecast of the CIPI for FY 2010 

Based on the latest forecast by IHS Global 

Insight, Inc. (second quarter of 2009), we 

forecast the FY 2006-based CIPI to increase 

1.4 percent in FY 2010. This reflects a 

projected 1.8 percent increase in vintageweighted depreciation prices (building and 

fixed equipment, and movable equipment), 

and a 2.0 percent increase in other capital 

expense prices in FY 2010, partially offset by 

2.1 percent decline in vintage-weighted 

interest expenses in FY 2010. The weighted 

average of these three factors produces the 

1.4 percent increase for the FY 2006-based 

CIPI as a whole in FY 2010. 

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-ofincrease ceiling. An annual per discharge 

limit (the target amount as defined in 

§ 413.40(a)) was set for each hospital or 

hospital unit based on the hospital’s own 

cost experience in its base year. The target 

amount was multiplied by the Medicare 

discharges and applied as an aggregate upper 

limit (the ceiling as defined in § 413.40(a)) on 

total inpatient operating costs for a hospital’s 

cost reporting period. Prior to October 1, 

1997, these payment provisions applied 

consistently to all categories of excluded 

providers (rehabilitation hospitals and units 

(now referred to as IRFs), psychiatric 

hospitals and units (now referred to as IPFs), 

LTCHs, children’s hospitals, and cancer 

hospitals). 

Payments for services furnished in 

children’s hospitals and cancer hospitals that 

are excluded from the IPPS continue to be 

subject to the rate-of-increase ceiling based 

on the hospital’s own historical cost 

experience. (We note that, in accordance 

with § 403.752(a), RNHCIs are also subject to 

the rate-of-increase limits established under 

§ 413.40 of the regulations.) 

In the FY 2010 IPPS/RY 2010 LTCH PPS 

proposed rule, we proposed that the FY 2010 

rate-of-increase percentage for cancer and 

children’s hospitals and RNHCIs was the 

percentage increase in the FY 2010 IPPS 

operating market basket, estimated to be 2.1 

percent, in accordance with applicable 

regulations at § 413.40. We also proposed to 

use more recent data when determining the 

estimated percentage increase for the FY 

2010 IPPS market basket for the final rule, to 

the extent these data were available. For this 

final rule, we are using the most recent data 

available to determine the FY 2010 IPPS 

operating market basket. Based on IHS Global 

Insight, Inc.’s second quarter 2009 forecast, 

with historical data through the 2009 first 

quarter, the IPPS operating market basket 

increase is 2.1 percent for FY 2010. 

Therefore, for cancer and children’s hospitals 

and RNHCIs, the FY 2010 rate-of-increase 

percentage that is applied to the FY 2009 

target amounts in order to determine the FY 

2010 target amounts is 2.1 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 is based on cost-based 

reimbursement rules under 42 CFR part 413 

(certain providers do not receive a 

transitioning period or may elect to bypass 

the transition as applicable under 42 CFR 

part 412, Subparts N, O, and P.) We note that 

all of the various transitioning periods 

provided for under the IRF PPS, the IPF PPS, 

and the LTCH PPS have ended. 

The IRF PPS, the IPF PPS, and the LTCH 

PPS are updated annually. We refer readers 

to section VIII. 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 RY 2010. 

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 RY 2010 

A. LTCH PPS Standard Federal Rate for FY 

2010 

1. Background 

In section VIII. of the preamble of this final 

rule, we discuss our changes to the payment 

rates, factors, and specific policies under the 

LTCH PPS for RY 2010. At § 412.523(c)(3)(ii) 

of the regulations, for LTCH PPS rate years 

beginning RY 2004 through RY 2006, we 

updated the standard Federal rate by a rate 

increase factor to adjust for the most recent 

estimate of the increases in prices of an 

appropriate market basket of goods and 

services for LTCHs. We established that 

policy of annually updating the standard 

Federal rate because, at that time, we 

believed that was the most appropriate 

method for updating the LTCH PPS standard 

Federal rate annually for years after the 

initial implementation of the LTCH PPS in 

FY 2003. When we moved the date of the 

annual update of the LTCH PPS from October 

1 to July 1 in the RY 2004 LTCH PPS final 

rule (68 FR 34138), we revised § 412.523(c)(3) 

to specify that, for LTCH PPS rate years 

beginning on or after July 1, 2003, the annual 


sroberts on DSKD5P82C1PROD with RULES
44022 Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 

update to the standard Federal rate for the 

LTCH PPS would be 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. At that time, we believed that was 

the most appropriate method for updating the 

LTCH PPS standard Federal rate annually for 

years after RY 2004. 

In the RY 2007 LTCH PPS final rule (71 FR 

27818), we explained that rather than solely 

using the most recent estimate of the LTCH 

PPS market basket as the basis of the update 

factor for the standard Federal rate for RY 

2007, we believed that, based on our ongoing 

monitoring activity, it was appropriate to 

adjust the standard Federal rate to account 

for the changes in documentation and coding 

practices (rather than patient severity of 

illness). We established regulations at 

§ 412.523(c)(3)(iii) to specify that the update 

to the standard Federal rate for the 2007 

LTCH PPS rate year is zero percent. This was 

based on the most recent estimate of the 

LTCH PPS market basket at the time, which 

was offset by an adjustment to account for 

changes in case-mix in prior periods due to 

changes in documentation and coding rather 

than increased patient severity of illness in 

FY 2004. For the following year, we also 

considered changes in documentation and 

coding practices rather than patient severity 

of illness in establishing the update to the 

standard Federal rate for the 2008 LTCH PPS 

rate year. In the RY 2008 LTCH PPS final rule 

(72 FR 26887 through 27890), we adjusted 

the standard Federal rate based on the most 

recent estimate of the increase in the market 

basket (3.2 percent) and an adjustment to 

account for changes in documentation and 

coding practices (2.49 percent) in FY 2005. 

Accordingly, we established regulations at 

§ 412.523(c)(3)(iv) to specify that the update 

to the standard Federal rate for RY 2008 was 

0.71 percent. 

However, Public Law 110–173 (MMSEA), 

enacted on December 29, 2007, contained a 

provision that addressed the standard 

Federal rate for RY 2008. Specifically, section 

114(e)(1) of Public Law 110–173 provided 

that under the added section 1886(m)(2) of 

the Act, the standard Federal rate for RY 

2008 shall be the same as the standard 

Federal rate for RY 2007. In addition, section 

114(e)(2) of Public Law 110–173 specifically 

stated that the revised standard Federal rate 

provided for under section 114(e)(1) ‘‘shall 

not apply to discharges occurring on or after 

July 1, 2007, and before April 1, 2008,’’ 

effectively resulting in a delay of the 

application of the updated standard Federal 

rate for RY 2007 established in the LTCH PPS 

RY 2008 final rule (72 FR 26890). We 

implemented these statutory provisions in an 

interim final rule with comment period (73 

FR 24875 through 24877), as discussed in 

further detail in section IX. of the preamble 

of this final rule. Accordingly, we revised 

§ 412.523(c)(iv) to provide that: (1) the 

standard Federal rate for the LTCH PPS RY 

2008 is the same as the standard Federal rate 

for the previous LTCH PPS RY, which is RY 

2007; and (2) for discharges occurring on or 

after July 1, 2007, and before April 1, 2008, 

payments are based on the standard Federal 

rate for LTCH PPS RY 2007, updated by 0.71 

percent. Thus, effectively, the standard 

Federal rate used to determine LTCH PPS 

payments for discharges occurring on or after 

July 1, 2007, through March 31, 2008, is the 

standard Federal rate for RY 2007 updated by 

0.71 percent, while LTCH PPS payments for 

discharges occurring from April 1, 2008, 

through June 30, 2008, are determined based 

on the standard Federal rate set forth in 

section 114(e)(1) of Public Law 110–173 (that 

is, the same standard Federal rate as the 

previous rate year (RY 2007)). 

Consistent with our historical practice, in 

the RY 2009 LTCH PPS final rule (73 FR 

26806), we updated the standard Federal rate 

from the previous year (that is, the standard 

Federal rate for RY 2008 as established by 

section 1886(m)(2) of the Act) to determine 

the standard Federal rate for RY 2009. In that 

same final rule, under the broad authority 

conferred upon the Secretary by section 123 

of the BBRA as amended by section 307(b) 

of the BIPA, we established an annual update 

to the standard Federal rate for RY 2009 

based on the most recent estimate of the 

increase in the LTCH PPS market basket of 

3.6 percent (for the 15-month rate year, 

which was based on the best available data 

at that time) and an adjustment of ¥0.9 

percent to account for the increase in casemix in a prior period (FY 2006) due to 

changes in documentation and coding 

practices rather than an increase in patient 

severity of illness. (As noted above, we 

established a 15-month period for RY 2009 

(July 1, 2008 through September 30, 2009) in 

order to move the LTCH PPS annual rate 

update to an October 1 effective date 

beginning October 1, 2009. We refer readers 

to 73 FR 26797 through 26798). Accordingly, 

we established regulations at 

§ 412.523(c)(3)(v) to specify that the update 

to the standard Federal rate for the 2009 

LTCH PPS rate year is 2.7 percent. 

2. Development of the RY 2010 LTCH PPS 

Standard Federal Rate 

As we stated in the FY 2010 IPPS/RY 2010 

proposed rule (74 FR 24261), while we 

continue to believe that an update to the 

LTCH PPS standard Federal rate should be 

based on the most recent estimate of the 

increase in the LTCH PPS market basket, we 

also believe it is appropriate that the 

standard Federal rate be offset by an 

adjustment to account for any changes in 

documentation and coding practices that do 

not reflect increased patient severity of 

illness. Such an adjustment protects the 

integrity of the Medicare Trust Funds by 

ensuring that the LTCH PPS payment rates 

better reflect the true costs of treating LTCH 

patients. Furthermore, as we discussed most 

recently in the RY 2009 LTCH final rule (73 

FR 26805), we did not establish a case-mix 

budget neutrality factor (that is, a 

documentation and coding adjustment for 

changes in case-mix that are not due to 

changes in patient severity of illness) for the 

adoption of the severity adjusted MS–LTC– 

DRG patient classification system. Rather, we 

noted that, consistent with past LTCH 

payment policy, we would continue to 

monitor LTCH data and we could propose to 

make adjustments when updating the LTCH 

PPS standard Federal rate in the future to 

account for changes in documentation and 

coding that do not reflect any real changes in 

case-mix during these years that we are 

implementing MS–LTC–DRGs. 

As we discussed in greater detail in section 

VIII.C.3. of the preamble of this final rule, we 

performed a CMI analysis using the most 

recent available LTCH claims data under 

both the current MS–LTC–DRG and former 

CMS LTC–DRG patient classification 

systems. Based on this evaluation, in the FY 

2010 IPPS/RY 2010 LTCH PPS proposed rule 

(74 FR 24229 through 24230), we determined 

that there was a total increase in LTCH CMI 

of 1.8 percent due to changes in 

documentation and coding that did not 

reflect real changes in patient severity of 

illness for LTCH discharges occurring in FY 

2007 and FY 2008. Specifically, our analysis 

showed an increase in CMI of 0.5 percent in 

FY 2007 and 1.3 percent in FY 2008 due to 

changes in documentation and coding that 

did not reflect increased patient severity of 

illness (or costs). As we discuss in section 

VIII.C.3. of the preamble of this final rule, we 

are applying a ¥0.5 percent adjustment to 

account for the increase in case-mix in FY 

2007. However, we are delaying the 

application of the ¥1.3 percent adjustment 

to account for the increase in case-mix in FY 

2008. 

At this time, the most recent estimate of 

the increase in the LTCH PPS market basket 

(that is, the FY 2002-based RPL market 

basket) for RY 2010 is 2.5 percent, as 

discussed in section VIII.B.2. of the preamble 

of this final rule (compared to a proposed 

increase of 2.4 percent in the proposed rule). 

Consistent with our historical practice, in 

this final rule, as proposed, we are updating 

the LTCH PPS standard Federal rate for RY 

2010 based on the full LTCH PPS market 

basket increase estimate of 2.5 percent and an 

adjustment to account for the increase in 

case-mix in a prior periods (FY 2007) that 

resulted from changes in documentation and 

coding practices of 0.5 percent. Therefore, 

the update factor to the standard Federal rate 

for RY 2010 is 2.0 percent (that is, we are 

applying a factor of 1.020 in determining the 

LTCH PPS standard Federal rate for RY 2010, 

calculated as 1.025 × 1 divided by 1.005 = 

1.020 or 2.0 percent). That is, under the 

broad authority conferred upon the Secretary 

under the BBRA and the BIPA to determine 

appropriate updates under the LTCH PPS, we 

are specifying under § 412.523(c)(3)(vi) that, 

for LTCH discharges occurring on or after 

October 1, 2009, and on or before September 

30, 2010, the standard Federal rate from the 

previous year will be updated by 2.0 percent. 

Accordingly, we are amending § 412.523 to 

add a new paragraph (c)(3)(vi) to specify that 

the standard Federal rate for RY 2010 is the 

standard Federal rate for the previous rate 

year updated by 2.0 percent. In determining 

the standard Federal rate for RY 2010, we 

applied the 1.020 update factor to the RY 

2009 Federal rate of $39,114.36 (as 

established in the RY 2009 LTCH PPS final 

rule (73 FR 26812)). Consequently, the 

standard Federal rate for RY 2010 is 

$39,896.65. 


sroberts on DSKD5P82C1PROD with RULES
Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 44023 

B. Adjustment for Area Wage Levels Under 

the LTCH PPS for RY 2010 

1. Background 

Under the authority of section 123 of the 

BBRA as amended by section 307(b) of the 

BIPA, we established an adjustment to the 

LTCH PPS standard Federal rate to account 

for differences in LTCH area wage levels at 

§ 412.525(c). The labor-related share of the 

LTCH PPS standard Federal rate (discussed 

in greater detail in section VIII.C.2. of the 

preamble of this final rule), 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. 

As we discussed in the August 30, 2002 

LTCH PPS final rule (67 FR 56015), when we 

implemented the LTCH PPS, we established 

a 5-year transition to the full wage index 

adjustment. The wage index adjustment was 

completely phased-in for cost reporting 

periods beginning in FY 2007. Therefore, for 

cost reporting periods beginning on or after 

October 1, 2006, the applicable LTCH wage 

index values are the full (five-fifths) LTCH 

PPS wage index values calculated based on 

acute care hospital inpatient wage index data 

without taking into account geographic 

reclassification under section 1886(d)(8) and 

section 1886(d)(10) of the Act. For additional 

information on the phase-in of the wage 

index adjustment under the LTCH PPS, we 

refer readers to the August 30, 2002 LTCH 

PPS final rule (67 FR 56017 through 56019) 

and the RY 2008 LTCH PPS final rule (72 FR 

26891). 

2. Updates to the Geographic Classifications/ 

Labor Market Area Definitions 

a. Background 

As discussed in the August 30, 2002 LTCH 

PPS final rule, which implemented the LTCH 

PPS (67 FR 56015 through 56019), in 

establishing an adjustment for area wage 

levels under § 412.525(c), 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. In the RY 2006 

LTCH PPS final rule (70 FR 24184 through 

24185), in regulations at § 412.525(c), we 

revised the labor market area definitions used 

under the LTCH PPS effective for discharges 

occurring on or after July 1, 2005, based on 

the Executive OMB’s CBSA designations, 

which are based on 2000 Census data. We 

made this revision because we believe that 

the CBSA-based labor market area definitions 

will ensure that the LTCH PPS wage index 

adjustment most appropriately accounts for 

and reflects the relative hospital wage levels 

in the geographic area of the hospital as 

compared to the national average hospital 

wage level. We note that these are the same 

CBSA-based designations implemented for 

acute care hospitals under the IPPS at 

§ 412.64(b), effective October 1, 2004 (69 FR 

49026 through 49034). (For further 

discussion of the CBSA-based labor market 

area (geographic classification) definitions 

currently used under the LTCH PPS, we refer 

readers to the RY 2006 LTCH PPS final rule 

(70 FR 24182 through 24191).) 

In the RY 2009 LTCH PPS final rule (73 FR 

26814), we codified the definitions of 

‘‘urban’’ and ‘‘rural’’ in 42 CFR part 412, 

Subpart O (the subpart of the regulations 

specific to the LTCH PPS). Prior to this 

codification, the application of the wage 

index adjustment under § 412.525(c)(2) was 

made on the basis of the location of the 

facility in either an urban area or a rural area 

as defined in § 412.64(b)(1)(ii)(A) through (C) 

of the regulations, which apply specifically 

to the IPPS. Under that regulatory 

construction, the then existing § 412.525(c) 

indicated that the terms ‘‘rural area’’ and 

‘‘urban area’’ were defined according to the 

definitions of those terms under the IPPS in 

42 CFR part 412, Subpart D. In that same 

final rule, we revised § 412.525(c) to specify 

that the application of the LTCH PPS wage 

index adjustment is made on the basis of the 

location of the LTCH in either an urban area 

or a rural area as defined in § 412.503 

because we believe it is administratively 

simpler to have the LTCH PPS urban and 

rural labor market area definitions selfcontained in the regulations of the subpart 

specific to the LTCH PPS (§ 412.503) rather 

than specifying a cross-reference to the 

definitions of urban area and rural area in the 

IPPS regulations in 42 CFR part 412, Subpart 

D. Thus, under § 412.503, for discharges 

occurring on or after July 1, 2008, an ‘‘urban 

area’’ under the LTCH PPS is defined as a 

Metropolitan Statistical Area, as defined by 

OMB and a ‘‘rural area’’ is defined as any 

area outside of an urban area. 

In addition, in the RY 2009 LTCH PPS final 

rule (73 FR 26813 through 26814), we 

clarified the change regarding the treatment 

of Litchfield County, Connecticut (CT), and 

Merrimack County, New Hampshire (NH) 

CBSA-based labor market area definitions. 

Specifically, we discussed that, effective for 

LTCH PPS discharges occurring on or after 

July 1, 2008, Litchfield County, CT, and 

Merrimack County, NH, are considered 

‘‘rural’’ and are no longer considered as being 

part of urban CBSA 25540 (Hartford-West 

Hartford-East Hartford, CT) and urban CBSA 

31700 (Manchester-Nashua, NH), 

respectively, as these areas had been in the 

past as a result of a change to the regulations 

at § 412.64(b)(1)(ii)(B) established in the FY 

2008 IPPS final rule with comment period 

(72 FR 47337 through 47338). In making this 

clarification, we noted that this policy is 

consistent with our policy of not taking into 

account IPPS geographic reclassifications in 

determining payments under the LTCH PPS. 

b. Update to the CBSA–Based Labor Market 

Area Definitions 

The CBSA-based labor market area 

definitions used under the LTCH PPS were 

last updated in the RY 2009 LTCH PPS final 

rule (73 FR 26812 through 26813) based on 

the most recent OMB bulletin available at 

that time (December 18, 2006; OMB Bulletin 

No. 07–01). As discussed in the proposed 

rule (74 FR 24262 through 24263), since that 

time, there have been two OMB bulletins 

announcing revisions to the CBSA 

designations, and under the broad authority 

conferred upon the Secretary by section 123 

of the BBRA, as amended by section 307(b) 

of BIPA, to determine appropriate 

adjustments under the LTCH PPS, we 

proposed to apply the changes from those 

two OMB bulletins to the current CBSAbased labor market area definitions and 

geographic classifications used under the 

LTCH PPS, effective for discharges occurring 

on or after October 1, 2009. 

We did not receive any public comments 

on our proposed update to the CBSA-based 

labor market area definitions used under the 

LTCH PPS for RY 2010. Therefore, we are 

adopting those proposed changes as final in 

this final rule. Specifically, for RY 2010, we 

are establishing the following updates to the 

LTCH PPS CBSA-based labor market area 

definitions and geographic classifications: 

First, on November 20, 2007, OMB 

announced the revision of titles for eight 

urban areas (OMB Bulletin No. 08–01). This 

OMB bulletin is available on the OMB Web 

site at: http://www.whitehouse.gov/omb/ 

assets/omb/bulletins/fy2008/b08–01.pdf. The 

revised titles are as follows: 

• Hammonton, New Jersey qualifies as a 

new principal city of the Atlantic City, New 

Jersey CBSA. The new title is Atlantic CityHammonton, New Jersey CBSA (CBSA 

12100). 

• New Brunswick, New Jersey, located in 

the Edison, New Jersey Metropolitan 

Division, qualifies as a new principal city of 

the New York- Northern New Jersey-Long 

Island, New York, New Jersey, Pennsylvania 

CBSA. The new title for the Metropolitan 

Division is Edison-New Brunswick, New 

Jersey CBSA (CBSA 20764). 

• Summerville, South Carolina qualifies as 

a new principal city of the Charleston-North 

Charleston, South Carolina CBSA. The new 

title is Charleston-North CharlestonSummerville, South Carolina (CBSA 16700). 

• Winter Haven, Florida qualifies as a new 

principal city of the Lakeland, Florida CBSA. 

The new title is Lakeland-Winter Haven, 

Florida (CBSA 29460). 

• Bradenton, Florida replaces Sarasota, 

Florida as the most populous principal city 

of the Sarasota-Bradenton-Venice, Florida 

CBSA (currently CBSA 42260). The new title 

is Bradenton-Sarasota-Venice, Florida. The 

new CBSA code is 14600. 

• Frederick, Maryland replaces 

Gaithersburg, Maryland as the second most 

populous principal city in the BethesdaGaithersburg-Frederick, Maryland CBSA. The 

new title is Bethesda-Frederick-Gaithersburg, 

Maryland (CBSA 13644). 

• North Myrtle Beach, South Carolina 

replaces Conway, South Carolina as the 

second most populous principal city of the 

Myrtle Beach-Conway-North Myrtle Beach, 

South Carolina CBSA. The new title is Myrtle 

Beach-North Myrtle Beach-Conway, South 

Carolina (CBSA 34820). 

• Pasco, Washington replaces Richland, 

Washington as the second most populous 

principal city of the Kennewick-RichlandPasco, Washington CBSA. The new title is 

Kennewick-Pasco-Richland, Washington 

(CBSA 28420). 

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, to determine appropriate 

adjustments under the LTCH PPS, as 


sroberts on DSKD5P82C1PROD with RULES
44024 Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 

proposed, we are applying these changes to 

the current CBSA-based labor market area 

definitions and geographic classifications 

used under the LTCH PPS, effective for 

discharges occurring on or after October 1, 

2009 (to the extent that they are not changed 

by the later OMB Bulletin No. 90–1 discussed 

below). We believe these revisions to the 

LTCH PPS CBSA-based labor market area 

definitions, which are based on the most 

recent available data, 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. 

Accordingly, the RY 2010 LTCH PPS wage 

index values presented in Tables 12A and 

12B in the Addendum of this final rule 

reflect the revisions to the CBSA-based labor 

market area definitions described above. We 

note that the eight CBSA title revisions 

announced in OMB Bulletin No. 08–01 do 

not change the composition (constituent 

counties) of the affected CBSAs; they only 

revise the CBSA titles (and do not change the 

CBSA codes with the exception of the change 

in CBSA code 42260 to 14600). We also note 

that these revisions were applicable under 

the IPPS beginning October 1, 2008 (73 FR 

48575). 

Second, on November 20, 2008, OMB 

announced three Micropolitan Statistical 

Areas that now qualify as MSAs and changed 

the principal cities and titles of a number of 

CBSAs and a Metropolitan Division (OMB 

Bulletin No. 09–01). This OMB bulletin is 

available on the OMB Web site at: http:// 

www.whitehouse.gov/omb/assets/omb/ 

bulletins/fy2009/09-01.pdf. The new urban 

CBSAs are as follows: 

• Cape Girardeau-Jackson, MissouriIllinois (CBSA 16020). This CBSA is 

comprised of the principal cities of Cape 

Girardeau and Jackson, Missouri in 

Alexander County, Illinois; Bollinger County, 

Missouri, and Cape Girardeau County, 

Missouri. 

• Manhattan, Kansas (CBSA 31740). This 

CBSA is comprised of the principal city of 

Manhattan, Kansas in Geary County, 

Pottawatomie County, and Riley County. 

• Mankato-North Mankato, Minnesota 

(CBSA 31860). This CBSA is comprised of 

the principal cities of Mankato and North 

Mankato, Minnesota in Blue Earth County 

and Nicollet County. 

The changes in the principal cities and the 

revised titles are as follows: 

• Broomfield, Colorado qualifies as a new 

principal city of the Denver-Aurora, Florida 

CBSA. The new title is Denver-AuroraBroomfield, Colorado (CBSA 19740). 

• Chapel Hill, North Carolina qualifies as 

a new principal city of the Durham, North 

Carolina CBSA. The new title is DurhamChapel Hill, North Carolina (CBSA 20500). 

• Chowchilla, California qualifies as a new 

principal city of the Madera, California 

CBSA. The new title is Madera-Chowchilla, 

California (CBSA 31460). 

• Panama City Beach, Florida qualifies as 

a new principal city of the Panama City-Lynn 

Haven, Florida CBSA. The new title is 

Panama City-Lynn Haven-Panama City 

Beach, Florida (CBSA 37460). 

• East Wenatchee, Washington qualifies as 

a new principal city of the Wenatchee, 

Washington CBSA. The new title is 

Wenatchee-East Wenatchee, Washington 

(CBSA 48300). 

• Rockville, Maryland replaces 

Gaithersburg, Maryland as the third most 

populous city of the Bethesda-FrederickGaithersburg, Maryland Metropolitan 

Division. The new title is BethesdaFrederick-Rockville, Maryland Metropolitan 

Division (CBSA 13644). 

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, to determine appropriate 

adjustments under the LTCH PPS, as 

proposed, we are applying these changes to 

the current CBSA-based labor market area 

definitions and geographic classifications 

used under the LTCH PPS effective for 

discharges occurring on or after October 1, 

2009. We believe these revisions to the LTCH 

PPS CBSA-based labor market area 

definitions, which are based on the most 

recent available data, would 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. 

Accordingly, the RY 2010 LTCH PPS wage 

index values presented in Tables 12A and 

12B in the Addendum of this final rule 

reflect the revisions to the CBSA-based labor 

market area definitions described above. We 

note that the six CBSA title revisions noted 

above do not change the composition 

(constituent counties) of the affected CBSAs; 

they only revise the CBSA titles (and do not 

change the CBSA codes). We also note that 

we are currently aware of only one LTCH 

located in one of the three new CBSAs (CBSA 

16020). As discussed in section III.C. of the 

preamble of this final rule, the revisions to 

the CBSA-based designations are also 

adopted under the IPPS effective beginning 

October 1, 2009. 

3. LTCH PPS Labor-Related Share 

As noted above in this section, under the 

adjustment for difference in area wage levels 

at § 412.525(c), the labor-related share of a 

LTCH’s PPS payment is adjusted by the 

applicable wage index for the labor market 

area in which the LTCH is located. 

Specifically, as discussed in section 

VIII.C.2.d. of the preamble of this final rule, 

the LTCH PPS labor-related share is 

determined by our actuaries and is based on 

data for the labor-related share of operating 

costs and capital costs of the FY 2002-based 

RPL market basket. (Additional background 

information on the historical development of 

the labor-related share under the LTCH PPS 

can be found in the RY 2009 LTCH PPS final 

rule (73 FR 26815). In the RY 2007 final rule 

(71 FR 27829 through 27830), we established 

a labor-related share based on the relative 

importance of the labor-related share of 

operating costs (wages and salaries, employee 

benefits, professional fees, postal services, 

and all other labor-intensive services) and 

capital costs of the RPL market basket based 

on FY 2002 data, as they are the best 

available data that reflect the cost structure 

of LTCHs. For the past 2 years (RYs 2008 and 

2009), we updated the LTCH PPS laborrelated share annually based on the latest 

available data for the RPL market basket. For 

RY 2009, the labor-related share is 75.662 

percent, as established in the RY 2009 LTCH 

PPS final rule (73 FR 26815 through 26816), 

based on the sum of the relative importance 

of the labor-related share of operating costs 

(wages and salaries, employee benefits, 

professional fees, and all other laborintensive services) and a labor-related 

portion of capital costs of the FY 2002-based 

RPL market basket from the first quarter of 

2008 forecast (the most recent available data 

at that time). 

As discussed in section VIII.C. of the 

preamble of this final rule and as we 

proposed, we are continuing to use the FY 

2002-based RPL market basket used under 

the LTCH PPS for RY 2010. Furthermore, for 

RY 2010, we are continuing to define the 

LTCH PPS labor-related share as the national 

average proportion of operating costs (wages 

and salaries, employee benefits, professional 

fees, and all other labor-intensive services) 

and a labor-related portion of capital costs 

based on the FY 2002-based RPL market 

basket. (As noted above, additional 

information on the development of the FY 

2002-based RPL market basket used under 

the LTCH PPS can be found in the RY 2007 

LTCH PPS final rule (71 FR 27808 through 

27818).) Accordingly, consistent with our 

historical practice of using the best available 

data, we used IHS Global Insight, Inc.’s 

second quarter 2009 forecast of the FY 2002- 

based RPL market basket for RY 2010 (in the 

proposed rule, we used IHS Global Insight, 

Inc’s first quarter 2009 forecast) to determine 

the labor-related share for the LTCH PPS for 

RY 2010 that will be effective for discharges 

occurring on or after October 1, 2009, and 

through September 30, 2010, as these are the 

most recent available data. As shown in the 

chart in section VIII.C.2.d. of the preamble of 

this final rule, based on the latest available 

data (and 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 75.779 percent under 

the LTCH PPS for the RY 2010. 

4. LTCH PPS Wage Index for RY 2010 

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. As we 

discussed in the August 30, 2002 LTCH PPS 

final rule (67 FR 56019), hospitals that are 

excluded from the IPPS are not required to 

provide wage-related information on the 

Medicare cost report. Therefore, we would 

need to establish instructions for the 

collection of these LTCH data as well as 

develop some type of application and 

determination process before a geographic 

reclassification adjustment under the LTCH 

PPS could be implemented. The wage 

adjustment established under the LTCH PPS 

is based on a LTCH’s actual location without 

regard to the urban or rural designation of 

any related or affiliated provider. Acute care 

hospital inpatient wage index data are also 

used to establish the wage index adjustment 

used in other Medicare PPSs, such as the IRF 


sroberts on DSKD5P82C1PROD with RULES
Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 44025 

PPS, the IPF PPS, the HHA PPS, and the SNF 

PPS. 

In the RY 2009 LTCH PPS final rule (73 FR 

26816 through 26817), we established LTCH 

PPS wage index values for RY 2009 

calculated from the same data collected from 

cost reports submitted by IPPS hospitals for 

cost reporting periods beginning during FY 

2004 that were used to compute the FY 2008 

acute care hospital inpatient wage index data 

without taking into account geographic 

reclassification under sections 1886(d)(8) and 

1886(d)(10) of the Act because these were the 

best available data at that time. The LTCH 

PPS wage index values applicable for 

discharges occurring on or after July 1, 2008, 

through September 30, 2009, were shown in 

Table 1 (for urban areas) and Table 2 (for 

rural areas) in the Addendum to the RY 2009 

LTCH PPS final rule (73 FR 26840 through 

26863). 

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, to determine appropriate 

adjustments under the LTCH PPS for RY 

2010, as we proposed, we used the same data 

collected from cost reports submitted by IPPS 

hospitals for cost reporting periods beginning 

during FY 2006 that are being used to 

compute the FY 2010 acute care hospital 

inpatient wage index data without taking into 

account geographic reclassification under 

sections 1886(d)(8) and 1886(d)(10) of the 

Act to determine the applicable wage index 

values under the LTCH PPS in RY 2010 

because these data (FY 2006) are the most 

recent complete data available at this time. 

(We note that due to the change in the annual 

LTCH PPS rate year update cycle from July 

1 to October 1, effective October 1, 2009, 

established in the RY 2009 LTCH PPS final 

rule, there is no longer a lag-time in the 

availability of the IPPS hospital wage data 

used to develop the respective wage indices 

used under the IPPS and LTCH PPS. 

Consequently, because the annual update to 

the LTCH PPS and the IPPS now occurs on 

October 1 of each year, we are able to 

calculate wage index values using the same 

wage data to develop the LTCH wage index 

as is used to develop the IPPS wage index in 

a given year. Under the previous July 1 

annual LTCH PPS rate year update cycle, due 

to the lag-time in the availability of data, 

there was a 1-year lag-time in the best 

available IPPS wage data to develop the 

LTCH PPS wage index each year (for 

example, as noted above, we established RY 

2009 LTCH PPS wage index values from the 

same data collected from FY 2004 IPPS 

hospital cost reports that were used to 

compute the FY 2008 IPPS wage index). We 

are continuing to use IPPS wage data as a 

proxy to determine the LTCH wage index 

values for RY 2010 because both LTCHs and 

acute care 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 they both 

compete in the same labor markets and, 

therefore, experience similar wage-related 

costs.) 

We also note that using the IPPS wage data 

to determine the RY 2010 LTCH wage index 

values reflects our policy under the IPPS 

beginning in FY 2008 that apportions the 

wage data for multicampus hospitals that are 

located in different labor market areas 

(CBSAs) to each CBSA where the campuses 

are located. (For additional information, we 

refer readers to the FY 2008 IPPS final rule 

with comment (72 FR 47317 through 47320), 

the FY 2009 IPPS final rule (73 FR 48582), 

and section III.C. of the preamble of this final 

rule.) Specifically, for the RY 2010 LTCH PPS 

wage index values, which are computed from 

IPPS wage data submitted by hospitals for 

cost reporting periods beginning in FY 2006 

(which are used to determine the FY 2010 

IPPS wage index discussed in section III.F. of 

the preamble of this final rule), we allocated 

salaries and hours to the campuses of three 

multicampus hospitals with campuses that 

are located in different labor areas that are 

located in the following States: 

Massachusetts, Illinois, and Michigan. Thus, 

consistent with the FY 2010 IPPS wage 

index, the RY 2010 LTCH PPS wage index 

values for the following CBSAs will be 

affected by this policy: Boston-Quincy, MA 

(CBSA 14484); Providence-New BedfordFalls River, RI–MA (CBSA 39300); ChicagoNaperville-Joliet, IL (CBSA 16974); Lake 

County-Kenosha County, IL–WI (CBSA 

29404); Detroit-Livonia-Dearborn, MI (CBSA 

19804); and Warren-Troy-Farmington-Hills, 

MI (CBSA 47644) (reflected in Tables 12A 

and 12B in the Addendum of this final rule). 

The RY 2010 LTCH PPS wage index values 

were computed consistent with the urban 

and rural geographic classifications (labor 

market areas) discussed in section V.B.2. of 

the Addendum of 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 in determining 

payments under the LTCH PPS). The RY 

2010 wage index values also reflect our 

methodology for establishing wage index 

values in urban and rural areas in which 

there are no IPPS wage data from which to 

compute a wage index value (as described 

above in this section). 

As previously noted, in the RY 2009 LTCH 

PPS final rule (73 FR 26817 through 26818), 

we established a methodology for 

determining a LTCH PPS wage index value 

for areas that have no IPPS wage data. Under 

this methodology, we stated that each year 

we would determine a wage index value for 

any area in which there is no IPPS wage data 

based on the methodologies described in that 

final rule. We believe it is appropriate to 

establish a methodology for determining 

LTCH PPS wage index values for areas with 

no IPPS wage data, if necessary, because IPPS 

hospitals may open or close at any time, and 

therefore the number of areas without any 

IPPS wage data may change from year to 

year. Even when an IPPS hospital opens in 

an area where there are currently no IPPS 

hospitals, there is a lag-time between the 

time a hospital opens or becomes an IPPS 

provider and when the hospital’s cost report 

wage data are available to include in 

calculating the area wage index. The policies 

established for determining LTCH PPS wage 

index values for areas with no IPPS hospital 

wage data are consistent with the 

methodologies that have been established 

under other Medicare postacute care PPSs, 

such as SNF and HHA, as well as the IPPS. 

Below we discuss the application of our 

established methodology for determining a 

LTCH PPS wage index value for RY 2010 for 

any areas in which there is no IPPS wage 

data for cost reporting periods beginning 

during FY 2006 (that is, for the areas in 

which there is no data in the IPPS wage data 

that we used to compute the RY 2010 LTCH 

PPS wage index). 

In this final rule, as we proposed, we 

determined RY 2010 LTCH PPS wage index 

values for labor market areas in which there 

is no IPPS hospital wage data from which to 

compute a wage index value consistent with 

the methodology we established in the RY 

2009 LTCH PPS final rule (73 FR 26817). As 

was the case in RY 2009, there are no LTCHs 

located in labor areas where there is no IPPS 

hospital wage data (or IPPS hospitals) for RY 

2010. However, we continue to believe it is 

appropriate to 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. 

Therefore, we will continue to determine a 

LTCH PPS wage index value for urban 

CBSAs with no IPPS wage data by using an 

average of all of the urban areas within the 

State to serve as a reasonable proxy for 

determining the LTCH PPS wage index for an 

urban area without specific IPPS hospital 

wage index data. We believe that an average 

of all of the urban areas within the State is 

a reasonable proxy for determining the LTCH 

PPS wage index for an urban area in the State 

with no wage data because it is based on prereclassified IPPS wage data, it is easy to 

evaluate, and it uses the most geographically 

similar relative wage-related costs data 

available. Furthermore, as noted above, this 

methodology has been adopted by other 

Medicare PPSs, such as the SNF PPS and the 

HHA PPS. 

Based on the FY 2006 IPPS wage data that 

we used to determine the RY 2010 LTCH PPS 

wage index values, there are no IPPS wage 

data for the urban area of Hinesville-Fort 

Stewart, GA (CBSA 25980). Consistent with 

our methodology for determining a LTCH 

PPS wage index value for urban areas with 

no IPPS wage data (discussed above), in this 

final rule, we calculated the RY 2010 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) (reflected in 

Table 12A of the Addendum of this final 

rule). (As noted above, there are currently no 

LTCHs located in CBSA 25980.) As discussed 

in the RY 2009 final rule (73 FR 26817), as 

IPPS wage data are dynamic, it is possible 

that urban areas without IPPS wage data will 

vary in the future. 

As we proposed, we also are continuing to 

determine a LTCH PPS wage index value for 

rural areas with no IPPS wage data using the 

unweighted average of the wage indices from 

all of the CBSAs that are contiguous to the 

rural counties of the State to serve as a 

reasonable proxy in determining the LTCH 

PPS wage index for a rural area without 


sroberts on DSKD5P82C1PROD with RULES
44026 Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 

specific IPPS hospital wage index data. For 

this purpose, we are defining ‘‘contiguous’’ 

as sharing a border. We are not able to apply 

an averaging in rural areas with no wage data 

similar to what we are doing for urban areas 

with no wage data because there is no rural 

hospital data available for averaging on a 

statewide basis. We believe that using an 

unweighted average of the wage indices from 

all of the CBSAs that are contiguous to the 

rural counties of the State is a reasonable 

proxy for determining the wage index for 

rural areas in a State with no wage data 

because it is based on pre-reclassified IPPS 

wage data, it is easy to evaluate, and it uses 

the most geographically similar relative 

wage-related costs data available. 

Based on the FY 2006 IPPS wage data that 

we used to determine the RY 2010 LTCH PPS 

wage index values, there are no IPPS wage 

data for the rural area of Massachusetts 

(CBSA code 11). Consistent with our 

methodology for determining a LTCH PPS 

wage index value for rural areas with no IPPS 

wage data (discussed above), in this final 

rule, as we proposed, we calculated the RY 

2010 wage index value for rural 

Massachusetts by computing the unweighted 

average of the wage indices from all of the 

CBSAs that are contiguous to the rural 

counties in that State. Specifically, in the 

case of Massachusetts, the entire rural area 

consists of Dukes and Nantucket counties. 

We determined that the borders of Dukes and 

Nantucket counties are ‘‘contiguous’’ with 

Barnstable County, MA, and Bristol County, 

MA. Therefore, the RY 2010 LTCH PPS wage 

index value for rural Massachusetts is 

computed as the unweighted average of the 

RY 2010 wage indexes for Barnstable County 

and Bristol County (reflected in Tables 12A 

and 12B in the Addendum of this final rule). 

(There are currently no LTCHs located in 

rural Massachusetts.) As discussed in the RY 

2009 final rule (73 FR 26817), as IPPS wage 

data are dynamic, it is possible that rural 

areas without IPPS wage data will vary in the 

future. 

The RY 2010 LTCH wage index values that 

are applicable for LTCH discharges occurring 

on or after October 1, 2009, through 

September 30, 2010, are presented in Table 

12A (for urban areas) and Table 12B (for rural 

areas) in the Addendum of this final rule. 

We did not receive any public comments 

on our proposals for calculating the LTCH 

PPS wage index for RY 2010. Therefore, we 

are adopting those proposals in this final rule 

as described above. 

5. LTCH PPS Cost-of-Living Adjustment for 

LTCHs Located in Alaska and Hawaii 

In the August 30, 2002 final rule (67 FR 

56022), we established, under § 412.525(b), a 

cost-of-living adjustment (COLA) for LTCHs 

located in Alaska and Hawaii to account for 

the higher costs incurred in those States. In 

the RY 2009 LTCH PPS final rule (73 FR 

26819) (under the broad authority conferred 

upon the Secretary by section 123 of the 

BBRA as amended by section 307(b) of BIPA 

to determine appropriate adjustments under 

the LTCH PPS), for RY 2009, we applied a 

COLA to payments to LTCHs located in 

Alaska and Hawaii by multiplying the 

standard Federal payment rate by the factors 

listed in Table III of that same rule. 

In the FY 2010 IPPS/RY 2010 LTCH PPS 

proposed rule (74 FR 24266), under the broad 

authority conferred upon the Secretary by 

section 123 of the BBRA, as amended by 

section 307(b) of BIPA, to determine 

appropriate adjustments under the LTCH 

PPS, we proposed to apply a COLA to 

payments to LTCHs located in Alaska and 

Hawaii by multiplying the standard Federal 

payment rate by the most recent available 

factors listed in that same proposed rule. We 

did not receive any public comments on our 

proposed COLA to payments to LTCHs 

located in Alaska and Hawaii and, therefore, 

are adopting that proposal in this final rule. 

Therefore, for RY 2010, under the broad 

authority conferred upon the Secretary by 

section 123 of the BBRA, as amended by 

section 307(b) of BIPA, to determine 

appropriate adjustments under the LTCH 

PPS, we are applying a COLA to payments 

to LTCHs located in Alaska and Hawaii by 

multiplying the standard Federal payment 

rate by the factors listed in the chart below 

because they are the most recent available 

data at this time. These factors were obtained 

from the U.S. Office of Personnel 

Management (OPM) and are also used under 

the IPPS effective October 1, 2009 (section 

II.B.2. of the Addendum of this final rule). 

COST-OF-LIVING ADJUSTMENT FACTORS FOR ALASKA AND HAWAII HOSPITALS FOR THE 2010 LTCH PPS RATE YEAR

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 

C. Adjustment for LTCH PPS High-Cost 

Outlier (HCO) Cases 

1. Background 

Under the broad authority conferred upon 

the Secretary by section 123 of the BBRA as 

amended by section 307(b) of BIPA, in the 

regulations at § 412.525(a), we established an 

adjustment for additional payments for 

outlier cases that have extraordinarily high 

costs relative to the costs of most discharges. 

We refer to these cases as high cost outliers 

(HCOs). Providing additional payments for 

outliers strongly improves the accuracy of the 

LTCH PPS in determining resource costs at 

the patient and hospital level. These 

additional payments reduce the financial 

losses that would otherwise be incurred 

when treating patients who require more 

costly care and, therefore, reduce the 

incentives to underserve these patients. We 

set the outlier threshold before the beginning 

of the applicable rate year so that total 

estimated outlier payments are projected to 

equal 8 percent of total estimated payments 

under the LTCH PPS. 

Under § 412.525(a) in the regulations (in 

conjunction with the revised definition of 

‘‘LTC–DRG’’ at § 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 fixedloss amount. Specifically, in accordance with 

§ 412.525(a)(3) (in conjunction with the 

revised definition of ‘‘LTC–DRG’’ at 

§ 412.503), we pay outlier cases 80 percent of 

the difference between the estimated cost of 

the patient case and the outlier threshold, 

which is the sum of the adjusted Federal 

prospective payment for the MS–LTC–DRG 

and the fixed-loss amount. The fixed-loss 

amount is the amount used to limit the loss 

that a hospital will incur under the outlier 

policy for a case with unusually high costs. 

This results in Medicare and the LTCH 

sharing financial risk in the treatment of 

extraordinarily costly cases. Under the LTCH 

PPS HCO policy, the LTCH’s loss is limited 

to the fixed-loss amount and a fixed 

percentage of costs above the outlier 

threshold (MS–LTC–DRG payment plus the 

fixed-loss amount). The fixed percentage of 

costs is called the marginal cost factor. We 

calculate the estimated cost of a case by 

multiplying the Medicare allowable covered 

charge by the hospital’s overall hospital CCR. 

Under the LTCH PPS, we determine a 

fixed-loss amount, that is, the maximum loss 

that a LTCH can incur under the LTCH PPS 

for a case with unusually high costs before 

the LTCH will receive any additional 

payments. We calculate the fixed-loss 

amount by estimating aggregate payments 

with and without an outlier policy. The 

fixed-loss amount results in estimated total 

outlier payments being projected to be equal 

to 8 percent of projected total LTCH PPS 

payments. Currently, MedPAR claims data 

and CCRs based on data from the most recent 

provider specific file (PSF) (or from the 

applicable statewide average CCR if a LTCH’s 

CCR data are faulty or unavailable) are used 


sroberts on DSKD5P82C1PROD with RULES
Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 44027 

to establish a fixed-loss threshold amount 

under the LTCH PPS. 

2. Determining LTCH CCRs Under the LTCH 

PPS 

a. Background 

The following is a discussion of CCRs that 

are used in determining payments for HCO 

and SSO cases under the LTCH PPS, at 

§ 412.525(a) and § 412.529, respectively. 

Although this section is specific to HCO 

cases, because CCRs and the policies and 

methodologies pertaining to them are used in 

determining payments for both HCO and SSO 

cases (to determine the estimated cost of the 

case at § 412.529(d)(2), we are discussing the 

determination of CCRs under the LTCH PPS 

for both of these types of cases 

simultaneously. 

In determining both HCO payments (at 

§ 412.525(a)) and SSO payments (at 

§ 412.529), we calculate the estimated cost of 

the case by multiplying the LTCH’s overall 

CCR by the Medicare allowable charges for 

the case. In general, we use the LTCH’s 

overall CCR, which is computed based on 

either the most recently settled cost report or 

the most recent tentatively settled cost report, 

whichever is from the latest cost reporting 

period, in accordance with 

§ 412.525(a)(4)(iv)(B) and 

§ 412.529(c)(4)(iv)(B) for HCOs and SSOs, 

respectively. (We note that, in some 

instances, we use an alternative CCR, such as 

the statewide average CCR in accordance 

with the regulations at § 412.525(a)(4)(iv)(C) 

and § 412.529(c)(4)(iv)(C), or a CCR that is 

specified by CMS or that is requested by the 

hospital under the provisions of the 

regulations at § 412.525(a)(4)(iv)(A) and 

§ 412.529(c)(4)(iv)(A).) 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 Chapter 3, 

section 150.24, of the Medicare Claims 

Processing Manual (CMS Pub. 100–4)) as 

compared to total charges. Specifically, a 

LTCH’s CCR is calculated by dividing a 

LTCH’s total Medicare costs (that is, the sum 

of its operating and capital inpatient routine 

and ancillary costs) by its total Medicare 

charges (that is, the sum of its operating and 

capital inpatient routine and ancillary 

charges). 

b. LTCH Total CCR Ceiling 

Generally, a LTCH is assigned the 

applicable statewide average CCR if, among 

other things, a LTCH’s CCR is found to be in 

excess of the applicable maximum CCR 

threshold (that is, the LTCH CCR ceiling). 

This is because CCRs above this threshold are 

most likely due to faulty data reporting or 

entry, and, therefore, CCRs based on 

erroneous data should not be used to identify 

and make payments for outlier cases. Thus, 

under our established policy, generally, if a 

LTCH’s calculated CCR is above the 

applicable ceiling, the applicable LTCH PPS 

statewide average CCR is assigned to the 

LTCH instead of the CCR computed from its 

most recent (settled or tentatively settled) 

cost report data. 

In the FY 2009 IPPS final rule (73 FR 

48682), in accordance with 

§ 412.525(a)(4)(iv)(C)(2) for HCOs and 

§ 412.529(c)(4)(iv)(C)(2) for SSOs, using our 

established methodology for determining the 

LTCH total CCR ceiling, based on IPPS total 

CCR data from the December 2007 update of 

the Provider Specific File (PSF), we 

established a total CCR ceiling of 1.262 under 

the LTCH PPS, effective October 1, 2008, 

through September 30, 2009. (For further 

detail on our current methodology for 

annually determining the LTCH total CCR 

ceiling, we refer readers to the FY 2007 IPPS 

final rule (71 FR 48119 through 48121).) 

In this final rule, in accordance with 

§ 412.525(a)(4)(iv)(C)(2) for HCOs and 

§ 412.529(c)(4)(iv)(C)(2) for SSOs, using our 

established methodology for determining the 

LTCH total CCR ceiling (described above), 

based on IPPS total CCR data from the March 

2009 update of the PSF, we are establishing 

a total CCR ceiling of 1.232 under the LTCH 

PPS that will be effective for discharges 

occurring on or after October 1, 2009, and on 

or before September 30, 2010. 

c. LTCH Statewide Average CCRs 

Our general methodology established for 

determining the statewide average CCRs used 

under the LTCH PPS is similar to our 

established methodology for determining the 

LTCH total CCR ceiling (described above) 

because it is based on ‘‘total’’ IPPS CCR data. 

Under the LTCH PPS HCO policy at 

§ 412.525(a)(4)(iv)(C) and the SSO policy at 

§ 412.529(c)(4)(iv)(C), the fiscal intermediary 

may use a statewide average CCR, which is 

established annually by CMS, if it is unable 

to determine an accurate CCR for an LTCH 

in one of the following circumstances: (1) 

New LTCHs that have not yet submitted their 

first Medicare cost report (for this purpose, 

consistent with current policy, a new LTCH 

is defined as an entity that has not accepted 

assignment of an existing hospital’s provider 

agreement in accordance with § 489.18); (2) 

LTCHs whose CCR is in excess of the LTCH 

CCR ceiling (as discussed above); and (3) 

other LTCHs for whom data with which to 

calculate a CCR are not available (for 

example, missing or faulty data). (Other 

sources of data that the fiscal intermediary 

may consider in determining an 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 an 

LTCH (that is, the period of at least 6 months 

that it was paid as a short-term acute care 

hospital), or data from other comparable 

LTCHs, such as LTCHs in the same chain or 

in the same region.) 

In Table 8C of the Addendum to the FY 

2009 IPPS final rule (73 FR 48998), in 

accordance with the regulations at 

§ 412.525(a)(4)(iv)(C) for HCOs and 

§ 412.529(c)(4)(iv)(C) for SSOs, using our 

established methodology for determining the 

LTCH statewide average CCRs, based on 

using the most recent complete IPPS total 

CCR data from the March 2008 update of the 

PSF, we established the LTCH PPS statewide 

average total CCRs for urban and rural 

hospitals effective for discharges occurring 

on or after October 1, 2008, and on or before 

September 30, 2009. (For further detail on 

our current methodology for annually 

determining the LTCH statewide average 

CCRs, we refer readers to the FY 2007 IPPS 

final rule (71 FR 48119 through 48121).) 

In this 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 2009 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, 2009, and through 

September 30, 2010, in Table 8C of the 

Addendum to this final rule. 

We also note that all areas in the District 

of Columbia, New Jersey, Puerto Rico, and 

Rhode Island are classified as urban; 

therefore, there are no rural statewide average 

total CCRs listed for those jurisdictions in 

Table 8C of the Addendum to this final rule. 

This policy is consistent with the policy that 

we established when we revised our 

methodology for determining the applicable 

LTCH statewide average CCRs in the FY 2007 

IPPS final rule (71 FR 48119 through 48121) 

and is the same as the policy applied under 

the IPPS. In addition, although 

Massachusetts has areas that are designated 

as rural, there are no short-term acute care 

IPPS hospitals or LTCHs located in those 

areas as of March 2009. Therefore, for this 

final rule, there is no rural statewide average 

total CCR listed for rural Massachusetts in 

Table 8C of the Addendum of this final rule. 

In addition, as we established when we 

revised our methodology for determining the 

applicable LTCH statewide average CCRs in 

the FY 2007 IPPS final rule (71 FR 48120 

through 48121), in determining the urban 

and rural statewide average total CCRs for 

Maryland LTCHs paid under the LTCH PPS, 

in this final rule, we used, as a proxy, the 

national average total CCR for urban IPPS 

hospitals and the national average total CCR 

for rural IPPS hospitals, respectively. We 

used this proxy because we believe that the 

CCR data on the PSF for Maryland hospitals 

may not be entirely accurate (as discussed in 

greater detail in that same final rule (71 FR 

48120)). 

d. Reconciliation of LTCH HCO and SSO 

Payments 

We note, under the LTCH PPS HCO policy 

at § 412.525(a)(4)(iv)(D) and the LTCH PPS 

SSO policy at § 412.529(c)(4)(iv)(D), the 

payments for HCO and SSO cases, 

respectively, are subject to reconciliation. 

Specifically, any reconciliation of outlier 

payments is based on the CCR that is 

calculated based on a ratio of CCRs computed 

from the relevant cost report and charge data 

determined at the time the cost report 

coinciding with the discharge is settled. For 

additional information, we refer readers to 

the RY 2009 LTCH PPS final rule (73 FR 

26820 through 26821). 

3. Establishment of the LTCH PPS Fixed-Loss 

Amount for RY 2010 

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 


sroberts on DSKD5P82C1PROD with RULES
44028 Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 

that total estimated outlier payments are 

projected to equal 8 percent of total estimated 

payments under the LTCH PPS. To determine 

the fixed-loss amount, we estimate outlier 

payments and total LTCH PPS payments for 

each case using claims data from the 

MedPAR files. Specifically, to determine the 

outlier payment for each case, we estimate 

the cost of the case by multiplying the 

Medicare covered charges from the claim by 

the applicable CCR. Under § 412.525(a)(3) (in 

conjunction with the revised definition of 

‘‘LTC–DRG’’ at § 412.503), if the estimated 

cost of the case exceeds the outlier threshold 

(the sum of the adjusted Federal prospective 

payment for the MS–LTC–DRG and the fixedloss amount), we pay an outlier payment 

equal to 80 percent of the difference between 

the estimated cost of the case and the outlier 

threshold (the sum of the adjusted Federal 

prospective payment for the MS–LTC–DRG 

and the fixed-loss amount). 

In the RY 2009 LTCH PPS final rule (73 FR 

26823), we used claims data from the 

December 2007 update of the FY 2007 

MedPAR claims data and CCRs from the 

December 2007 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 for the 2009 LTCH PPS 

rate year. We determined the RY 2009 fixedloss amount using the MS–LTC–DRG 

classifications and relative weights from the 

version of the GROUPER that was to be in 

effect as of the beginning of the 2009 LTCH 

PPS rate year (July 1, 2008), that is, Version 

25.0 of the GROUPER (as established in the 

FY 2008 IPPS final rule (72 FR 47278). 

Furthermore, in using CCRs from the 

December 2007 update of the PSF to 

determine the RY 2009 fixed-loss amount, we 

used the FY 2008 applicable LTCH ‘‘total’’ 

CCR ceiling of 1.284 and LTCH statewide 

average ‘‘total’’ CCRs established in the FY 

2008 IPPS final rule (72 FR 47404 and 48126 

through 48127) such that the current 

applicable Statewide average CCR was 

assigned if, among other things, a LTCH’s 

CCR exceeded the current ceiling (1.284). 

Therefore, based on the data and policies 

described under the broad authority of 

section 123(a)(1) of the BBRA and section 

307(b)(1) of BIPA, in the RY 2009 LTCH PPS 

final rule, we established a fixed-loss amount 

of $22,960 for RY 2009. Accordingly, for RY 

2009, we currently pay an outlier case 80 

percent of the difference between the 

estimated cost of the case and the outlier 

threshold (the sum of the adjusted Federal 

LTCH payment for the MS–LTC–DRG and the 

fixed-loss amount of $22,960). 

We note that in the FY 2010 IPPS/RY 2010 

LTCH PPS proposed rule (74 FR 24268 

through 24269), we proposed an HCO fixedloss amount of $16,059 for RY 2010 to 

maintain that total estimated HCO payments 

are projected to equal 8 percent of total 

estimated payments under the LTCH PPS, as 

required under § 412.523(d)(1). This 

proposed HCO fixed-loss amount of $16,059 

for RY 2010 was calculated based, in part, on 

the proposed RY 2010 MS–LTC–DRG relative 

weights presented in Table 11 of that same 

proposed rule (74 FR 24589 through 24608). 

However, in the RY 2010 LTCH PPS 

supplemental proposed rule published in the 

Federal Register on June 3, 2009 (74 FR 

26600 through 26635), we presented both 

proposed RY 2010 MS–LTC–DRG relative 

weights and a proposed RY 2010 HCO outlier 

fixed-loss amount based on the revised FY 

2009 MS–LTC–DRG relative weights 

presented in an interim final rule with 

comment period also published in the 

Federal Register on June 3, 3009 (74 FR 

26546 through 26569). Accordingly, based on 

the proposed RY 2010 MS–LTC–DRG relative 

weights presented in Table 11 (Amended) of 

the RY 2010 LTCH PPS supplemental 

proposed rule and on the data and policies 

described under the broad authority of 

section 123(a)(1) of the BBRA and section 

307(b)(1) of BIPA, we proposed a fixed-loss 

amount of $18,868 for RY 2010 in order to 

maintain that total estimated HCO payments 

are projected to equal 8 percent of total 

estimated payments under the LTCH PPS in 

RY 2010. 

In this final rule, we use the same 

methodology that we used in the RY 2009 

LTCH PPS final rule and which was 

proposed in the RY 2010 LTCH PPS 

supplemental proposed rule, to calculate the 

fixed-loss amount for RY 2010 (using 

updated data and the rates and policies 

established 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 RY 

2010, we used the most recent available 

LTCH claims data and CCR data. Specifically, 

for this final rule, we used LTCH claims data 

from the March 2009 update of the FY 2008 

MedPAR files and CCRs from the March 2009 

update of the PSF to determine a fixed-loss 

amount that will result in estimated outlier 

payments projected to be equal to 8 percent 

of total estimated payments in RY 2010 

because these data are the most recent 

complete LTCH data currently available. We 

determined the RY 2010 fixed-loss amount 

based on the MS–LTC–DRG classifications 

and relative weights from the version of the 

GROUPER that will be in effect as of the 

beginning of the 2010 LTCH PPS rate year 

(October 1, 2009), that is, Version 27.0 of the 

GROUPER (discussed in section VIII.B. of the 

preamble of this final rule). Furthermore, in 

determining the RY 2010 fixed-loss amount 

using CCRs from the March 2009 update of 

the PSF, we used the RY 2010 LTCH ‘‘total’’ 

CCR ceiling of 1.232 and the applicable 

LTCH statewide average ‘‘total’’ CCRs 

presented in Table 8C in the Addendum of 

this final rule such that the applicable 

statewide average CCR was assigned if, 

among other things, an LTCH’s CCR 

exceeded the ceiling (1.232). 

In this final rule, based on the data and 

policies described earlier in this final rule 

under the broad authority of section 123(a)(1) 

of the BBRA and section 307(b)(1) of BIPA, 

we are establishing a fixed-loss amount of 

$18,425 for RY 2010. Thus, we will pay an 

outlier case 80 percent of the difference 

between the estimated cost of the case and 

the outlier threshold (the sum of the adjusted 

Federal LTCH payment for the MS–LTC–DRG 

and the fixed-loss amount of $18,425). 

The fixed-loss amount for RY 2010 of 

$18,425 is significantly lower than the RY 

2009 fixed-loss amount of $22,960. The 

decrease in the fixed-loss amount for RY 

2010 is primarily due to the projected 3.3 

percent increase in LTCH PPS payments from 

RY 2009 to RY 2010 (discussed in greater 

detail in section IX. of the Appendix A (the 

regulatory impact analysis) to this final rule), 

which includes our current estimate that we 

are paying less than the required 8 percent 

of total estimated LTCH PPS payments as 

HCO payments in RY 2009 (as discussed 

below). Specifically, an analysis of the most 

recent available LTCH PPS claims data (that 

is, FY 2008 claims from the March 2009 

update of the MedPAR files) indicates that 

the RY 2009 fixed-loss amount of $22,960 

may result in LTCH PPS HCO payments that 

fall below the estimated 8 percent 

requirement. Specifically, we currently 

estimate that HCO payments are 

approximately 6.8 percent of estimated total 

LTCH PPS payments in RY 2009. 

In addition to the estimated increase in 

LTCH PPS payments in RY 2010 as compared 

to RY 2009 due to the projected increase in 

HCO payments, as we discuss in section IX. 

of Appendix A to this final rule, we estimate 

an increase in LTCH PPS payments in RY 

2010 due to the update to the standard 

Federal rate and a projected increase in the 

payments for SSO cases that are paid based 

on the estimated cost of the case. For these 

reasons, we believe that establishing a lower 

fixed-loss amount is appropriate and 

necessary to maintain that estimated outlier 

payments will equal 8 percent of estimated 

total LTCH PPS payments as required under 

§ 412.523(d)(1). Maintaining the fixed-loss 

amount at the current level would result in 

HCO payments that are significantly less than 

the current regulatory requirement that 

estimated outlier payments be projected to 

equal 8 percent of estimated total LTCH PPS 

payments. As we explained in past LTCH 

PPS rules (such as the RY 2006 LTCH PPS 

final rule (70 FR 24195 through 24196)), 

using a lower fixed-loss amount results in 

more cases qualifying as outlier cases as well 

as increases the amount of the additional 

payment for an HCO case because the 

maximum loss that an LTCH must incur 

before receiving an HCO payment (that is, the 

fixed-loss amount) would be smaller. Thus, 

in order to maintain that estimated HCO 

payments in RY 2010 will be equal to 8 

percent of estimated total RY 2010 LTCH PPS 

payments, we believe it is appropriate to 

lower the fixed-loss amount. 

In the August 30, 2002 final rule (67 FR 

56022 through 56024), based on our 

regression analysis, we established the 

outlier ‘‘target’’ at 8 percent of estimated total 

LTCH PPS payments to allow us to achieve 

a balance between the ‘‘conflicting 

considerations of the need to protect 

hospitals with costly cases, while 

maintaining incentives to improve overall 

efficiency.’’ We continue to believe that an 

HCO target of 8 percent is appropriate, as 

discussed in greater detail below. However, 

in the FY 2010 IPPS/RY 2010 LTCH PPS 

proposed rule, we solicited public comments 

on whether we should revisit the regression 

analysis noted above in this section that was 


sroberts on DSKD5P82C1PROD with RULES
Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 44029 

used to establish the existing 8 percent 

outlier target, using the most recent available 

data to evaluate whether the current outlier 

target of 8 percent should be adjusted, and 

which therefore may mitigate the magnitude 

of the proposed change in the fixed-loss 

amount for RY 2010. Below we provide a 

summation of the public comments we 

received and our applicable responses. 

Comment: Several comments noted that 

the proposed fixed-loss amount of $18,868 

that was presented in the RY 2010 LTCH PPS 

supplemental proposed rule was significantly 

higher than the originally proposed fixed-loss 

amount of $16,059 included in the FY 2010 

IPPS/RY 2010 LTCH PPS proposed rule (74 

FR 24268 through 24269). The commenters 

expressed concern that the proposed fixedloss amount presented in the RY 2010 LTCH 

PPS supplemental proposed rule will have a 

significant impact on the LTCH PPS 

payments to HCO cases, and believe that 

CMS should have provided for a full 60-day 

comment period to give the public time to 

conduct a meaningful study of the changes 

and submit meaningful comments for CMS to 

consider. 

Response: As we stated in the RY 2010 

LTCH PPS supplemental proposed rule, 

while we ordinarily publish a notice of 

proposed rulemaking in the Federal Register 

and permit a 60-day comment period, this 

period may be shortened when the Secretary 

finds good cause that a 60-day comment 

period would be impracticable, unnecessary, 

or contrary to the public interest and 

incorporates a statement of the finding and 

its reasons in the rule issued. We further 

stated: 

‘‘Ordinarily, we begin our preparations for 

issuing an LTCH PPS proposed rule early so 

that our proposals may be on public display 

by May 1 of that year. This schedule allows 

for a 60-day comment period closing within 

a sufficient amount of time to also allow for 

a 1- to 2-month period to consider all 

comments received and appropriately 

respond to them. In this case, elsewhere in 

this Federal Register an interim final rule 

with public comment is issued that provides 

for revised FY 2009 MS–LTC–DRG relative 

weights. The revised MS–LTC–DRG relative 

weights affect some of the proposals 

contained in the FY 2010 IPPS/RY 2010 

LTCH PPS proposed rule, which went on 

display on May 1, 2009, and was published 

in the Federal Register on May 22, 2009. 

Therefore, we need to immediately replace 

those affected proposals. A 60-day comment 

period on this supplemental proposed rule 

would be both impracticable and contrary to 

the public interest because it would not 

allow for coordinated consideration of the 

comments on this supplemental proposed 

rule with those on the FY 2010 IPPS and RY 

2010 LTCH PPS proposed rule. Because the 

issues raised in this supplemental proposed 

rule are integral to our consideration of 

comments on certain proposals in the FY 

2010 IPPS and RY 2010 LTCH PPS proposed 

rule, we do not believe it would be 

appropriate to review comments on the 

issues raised in this supplemental proposed 

rule in isolation from the comments received 

on the FY 2010 IPPS and RY 2010 LTCH PPS 

proposed rule. We further note that a full 60- 

day comment period would end on a date 

that would not allow the agency sufficient 

time to process the comments and respond to 

them in a meaningful manner by the August 

1, 2009 date for issuing the final rule. Timely 

filed comments would receive a shorter 

period of time for consideration by the 

agency, and the agency would be left with 

insufficient time to properly respond to 

comments and appropriately resolve whether 

any of the proposed policies should be 

modified in light of comments received. For 

all of these reasons, we find good cause to 

waive the 60-day comment period for this 

rule of proposed rulemaking, and we are 

instead providing for a comment period that 

coincides with the comment period provided 

for on the FY 2010 IPPS and RY 2010 LTCH 

PPS proposed rule (74 FR 24080).’’ 

Finally, we note that while the proposed 

fixed-loss amount that was presented in the 

RY 2010 LTCH PPS supplemental proposed 

rule was significantly higher than the 

originally proposed fixed-loss amount 

included in the FY 2010 IPPS/RY 2010 LTCH 

PPS proposed rule (74 FR 24268 through 

24269), the methodology applied to 

determine the proposed fixed-loss amount in 

both rules is identical. That is, for each rule, 

we proposed the appropriate high cost outlier 

fixed-loss amount for RY 2010 that would 

maintain that total estimated HCO payments 

are projected to equal 8 percent of total 

estimated payments under the LTCH PPS as 

required under § 412.523(d)(1). We note that 

we received no comments on our historical 

methodology to determine a fixed-loss 

amount that results in estimated total outlier 

payments being projected to be equal to 8 

percent of projected total LTCH PPS 

payments. 

As an alternative to using a lower fixedloss amount for RY 2010, we also examined 

adjusting the marginal cost factor (that is, the 

percentage that Medicare will pay of the 

estimated cost of a case that exceeds the sum 

of the adjusted Federal prospective payment 

for the MS–LTC–DRG and the fixed-loss 

amount for LTCH PPS HCO cases as specified 

in § 412.525(a)(3)), as a means of ensuring 

that estimated outlier payments will be 

projected to equal 8 percent of estimated total 

LTCH PPS payments. As we established in 

the August 30, 2002 final rule (67 FR 56022 

through 56026), under the LTCH PPS HCO 

policy at § 412.525(a)(3), the marginal cost 

factor is currently equal to 80 percent. As 

discussed in the RY 2007 LTCH PPS final 

rule (71 FR 4677 through 4678), a marginal 

cost factor equal to 80 percent means that, for 

an outlier case, we pay the LTCH 80 percent 

of the difference between the estimated cost 

of the case and the outlier threshold (the sum 

of the adjusted Federal rate for the MS–LTC– 

DRG PPS payment and the fixed-loss 

amount). In addition, as we discussed in the 

August 30, 2002 final rule (67 FR 56023) that 

implemented the LTCH PPS, the marginal 

cost factor is designed to ensure ‘‘a balance 

between the need to protect LTCHs 

financially, while encouraging them to treat 

expensive patients and maintaining the 

incentives of a prospective payment system 

to improve the efficient delivery of care.’’ 

Increasing the marginal cost factor from the 

established 80 percent, without reducing the 

current fixed-loss amount, would increase 

total estimated outlier payments because we 

would pay a larger percentage of the 

estimated costs that exceed the outlier 

threshold (the sum of the adjusted Federal 

rate for the MS–LTC–DRG and the fixed-loss 

amount). For example, if we were to increase 

the marginal cost factor to 90 percent instead 

of lowering the fixed-loss amount, we could 

maintain HCO payments at 8 percent of 

estimated total LTCH PPS payments. 

However, while this alternative may ensure 

that outlier payments are projected to equal 

8 percent of estimated total LTCH PPS 

payments by increasing estimated aggregate 

HCO payments, it may not maintain the 

existing balance between providing an 

incentive for LTCHs to treat expensive 

patients and improving the efficient delivery 

of care because a policy such as this would 

reduce the incentive to provide cost efficient 

care that is in effect under the current HCO 

policy (with an 80 percent marginal cost 

factor). Such a result would be inconsistent 

with the intent of the LTCH PPS HCO policy 

(noted above) as stated when we 

implemented the LTCH PPS in the August 

30, 2002 final rule (67 FR 56025). As we 

discussed in that same final rule (67 FR 

56023 through 56024), our analysis of 

payment-to-cost ratios for HCO cases showed 

that a marginal cost factor of 80 percent 

appropriately addresses cases that are 

significantly more expensive than nonoutlier 

cases, while simultaneously maintaining the 

integrity of the LTCH PPS. Accordingly, we 

did not propose to adjust the marginal cost 

factor under the LTCH PPS HCO policy in 

the FY 2010 IPPS/RY 2010 LTCH PPS 

proposed rule. However, as previously stated, 

in the FY 2010 IPPS/RY 2010 LTCH PPS 

proposed rule, we solicited public comments 

on whether we should revisit the regression 

analysis that was used to establish the 

existing 80 percent marginal cost factor, 

using the most recent available data to 

evaluate whether the current marginal cost 

factor of 8 percent in the current HCO policy 

should be adjusted, and therefore may 

mitigate the proposed change in the fixedloss amount for RY 2010. In response to the 

solicitation, we did not receive any public 

comments in support of any option to revisit 

the regression analysis that was used to 

establish the existing 80 percent marginal 

cost factor and existing outlier target of 8 

percent. The commenters agreed that keeping 

the marginal cost factor at 80 percent and the 

outlier pool at 8 percent better identifies 

LTCH patients that are unusually costly 

cases, and that this policy appropriately 

addresses HCO cases that are significantly 

more expensive than nonoutlier cases. 

After consideration of the public comments 

we received, in this final rule, we are 

establishing a fixed-loss amount of $18,425 

for RY 2010 based on the best available LTCH 

data and the policies presented in this final 

rule because we believe a decrease in the 

fixed-loss amount for RY 2010 is appropriate 

and necessary to maintain estimated outlier 

payments equal to 8 percent of estimated 

total LTCH PPS payments, as required under 

§ 412.525(a). As explained above in this 

section, in section IX of Appendix A to this 

final rule, we project an increase in total 


sroberts on DSKD5P82C1PROD with RULES
44030 Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 

LTCH PPS payments systemwide. In 

accordance with § 412.523(d)(1), we reduced 

the standard Federal rate by 8 percent for the 

estimated proportion of LTCH PPS HCO 

payments. Because we estimate an increase 

in the average payment per discharge, 

thereby increasing total estimated LTCH PPS 

payments, and because we are currently 

estimating that HCO payments in RY 2009 

may fall below the 8 percent target, we 

believe the fixed-loss amount must be 

lowered in order to maintain total outlier 

payments that are projected to equal 8 

percent of total payments under the LTCH 

PPS, in accordance with § 412.525(a). 

4. Application of Outlier Policy to SSO Cases 

As we discussed in the August 30, 2002 

final rule (67 FR 56026), under some rare 

circumstances, a LTCH discharge could 

qualify as a SSO case (as defined in the 

regulations at § 412.529 in conjunction with 

the regulations at § 412.503) and also as a 

HCO case. In this scenario, a patient could 

be hospitalized for less than five-sixths of the 

geometric average length of stay for the 

specific MS–LTC–DRG, and yet incur 

extraordinarily high treatment costs. If the 

costs exceeded the HCO threshold (that is, 

the SSO payment plus the fixed-loss 

amount), the discharge is eligible for 

payment as a HCO. Thus, for a SSO case in 

the 2010 LTCH PPS rate year, the HCO 

payment will be 80 percent of the difference 

between the estimated cost of the case and 

the outlier threshold (the sum of the fixedloss amount of $18,425 and the amount paid 

under the SSO policy as specified in 

§ 412.529). 

D. Computing the Adjusted LTCH PPS 

Federal Prospective Payments for RY 2010 

In accordance with § 412.525, 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 appropriate LTCH PPS wage 

index (as shown in Tables 12A and 12B of 

the Addendum of this final rule). The 

standard Federal rate was also adjusted to 

account for the higher costs of hospitals in 

Alaska and Hawaii by multiplying the 

nonlabor-related share of the standard 

Federal rate by the appropriate cost-of-living 

factor (shown in the chart in section V.C.5. 

of the Addendum of this final rule). In this 

final rule, we are establishing a standard 

Federal rate for the 2010 LTCH PPS rate year 

of $39,896.65, as discussed in section V.A.2. 

of the Addendum of this final rule. We 

illustrate the methodology to adjust the 

Federal rate for the 2010 LTCH PPS rate year 

in the following example: 

Example: 

During the 2010 LTCH PPS rate year, a 

Medicare patient is in a LTCH located in 

Chicago, Illinois (CBSA 16974). The RY 2010 

LTCH PPS wage index value for CBSA 16974 

is 1.0471 (Table 12A of the Addendum of this 

final rule). The Medicare patient is classified 

into MS–LTC–DRG 28 (Spinal Procedures 

with MCC), which has a relative weight for 

RY 2010 of 1.0933 (Table 11 of the 

Addendum of this final rule). 

To calculate the LTCH’s total adjusted 

Federal prospective payment for this 

Medicare patient, we computed the wageadjusted Federal prospective payment 

amount by multiplying the unadjusted 

standard Federal rate ($39,896.65) by the 

labor-related share (75.779 percent) and the 

wage index value (1.0471). This wageadjusted amount was then added to the 

nonlabor-related portion of the unadjusted 

standard Federal rate (24.221 percent; 

adjusted for cost of living, if applicable) to 

determine the adjusted Federal rate, which 

was then multiplied by the MS–LTC–DRG 

relative weight (1.0933) to calculate the total 

adjusted Federal prospective payment for the 

2010 LTCH PPS rate year ($45,175.85). The 

table below illustrates the components of the 

calculations in this example. 

Unadjusted Standard Federal Prospective Payment Rate .......................................................................................................... $39,896.65 

Labor-Related Share ..................................................................................................................................................................... × 0.75779 

Labor-Related Portion of the Federal Rate .................................................................................................................................. = $30,233.28 

Wage Index (CBSA 16974) ........................................................................................................................................................... × 1.0471 

Wage-Adjusted Labor Share of Federal Rate .............................................................................................................................. = $31,657.27 

Nonlabor-Related Portion of the Federal Rate ($39,896.65 × 0.24221) ..................................................................................... + $9,663.37 

Adjusted Federal Rate Amount ................................................................................................................................................... = $41,320.64 

MS–LTC–DRG 28 Relative Weight .............................................................................................................................................. × 1.0933 

Total Adjusted Federal Prospective Payment ..................................................................................................................... = $45,175.85 

VI. Tables 

This section contains the tables referred to 

throughout the preamble to this final rule 

and in this Addendum. Tables 1A, 1B, 1C, 

1D, 1E, 2, 3A, 3B, 4A, 4B, 4C, 4D–1, 4D–2, 

4F, 4J, 5, 7A, 7B, 8A, 8B, 8C, 9A, 9C, 10, 11, 

12A, and 12B are presented below. Table 

6G.—Additions to the CC Exclusions List, 

Table 6H.—Deletions from the CC Exclusions 

List, Table 6I.—Complete List of 

Complication and Comorbidity (CC) 

Exclusions, Table 6J.—Major Complication 

and Comorbidity (MCC) List, and Table 6K.— 

Complications and Comorbidity (CC) List are 

available only through the Internet on the 

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

AcuteInpatientPPS/. The tables presented 

below are as follows: 

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) 

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) 

Table 1C.—Adjusted Operating Standardized 

Amounts for Puerto Rico, Labor/ 

Nonlabor 

Table 1D.—Capital Standard Federal 

Payment Rate 

Table 1E.—LTCH Standard Federal 

Prospective Payment Rate 

Table 2.—Acute Care Hospitals Case-Mix 

Indexes for Discharges Occurring in 

Federal Fiscal Year 2008; Hospital Wage 

Indexes for Federal Fiscal Year 2010; 

Hospital Average Hourly Wages for 

Federal Fiscal Years 2008 (2004 Wage 

Data), 2009 (2005 Wage Data), and 2010 

(2006 Wage Data); and 3-Year Average of 

Hospital Average Hourly Wages 

Table 3A.—FY 2010 and 3-Year Average 

Hourly Wage for Acute Care Hospitals in 

Urban Areas by CBSA 

Table 3B.—FY 2010 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 2010 

Table 4B.—Wage Index and Capital 

Geographic Adjustment Factor (GAF) for 

Acute Care Hospitals in Rural Areas by 

CBSA and by State—FY 2010 

Table 4C.—Wage Index and Capital 

Geographic Adjustment Factor (GAF) for 

Acute Care Hospitals That Are 

Reclassified by CBSA and by State—FY 

2010 

Table 4D–1.—Rural Floor Budget Neutrality 

Factors for Acute Care Hospitals—FY 

2010 

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

Hospitals Receiving the Statewide Rural 

Floor or Imputed Floor Wage Index—FY 

2010 

Table 4E.—Urban CBSAs and Constituent 

Counties for Acute Care Hospitals—FY 

2010 

Table 4F.—Puerto Rico Wage Index and 

Capital Geographic Adjustment Factor 

(GAF) for Acute Care Hospitals by 

CBSA—FY 2010 

Table 4J.—Out-Migration Adjustment for 

Acute Care Hospitals—FY 2010 

Table 5.—List of Medicare Severity 

Diagnosis-Related Groups (MS–DRGs), 

Relative Weighting Factors, and 

Geometric and Arithmetic Mean Length 

of Stay 

Table 6A.—New Diagnosis Codes 

Table 6B.—New Procedure Codes 

Table 6C.—Invalid Diagnosis Codes 

Table 6D.—Invalid Procedure Codes 

Table 6E.—Revised Diagnosis Code Titles 

Table 6F.—Revised Procedure Code Titles 

Table 7A.—Medicare Prospective Payment 

System Selected Percentile Lengths of 


sroberts on DSKD5P82C1PROD with RULES
Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 44031 

Stay: FY 2008 MedPAR Update—March 

2009 GROUPER V26.0 MS–DRGs 

Table 7B.—Medicare Prospective Payment 

System Selected Percentile Lengths of 

Stay: FY 2008 MedPAR Update—March 

2009 GROUPER V27.0 MS–DRGs 

Table 8A.—Statewide Average Operating 

Cost-to-Charge Ratios (CCRs) for Acute 

Care Hospitals—July 2009 

Table 8B.—Statewide Average Capital Costto-Charge Ratios (CCRs) for Acute Care 

Hospitals—July 2009 

Table 8C.—Statewide Average Total Cost-toCharge Ratios (CCRs) for LTCHs—July 

2009 

Table 9A.—Hospital Reclassifications and 

Redesignations—FY 2010 

Table 9C.—Hospitals Redesignated as Rural 

under Section 1886(d)(8)(E) of the Act— 

FY 2010 

Table 10.—Geometric Mean Plus the Lesser 

of .75 of the National Adjusted Operating 

Standardized Payment Amount 

(Increased to Reflect the Difference 

Between Costs and Charges) or .75 of 

One Standard Deviation of Mean Charges 

by Medicare Severity Diagnosis-Related 

Group (MS–DRG)—July 2009 

Table 11.—MS–LTC–DRGs, Relative Weights, 

Geometric Average Length of Stay, and 

Short-Stay Outlier (SSO) Threshold for 

Discharges Occurring from October 1, 

2009 through September 30, 2010 under 

the LTCH PPS 

Table 12A.—LTCH PPS Wage Index for 

Urban Areas for Discharges Occurring 

from October 1, 2009 through September 

30, 2010 

Table 12B.—LTCH PPS Wage Index for Rural 

Areas for Discharges Occurring from 

October 1, 2009 through September 20, 

2010 

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) 

Full update (2.1 percent) Reduced update (1.1 percent) 

Labor-related Nonlabor-related Labor-related Nonlabor-related 

$3,593.52 $1,629.62 $3,523.13 $1,597.70 

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) 

Full update (2.1 percent) Reduced update (1.1 percent) 

Labor-related Nonlabor-related Labor-related Nonlabor-related 

$3,238.35 $1,984.79 $3,174.91 $1,945.92 

TABLE 1C—ADJUSTED OPERATING STANDARDIZED AMOUNTS FOR PUERTO RICO, LABOR/NONLABOR

Rates if wage index is greater 

than 1 

Rates if wage index is less 

than or equal to 1 

Labor Nonlabor Labor Nonlabor 

National ........................................................................................................... $3,593.52 $1,629.62 $3,238.35 $1,984.79 

Puerto Rico ..................................................................................................... 1,542.72 941.52 1,540.23 944.01 

TABLE 1D—CAPITAL STANDARD FEDERAL PAYMENT RATE

Rate 

National .................................................................................................................................................................................................... $430.20 

Puerto Rico .............................................................................................................................................................................................. 204.01 

TABLE 1E—LTCH STANDARD FEDERAL PROSPECTIVE PAYMENT RATE

Rate 

Standard Federal Rate ............................................................................................................................................................................ $39,896.65 

BILLING CODE 4120–01–P 


sroberts on DSKD5P82C1PROD with RULES
44032 Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 


sroberts on DSKD5P82C1PROD with RULESER27AU09.009</GPH>
Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 44033 


sroberts on DSKD5P82C1PROD with RULESER27AU09.010</GPH>
44034 Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 


sroberts on DSKD5P82C1PROD with RULESER27AU09.011</GPH>
Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 44035 


sroberts on DSKD5P82C1PROD with RULESER27AU09.012</GPH>
44036 Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 


sroberts on DSKD5P82C1PROD with RULESER27AU09.013</GPH>
Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 44037 


sroberts on DSKD5P82C1PROD with RULESER27AU09.014</GPH>
44038 Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 


sroberts on DSKD5P82C1PROD with RULESER27AU09.015</GPH>
Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 44039 


sroberts on DSKD5P82C1PROD with RULESER27AU09.016</GPH>
44040 Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 


sroberts on DSKD5P82C1PROD with RULESER27AU09.017</GPH>
Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 44041 


sroberts on DSKD5P82C1PROD with RULESER27AU09.018</GPH>
44042 Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 


sroberts on DSKD5P82C1PROD with RULESER27AU09.019</GPH>
Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 44043 


sroberts on DSKD5P82C1PROD with RULESER27AU09.020</GPH>
44044 Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 


sroberts on DSKD5P82C1PROD with RULESER27AU09.021</GPH>
Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 44045 


sroberts on DSKD5P82C1PROD with RULESER27AU09.022</GPH>
44046 Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 


sroberts on DSKD5P82C1PROD with RULESER27AU09.023</GPH>
Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 44047 


sroberts on DSKD5P82C1PROD with RULESER27AU09.024</GPH>
44048 Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 


sroberts on DSKD5P82C1PROD with RULESER27AU09.025</GPH>
Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 44049 


sroberts on DSKD5P82C1PROD with RULESER27AU09.026</GPH>
44050 Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 


sroberts on DSKD5P82C1PROD with RULESER27AU09.027</GPH>
Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 44051 


sroberts on DSKD5P82C1PROD with RULESER27AU09.028</GPH>
44052 Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 


sroberts on DSKD5P82C1PROD with RULESER27AU09.029</GPH>
Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 44053 


sroberts on DSKD5P82C1PROD with RULESER27AU09.030</GPH>
44054 Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 


sroberts on DSKD5P82C1PROD with RULESER27AU09.031</GPH>
Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 44055 


sroberts on DSKD5P82C1PROD with RULESER27AU09.032</GPH>
44056 Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 


sroberts on DSKD5P82C1PROD with RULESER27AU09.033</GPH>
Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 44057 


sroberts on DSKD5P82C1PROD with RULESER27AU09.034</GPH>
44058 Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 


sroberts on DSKD5P82C1PROD with RULESER27AU09.035</GPH>
Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 44059 


sroberts on DSKD5P82C1PROD with RULESER27AU09.036</GPH>
44060 Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 


sroberts on DSKD5P82C1PROD with RULESER27AU09.037</GPH>
Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 44061 


sroberts on DSKD5P82C1PROD with RULESER27AU09.038</GPH>
44062 Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 


sroberts on DSKD5P82C1PROD with RULESER27AU09.039</GPH>
Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 44063 


sroberts on DSKD5P82C1PROD with RULESER27AU09.040</GPH>
44064 Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 


sroberts on DSKD5P82C1PROD with RULESER27AU09.041</GPH>
Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 44065 


sroberts on DSKD5P82C1PROD with RULESER27AU09.042</GPH>
44066 Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 


sroberts on DSKD5P82C1PROD with RULESER27AU09.043</GPH>
Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 44067 


sroberts on DSKD5P82C1PROD with RULESER27AU09.044</GPH>
44068 Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 


sroberts on DSKD5P82C1PROD with RULESER27AU09.045</GPH>
Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 44069 


sroberts on DSKD5P82C1PROD with RULESER27AU09.046</GPH>
44070 Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 


sroberts on DSKD5P82C1PROD with RULESER27AU09.047</GPH>
Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 44071 


sroberts on DSKD5P82C1PROD with RULESER27AU09.048</GPH>
44072 Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 


sroberts on DSKD5P82C1PROD with RULESER27AU09.049</GPH>
Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 44073 


sroberts on DSKD5P82C1PROD with RULESER27AU09.050</GPH>
44074 Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 


sroberts on DSKD5P82C1PROD with RULESER27AU09.051</GPH>
Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 44075 


sroberts on DSKD5P82C1PROD with RULESER27AU09.052</GPH>
44076 Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 


sroberts on DSKD5P82C1PROD with RULESER27AU09.053</GPH>
Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 44077 


sroberts on DSKD5P82C1PROD with RULESER27AU09.054</GPH>
44078 Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 


sroberts on DSKD5P82C1PROD with RULESER27AU09.055</GPH>
Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 44079 


sroberts on DSKD5P82C1PROD with RULESER27AU09.056</GPH>
44080 Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 


sroberts on DSKD5P82C1PROD with RULESER27AU09.057</GPH>
Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 44081 


sroberts on DSKD5P82C1PROD with RULESER27AU09.058</GPH>
44082 Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 


sroberts on DSKD5P82C1PROD with RULESER27AU09.059</GPH>
Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 44083 


sroberts on DSKD5P82C1PROD with RULESER27AU09.060</GPH>
44084 Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 


sroberts on DSKD5P82C1PROD with RULESER27AU09.061</GPH>
Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 44085 


sroberts on DSKD5P82C1PROD with RULESER27AU09.062</GPH>
44086 Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 


sroberts on DSKD5P82C1PROD with RULESER27AU09.063</GPH>
Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 44087 


sroberts on DSKD5P82C1PROD with RULESER27AU09.064</GPH>
44088 Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 


sroberts on DSKD5P82C1PROD with RULESER27AU09.065</GPH>
Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 44089 


sroberts on DSKD5P82C1PROD with RULESER27AU09.066</GPH>
44090 Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 


sroberts on DSKD5P82C1PROD with RULESER27AU09.067</GPH>
Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 44091 


sroberts on DSKD5P82C1PROD with RULESER27AU09.068</GPH>
44092 Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 


sroberts on DSKD5P82C1PROD with RULESER27AU09.069</GPH>
Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 44093 


sroberts on DSKD5P82C1PROD with RULESER27AU09.070</GPH>
44094 Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 


sroberts on DSKD5P82C1PROD with RULESER27AU09.071</GPH>
Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 44095 


sroberts on DSKD5P82C1PROD with RULESER27AU09.072</GPH>
44096 Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 


sroberts on DSKD5P82C1PROD with RULESER27AU09.073</GPH>
Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 44097 


sroberts on DSKD5P82C1PROD with RULESER27AU09.074</GPH>
44098 Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 


sroberts on DSKD5P82C1PROD with RULESER27AU09.075</GPH>
Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 44099 


sroberts on DSKD5P82C1PROD with RULESER27AU09.076</GPH>
44100 Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 


sroberts on DSKD5P82C1PROD with RULESER27AU09.077</GPH>
Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 44101 


sroberts on DSKD5P82C1PROD with RULESER27AU09.078</GPH>
44102 Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 


sroberts on DSKD5P82C1PROD with RULESER27AU09.079</GPH>
Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 44103 


sroberts on DSKD5P82C1PROD with RULESER27AU09.080</GPH>
44104 Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 


sroberts on DSKD5P82C1PROD with RULESER27AU09.081</GPH>
Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 44105 


sroberts on DSKD5P82C1PROD with RULESER27AU09.082</GPH>
44106 Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 


sroberts on DSKD5P82C1PROD with RULESER27AU09.083</GPH>
Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 44107 


sroberts on DSKD5P82C1PROD with RULESER27AU09.084</GPH>
44108 Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 


sroberts on DSKD5P82C1PROD with RULESER27AU09.085</GPH>
Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 44109 


sroberts on DSKD5P82C1PROD with RULESER27AU09.086</GPH>
44110 Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 


sroberts on DSKD5P82C1PROD with RULESER27AU09.087</GPH>
Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 44111 


sroberts on DSKD5P82C1PROD with RULESER27AU09.088</GPH>
44112 Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 


sroberts on DSKD5P82C1PROD with RULESER27AU09.089</GPH>
Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 44113 


sroberts on DSKD5P82C1PROD with RULESER27AU09.090</GPH>
44114 Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 


sroberts on DSKD5P82C1PROD with RULESER27AU09.091</GPH>
Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 44115 


sroberts on DSKD5P82C1PROD with RULESER27AU09.092</GPH>
44116 Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 


sroberts on DSKD5P82C1PROD with RULESER27AU09.093</GPH>
Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 44117 


sroberts on DSKD5P82C1PROD with RULESER27AU09.094</GPH>
44118 Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 


sroberts on DSKD5P82C1PROD with RULESER27AU09.095</GPH>
Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 44119 


sroberts on DSKD5P82C1PROD with RULESER27AU09.096</GPH>
44120 Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 


sroberts on DSKD5P82C1PROD with RULESER27AU09.097</GPH>
Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 44121 


sroberts on DSKD5P82C1PROD with RULESER27AU09.098</GPH>
44122 Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 


sroberts on DSKD5P82C1PROD with RULESER27AU09.099</GPH>
Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 44123 


sroberts on DSKD5P82C1PROD with RULESER27AU09.100</GPH>
44124 Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 


sroberts on DSKD5P82C1PROD with RULESER27AU09.101</GPH>
Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 44125 


sroberts on DSKD5P82C1PROD with RULESER27AU09.102</GPH>
44126 Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 


sroberts on DSKD5P82C1PROD with RULESER27AU09.103</GPH>
Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 44127 


sroberts on DSKD5P82C1PROD with RULESER27AU09.104</GPH>
44128 Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 


sroberts on DSKD5P82C1PROD with RULESER27AU09.105</GPH>
Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 44129 


sroberts on DSKD5P82C1PROD with RULESER27AU09.106</GPH>
44130 Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 


sroberts on DSKD5P82C1PROD with RULESER27AU09.107</GPH>
Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 44131 


sroberts on DSKD5P82C1PROD with RULESER27AU09.108</GPH>
44132 Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 


sroberts on DSKD5P82C1PROD with RULESER27AU09.109</GPH>
Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 44133 


sroberts on DSKD5P82C1PROD with RULESER27AU09.110</GPH>
44134 Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 


sroberts on DSKD5P82C1PROD with RULESER27AU09.111</GPH>
Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 44135 


sroberts on DSKD5P82C1PROD with RULESER27AU09.112</GPH>
44136 Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 


sroberts on DSKD5P82C1PROD with RULESER27AU09.113</GPH>
Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 44137 


sroberts on DSKD5P82C1PROD with RULESER27AU09.114</GPH>
44138 Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 


sroberts on DSKD5P82C1PROD with RULESER27AU09.115</GPH>
Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 44139 


sroberts on DSKD5P82C1PROD with RULESER27AU09.116</GPH>
44140 Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 


sroberts on DSKD5P82C1PROD with RULESER27AU09.117</GPH>
Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 44141 


sroberts on DSKD5P82C1PROD with RULESER27AU09.118</GPH>
44142 Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 


sroberts on DSKD5P82C1PROD with RULESER27AU09.119</GPH>
Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 44143 


sroberts on DSKD5P82C1PROD with RULESER27AU09.120</GPH>
44144 Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 


sroberts on DSKD5P82C1PROD with RULESER27AU09.121</GPH>
Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 44145 


sroberts on DSKD5P82C1PROD with RULESER27AU09.122</GPH>
44146 Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 


sroberts on DSKD5P82C1PROD with RULESER27AU09.123</GPH>
Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 44147 


sroberts on DSKD5P82C1PROD with RULESER27AU09.124</GPH>
44148 Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 


sroberts on DSKD5P82C1PROD with RULESER27AU09.125</GPH>
Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 44149 


sroberts on DSKD5P82C1PROD with RULESER27AU09.126</GPH>
44150 Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 


sroberts on DSKD5P82C1PROD with RULESER27AU09.127</GPH>
Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 44151 


sroberts on DSKD5P82C1PROD with RULESER27AU09.128</GPH>
44152 Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 


sroberts on DSKD5P82C1PROD with RULESER27AU09.129</GPH>
Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 44153 


sroberts on DSKD5P82C1PROD with RULESER27AU09.130</GPH>
44154 Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 


sroberts on DSKD5P82C1PROD with RULESER27AU09.131</GPH>
Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 44155 


sroberts on DSKD5P82C1PROD with RULESER27AU09.132</GPH>
44156 Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 


sroberts on DSKD5P82C1PROD with RULESER27AU09.133</GPH>
Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 44157 


sroberts on DSKD5P82C1PROD with RULESER27AU09.134</GPH>
44158 Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 


sroberts on DSKD5P82C1PROD with RULESER27AU09.135</GPH>
Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 44159 


sroberts on DSKD5P82C1PROD with RULESER27AU09.136</GPH>
44160 Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 


sroberts on DSKD5P82C1PROD with RULESER27AU09.137</GPH>
Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 44161 


sroberts on DSKD5P82C1PROD with RULESER27AU09.138</GPH>
44162 Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 


sroberts on DSKD5P82C1PROD with RULESER27AU09.139</GPH>
Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 44163 


sroberts on DSKD5P82C1PROD with RULESER27AU09.140</GPH>
44164 Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 


sroberts on DSKD5P82C1PROD with RULESER27AU09.141</GPH>
Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 44165 


sroberts on DSKD5P82C1PROD with RULESER27AU09.142</GPH>
44166 Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 


sroberts on DSKD5P82C1PROD with RULESER27AU09.143</GPH>
Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 44167 


sroberts on DSKD5P82C1PROD with RULESER27AU09.144</GPH>
44168 Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 


sroberts on DSKD5P82C1PROD with RULESER27AU09.145</GPH>
Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 44169 


sroberts on DSKD5P82C1PROD with RULESER27AU09.146</GPH>
44170 Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 


sroberts on DSKD5P82C1PROD with RULESER27AU09.147</GPH>
Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 44171 


sroberts on DSKD5P82C1PROD with RULESER27AU09.148</GPH>
44172 Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 


sroberts on DSKD5P82C1PROD with RULESER27AU09.149</GPH>
Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 44173 


sroberts on DSKD5P82C1PROD with RULESER27AU09.150</GPH>
44174 Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 


sroberts on DSKD5P82C1PROD with RULESER27AU09.151</GPH>
Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 44175 


sroberts on DSKD5P82C1PROD with RULESER27AU09.152</GPH>
44176 Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 


sroberts on DSKD5P82C1PROD with RULESER27AU09.153</GPH>
Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 44177 


sroberts on DSKD5P82C1PROD with RULESER27AU09.154</GPH>
44178 Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 


sroberts on DSKD5P82C1PROD with RULESER27AU09.155</GPH>
Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 44179 


sroberts on DSKD5P82C1PROD with RULESER27AU09.156</GPH>
44180 Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 


sroberts on DSKD5P82C1PROD with RULESER27AU09.157</GPH>
Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 44181 


sroberts on DSKD5P82C1PROD with RULESER27AU09.158</GPH>
44182 Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 


sroberts on DSKD5P82C1PROD with RULESER27AU09.159</GPH>
Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 44183 


sroberts on DSKD5P82C1PROD with RULESER27AU09.160</GPH>
44184 Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 


sroberts on DSKD5P82C1PROD with RULESER27AU09.161</GPH>
Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 44185 


sroberts on DSKD5P82C1PROD with RULESER27AU09.162</GPH>
44186 Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 


sroberts on DSKD5P82C1PROD with RULESER27AU09.163</GPH>
Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 44187 


sroberts on DSKD5P82C1PROD with RULESER27AU09.164</GPH>
44188 Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 


sroberts on DSKD5P82C1PROD with RULESER27AU09.165</GPH>
Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 44189 


sroberts on DSKD5P82C1PROD with RULESER27AU09.166</GPH>
44190 Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 


sroberts on DSKD5P82C1PROD with RULESER27AU09.167</GPH>
Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 44191 


sroberts on DSKD5P82C1PROD with RULESER27AU09.168</GPH>
44192 Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 


sroberts on DSKD5P82C1PROD with RULESER27AU09.169</GPH>
Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 44193 


sroberts on DSKD5P82C1PROD with RULESER27AU09.170</GPH>
44194 Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 


sroberts on DSKD5P82C1PROD with RULESER27AU09.171</GPH>
Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 44195 


sroberts on DSKD5P82C1PROD with RULESER27AU09.172</GPH>
44196 Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 


sroberts on DSKD5P82C1PROD with RULESER27AU09.173</GPH>
Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 44197 


sroberts on DSKD5P82C1PROD with RULESER27AU09.174</GPH>
44198 Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 


sroberts on DSKD5P82C1PROD with RULESER27AU09.175</GPH>
Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 44199 


sroberts on DSKD5P82C1PROD with RULESER27AU09.176</GPH>
44200 Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 


sroberts on DSKD5P82C1PROD with RULESER27AU09.177</GPH>
Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 44201 


sroberts on DSKD5P82C1PROD with RULESER27AU09.178</GPH>
44202 Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 


sroberts on DSKD5P82C1PROD with RULESER27AU09.179</GPH>
Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 44203 


sroberts on DSKD5P82C1PROD with RULESER27AU09.180</GPH>
44204 Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 


sroberts on DSKD5P82C1PROD with RULESER27AU09.181</GPH>
Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 44205 


sroberts on DSKD5P82C1PROD with RULESER27AU09.182</GPH>
44206 Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 


sroberts on DSKD5P82C1PROD with RULESER27AU09.183</GPH>
Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 44207 


sroberts on DSKD5P82C1PROD with RULESER27AU09.184</GPH>
44208 Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 


sroberts on DSKD5P82C1PROD with RULESER27AU09.185</GPH>
Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 44209 


sroberts on DSKD5P82C1PROD with RULESER27AU09.186</GPH>
44210 Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 


sroberts on DSKD5P82C1PROD with RULESER27AU09.187</GPH>
Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 44211 


sroberts on DSKD5P82C1PROD with RULESER27AU09.188</GPH>
44212 Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 


sroberts on DSKD5P82C1PROD with RULESER27AU09.189</GPH>
Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 44213 

Appendix A: Regulatory Impact 

Analysis 

I. Overall Impact 

We have examined the impacts of this final 

rule as required by Executive Order 12866 

(September 1993, Regulatory Planning and 

Review) and the Regulatory Flexibility Act 

(RFA) (September 19, 1980, Pub. L. 96–354), 

section 1102(b) of the Social Security Act, the 

Unfunded Mandates Reform Act of 1995 

(Pub. L. 104–4), Executive Order 13132 on 

Federalism, and the Congressional Review 

Act (5 U.S.C. 804(2)). 

Executive Order 12866 directs agencies to 

assess all costs and benefits of available 

regulatory alternatives and, if regulation is 

necessary, to select regulatory approaches 

that maximize net benefits (including 

potential economic, environmental, public 

health and safety effects, distributive 

impacts, and equity). A regulatory impact 

analysis (RIA) must be prepared for major 

rules with economically significant effects 

($100 million or more in any 1 year). 

We have determined that this final rule is 

a major rule as defined in 5 U.S.C. 804(2). We 

estimate that the changes for FY 2010 acute 

care hospital operating and capital payments 

will redistribute in excess of $100 million 

among different types of inpatient cases. The 

changes to rebase and revise the market 

basket for purposes of the market basket 

update to the IPPS rates required by the 

statute, in conjunction with other payment 

changes in this final rule, will result in an 

estimated $1.73 billion increase in FY 2010 

operating payments (or 1.6 percent increase), 

and $171 million increase in FY 2010 capital 

payments (or 1.9 percent increase). The 

impacts analysis of the capital payments can 

be found in section VIII. of this Appendix. In 

addition, as described in section IX. of this 

Appendix, LTCHs are expected to experience 

an increase in payments by $153 million (or 

3.3 percent). 

Our operating impact estimate includes the 

2.1 percent market basket update to the 

standardized amount. Though we had 

proposed a ¥2.5 percent documentation and 

coding adjustment applied to the hospitalspecific rates, the ¥1.1 percent 

documentation and coding adjustment 

applied to the Puerto Rico-specific rates and 

the ¥1.9 percent adjustment for 

documentation and coding changes to the 

IPPS standardized amounts, we are not 

applying any documentation and coding 

adjustments to any of the rates in this final 

rule. The estimates of IPPS operating 

payments to acute care hospitals do not 

reflect any changes in hospital admissions or 

real case-mix intensity, which would also 

affect overall payment changes. 

The RFA requires agencies to analyze 

options for regulatory relief of small 

businesses. For purposes of the RFA, small 

entities include small businesses, nonprofit 

organizations, and small government 

jurisdictions. Most hospitals and most other 

providers and suppliers are considered to be 

small entities, either by being nonprofit 

organizations or by meeting the Small 

Business Administration definition of a small 

business (having revenues of $34.5 million or 

less in any 1 year). (For details on the latest 

standards for heath care providers, we refer 

readers to the Table of Small Business Size 

Standards for NAIC 622 found on the Small 

Business Administration Office of Size 

Standards Web site at: http://www.sba.gov/ 

contractingopportunities/officials/size/GCSMALL-BUS-SIZE-STANDARDS.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 would 

have a significant impact on small entities as 

explained in this Appendix. Because we lack 

data on individual hospital receipts, we 

cannot determine the number of small 

proprietary LTCHs. Therefore, we are 

assuming that all LTCHs are considered 

small entities for the purpose of the analysis 

in section IX. of this Appendix. Medicare 

fiscal intermediaries and MACs are not 

considered to be small entities. Because we 

acknowledge that many of the affected 

entities are small entities, the analysis 

discussed throughout the preamble of this 

final rule constitutes our final regulatory 

flexibility analysis. We address any public 

comments that we received on the impact of 

these changes we are finalizing in the 

applicable sections of this Appendix. 

The Small Business Regulatory 

Enforcement Fairness Act of 1996 (SBREFA), 

Public Law 104–121, as amended by section 

8302 of Public Law 110–28, requires an 

agency to provide compliance guides for each 

rule or group of related rules for which an 

agency is required to prepare a final 

regulatory flexibility analysis. The 

compliance guides associated with this final 

rule are available on the CMS IPPS Web page 

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

AcuteInpatientPPS/01_overview.asp. We also 

note that the Hospital Center Web page at 

http://www.cms.hhs.gov/center/hospital.asp 

was developed to assist hospitals in 

understanding and adapting to changes in 

Medicare regulations and in billing and 

payment procedures. This Web page provides 

hospitals with substantial downloadable 

explanatory materials. 

In addition, section 1102(b) of the Act 

requires us to prepare a regulatory impact 

analysis for any proposed or final rule that 

may have a significant impact on the 

operations of a substantial number of small 

rural hospitals. This analysis must conform 

to the provisions of section 603 of the RFA. 

With the exception of hospitals located in 

certain New England counties, for purposes 

of section 1102(b) of the Act, we now define 

a small rural hospital as a hospital that is 

located outside of an urban area and has 

fewer than 100 beds. Section 601(g) of the 

Social Security Amendments of 1983 (Pub. L. 

98–21) designated hospitals in certain New 

England counties as belonging to the adjacent 

urban area. Thus, for purposes of the IPPS 

and the LTCH PPS, we continue to classify 

these hospitals as urban hospitals. (We refer 

readers to Table 1 and section VI. of this 

Appendix for the quantitative effects of the 

policy changes under the IPPS for operating 

costs.) 

Section 202 of the Unfunded Mandates 

Reform Act of 1995 (Pub. L. 104–4) also 

requires that agencies assess anticipated costs 

and benefits before issuing any rule whose 

mandates require spending in any 1 year of 

$100 million in 1995 dollars, updated 

annually for inflation. That threshold level is 

currently approximately $133 million. This 


sroberts on DSKD5P82C1PROD with RULESER27AU09.190</GPH>
44214 Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 

final rule will not mandate any requirements 

for State, local, or tribal governments, nor 

would it affect private sector costs. 

Executive Order 13132 establishes certain 

requirements that an agency must meet when 

it promulgates a proposed rule (and 

subsequent final rule) that imposes 

substantial direct requirement costs on State 

and local governments, preempts State law, 

or otherwise has Federalism implications. As 

stated above, this final rule will not have a 

substantial effect on State and local 

governments. 

The following analysis, in conjunction 

with the remainder of this document, 

demonstrates that this final rule is consistent 

with the regulatory philosophy and 

principles identified in Executive Order 

12866, the RFA, and section 1102(b) of the 

Act. The 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. 

II. Objectives of the IPPS 

The primary objective of the IPPS is to 

create incentives for hospitals to operate 

efficiently and minimize unnecessary costs 

while at the same time ensuring that 

payments are sufficient to adequately 

compensate hospitals for their legitimate 

costs. In addition, we share national goals of 

preserving the Medicare Hospital Insurance 

Trust Fund. 

We believe the 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. 

III. Limitations of Our Analysis 

The following quantitative analysis 

presents the projected effects of our policy 

changes, as well as statutory changes 

effective for FY 2010, on various hospital 

groups. We estimate the effects of individual 

policy changes by estimating payments per 

case while holding all other payment policies 

constant. We use the best data available, but, 

generally, we do not attempt to make 

adjustments for future changes in such 

variables as admissions, lengths of stay, or 

case-mix. However, in the FY 2008 IPPS final 

rule with comment period, we indicated that 

we believe that implementation of the MS– 

DRGs would lead to increases in case-mix 

that do not reflect actual increases in 

patients’ severity of illness as a result of more 

comprehensive documentation and coding. 

As explained in section II.D. of the preamble 

of this final rule, the FY 2008 IPPS final rule 

with comment period established a 

documentation and coding adjustment of 

¥1.2 percent for FY 2008, ¥1.8 percent for 

FY 2009, and ¥1.8 percent for FY 2010 to 

maintain budget neutrality for the transition 

to the MS–DRGs. Subsequently, Congress 

enacted Public Law 110–90. Section 7 of 

Public Law 110–90 reduced the IPPS 

documentation and coding adjustment from 

¥1.2 percent to ¥0.6 percent for FY 2008 

and from ¥1.8 percent to ¥0.9 percent for 

FY 2009. For FY 2010, we had proposed to 

reduce the national standardized amount. 

However, we have decided to postpone the 

documentation and coding adjustment to the 

national standardized amount until FY 2011 

and will not apply the adjustment to the 

national standardized amount for FY 2010. 

Furthermore, we believe that hospitals that 

are paid under the hospital-specific payment 

rate, specifically SCHs and MDHs, 

experience similar increases in case-mix due 

to documentation and coding changes that do 

not reflect real changes in case-mix. Our 

actuarial office estimates that hospitals paid 

under the hospital-specific rate experienced 

a 4.8 percent increase in payments due to 

documentation and coding changes in FY 

2008 and FY 2009. We did not apply a 

documentation and coding adjustment to the 

hospital-specific rates when we first 

implemented the MS–DRG system. For FY 

2010, we had proposed to reduce the 

hospital-specific rate by ¥2.5 percent in FY 

2010 to account for the case-mix increase that 

occurred in FY 2008 due to changes in 

documentation and coding under the 

adoption of MS–DRGs that do not reflect real 

changes in case-mix. However, we have 

decided to postpone the documentation and 

coding adjustment to the hospital-specific 

rate until FY 2011 and will not apply an 

adjustment to the hospital-specific rate for 

FY 2010. 

Our analysis, as described in II.D. of the 

preamble, shows that Puerto Rico hospitals 

experienced an increase in case-mix by 1.1 

percent in FY 2008 due to changes in 

documentation and coding. We did not apply 

a documentation and coding adjustment to 

the Puerto Rico-specific rate when we first 

implemented the MS–DRG system. 

Consistent with our decision to postpone 

documentation and coding adjustments for 

the hospital-specific rate and the Federal 

standardized amount, we also are postponing 

the documentation and coding adjustment to 

the Puerto-Rico specific rate until FY 2011. 

The impacts shown below illustrate the 

impact of the FY 2010 IPPS changes on acute 

care hospital operating payments. As we 

have done in the previous rules, we solicited 

comments and information about the 

anticipated effects of the proposed changes 

on hospitals and our methodology for 

estimating them. 

Comment: Several comments questioned 

whether Medicare Advantage claims were 

used in the impacts analysis. The 

commenters suggested that CMS reevaluate 

its calculations and data to ensure that 

Medicare Advantage claims are not used in 

the impacts analysis. 

Response: The three primary data sources 

for the impacts analyses are the MedPAR 

claims file, the Medicare hospital cost report, 

and the Provider-Specific File. Historically, 

we have excluded data from Medicare 

Advantage claims from the impacts analysis. 

However, for the FY 2010 IPPS proposed 

rule, the December 31, 2008 update of the FY 

2008 MedPAR data that was used as the 

source for the impact analysis contained a 

significant number of Medicare Advantage 

claims. Under Change Request 5647, 

Transmittal 1311, hospitals were required to 

submit informational only claims for all 

Medicare Advantage patients they treated for 

discharges occurring on or after October 1, 

2006. As a result, we inadvertently included 

claims from discharges enrolled in Medicare 

Advantage plans in the impact analysis in the 

proposed rule. 

We generally have excluded Medicare 

Advantage claims from the impact analysis. 

However, as described in section II.A.4. of 

the Addendum to this final rule, we have 

used the Medicare Advantage claims 

information to determine the IME payment 

made on Medicare Advantage claims. 

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 and in the operating 

impact analysis. 

The methodology for calculating the IME 

payment made on Medicare Advantage 

claims is described in section II.A.4. of the 

Addendum to this final rule. 

IV. Hospitals Included in and Excluded 

From the IPPS 

The prospective payment systems for 

hospital inpatient operating and capitalrelated costs of acute care hospitals 

encompass most general short-term, acute 

care hospitals that participate in the 

Medicare program. There were 33 Indian 

Health Service hospitals in our database, 

which we excluded from the analysis due to 

the special characteristics of the prospective 

payment methodology for these hospitals. 

Among other short-term, acute care hospitals, 

only the 46 such hospitals in Maryland 

remain excluded from the IPPS pursuant to 

the waiver under section 1814(b)(3) of the 

Act. 

As of July 2009, there are 3,517 IPPS acute 

care hospitals to be included in our analysis. 

This represents about 58 percent of all 

Medicare-participating hospitals. The 

majority of this impact analysis focuses on 

this set of hospitals. There are also 

approximately 1,330 CAHs. These small, 

limited service hospitals are paid on the basis 

of reasonable costs rather than under the 

IPPS. (We refer readers to section VII. of this 

Appendix for a further description of the 

impact of CAH-related policy changes.) There 

are also 1,251 IPPS-excluded hospitals and 

2,188 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 IPPSexcluded hospitals and units are not 

included in this final rule. The impact of the 

update and policy changes to the LTCH PPS 

for RY 2010 are discussed in section IX. of 

this Appendix. 

V. Effects on Hospitals Excluded From the 

IPPS 

As of July 2009, there were 1,251 hospitals 

excluded from the IPPS. Of these 1,251 

hospitals, 78 children’s hospitals, 11 cancer 

hospitals, and 16 RNHCIs are being paid on 

a reasonable cost basis subject to the rate-ofVerDate Nov<24>2008 19:22 Aug 26, 2009 Jkt 217001 PO 00000 Frm 00462 Fmt 4701 Sfmt 4700 E:\FR\FM\27AUR2.SGM 27AUR2

sroberts on DSKD5P82C1PROD with RULES
Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 44215 

increase ceiling under § 413.40. The 

remaining providers, 225 IRFs and 421 

LTCHs, are paid the Federal prospective per 

discharge rate under the IRF PPS and the 

LTCH PPS, respectively, and 1,224 IPFs are 

paid the Federal per diem amount under the 

IPF PPS. As stated above, IRFs and IPFs are 

not affected by rate updates in this final rule. 

The impacts of the changes to LTCHs are 

discussed in section IX. of this Appendix. In 

addition, there are 1,224 IPF units located in 

hospitals otherwise subject to the IPPS. There 

are 964 IRFs (paid under the IRF PPS) located 

in hospitals otherwise subject to the IPPS. 

In the past, certain hospitals and units 

excluded from the IPPS have been paid based 

on their reasonable costs subject to limits as 

established by the Tax Equity and Fiscal 

Responsibility Act of 1982 (TEFRA). Cancer 

and children’s hospitals continue to be paid 

on a reasonable cost basis subject to TEFRA 

limits for FY 2010. For these hospitals 

(cancer and children’s hospitals), consistent 

with the authority provided in section 

1886(b)(3)(B)(ii) of the Act, the update is the 

percentage increase in the FY 2010 IPPS 

operating market basket. In compliance with 

section 404 of the MMA, in this final rule, 

we are replacing the FY 2002-based IPPS 

operating and capital market baskets with the 

revised and rebased FY 2006-based IPPS 

operating and capital market baskets for FY 

2010. Therefore, consistent with current law, 

based on IHS Global Insight, Inc.’s 2009 

second quarter forecast, with historical data 

through the 2009 first quarter, we are 

estimating that the FY 2010 update to the 

IPPS operating market basket will be 2.1 

percent (that is, the current estimate of the 

market basket rate-of-increase). In addition, 

in accordance with § 403.752(a) of the 

regulations, RNHCIs are paid under § 413.40, 

which also uses section 1886(b)(3)(B)(ii) of 

the Act to update target amounts by the rateof-increase percentage. For RNHCIs, the 

update is the percentage increase in the FY 

2010 IPPS operating market basket increase, 

which is estimated to be 2.1 percent, based 

on IHS Global Insight, Inc.’s 2009 second 

quarter forecast of the IPPS operating market 

basket increase, with historical data through 

the 2009 first quarter. 

The impact of the update in the rate-ofincrease 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 per-case cost 

increases above the cumulative update in 

their rate-of-increase limits, the major effect 

is the amount of excess costs that will not be 

reimbursed. 

We note that, under § 413.40(d)(3), an 

excluded hospital that continues to be paid 

under the TEFRA system, whose costs exceed 

110 percent of its rate-of-increase limit 

receives its rate-of-increase limit plus 50 

percent of the difference between its 

reasonable costs and 110 percent of the limit, 

not to exceed 110 percent of its limit. In 

addition, under the various provisions set 

forth in § 413.40, cancer and children’s 

hospitals can obtain payment adjustments for 

justifiable increases in operating costs that 

exceed the limit. 

VI. Quantitative Effects of the Policy 

Changes Under the IPPS for Operating Costs 

A. Basis and Methodology of Estimates 

In this final rule, we are announcing policy 

changes and payment rate updates for the 

IPPS for operating costs of acute care 

hospitals. Updates to the capital payments to 

acute care hospitals are discussed in section 

VIII. of this Appendix. 

Based on the overall percentage change in 

payments per case estimated using our 

payment simulation model, we estimate that 

total FY 2010 operating payments will 

increase by 1.6 percent compared to FY 2009, 

largely due to the statutorily mandated 

update to the IPPS rates. The impacts do not 

illustrate changes in hospital admissions or 

real case-mix intensity, which will also affect 

overall payment changes. 

We have prepared separate impact analyses 

of the changes to each system. This section 

deals with changes to the operating 

prospective payment system for acute care 

hospitals. Our payment simulation model 

relies on the most recent available data to 

enable us to estimate the impacts on 

payments per case of certain changes in this 

final rule. However, there are other changes 

for which we do not have data available that 

would 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 2008 MedPAR file and the most current 

Provider-Specific File 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 report were 

used to categorize hospitals. Our analysis has 

several qualifications. First, in this analysis, 

we do not make adjustments for future 

changes in such variables as admissions, 

lengths of stay, or underlying growth in real 

case-mix. Second, due to the interdependent 

nature of the IPPS payment components, it is 

very difficult to precisely quantify the impact 

associated with each change. Third, we use 

various sources for the data used to 

categorize hospitals in the tables. In some 

cases, particularly the number of beds, there 

is a fair degree of variation in the data from 

different sources. We have attempted to 

construct these variables with the best 

available source overall. However, for 

individual hospitals, some 

miscategorizations are possible. 

Using cases from the FY 2008 MedPAR 

file, we simulated payments under the 

operating IPPS given various combinations of 

payment parameters. Any short-term, acute 

care hospitals not paid under the IPPS 

(Indian Health Service hospitals and 

hospitals in Maryland) were excluded from 

the simulations. The impact of payments 

under the capital IPPS, or the impact of 

payments for costs other than inpatient 

operating costs, are not analyzed in this 

section. Estimated payment impacts of the 

capital IPPS for FY 2010 are discussed in 

section VIII. of this Appendix. 

The changes discussed separately below 

are the following: 

• 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 wage data from 

hospitals’ cost reporting periods beginning 

during FY 2006, compared to the FY 2005 

wage data. 

• The effects of the changes to the hospital 

labor-related share, where the hospital laborrelated share for hospitals with a wage index 

greater than 1 has been rebased from 69.7 

percent to 68.8 percent. Hospitals with a 

wage index less than or equal to 1 will 

continue to have a hospital labor-related 

share of 62 percent. 

• The effects of the recalibration of the 

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 geographic 

reclassifications by the MGCRB that will be 

effective in FY 2010. 

• The effects of the second year of the 3- 

year transition to apply rural floor budget 

neutrality adjustment at the State level. In FY 

2010, hospitals will receive a blended wage 

index that is 50 percent of a wage index with 

the State level rural and imputed floor budget 

neutrality adjustment and 50 percent of a 

wage index with the national budget 

neutrality adjustment. 

• The effects of section 505 of Public Law 

108–173, which provides for an increase in 

a hospital’s wage index if the hospital 

qualifies by meeting a threshold percentage 

of residents of the county where the hospital 

is located who commute to work at hospitals 

in counties with higher wage indexes. 

• The total estimated change in payments 

based on the FY 2010 policies relative to 

payments based on FY 2009 policies that 

include the market basket update of 2.1 

percent. 

To illustrate the impacts of the FY 2010 

changes, our analysis begins with a FY 2009 

baseline simulation model using: the FY 

2010 market basket update of 2.1 percent; the 

FY 2009 MS–DRG GROUPER (Version 26.0); 

the most current CBSA designations for 

hospitals based on OMB’s MSA definitions; 

the FY 2009 wage index; and no MGCRB 

reclassifications. Outlier payments are set at 

5.1 percent of total operating DRG and outlier 

payments. 

Section 1886(b)(3)(B)(viii) of the Act, as 

added by section 5001(a) of Public Law 109– 

171, provides that, for FY 2007 and 

subsequent years, the update factor will be 

reduced by 2.0 percentage points for any 

hospital that does not submit quality data in 

a form and manner and at a time specified 

by the Secretary. At the time this impact was 

prepared, 94 hospitals did not receive the full 

market basket rate-of-increase for FY 2009 

because they failed the quality data 

submission process. For purposes of the 

simulations shown below, we modeled the 


sroberts on DSKD5P82C1PROD with RULES
44216 Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 

payment changes for FY 2010 using a 

reduced update for these 94 hospitals. 

However, we do not have enough 

information at this time to determine which 

hospitals will not receive the full market 

basket rate-of-increase for FY 2010. 

Each policy change, statutorily or 

otherwise, is then added incrementally to 

this baseline, finally arriving at an FY 2010 

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 

2009 to FY 2010. 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 2010 using 

the most recently forecasted hospital market 

basket increase for FY 2010 of 2.1 percent. 

(Hospitals that fail to comply with the quality 

data submission requirements to receive the 

full update will receive an update reduced by 

2.0 percentage points from 2.1 percent to 0.1 

percent.) Under section 1886(b)(3)(B)(iv) of 

the Act, the updates to the hospital-specific 

amounts for SCHs and for MDHs are also 

equal to the market basket percentage 

increase, or 2.1 percent. 

A second significant factor that affects the 

changes in hospitals’ payments per case from 

FY 2010 to FY 2010 is the change in a 

hospital’s geographic reclassification status 

from one year to the next. That is, payments 

may be reduced for hospitals reclassified in 

FY 2009 that are no longer reclassified in FY 

2010. Conversely, payments may increase for 

hospitals not reclassified in FY 2009 that are 

reclassified in FY 2010. In addition, section 

508 of Public Law 108–173, the special 

reclassification provision, is set to expire in 

FY 2010. The section 508 reclassification is 

a nonbudget neutral provision, so overall 

payments will be reduced as a result of the 

expiration of this provision. In the impact 

analysis for this final rule, the expiration of 

certain special exceptions as well as section 

508 of Public Law 108–173 resulted in 

substantial impacts for a relatively small 

number of hospitals in a particular category 

because those providers have lost their 

reclassification status resulting in a 

percentage change in payments for the 

category to be below the national mean. 

A third significant factor is that we 

currently estimate that actual outlier 

payments during FY 2009 will be 5.4 percent 

of total DRG payments. When the FY 2008 

final rule was published, we projected FY 

2009 outlier payments would be 5.1 percent 

of total DRG plus outlier payments; the 

average standardized amounts were offset 

correspondingly. The effects of the higher 

than expected outlier payments during FY 

2009 (as discussed in the Addendum to this 

final rule) are reflected in the analyses below 

comparing our current estimates of FY 2009 

payments per case to estimated FY 2010 

payments per case (with outlier payments 

projected to equal 5.1 percent of total DRG 

payments). 

B. Analysis of Table I 

Table I displays the results of our analysis 

of the changes for FY 2010. 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 3,517 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 2,525 hospitals 

located in urban areas included in our 

analysis. Among these, there are 1,377 

hospitals located in large urban areas 

(populations over 1 million), and 1,148 

hospitals in other urban areas (populations of 

1 million or fewer). In addition, there are 992 

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 2010 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 section 1886(d)(8)(B) 

and section 1886(d)(8)(E) of the Act that have 

implications for capital payments) are 2,593, 

1,422, 1,171 and 924, 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 2,475 nonteaching hospitals in our 

analysis, 804 teaching hospitals with fewer 

than 100 residents, and 238 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 187 RRCs, 337 SCHs, 186 MDHs, 

and 106 hospitals that are both SCHs and 

RRCs, and 15 hospitals that are both an MDH 

and an RRC. 

The next series of groupings are based on 

the type of ownership and the hospital’s 

Medicare utilization expressed as a percent 

of total patient days. These data were taken 

from the FY 2007 or FY 2006 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 2010. The second grouping 

shows the MGCRB rural reclassifications. 

The final category shows the impact of the 

policy changes on the 20 cardiac hospitals in 

our analysis. 

TABLE I—IMPACT ANALYSIS OF CHANGES TO THE IPPS FOR OPERATING COSTS FOR FY 2010 

Number 

of 

hospitals 

FY 2010 

Weights & 

DRG 

changes 

Application 

of recalibration 

budget 

neutrality 

FY 2010 

Wage data 

and laborrelated 

share 

Application 

of wage 

budget 

neutrality 

FY 2010 

DRG, rel. 

wts., wage 

index 

changes, 

labor-related share 

with wage 

and recalibration 

budget 

neutrality 

FY 2010 

MGCRB 

reclassifications 

Transitional 1⁄2

within state 

rural floor 

budget 

neutrality 

and 1⁄2 national rural 

floor 

budget 

neutrality 

FY 2010 

Outmigration 

adjustment 

All 

FY 2010 

changes 

(1) (2) (3) (4) (5) (6) (7) (8) (9) 

All Hospitals ............................ 3,517 0 .2 0 0 0 0 0 0 0 1 .6 

By Geographic Location: 

Urban hospitals ................ 2,525 0 .2 0 0 0 0 ¥0 .2 0 0 1 .6 

Large urban areas ........... 1,377 0 .2 0 0 0 0 ¥0 .3 0 0 1 .7 

Other urban areas ............ 1,148 0 .2 0 ¥0 .1 0 ¥0 .1 0 0 .1 0 1 .5 

Rural hospitals ................. 992 0 ¥0 .2 ¥0 .2 ¥0 .1 ¥0 .3 1 .8 ¥0 .1 0 .1 1 .6 

Bed Size (Urban): 

0–99 beds ........................ 634 0 .4 0 .1 0 .1 0 .2 0 .2 ¥0 .5 0 0 1 .8 

100–199 beds .................. 808 0 .2 0 0 0 0 ¥0 .1 0 .1 0 1 .6 

200–299 beds .................. 466 0 .2 0 0 0 0 ¥0 .1 0 0 1 .7 

300–499 beds .................. 426 0 .2 0 ¥0 .1 ¥0 .1 ¥0 .1 ¥0 .2 0 0 1 .5 


sroberts on DSKD5P82C1PROD with RULES
Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 44217 

TABLE I—IMPACT ANALYSIS OF CHANGES TO THE IPPS FOR OPERATING COSTS FOR FY 2010—Continued 

Number 

of 

hospitals 

FY 2010 

Weights & 

DRG 

changes 

Application 

of recalibration 

budget 

neutrality 

FY 2010 

Wage data 

and laborrelated 

share 

Application 

of wage 

budget 

neutrality 

FY 2010 

DRG, rel. 

wts., wage 

index 

changes, 

labor-related share 

with wage 

and recalibration 

budget 

neutrality 

FY 2010 

MGCRB 

reclassifications 

Transitional 1⁄2

within state 

rural floor 

budget 

neutrality 

and 1⁄2 na- tional rural 

floor 

budget 

neutrality 

FY 2010 

Outmigration 

adjustment 

All 

FY 2010 

changes 

(1) (2) (3) (4) (5) (6) (7) (8) (9) 

500 or more beds ............ 191 0 .2 0 0 0 .1 0 .1 ¥0 .3 ¥0 .1 0 1 .7 

Bed Size (Rural): 

0–49 beds ........................ 349 ¥0 .1 ¥0 .3 ¥0 .2 ¥0 .1 ¥0 .5 0 .5 ¥0 .1 0 .2 2 .2 

50–99 beds ...................... 370 0 ¥0 .2 ¥0 .2 ¥0 .1 ¥0 .4 0 .9 ¥0 .1 0 .1 1 .5 

100–149 beds .................. 164 0 ¥0 .2 ¥0 .3 ¥0 .2 ¥0 .4 2 .3 ¥0 .1 0 1 .5 

150–199 beds .................. 62 0 .1 ¥0 .2 ¥0 .2 ¥0 .1 ¥0 .3 2 .4 ¥0 .1 0 .1 1 .6 

200 or more beds ............ 42 0 .1 ¥0 .1 ¥0 .1 ¥0 ¥0 .2 2 .6 ¥0 .1 0 1 .5 

Urban by Region: 

New England .................... 120 0 .2 0 1 0 .8 0 .8 0 .7 0 .3 0 2 .2 

Middle Atlantic .................. 344 0 .1 0 0 ¥0 .1 ¥0 .1 0 .2 0 .1 0 1 .5 

South Atlantic ................... 388 0 .2 0 ¥0 .3 ¥0 .2 ¥0 .2 ¥0 .4 ¥0 .1 0 1 .5 

East North Central ........... 397 0 .2 0 ¥0 .4 ¥0 .3 ¥0 .2 ¥0 .3 ¥0 .1 0 1 .3 

East South Central ........... 160 0 .2 0 ¥0 .3 ¥0 .1 ¥0 .1 ¥0 .3 0 0 1 .6 

West North Central .......... 165 0 .3 0 0 .3 0 .2 0 .2 ¥0 .6 ¥0 .1 0 1 .8 

West South Central .......... 346 0 .2 0 ¥0 .3 ¥0 .2 ¥0 .2 ¥0 .6 ¥0 .1 0 1 .7 

Mountain .......................... 163 0 .3 0 .1 0 .9 0 .8 0 .8 ¥0 .4 0 0 2 .9 

Pacific ............................... 391 0 .3 0 0 .3 0 .2 0 .1 ¥0 .2 0 .1 0 1 .4 

Puerto Rico ...................... 51 0 ¥0 .2 ¥0 .1 0 .2 ¥0 .2 ¥0 .8 ¥0 .1 0 1 .6 

Rural by Region: 

New England .................... 24 0 .1 ¥0 .2 ¥0 .5 ¥0 .5 ¥0 .7 2 ¥0 .2 0 0 .2 

Middle Atlantic .................. 70 ¥0 .1 ¥0 .3 0 .2 0 .2 ¥0 .1 1 .7 0 0 0 .9 

South Atlantic ................... 171 0 ¥0 .2 ¥0 .3 ¥0 .2 ¥0 .4 1 .7 ¥0 .1 0 .1 2 .1 

East North Central ........... 122 0 ¥0 .2 ¥0 .2 ¥0 .2 ¥0 .4 1 .5 ¥0 .1 0 1 

East South Central ........... 176 0 ¥0 .2 ¥0 0 .1 ¥0 .2 2 .8 ¥0 .1 0 .1 1 .9 

West North Central .......... 101 0 ¥0 .2 ¥0 .2 ¥0 .2 ¥0 .4 0 .6 0 0 1 .3 

West South Central .......... 224 0 ¥0 .2 ¥0 .4 ¥0 .3 ¥0 .5 2 .1 ¥0 .1 0 .1 1 .3 

Mountain .......................... 72 0 .2 0 0 .2 0 .2 0 .2 0 .2 0 0 3 .7 

Pacific ............................... 32 0 .1 ¥0 .2 ¥0 .3 ¥0 .2 ¥0 .5 1 .8 ¥0 .1 0 2 .8 

By Payment Classification: 

Urban hospitals ................ 2,593 0 .2 0 0 0 0 ¥0 .2 0 0 1 .6 

Large urban areas ........... 1,422 0 .2 0 0 0 0 ¥0 .3 0 0 1 .7 

Other urban areas ............ 1,171 0 .2 0 ¥0 .1 0 ¥0 .1 0 0 .1 0 1 .5 

Rural areas ...................... 924 ¥0 ¥0 .2 ¥0 .2 ¥0 .1 ¥0 .3 1 .6 0 0 .1 1 .6 

Teaching Status: 

Nonteaching ..................... 2,475 0 .2 0 ¥0 .1 ¥0 .1 ¥0 .1 0 .3 0 0 1 .6 

Fewer than 100 residents 804 0 .2 0 ¥0 .1 0 0 ¥0 .2 0 0 1 .6 

100 or more residents ...... 238 0 .2 0 0 .1 0 .1 0 .1 ¥0 .2 0 0 1 .7 

Urban DSH: 

Non-DSH .......................... 845 0 .2 0 ¥0 .1 ¥0 .1 ¥0 .2 0 .1 0 0 1 .3 

100 or more beds ............ 1,538 0 .2 0 0 0 0 ¥0 .2 0 0 1 .7 

Less than 100 beds ......... 346 0 .1 ¥0 .1 0 .1 0 .1 0 ¥0 .2 0 0 1 .9 

Rural DSH: 

SCH .................................. 397 ¥0 .2 ¥0 .3 ¥0 .1 ¥0 .1 ¥0 .4 0 .3 0 0 .1 2 .1 

RRC ................................. 207 0 .1 ¥0 .1 ¥0 .2 ¥0 .1 ¥0 .3 2 .7 ¥0 .1 0 1 .5 

100 or more beds ............ 34 0 .1 ¥0 .2 0 .3 0 .3 0 .1 0 .9 0 .4 0 .2 1 .5 

Less than 100 beds ......... 150 0 .1 ¥0 .1 ¥0 .4 ¥0 .2 ¥0 .4 1 .4 ¥0 .1 0 .3 1 .2 

Urban teaching and DSH: 

Both teaching and DSH ... 802 0 .2 0 0 0 .1 0 .1 ¥0 .3 0 0 1 .7 

Teaching and no DSH ..... 178 0 .2 0 ¥0 .2 ¥0 .2 ¥0 .3 0 .2 0 .1 0 1 .3 

No teaching and DSH ...... 1,082 0 .2 0 ¥0 .1 ¥0 .1 ¥0 .1 0 0 .1 0 1 .6 

No teaching and no DSH 531 0 .3 0 0 0 ¥0 .1 ¥0 .2 0 0 1 .4 

Special Hospital Types: 

RRC ................................. 187 0 .1 0 0 0 .1 ¥0 3 .3 ¥0 .1 0 1 .6 

SCH .................................. 337 ¥0 .1 ¥0 .3 ¥0 .1 ¥0 ¥0 .4 0 .2 0 0 2 .1 

MDH ................................. 186 ¥0 .2 ¥0 .4 ¥0 .2 ¥0 .1 ¥0 .5 0 .5 ¥0 .1 0 .2 2 .2 

SCH and RRC ................. 106 0 ¥0 .2 0 0 ¥0 .2 0 .7 0 0 1 .7 

MDH and RRC ................. 15 ¥0 .2 ¥0 .4 ¥0 .2 ¥0 .2 ¥0 .6 0 .4 0 0 0 .2 

Type of Ownership: 

Voluntary .......................... 2,014 0 .2 0 0 0 ¥0 .1 0 0 0 1 .6 

Proprietary ........................ 860 0 .3 0 .1 ¥0 .1 0 0 0 ¥0 .1 0 1 .7 

Government ..................... 583 0 .1 0 0 .1 0 .1 0 0 0 .1 0 1 .9 

Medicare Utilization as a Percent of Inpatient Days: 

0–25 ................................. 317 0 .2 0 .1 0 .4 0 .4 0 .4 ¥0 .4 ¥0 .1 0 2 .2 

25–50 ............................... 1,433 0 .2 0 0 0 0 ¥0 .3 0 0 1 .7 

50–65 ............................... 1,331 0 .1 ¥0 .1 ¥0 .2 ¥0 .1 ¥0 .2 0 .6 0 0 1 .4 

Over 65 ............................ 308 0 ¥0 .1 ¥0 .3 ¥0 .2 ¥0 .4 0 .2 0 .1 0 .1 1 .4 

FY 2010 Reclassifications by 

the Medicare Geographic 

Classification Review Board: 


sroberts on DSKD5P82C1PROD with RULES
44218 Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 

TABLE I—IMPACT ANALYSIS OF CHANGES TO THE IPPS FOR OPERATING COSTS FOR FY 2010—Continued 

Number 

of 

hospitals 

FY 2010 

Weights & 

DRG 

changes 

Application 

of recalibration 

budget 

neutrality 

FY 2010 

Wage data 

and laborrelated 

share 

Application 

of wage 

budget 

neutrality 

FY 2010 

DRG, rel. 

wts., wage 

index 

changes, 

labor-related share 

with wage 

and recalibration 

budget 

neutrality 

FY 2010 

MGCRB 

reclassifications 

Transitional 1⁄2

within state 

rural floor 

budget 

neutrality 

and 1⁄2 na- tional rural 

floor 

budget 

neutrality 

FY 2010 

Outmigration 

adjustment 

All 

FY 2010 

changes 

(1) (2) (3) (4) (5) (6) (7) (8) (9) 

All Reclassified Hospitals 807 0 .2 0 ¥0 .2 ¥0 .1 ¥0 .2 2 ¥0 .1 0 1 .6 

Non-Reclassified Hospitals ............................. 2,710 0 .2 0 0 0 0 ¥0 .7 0 0 1 .6 

Urban Hospitals Reclassified ................................ 456 0 .2 0 ¥0 .2 ¥0 .1 ¥0 .2 1 .7 ¥0 .1 0 1 .6 

Urban Nonreclassified 

Hospitals, FY 2010: 2,045 0 .2 0 0 0 0 ¥0 .7 0 0 1 .6 

All Rural Hospitals Reclassified FY 2010: 351 0 .1 ¥0 .1 ¥0 .2 ¥0 .1 ¥0 .3 2 .8 ¥0 .1 0 1 .7 

Rural Nonreclassified 

Hospitals FY 2010: 579 ¥0 .1 ¥0 .3 ¥0 .2 ¥0 .1 ¥0 .4 ¥0 .3 ¥0 .1 0 .2 1 .6 

All Section 401 Reclassified Hospitals: 32 ¥0 .1 ¥0 .3 0 .2 0 .2 ¥0 .2 ¥0 .4 0 .4 0 0 .3 

Other Reclassified Hospitals (Section 

1886(d)(8)(B)) ............... 62 ¥0 .1 ¥0 .3 ¥0 .2 ¥0 .1 ¥0 .5 3 .1 ¥0 .2 0 0 .9 

Specialty Hospitals: 

Cardiac specialty Hospitals ............................. 20 ¥0 .1 ¥0 .2 0 0 .1 ¥0 .2 ¥0 .8 0 0 1 .6 

1Because data necessary to classify some hospitals by category were missing, the total number of hospitals in each category may not equal the national total. Discharge data are from FY 2008, and hospital cost report data are from reporting periods beginning in FY 2007 and FY 2006. 2This column displays the payment impact of the changes to the Version 27 GROUPER and the recalibration of the DRG weights based on FY 2008 MedPAR data 

in accordance with section 1886(d)(4)(C)(iii) of the Act. 3This column displays the application of the recalibration budget neutrality factor of 0.997941, in accordance with section 1886(d)(4)(C)(iii) of the Act. 4This column displays the payment impact of the update to wage index data using FY 2006 cost report data and the update to the labor-related share for providers 

with a wage index greater than 1. Based on FY 2006 data, the labor related share, or the proportion of the standardized amount that the wage index is applied to, is 

being reduced from 69.7 percent to 68.8 percent. 5This column displays the payment impact of the application of the wage budget neutrality factor, which from now on will be calculated separately from the recalibration budget neutrality factor, and will be calculated in accordance with section 1886(d)(3)(E)(i) of the Act. The wage budget neutrality factor is 1.000407. 6This column displays the combined payment impact of the changes in Columns 2 through 5 and the cumulative budget neutrality factor for DRG and wage 

changes in accordance with section 1886(d)(4)(C)(iii) of the Act and section 1886(d)(3)(E) of the Act. The cumulative wage and recalibration budget neutrality factor of 

0.998347 is the product of the wage budget neutrality factor and the recalibration budget neutrality factor. 7Shown here are the effects of geographic reclassifications by the Medicare Geographic Classification Review Board (MGCRB). The effects demonstrate the FY 

2010 payment impact of going from no reclassifications to the reclassifications scheduled to be in effect for FY 2009. Reclassification for prior years has no bearing 

on the payment impacts shown here. This column reflects the geographic budget neutrality factor of 0.991297. 8This column displays the effects of the rural floor and the imputed floor, including the transition to the rural floor budget neutrality adjustment at the State level. 

Under the transition, hospitals will receive a blended wage index that is 50 percent of a wage index with the State level rural and imputed floor budget neutrality adjustment and 50 percent of a wage index with the national budget neutrality adjustment. 9This column displays the impact 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. 10This column shows the changes in payments from FY 2009 to FY 2010. It incorporates all of the changes displayed in Columns 5, 6, 7, and 8 (the changes displayed in Columns 2, 4 are included in Column 5). It also reflects the impact of the FY 2010 market basket update, and changes in hospitals’ reclassification status in 

FY 2010 compared to FY 2009. The sum of these impacts may be different from the percentage changes shown here due to rounding and interactive effects. 

C. Effects of the Changes to the MS–DRG 

Reclassifications and Relative Cost-Based 

Weights (Column 1) 

In Column 1 of Table I, we present the 

effects of the DRG reclassifications, as 

discussed in section II. of the preamble to 

this final rule. Section 1886(d)(4)(C)(i) of the 

Act requires us annually to make appropriate 

classification changes in order to reflect 

changes in treatment patterns, technology, 

and any other factors that may change the 

relative use of hospital resources. 

As discussed in the preamble of this final 

rule, the FY 2010 DRG relative weights will 

be 100 percent cost-based and 100 percent 

MS–DRGs. For FY 2010, the MS–DRGs are 

calculated using the FY 2008 MedPAR data 

grouped to the Version 27.0 (FY 2010) 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 to this final rule. 

The changes to the relative weights and MS– 

DRGs shown in Column 2 are prior to any 

offset for budget neutrality. Overall, hospitals 

will experience a 0.2 percent increase in 

payments due to the changes in the MS– 

DRGs and relative weights prior to budget 

neutrality. Urban hospitals will experience a 

0.2 percent increase in payments under the 

updates to the relative weights and DRGs, 

while rural hospitals will not experience a 

change in payments. Under the MS–DRG 

system, rural hospitals generally will not 

experience an increase in payments from 

recalibration due to the lower acuity of 

services provided. 

D. Effects of the Application of Recalibration 

Budget Neutrality (Column 2) 

Column 2 shows the effects of the changes 

to the MS–DRGs and relative weights with 

the application of the recalibration budget 

neutrality factor to the standardized amounts. 

Consistent with section 1886(d)(4)(C)(iii) of 

the Act, we are calculating a recalibration 

budget neutrality factor to account for the 

changes in MS–DRGs and relative weights to 

ensure that the overall payment impact is 

budget neutral. Beginning in FY 2010, we are 

calculating a budget neutrality factor to 

account for changes in MS–DRGs and relative 

weights separately from the budget neutrality 

factor to account for changes in wage data. 

In addition, as described in section II.A.4. of 

the Addendum to this final rule, we are 

including IME payments made on Medicare 

Advantage claims to IPPS hospitals in order 

to calculate budget neutrality. 

The ‘‘All Hospitals’’ line in Column 1 

indicates that changes due to MS–DRGs and 

relative weights will increase payments by 

0.2 percent before application of the budget 

neutrality factor. The recalibration budget 

neutrality factor is 0.997941, which is 

applied to the standardized amount. Thus, 

the impact after accounting only for budget 

neutrality for changes to the MS–DRG 

relative weights and classification is 


sroberts on DSKD5P82C1PROD with RULES
Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 44219 

somewhat lower than the figures shown in 

Column 1 (approximately 0.2 percent). 

Consequentially, urban hospitals will not 

experience a change in payments when 

recalibration budget neutrality is applied, 

while rural hospitals will experience a 0.2 

percent decrease in payments due to the 

lower acuity of services provided. 

E. Effects of Wage Index Changes (Column 3) 

Section 1886(d)(3)(E) of the Act requires 

that, beginning October 1, 1993, we annually 

update the wage data used to calculate the 

wage index. In accordance with this 

requirement, the wage index for acute care 

hospitals for FY 2010 is based on data 

submitted for hospital cost reporting periods 

beginning on or after October 1, 2005 and 

before October 1, 2006. The estimated impact 

of the updated wage data and labor share on 

hospital payments is isolated in Column 3 by 

holding the other payment parameters 

constant in this simulation. That is, Column 

3 shows the percentage change in payments 

when going from a model using the FY 2009 

wage index, based on FY 2005 wage data, the 

current labor-related share and having a 100- 

percent occupational mix adjustment 

applied, to a model using the FY 2010 prereclassification wage index with the laborrelated share, also having a 100-percent 

occupational mix adjustment applied, based 

on FY 2006 wage data (while holding other 

payment parameters such as use of the 

Version 26.0 DRG GROUPER constant). The 

occupational mix adjustment is based on the 

FY 2007/2008 occupational mix survey. The 

wage data collected on the FY 2006 cost 

report include overhead costs for contract 

labor that were not collected on FY 2005 and 

earlier cost reports. The impacts below 

incorporate the effects of the FY 2006 wage 

data collected on hospital cost reports, 

including additional overhead costs for 

contract labor compared to the wage data 

from FY 2005 cost reports that were used to 

calculate the FY 2009 wage index. 

As discussed in section III. of this final 

rule, under section 1886(d)(3)(E) of the Act, 

the Secretary estimates from time to time the 

proportion of payments that are labor-related. 

‘‘The Secretary shall adjust the proportion (as 

estimated by the Secretary from time to time) 

of hospitals’ costs which are attributable to 

wages and wage-related costs of the DRG 

prospective payment rates * * *.’’ We refer 

to the proportion of hospitals’ costs that are 

attributable to wages and wage-related costs 

as the ‘‘labor-related share.’’ 

The labor-related share is used to 

determine the proportion of the national IPPS 

base payment rate to which the area wage 

index is applied. In this final rule, we 

describe our updated methodology and data 

sources to calculate the national labor-related 

share. In the proposed rule, using the cost 

category weights from the FY 2006-based 

IPPS market basket, we proposed a laborrelated share of 67.1 percent. In this final 

rule, based on updated data, we have 

determined a labor-related share of 68.8 

percent, approximately 0.9 percentage points 

lower than the current labor-related share of 

69.7 percent. Accordingly, in this final rule, 

we are implementing a national labor-related 

share of 68.8 percent for discharges occurring 

on or after October 1, 2009. This updated 

calculation only affects hospitals with a wage 

index greater than 1. According to section 

1886(d)(3)(E)(ii) of the Act, hospitals with a 

wage index less than or equal to 1 have their 

wage index adjusted to 62 percent of the 

national standardized amount; therefore, 

these hospitals remain unaffected by the 

updated labor-related share. In addition, we 

are updating the labor-related share for 

Puerto Rico. Using FY 2006-based Puerto 

Rico cost category weights, we calculated a 

labor-related share of 62.1 percent, 

approximately 3 percentage points higher 

than the current Puerto Rico specific laborrelated share of 58.721. Accordingly, for FY 

2010, we are adopting an updated Puerto 

Rico labor-related share of 62.1 percent for 

hospitals with a wage index greater than 1. 

Column 3 shows the impacts of updating 

the wage data using FY 2006 cost reports and 

the updated labor-related share. The payment 

changes simulated in this column are used to 

calculate the wage budget neutrality. 

Beginning in FY 2010, we are 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 

2010, we are calculating the wage budget 

neutrality factor to ensure that payments 

under updated wage data and the laborrelated 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. Column 3 shows the 

effects of the new wage data and new labor 

share before budget neutrality under the 

assumption that all providers have their wage 

index adjusted by the same labor-related 

share. Overall, the new wage data will lead 

to a 0.0 percent change for all hospitals 

before being combined with the wage budget 

neutrality adjustment shown in Column 5. 

Thus, the figures in this column are 

estimated to be the same as what they 

otherwise would be if they also illustrated a 

budget neutrality adjustment solely for 

changes to the wage index and labor-related 

share. Among the regions, the largest increase 

is in the urban New England region, which 

experiences a 1.0 percent increase before 

applying an adjustment for budget neutrality. 

The largest decline from updating the wage 

data is seen in rural New England (¥0.5 

percent decrease). 

In looking at the wage data itself, the 

national average hourly wage increased 4.0 

percent compared to FY 2009. Therefore, the 

only manner in which to maintain or exceed 

the previous year’s wage index was to match 

or exceed the national 4.0 percent increase in 

average hourly wage. Of the 3,467 hospitals 

with wage data for both FYs 2009 and 2010, 

1,662, or 47.9 percent, experienced an 

average hourly wage increase of 4.0 percent 

or more. 

The following chart compares the shifts in 

wage index values for hospitals for FY 2010 

relative to FY 2009. Among urban hospitals, 

36 will experience an increase of more than 

5 percent and less than 10 percent and 8 will 

experience an increase of more than 10 

percent. Among rural hospitals, 7 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, 952 rural hospitals will 

experience increases or decreases of less than 

5 percent, while 2,421 urban hospitals will 

experience increases or decreases of less than 

5 percent. Thirty-seven urban hospitals will 

experience decreases in their wage index 

values of more than 5 percent and less than 

10 percent. Six urban hospitals will 

experience decreases in their wage index 

values of greater than 10 percent. No rural 

hospitals will experience decreases of more 

than 5 percent. These figures reflect changes 

in the wage index which is an adjustment to 

either 68.8 percent or 62 percent of a 

hospital’s standardized amount, depending 

upon whether its wage index is greater than 

1.0 or less than or equal to 1.0. Therefore, 

these figures are illustrating a somewhat 

larger change in the wage index than will 

occur to the hospital’s total payment. 

The following chart shows the projected 

impact for urban and rural hospitals. 

Percentage change in area wage index values 

Number of hospitals 

Urban Rural 

Increase more than 10 percent ....................................................................................................................................... 8 0 

Increase more than 5 percent and less than 10 percent ................................................................................................ 36 7 

Increase or decrease less than 5 percent ....................................................................................................................... 2,421 952 

Decrease more than 5 percent and less than 10 percent .............................................................................................. 37 0 

Decrease more than 10 percent ...................................................................................................................................... 6 0 


sroberts on DSKD5P82C1PROD with RULES
44220 Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 

F. Application of the Wage Budget Neutrality 

Factor (Column 4) 

Column 4 shows the impact of the new 

wage data, new labor share with the 

application of the wage budget neutrality 

factor. For FY 2010, we will calculate the 

wage budget neutrality factor without regard 

to the lower labor share of 62 percent for 

hospitals with a wage index less than or 

equal to 1, in accordance with section 

1886(d)(3)(E)(i) of the Act. In other words, 

the wage budget neutrality is calculated 

under the assumption that all hospitals 

receive the labor-related share of 68.8 percent 

of the standardized amount compared to the 

current labor-related share of 69.7 percent of 

the standardized amount. In addition, as 

described in section II.A.4. of the Addendum 

to this final rule, we are including IME 

payments made on Medicare Advantage 

claims to IPPS hospitals in order to calculate 

budget neutrality. Because the wage data 

changes did not change overall payments 

(displayed in Column 3), the wage budget 

neutrality factor is minimal at 1.000407, and 

the overall payment change is 0.0 percent. 

G. Combined Effects of 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 1.000411, and a 

recalibration budget neutrality factor of 

0.997926 (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 

0.998347 or approximately ¥0.2 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 DRG, relative weights 

and updated wage data and rebased laborrelated share with wage and budget 

neutrality applied will result in a 0.0 change 

in payments. The estimated changes shown 

in this column reflect the combined effects of 

the changes in Columns 2, 3, and 4 and the 

budget neutrality factors discussed 

previously. 

We estimate that the combined impact of 

the changes to the relative weights and DRGs, 

the updated wage data and changes to the 

labor share with budget neutrality applied 

will result in no change in payments for 

urban hospitals. Rural hospitals will 

generally experience a decrease in payments 

(¥0.3 percent) primarily due to payment 

decreases under the MS–DRGs and wage 

data. Among the rural hospital categories, 

rural New England hospitals will experience 

the greatest decline in payment (¥0.7 

percent) primarily due to the changes to MS– 

DRGs and the relative cost weights. 

H. Effects of MGCRB Reclassifications 

(Column 6) 

Our impact analysis to this point has 

assumed acute care hospitals are paid on the 

basis of their actual geographic location (with 

the exception of ongoing policies that 

provide that certain hospitals receive 

payments on other bases than where they are 

geographically located). The changes in 

Column 6 reflect the per case payment 

impact of moving from this baseline to a 

simulation incorporating the MGCRB 

decisions for FY 2010 which affect hospitals’ 

wage index area assignments. By Spring of 

each year, the MGCRB makes reclassification 

determinations that will be effective for the 

next fiscal year, which begins on October 1. 

The MGCRB may approve a hospital’s 

reclassification request for the purpose of 

using another area’s wage index value. 

Hospitals may appeal denials of MGCRB 

decisions to the CMS Administrator. Further, 

hospitals have 45 days from publication of 

the IPPS rule in the Federal Register to 

decide whether to withdraw or terminate an 

approved geographic reclassification for the 

following year. This column reflects all 

MGCRB decisions, Administrator appeals 

and decisions of hospitals for FY 2010 

geographic reclassifications. The overall 

effect of geographic reclassification is 

required by section 1886(d)(8)(D) of the Act 

to be budget neutral. Therefore, for the 

purposes of this impact analysis, we are 

applying an adjustment of 0.991297 to ensure 

that the effects of the section 1886(d)(10) 

reclassifications are budget neutral. (See 

section II.A. of the Addendum to this final 

rule.) Geographic reclassification generally 

benefits hospitals in rural areas. We estimate 

that geographic reclassification will increase 

payments to rural hospitals by an average of 

1.8 percent. 

Table 9A of the Addendum to this final 

rule reflects the approved reclassifications for 

FY 2010. 

I. Effects of the Rural Floor and Imputed 

Floor, Including the Transition To Apply 

Budget Neutrality at the State Level (Column 

7) 

As discussed in section III.B. of the 

preamble of the FY 2009 IPPS 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. In FY 2008, we changed how we 

applied budget neutrality to the rural floor. 

Rather than applying a budget neutrality 

adjustment to the standardized amount, a 

uniform budget neutrality adjustment is 

applied to the wage index. In the FY 2009 

final rule, we finalized the policy to apply 

the rural floor budget neutrality at the State 

level with a 3-year transition. In FY 2009, 

hospitals received a blended wage index that 

is 20 percent of a wage index with the State 

level rural and imputed floor budget 

neutrality adjustment and 80 percent of a 

wage index with the national budget 

neutrality adjustment. As described in FY 

2009 IPPS final rule (73 FR 48570), in FY 

2010, hospitals will receive a blended wage 

index that is 50 percent of a wage index with 

the State level rural and imputed floor budget 

neutrality and 50 percent of a wage index 

with the national budget neutrality 

adjustment. The national rural floor budget 

neutrality applied to the wage index is 

0.996705. The blended rural floor budget 

neutrality factors applied to the wage index 

are shown in Table 4D–1 in the Addendum 

to this final rule. After the wage index is 

blended, an additional adjustment of 

0.999995 is applied to the wage index to 

ensure that payments before the application 

of the rural floor are equivalent to the 

payments under the blended budget neutral 

rural floor wage index. 

Furthermore, the FY 2005 IPPS final rule 

(69 FR 49109) established a temporary 

imputed floor for all urban States from FY 

2005 to FY 2007. The rural floor requires that 

an urban wage index cannot be lower than 

the wage index for any rural hospital in that 

State. Therefore, an imputed floor was 

established for States that do not have rural 

areas or rural IPPS hospitals. In the FY 2008 

IPPS final rule with comment period (72 FR 

47321), we finalized our proposal to extend 

the imputed floor for 1 additional year. In the 

FY 2009 IPPS final rule (73 FR 48573), we 

extended the imputed floor for an additional 

3 years through FY 2011. Furthermore, in 

that final rule, we provided for a 3-year 

transition to the rural floor budget neutrality 

adjustment at the State level. Therefore, we 

also apply the imputed floor budget 

neutrality adjustment at the State level 

through a 3-year transition, so that wage 

indices adjusted for the imputed floor will be 

blended where 50 percent of the wage index 

will have the national rural and imputed 

floor budget neutrality factor applied and 50 

percent of the wage index will have the 

within-State rural and imputed budget 

neutrality factor applied. The national rural 

floor budget neutrality factor listed also 

incorporates the imputed floor in its 

adjustment to the wage index. 

Column 7 shows the projected impact of 

the rural floor and the imputed floor, 

including the application of the transition to 

within-State rural and imputed floor budget 

neutrality. The column compares the postreclassification FY 2010 wage index of 

providers before the rural floor adjustment 

and the post-reclassification FY 2010 wage 

index of providers with the rural floor and 

imputed floor adjustment. Only urban 

hospitals can benefit from the rural floor 

provision. Because the provision is budget 

neutral, in prior years, all other hospitals 

(that is, all rural hospitals and those urban 

hospitals to which the adjustment is not 

made) had experienced a decrease in 

payments due to the budget neutrality 

adjustment applied nationally. However, 

because, for FY 2010, the rural floor adjusted 

wage index is based on a blend where 50 

percent of the wage index will have a withinState budget neutrality factor applied and 50 

percent of the wage index will have a 

national rural floor budget neutrality factor 

applied, rural hospitals and urban hospitals 

that do not benefit from the rural floor will 


sroberts on DSKD5P82C1PROD with RULES
Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 44221 

continue to see decreases in payments, to a 

lesser extent. Conversely, all hospitals in 

States with hospitals receiving a rural floor 

will have their wage indices only partly 

downwardly adjusted to achieve budget 

neutrality within the State. 

We project that, in aggregate, rural 

hospitals will experience a 0.1 percent 

decrease in payments as a result of the 

application of rural floor budget neutrality 

because these 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 0.1 percent 

increase in payments because those providers 

benefit from the rural floor. The rural floor 

in Connecticut has increased significantly 

resulting in increased payments to urban 

hospitals in Connecticut that qualify for the 

rural floor. Because the rural floor is a budget 

neutral provision, rural hospitals located in 

Connecticut and non-rural floor urban 

providers will have their wage index 

downwardly adjusted by a rural floor budget 

neutrality factor of 0.978887 (or ¥2.1 

percent). As a result, rural New England 

hospitals can expect decreases in payments 

by 0.2 percent while urban New England 

hospitals can expect increases in payments of 

0.3 percent. Urban Middle Atlantic hospitals 

can expect a payment increase of 0.1 percent 

primarily due to payment increases among 

urban hospitals in New Jersey, which is the 

only State that benefits from the imputed 

floor. 

J. Effects of the Wage Index Adjustment for 

Out-Migration (Column 8) 

Section 1886(d)(13) of the Act, as added by 

section 505 of Public Law 108–173, provides 

for an increase in the wage index for 

hospitals located in certain counties that 

have a relatively high percentage of hospital 

employees who reside in the county, but 

work in a different area with a higher wage 

index. Hospitals located in counties that 

qualify for the payment adjustment are to 

receive an increase in the wage index that is 

equal to a weighted average of the difference 

between the wage index of the resident 

county, post-reclassification and the higher 

wage index work area(s), weighted by the 

overall percentage of workers who are 

employed in an area with a higher wage 

index. With the out-migration adjustment, 

small rural providers DSH providers with 

less than 100 beds will experience a 0.3 

percent increase in payments in FY 2010 

relative to no adjustment at all. We included 

these additional payments to providers in the 

impact table shown above, and we estimate 

the impact of these providers receiving the 

out-migration increase to be approximately 

$20 million. 

K. Effects of All Changes (Column 9) 

Column 9 shows our estimate of the 

changes in payments per discharge from FY 

2009 and FY 2010, resulting from all changes 

reflected in this final rule for FY 2010 

(including statutory changes). In the IPPS 

proposed rule, we had proposed to apply FY 

2010 documentation and coding adjustment 

of ¥1.9 percent on the national standardized 

amount, ¥2.5 percent on the hospitalspecific amount and ¥1.1 percent on the 

Puerto Rico-specific rate. However in this 

final rule, we have decided to postpone the 

application of the documentation and coding 

adjustments. Because the hospital payment 

projections are based on FY 2008 Medicare 

claims data and we believe that case-mix was 

expected to increase an additional 1.54 

percent in FY 2009 and in FY 2010, the 

payment models reflect a case-mix growth of 

1.54 percent in FY 2009 and in FY 2010. 

Column 9 reflects the impact of all FY 2010 

changes relative to FY 2009, including those 

shown in Columns 1 through 8. The average 

increase in payments under the IPPS for all 

hospitals is approximately 1.6 percent. This 

average increase includes the effects of the 

2.1 percent market basket update, the ¥0.3 

percentage point difference between the 

projected outlier payments in FY 2009 (5.1 

percent of total DRG payments), the current 

estimate of the percentage of actual outlier 

payments in FY 2009 (5.4 percent), and a 0.2 

percent decrease in payments due to the 

expiration of section 508 reclassification. 

There might also be interactive effects 

among the various factors comprising the 

payment system that we are not able to 

isolate. For these reasons, the values in 

Column 9 may not equal the sum of the 

percentage changes described above. 

The overall change in payments per 

discharge for hospitals paid under the IPPS 

in FY 2010 is estimated to increase by 1.6 

percent. The payment increases among the 

hospital categories are largely due to the 

market basket update. Hospitals in urban 

areas will experience an estimated 1.6 

percent increase in payments per discharge 

in FY 2010 compared to FY 2009. Hospitals 

in large urban areas will experience an 

estimated 1.7 percent increase and hospitals 

in other urban areas will experience an 

estimated 1.5 percent increase in payments 

per discharge in FY 2010 as compared to FY 

2009. Hospital payments per discharge in 

rural areas are estimated to increase by 1.6 

percent in FY 2010 as compared to FY 2009. 

Among urban census divisions, the largest 

estimated payment increases will be 2.2 

percent in the New England region and 2.9 

percent in the Mountain region. Among the 

rural regions, the providers in the Mountain 

region will experience the largest increase in 

payments (3.7 percent) because several rural 

SCHs located in this region will benefit from 

rebasing to the 2006 hospital-specific rate 

under section 112 of Public Law 110–275 

(MIPPA). The rural providers in the New 

England region will have the smallest 

increase among rural regions at 0.2 percent 

due to decreases associated with the 

application of the rural floor budget 

neutrality on their wage index. 

Among special categories of rural 

hospitals, MDHs will receive an estimated 

payment increase of 2.2 percent. MDHs are 

paid the higher of the IPPS rate based on the 

national standardized amount, that is, the 

Federal rate, or, if the hospital-specific rate 

exceeds the Federal rate, the Federal rate 

plus 75 percent of the difference between the 

Federal rate and the hospital-specific rate. 

This payment impact accounts for the 

corrected wage and recalibration budget 

neutrality factor, described in section V.B.2. 

of the preamble of this final rule, applied to 

the hospital-specific rates for MDHs that are 

paid based on their FY 2002 hospital-specific 

rate. Overall, SCHs will experience an 

estimated increase in payments by 2.1 

percent. The increase in payments to SCHs 

can be largely attributed to the 

implementation of section 112 of Pub. L. 

110–275 (MIPPA), which allowed for SCHs to 

be paid based on a FY 2006 hospital-specific 

rate (that is, based on their updated costs per 

discharge from their 12-month cost reporting 

period beginning during Federal FY 2006), if 

this results in the greatest payment to the 

SCH, effective for cost reporting periods 

beginning on or after January 1, 2009. We 

estimated the FY 2006 hospital-specific rate 

for SCHs that we believed will benefit from 

the rebased rate and included those rates in 

our analysis. 

Rural hospitals reclassified for FY 2010 are 

anticipated to receive a 1.7 percent payment 

increase, and rural hospitals that are not 

reclassifying are estimated to receive a 

payment increase of 1.6 percent. 

Cardiac hospitals are expected to 

experience a payment increase of 1.6 percent 

in FY 2010 relative to FY 2009. 

L. Effects of Policy on Payment Adjustments 

for Low-Volume Hospitals 

For FY 2010, we are proposing to continue 

to apply the volume adjustment criteria we 

specified in the FY 2005 IPPS final rule (69 

FR 49099). We expect that two providers will 

receive the low-volume adjustment for FY 

2010. We estimate that low-volume hospitals 

will experience an increase of $82,000 in 

payments due to the low volume payment 

adjustment. 

M. Impact Analysis of Table II 

Table II presents the projected impact of 

the changes for FY 2010 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 2009 with the payments per discharge for 

FY 2010, 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 9 of Table I. 


sroberts on DSKD5P82C1PROD with RULES
44222 Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 

TABLE II—IMPACT ANALYSIS OF CHANGES FOR FY 2010 ACUTE CARE HOSPITAL OPERATING PROSPECTIVE PAYMENT

SYSTEM

[Payments per discharge] 

Number of 

hospitals 

Average 

FY 2009 

payment per 

discharge 1

(2) 

Average 

FY 2010 

payment per 

discharge 1

(3) 

All 

FY 2010 

changes 

(4) 

All hospitals ...................................................................................................................... 3,517 $9,996 $10,158 1.6 

By Geographic Location: 

Urban hospitals ......................................................................................................... 2,525 10,435 10,605 1.6 

Large urban areas (populations over 1 million) ....................................................... 1,377 11,003 11,192 1.7 

Other urban areas (populations of 1 million or fewer) ............................................. 1,148 9,749 9,895 1.5 

Rural hospitals .......................................................................................................... 992 7,397 7,516 1.6 

Bed Size (Urban): 

0–99 beds ................................................................................................................. 634 7,867 8,008 1.8 

100–199 beds ........................................................................................................... 808 8,798 8,935 1.6 

200–299 beds ........................................................................................................... 466 9,660 9,825 1.7 

300–499 beds ........................................................................................................... 426 10,886 11,048 1.5 

500 or more beds ..................................................................................................... 191 12,925 13,149 1.7 

Bed Size (Rural): 

0–49 beds ................................................................................................................. 349 5,996 6,128 2.2 

50–99 beds ............................................................................................................... 370 6,900 7,005 1.5 

100–149 beds ........................................................................................................... 164 7,333 7,445 1.5 

150–199 beds ........................................................................................................... 62 8,116 8,246 1.6 

200 or more beds ..................................................................................................... 42 9,225 9,363 1.5 

Urban by Region: 

New England ............................................................................................................ 120 10,821 11,055 2.2 

Middle Atlantic .......................................................................................................... 344 11,479 11,651 1.5 

South Atlantic ........................................................................................................... 388 9,769 9,920 1.5 

East North Central .................................................................................................... 397 9,825 9,954 1.3 

East South Central ................................................................................................... 160 9,337 9,491 1.6 

West North Central ................................................................................................... 165 10,016 10,198 1.8 

West South Central .................................................................................................. 346 9,697 9,863 1.7 

Mountain ................................................................................................................... 163 10,539 10,846 2.9 

Pacific ....................................................................................................................... 391 12,821 13,004 1.4 

Puerto Rico ............................................................................................................... 51 5,044 5,126 1.6 

Rural by Region: 

New England ............................................................................................................ 24 9,791 9,810 0.2 

Middle Atlantic .......................................................................................................... 70 7,802 7,872 0.9 

South Atlantic ........................................................................................................... 171 7,197 7,349 2.1 

East North Central .................................................................................................... 122 7,601 7,677 1 

East South Central ................................................................................................... 176 6,704 6,831 1.9 

West North Central ................................................................................................... 101 7,836 7,939 1.3 

West South Central .................................................................................................. 224 6,663 6,747 1.3 

Mountain ................................................................................................................... 72 8,038 8,337 3.7 

Pacific ....................................................................................................................... 32 9,815 10,088 2.8 

By Payment Classification: 

Urban hospitals ......................................................................................................... 2,593 10,408 10,578 1.6 

Large urban areas (populations over 1 million) ....................................................... 1,422 10,977 11,165 1.7 

Other urban areas (populations of 1 million or fewer) ............................................. 1,171 9,719 9,865 1.5 

Rural areas ............................................................................................................... 924 7,465 7,583 1.6 

Teaching Status: 

Non-teaching ............................................................................................................ 2,475 8,402 8,536 1.6 

Fewer than 100 Residents ....................................................................................... 804 9,952 10,112 1.6 

100 or more Residents ............................................................................................. 238 14,838 15,091 1.7 

Urban DSH: 

Non-DSH .................................................................................................................. 845 8,811 8,930 1.3 

100 or more beds ..................................................................................................... 1,538 10,962 11,146 1.7 

Less than 100 beds .................................................................................................. 346 7,393 7,532 1.9 

Rural DSH: 

SCH .......................................................................................................................... 397 6,777 6,922 2.1 

RRC .......................................................................................................................... 207 8,203 8,326 1.5 

100 or more beds ..................................................................................................... 34 7,022 7,124 1.5 

Less than 100 beds .................................................................................................. 150 5,772 5,841 1.2 

Urban teaching and DSH: 

Both teaching and DSH ............................................................................................ 802 12,012 12,217 1.7 

Teaching and no DSH .............................................................................................. 178 9,663 9,788 1.3 

No teaching and DSH .............................................................................................. 1,082 8,976 9,122 1.6 

No teaching and no DSH ......................................................................................... 531 8,383 8,503 1.4 

Rural Hospital Types: 

RRC .......................................................................................................................... 187 8,320 8,458 1.6 


sroberts on DSKD5P82C1PROD with RULES
Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 44223 

TABLE II—IMPACT ANALYSIS OF CHANGES FOR FY 2010 ACUTE CARE HOSPITAL OPERATING PROSPECTIVE PAYMENT

SYSTEM—Continued 

[Payments per discharge] 

Number of 

hospitals 

Average 

FY 2009 

payment per 

discharge 1

(2) 

Average 

FY 2010 

payment per 

discharge 1

(3) 

All 

FY 2010 

changes 

(4) 

SCH .......................................................................................................................... 337 7,680 7,842 2.1 

MDH .......................................................................................................................... 186 6,144 6,279 2.2 

SCH and RRC .......................................................................................................... 106 9,298 9,459 1.7 

MDH and RRC ......................................................................................................... 15 8,292 8,310 0.2 

Type of Ownership: 

Voluntary ................................................................................................................... 2,014 10,151 10,308 1.6 

Proprietary ................................................................................................................ 860 9,004 9,158 1.7 

Government .............................................................................................................. 583 10,402 10,601 1.9 

Medicare Utilization as a Percent of Inpatient Days: 

0–25 .......................................................................................................................... 317 14,046 14,358 2.2 

25–50 ........................................................................................................................ 1,433 11,102 11,293 1.7 

50–65 ........................................................................................................................ 1,331 8,476 8,593 1.4 

Over 65 ..................................................................................................................... 308 7,442 7,549 1.4 

Hospitals Reclassified by the Medicare Geographic Classification Review Board: 

FY 2010 Reclassifications: 

All Reclassified Hospitals FY 2010 .......................................................................... 807 9,612 9,765 1.6

All Non-Reclassified Hospitals FY 2010 .................................................................. 2,710 10,137 10,302 1.6

Urban Reclassified Hospitals FY 2010 .................................................................... 456 10,314 10,476 1.6 

Urban Non-reclassified Hospitals FY 2010 .............................................................. 2,045 10,474 10,646 1.6 

Rural Reclassified Hospitals FY 2010 ...................................................................... 351 7,989 8,122 1.7 

Rural Nonreclassified Hospitals FY 2010 ................................................................ 579 6,559 6,665 1.6 

All Section 401 Reclassified Hospitals ..................................................................... 32 9,306 9,335 0.3 

Other Reclassified Hospitals (Section 1886(d)(8)(B)) .............................................. 62 7,267 7,333 0.9 

Specialty Hospitals: 

Cardiac Hospitals ..................................................................................................... 20 11,461 11,645 1.6 

1These payment amounts per discharge reflect estimates of case-mix increase of 1.54 percent in FY 2009 and FY 2010. Using FY 2008 

claims data to model payments for FY 2009 and FY 2010, we estimate case-mix will increase an additional 1.54 percent from FY 2008 to FY 

2009 and from FY 2008 to FY 2010 due to the adoption of MS–DRGs. 

VII. 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. 

A. 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. 

The HAC payment provision went into 

effect on October 1, 2008. Our savings 

estimates for the next 5 fiscal years are 

shown below: 

Year Savings 

(in millions) 

FY 2010 .................................... $21 

FY 2011 .................................... 21 

FY 2012 .................................... 22 

FY 2013 .................................... 22 

FY 2014 .................................... 22 

B. Effects of Policy Change Relating to New 

Medical Service and Technology Add-On 

Payments 

In the proposed rule, we discussed the five 

applications for add-on payments for new 

medical services and technologies for FY 

2010. After the publication of the proposed 

rule and prior to publication of this final 

rule, three of the applicants withdrew their 

application for consideration of new 

technology add-on payments in FY 2010. In 

section II.I. of the preamble to this final rule, 

we discuss the remaining two applications 

(LipiScanTM Coronary Imaging System and 

the Spiration® IBV® Valve System) for addon payments for new medical services and 

technologies for FY 2010, as well as the 

status of the new technology that was 

approved to receive new technology add-on 

payments in FY 2009. As explained in that 

section, add-on payments for new technology 


sroberts on DSKD5P82C1PROD with RULES
44224 Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 

under section 1886(d)(5)(K) of the Act are not 

required to be budget neutral. However, we 

are providing an estimate of additional 

payments for new technology add-on 

payments because such payments will have 

an impact on total operating IPPS payments 

in FY 2010. For FY 2010 we are continuing 

to make new technology add-on payments for 

the CardiowestTM Temporary Total Artificial 

Heart System (TAH-t). In addition, we are 

approving the Spiration® IBV® Valve System 

for new technology add-on payments in FY 

2010. 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 estimate below is based on the 

increase in add-on payments for FY 2010 as 

if every claim that would qualify for a new 

technology add-on payments would receive 

the maximum add-on payment. Therefore, 

we currently estimate that payments for the 

TAH-t will increase overall FY 2010 

payments by $9.54 million. For the 

Spiration® IBV® Valve System, the applicant 

estimates that approximately 2,286 Medicare 

beneficiaries will be eligible for the 

Spiration® IBV® Valve System. Therefore, we 

currently estimate that payments for the 

Spiration® IBV® Valve System will increase 

overall FY 2010 payments by $7.80 million. 

C. Effects of Requirements for Hospital 

Reporting of Quality Data for Annual 

Hospital Payment Update 

In section V.A. of the preamble of this final 

rule, we discuss our requirements for 

hospitals to report quality data under the 

RHQDAPU program in order to receive the 

full payment update for FY 2010 and FY 

2011. We estimate that 96 hospitals may not 

receive the full payment update for FY 2010 

and that 96 hospitals may not receive the full 

payment update for FY 2011. Most of these 

hospitals are either small rural or small urban 

hospitals. However, at this time, information 

is not available to determine how many 

hospitals will not meet the requirements to 

receive the full hospital market basket 

increase for services furnished in FY 2010 

and FY 2011. 

For the FY 2010 payment update, hospitals 

must pass our validation requirement of a 

minimum of 80 percent reliability based 

upon our chart-audit validation process. For 

all but two measures (SCIP–Infection-4 and 

SCIP–Infection-6), this process uses four 

quarters of data from FY 2008. These data 

were due to the QIO Clinical Warehouse by 

May 15, 2008 (fourth quarter CY 2007 

discharges), August 15, 2008 (first quarter CY 

2008 discharges), November 15, 2008 (second 

quarter CY 2008 discharges), and February 

15, 2009 (third quarter CY 2008 discharges). 

For the SCIP–Infection-4 and SCIP–Infection6 measures, the validation process will be 

based on two quarters of data from FY 2008. 

These data were due to the QIO Clinical 

Warehouse by November 15, 2008 (second 

quarter CY 2008 discharges) and February 15, 

2009 (third quarter CY 2008 discharges). 

In section V.A.9. of the preamble of this 

final rule, we state that if we determine that 

a hospital is not entitled to receive the full 

FY 2010 payment update because it failed to 

satisfy the validation requirement, and the 

hospital asks for a reconsideration of that 

decision, the hospital must submit complete 

copies of the medical records that it 

submitted to the CDAC contractor for 

purposes of the validation. We estimate that 

no more than 20 hospitals will fail the 

validation requirement for the FY 2010 

payment update. We estimate that this policy 

will cost hospitals approximately 12 cents 

per page for copying and approximately 

$4.00 per chart for postage. We have found, 

based on experience, that an average sized 

medical chart is approximately 150 pages. 

Hospitals will be required to return all 20 

sampled medical records for the four quarters 

of data from FY 2008. We estimate that the 

total cost to the 20 impacted hospitals will 

be approximately $8,800, or $440 per 

hospital. We believe that this cost is minimal, 

compared with the 2.0 percentage point 

RHQDAPU program component of the annual 

payment update at risk. This requirement is 

necessary so that CMS has all the information 

it needs to fairly and timely make a decision 

on the hospital’s reconsideration request. We 

also anticipate that this requirement will 

benefit hospitals seeking reconsiderations 

because it will enable us to resolve potential 

issues earlier in the appeals process, 

obviating the need for a hearing before the 

Provider Reimbursement Review Board 

(PRRB). We believe that this benefit will 

greatly outweigh the burden of copying and 

mailing the requested records. 

For the FY 2011 payment update, hospitals 

must pass our validation requirement of a 

minimum of 80 percent reliability based 

upon our chart-audit validation process. For 

all but one measure (SCIP–Cardiovascular-2), 

this process will use four quarters of data 

from FY 2009. These data are due to the QIO 

Clinical Warehouse by May 15, 2009 (fourth 

quarter CY 2008 discharges), August 15, 2009 

(first quarter CY 2009 discharges), November 

15, 2009 (second quarter CY 2009 

discharges), and February 15, 2010 (third 

quarter CY 2009 discharges). For the SCIP– 

Cardiovascular-2 measure, the validation 

process will be based on two quarters of data 

from FY 2009. SCIP–Cardiovascular-2 data 

are due to the QIO Clinical Warehouse by 

November 15, 2009 (second quarter CY 2009 

discharges) and February 15, 2010 (third 

quarter CY 2009 discharges). 

We have continued our efforts to ensure 

that QIOs provide assistance to all hospitals 

that wish to participate in the RHQDAPU 

program. The requirement of 5 charts per 

hospital will result in approximately 21,500 

charts per quarter being submitted to CMS for 

the FY 2010 payment update and for the FY 

2011 payment update. We reimburse 

hospitals for the cost of sending charts to the 

CDAC contractor at the rate of 12 cents per 

page for copying and approximately $4.00 

per chart for postage. Our experience shows 

that the average chart received by the CDAC 

contractor is approximately 150 pages. Thus, 

CMS will have expenditures of 

approximately $597,600 per quarter to collect 

the charts. Because we reimburse hospitals 

for the data collection effort, we believe that 

a requirement for five charts per hospital per 

quarter represents a minimal burden to the 

participating hospital. 

We are modifying our validation process 

for the FY 2012 payment update. We believe 

that our decision to validate data submitted 

by 800 hospitals for the FY 2012 RHQDAPU 

payment determination will not change the 

number of hospitals that fail the validation 

requirement for the FY 2012 payment update. 

We have changed the way we calculate the 

validation matches (that is, all relevant data 

elements submitted by the hospital must 

match the independently re-abstracted data 

elements to count as a match), which will 

make it more difficult for hospitals to satisfy 

the validation requirement. However, we will 

also validate data for a much smaller number 

of hospitals each year and we have reduced 

the validation score needed to satisfy the 

validation requirement. In combination, we 

believe that these revisions will 

counterbalance each other and result in no 

change to the number of hospitals failing our 

validation requirement for the FY 2012 

payment update. 

D. Effects of Correcting the FY 2002-Based 

Hospital-Specific Rates for MDHs 

In section V.B. of the preamble of this final 

rule, we are correcting the calculation of the 

FY 2002 hospital-specific rates for MDHs and 

applying a cumulative budget neutrality 

adjustment factor for DRG changes for FYs 

1993 through 2002, in addition to the 

cumulative budget neutrality adjustment 

factors for FYs 2003 forward (which have 

already been applied). The cumulative 

budget neutrality adjustment factor of 

0.982557 is calculated as the product of the 

following budget neutrality adjustment 

factors for FYs 1993 through 2002: 0.999851 

for FY 1993; 0.999003 for FY 1994; 0.998050 

for FY 1995; 0.999306 for FY 1996; 0.998703 

for FY 1997; 0.997731 for FY 1998; 0.998978 

for FY 1999; 0.997808 for FY 2000; 0.997174 

for FY 2001; and 0.995821 for FY 2002. We 

estimate that there are currently about 195 

MDHs. We estimate that approximately 60 

percent of MDHs qualified for the rebasing to 

a FY 2002 hospital-specific rate (that is, their 

FY 2002 hospital-specific rate was higher 

than the other hospital-specific rates (FY 

1982 or FY 1987)), of which about 46 percent 

of those MDHs were paid based on their FY 

2002 hospital-specific rate because it was 

higher than the Federal rate. The remaining 

54 percent of those MDHs are estimated to 

have been paid based solely on the Federal 

rate because the Federal rate was higher than 

their FY 2002 hospital-specific rate. We 

estimate that correcting the FY 2002 hospitalspecific rate to ensure cumulative budget 

neutrality for FY 1993 though FY 2002 will 

result in a decrease in operating IPPS 

payments in FY 2010 of approximately $5 

million. However, this figure may be lower 

because application of the cumulative budget 

neutrality adjustment factor will, in some 

cases, lower the FY 2002 hospital-specific 

rate to below the Federal rate, thus creating 

a floor to the potential reduction. 


sroberts on DSKD5P82C1PROD with RULES
Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 44225 

E. Effect of Policy Changes Relating to the 

Payment Adjustments to Disproportionate 

Share Hospitals 

1. Change Relating to Inclusion of Labor and 

Delivery Days in DSH Calculation 

In section V.E.2. of the preamble of this 

final rule, we discuss our decision to amend 

the regulations so that patient days 

associated with labor and delivery services 

furnished in an ancillary labor and delivery 

bed will always be included in both the 

Medicaid and Medicare fractions of the DPP 

used for calculating the DSH payment 

adjustment regardless of whether the patient 

previously occupied a routine bed. We 

believe that the impact of the inclusion of 

these days in the Medicare fraction of the 

DPP will be negligible because, generally, 

there are not many labor and delivery patient 

days among the Medicare population. With 

respect to the Medicaid fraction, we do not 

believe the impact will be substantial, since 

it will only recategorize ancillary labor and 

delivery bed days that did not follow a 

routine bed day, and will affect both the 

numerator and the denominator of the 

Medicaid fraction. We are not able to provide 

a detailed analysis of the potential of this 

policy change because the impact will 

depend on both the number of days 

associated with Medicaid-eligible patients 

who occupied an ancillary labor and delivery 

bed at some point after being admitted as an 

inpatient, but prior to occupying a routine 

bed, and the number of such days associated 

with similarly situated non-Medicaid-eligible 

patients. We do not have data on either of 

these numbers either in the aggregate or for 

individual hospitals. Furthermore, the 

impact would depend on the proportion of 

Medicaid to the total of such days for each 

hospital. We expect that the Medicaid 

fraction for some hospitals will increase 

while it will decrease for other hospitals. 

Therefore, we estimate that the overall 

impact of this policy change will be 

negligible. 

Comment: One comment stated that 

‘‘nearly all hospital will see there [sic] DSH 

payment go up and by a substantial amount.’’ 

The commenter stated that overall utilization 

is ‘‘substantially higher’’ than overall 

hospital utilization as the result of a 

Medicaid law that requires Medicaid 

coverage for labor and delivery services for 

patients who would not normally have fullscope Medicaid. The commenter stated that 

it is important that the financial impact of 

this policy is not understated and that 

hospitals need to be able to budget for the 

increase in Medicare DSH funding from this 

policy. Finally, the commenter stated that if 

the proposed policy was applied 

retroactively, it would result in large 

payment increases for thousands of cost 

reports for many years as well as the 

administrative costs to reopen and revise the 

cost reports. The commenter stated that there 

are many appeals and requests for cost report 

reopenings based on the proposed policy and 

that the costs and potential payments should 

be identified and quantified in the final rule. 

Response: It appears that the commenter is 

concerned with the potential financial 

impact of the proposed policy because the 

commenter believed that the policy will 

necessarily increase the Medicaid fraction of 

the Medicare DSH calculation for all 

hospitals and thereby increase overall DSH 

payment adjustments. The commenter 

appeared particularly concerned with the 

‘‘Emergency Medicaid’’ laws under section 

1903(v) of the Act that requires that an alien 

who is not lawfully admitted for permanent 

residence or otherwise permanently residing 

in the United states under the color of the 

law be covered under Medicaid for the 

treatment of an ‘‘emergency medical 

condition’’ as defined by the statute. We 

disagree with the commenter that the 

adoption of the proposed policy will 

necessarily increase overall Medicare DSH 

payments for the reasons discussed below. 

First, we reiterate that this policy change 

relates only to labor and delivery days when 

a patient was (1) admitted as an inpatient to 

the hospital and (2) occupied an ancillary 

labor and delivery bed prior to occupying a 

routine bed. Patients who occupied a routine 

bed upon admission or prior to occupying an 

ancillary labor and delivery bed were already 

counted in the DPP. In most cases, there 

would only be one day (i.e., the day that the 

patient occupied the ancillary labor and 

delivery bed prior to occupying the routine 

bed) that would be added to the DPP under 

the new policy that was not already included 

under the previous policy. Under both the 

previous and new policy all days that a 

patient occupied a routine bed are already 

included in the DPP. Therefore, the new 

policy would potentially only add one day in 

most cases to the DPP per maternity patient 

to the extent the hospital placed such 

patients in an ancillary labor and delivery 

bed after admission as an inpatient to the 

hospital, but prior to placing the patient in 

a routine bed. To the extent that the 

maternity patient was a Medicaid-eligible 

patient, the day would be added to both the 

numerator and denominator of the Medicaid 

fraction of the DPP; to the extent that the 

patient was not eligible for Medicaid, one 

day would be added just to the denominator 

of the Medicaid fraction of the DPP (thereby 

lowering the Medicaid ratio). 

Second, we note that the population of 

aliens, as defined under section 1903(v) of 

the Act, varies from State to State and that, 

even in an area with a relatively high 

proportion of aliens, the potential effect on 

the Medicaid fractions is limited to the 

number of aliens who are (1) female, (2) 

pregnant and in the hospital for labor and 

delivery services, and (3) admitted as an 

inpatient, but do not occupy a routine bed 

prior to occupying a labor and delivery bed. 

Therefore, we do not expect that, even for 

areas with a large population of aliens, there 

will be a material impact on a hospital’s 

Medicare DSH payment adjustments as a 

result of this policy. 

Third, we note that an increase in the 

Medicaid fraction does not necessarily 

correlate to a proportional increase in the 

actual Medicare DSH adjustment (that is, 

payment). Rather, the actual amount of the 

adjustment will depend on a number of 

factors, including the Medicare fraction, the 

hospital’s geographic designation, the 

hospital’s number of available beds, and, 

ultimately, the hospital’s number of Medicare 

discharges because, by definition, the 

Medicare DSH adjustment is a percentage 

add-on to the hospital’s Medicare payments. 

In addition, as we stated in the proposed 

FY 2010 IPPS/RY 2010 LTCH PPS proposed 

rule, with regard to the Medicaid fraction, we 

are not able to provide a detailed analysis of 

the potential of this policy change because 

the impact will depend on the proportion of 

days associated with Medicaid-eligible 

patients who occupied an ancillary labor and 

delivery bed at some point after being 

admitted as an inpatient, but prior to 

occupying a routine bed, to days associated 

with similarly situated non-Medicaid-eligible 

patients relative to a hospital’s current 

Medicaid-to-total-days ratio (which would 

not have included the types of days we 

proposed to include in this policy). We 

expect that the Medicaid fraction for some 

hospitals will increase while it will decrease 

for other hospitals. Therefore, we estimate 

that the overall impact of this policy change 

will be negligible. 

In response to the comment concerning the 

potential impact that this policy would have 

if applied retroactively, we note that the 

change in policy is only effective 

prospectively, for cost reporting periods 

beginning on or after October 1, 2009. 

Therefore, it is not necessary to estimate 

payments for prior periods. 

2. Change Relating to Calculation of Inpatient 

Days in Medicaid Fraction 

In section V.E.3. of the preamble of this 

final rule, we discuss our decision to allow 

a hospital to change its methodology of 

reporting days in the numerator of the 

Medicaid fraction of the DPP used in the 

DSH payment adjustment calculation. Under 

the change, we will allow a hospital to report 

the Medicaid days in the numerator of the 

Medicaid fraction of the DPP based on one 

of the following: date of discharge; date of 

admission; or dates of service. Hospitals will 

be permitted to use only one basis for all of 

the Medicaid days for the entire cost 

reporting period. In addition, under the 

policy, CMS, or its fiscal intermediaries or 

MACs, has the authority to make adjustments 

to the number of Medicaid days reported to 

avoid counting Medicaid days in one cost 

reporting period of a hospital that may have 

been reported in a hospital’s previous cost 

reporting period. We do not believe that the 

change in the methodology of counting days 

in the numerator of the Medicaid fraction of 

the DPP will result in any increase in 

aggregate DSH payments. 

3. Change Relating to Exclusion of 

Observation Beds and Patient Days From 

DSH Calculation 

In section V.E.4. of the preamble of this 

final rule, we discuss our decision to amend 

the regulations so that patient days 

associated with beds used for observation 

services for patients who are subsequently 

admitted as an inpatient are no longer 

included in the DPP for calculating the DSH 

payment adjustment or in the available bed 

day count for calculating the DSH payment 

adjustment and IME payments. Some 

hospitals may receive increased DSH 

payment adjustments and other hospitals 

may expect to receive lower DSH payment 


sroberts on DSKD5P82C1PROD with RULES
44226 Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 

adjustments, depending on how the 

exclusion of observation patient days affects 

the hospital’s overall DPP. Overall, we 

estimate the DSH savings associated with this 

policy will be $10 million for FY 2010. For 

IME payment purposes, a decrease in a 

hospital’s number of available beds results in 

an increase in the resident-to-bed ratio. The 

exclusion of observation bed days from the 

available bed count for IME will reduce the 

available beds, increase the resident-to-bed 

ratio, and, consequently, increase IME 

payments to teaching hospitals. We estimate 

that Medicare spending for IME will increase 

by approximately $7 million as a result of 

this policy. As a result, we believe that any 

savings associated with changes in DSH 

payment adjustments will be offset by 

additional spending for IME payments. 

Therefore, we anticipate the impact of these 

policy changes will be negligible. 

F. Effects of Policy Revisions Related to 

Payment to Hospitals for Direct GME 

In section V.G. of the preamble of this final 

rule, we discuss our decision to clarify the 

definition of a new medical residency 

training program in the regulations by 

specifying that a new medical residency 

program is one that receives initial 

accreditation for the first time, as opposed to 

a reaccreditation of a program that existed 

previously at the same or another hospital. 

When considering whether a particular 

program is a new medical residency training 

program and whether an accreditation is an 

initial one, we identify several supporting 

factors (such as whether the program 

director, teaching staff, and residents are the 

same). We will also consider whether there 

previously was a program in the same 

specialty at a hospital that closed and, more 

generally, whether that program is part of the 

FTE caps of any existing hospital. With 

respect to GME policy regarding Medicare 

GME affiliation agreements, we discuss our 

addition of a provision to the regulations 

relating to Medicare GME affiliation 

agreements to specify that a hospital that is 

new after July 1 and that begins training 

residents for the first time after the July 1start 

date of that academic year will be permitted 

to submit a Medicare GME affiliation 

agreement prior to the end of its cost 

reporting period in order to participate in an 

existing Medicare GME affiliated group for 

the remainder of the academic year. 

With respect to the first policy regarding a 

new medical residency training program, 

there is no financial impact on the Medicare 

program because this is a clarification of 

existing policy and is not a policy revision 

or addition of a new policy. In the 

clarification, we identify and explain the 

characteristics of a medical residency 

training program that would be indicative of 

a new program rather than one that has been 

merely relocated from another hospital. We 

also explain that there would be no net 

increase in the national aggregate FTE caps, 

and therefore, no financial impact, if a 

hospital received a new program adjustment 

to its FTE cap for a program in the same 

specialty as one that was located at another 

hospital that closed. Further, there is no 

financial impact related to the second policy 

concerning Medicare GME affiliated groups 

because it does not provide for an increase 

in the aggregate number of resident FTEs. 

Rather, it merely provides increased 

flexibility for a hospital that is new after July 

1 and that begins training residents for the 

first time after the start date of that academic 

year to enter into an existing Medicare GME 

affiliation agreement after July 1, so that, in 

that academic year, it may train and receive 

IME and direct GME payments relating to 

FTE for residents that will otherwise be 

counted for IME and direct GME at another 

hospital. 

G. Effects of Policy Changes Relating to 

Hospital Emergency Services Under EMTALA 

In section V.H. of the preamble of this final 

rule, we discuss our decision to amend the 

regulations pertaining to the waiver of 

EMTALA sanctions in an emergency area 

during an emergency period to make the 

regulations consistent with the statutory 

language of section 1135 of the Act. 

Specifically, we are revising the existing 

regulations to reflect the Secretary’s authority 

under section 1135 of the Act to waive or 

modify requirements for a single health care 

provider, a class of health care providers, or 

a geographic subset of health care providers 

located within an emergency area during an 

emergency period or portion of an emergency 

period. We are amending the regulations to 

clarify that, in cases where the Secretary has 

delegated implementation of a waiver of 

EMTALA sanctions to CMS, CMS is also 

authorized to apply a section 1135 waiver to 

a subset of the emergency area and some or 

all of the emergency period, as necessary. We 

also are making the regulations consistent 

with section 1135 of the Act by stating in the 

regulations that a waiver of EMTALA 

sanctions pursuant to an inappropriate 

transfer only applies if the transfer is 

necessitated by the circumstances of the 

declared emergency. Finally, we are making 

the regulation text consistent with section 

1135 of the Act to provide that the sanctions 

waived for an inappropriate transfer or for 

the relocation or redirection of an individual 

to receive a medical screening examination at 

an alternate location are only in effect if the 

hospital to which the waiver applies does not 

discriminate on the source of an individual’s 

payment or ability to pay. We estimate that 

these changes will have no impact on 

Medicare expenditures and no significant 

impact on hospitals with emergency 

departments. 

H. Effects of Implementation of Rural 

Community Hospital Demonstration Program 

In section V.I. of the preamble to this final 

rule, we discuss our implementation of 

section 410A of Public Law 108–173 that 

required the Secretary to establish a 

demonstration that will modify 

reimbursement for inpatient services for up 

to 15 small rural hospitals. Section 

410A(c)(2) requires that ‘‘[i]n conducting the 

demonstration program under this section, 

the Secretary shall ensure that the aggregate 

payments made by the Secretary do not 

exceed the amount which the Secretary 

would have paid if the demonstration 

program under this section was not 

implemented.’’ There are currently 11 

hospitals participating in the demonstration; 

4 of these hospitals were selected to 

participate in the demonstration as of July 1, 

2008, as a result of our February 6, 2008 

solicitation (73 FR 6971). 

As discussed in section V.I. of the 

preamble to this final rule, we will satisfy 

this budget neutrality requirement by 

adjusting the national IPPS rates by a factor 

that is sufficient to account for the added 

costs of this demonstration. For this final 

rule, based on more recent data than we had 

for the proposed rule, we are estimating the 

cost of the demonstration program for FY 

2010 for the 11 currently participating 

hospitals. (Two hospitals recently withdrew 

from the demonstration, and we are adjusting 

the estimation of the cost of the 

demonstration for FY 2010 for this final rule 

to reflect this.) The estimated cost of the 

demonstration for FY 2010 for 7 of the 11 

currently participating hospitals (specifically, 

the 7 hospitals that have participated in the 

demonstration since its inception and that 

still are participating in the demonstration) is 

based on data from their second year cost 

reports—that is, cost reporting periods 

beginning in CY 2006. We used these cost 

reports because they are the most recent 

complete cost reports and, thus, we believe 

they enable us to estimate FY 2010 costs for 

this final rule as accurately as possible. In 

addition, we estimated the cost of the 

demonstration for FY 2010 for the 4 hospitals 

that joined the demonstration in 2008. For 3 

of the 4 hospitals that joined the 

demonstration in 2008, we estimate the cost 

of the demonstration for FY 2010 based on 

data from their cost reports for cost reporting 

periods beginning January 1, 2007 through 

July 1, 2007. Similarly, we used these cost 

reports because they are the most recent cost 

reports and, thus, we believe they enable us 

to estimate FY 2010 costs for these 3 

hospitals as accurately as possible. The 

remaining hospital of the 4 that began in 

2008 is an Indian Health Service provider. 

Historically, the hospital has not filed 

standard Medicare cost reports. In order to 

estimate its costs, we used an analysis of 

Medicare inpatient costs and payments 

submitted by the hospital for the cost 

reporting period of October 1, 2005, through 

September 30, 2006. The Medicare cost 

amount from this analysis for the IHS 

provider is identical to that used in the 

proposed rule. When we add together the 

estimated costs of the demonstration for FY 

2010 for the 7 hospitals that have 

participated in the demonstration since its 

inception and the 4 new hospitals selected in 

2008 based on the more recent data, the total 

estimated cost is $15,081,251. This estimated 

amount reflects the difference between the 

participating hospitals’ estimated costs under 

the methodology set forth in Public Law 108– 

173 and the estimated amount the hospitals 

would have been paid under the IPPS. 

Second, because the FY 2005 and FY 2006 

cost reports of all hospitals participating in 

the demonstration in its first and second 

years have been finalized, we are able to 

determine how much the cost of the 

demonstration program exceeded the amount 

that was offset by the budget neutrality 


sroberts on DSKD5P82C1PROD with RULES
Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 44227 

adjustment for FY 2005 and FY 2006. We 

note that, for this final rule, we had updated 

data that enabled us to now include the 

amount by which the cost of the 

demonstration exceeded the amount that was 

offset by the FY 2006 budget neutrality 

adjustment. For all 13 hospitals that 

participated in the demonstration in FY 

2005, the amount is $7,856,617. For the 10 

hospitals with cost reporting periods that 

began in FY 2006, the amount is $4,203,947. 

The sum of these amounts, or the amount by 

which the cost of the demonstration program 

exceeded the offset of the budget neutrality 

adjustment for FY 2005 and FY 2006, is 

$12,060,564. 

The budget neutrality adjustment factor 

applied to the IPPS Federal rate to account 

for the total $27,141,815 in costs for the 

demonstration is 0.999739. 

I. Effects of Policy Changes Relating to 

Payments to Satellite Facilities 

In section VII.B. of the preamble of this 

final rule, we discuss our policy change that 

requires, effective for cost reporting periods 

beginning on or after October 1, 2009, in 

addition to meeting the other criteria in the 

regulations, that in order to be excluded from 

the IPPS, the governing body of the hospital 

of which the satellite facility is a part cannot 

be under the control of any third entity that 

controls both the hospital of which the 

satellite facility is a part and the hospital 

with which the satellite facility is co-located. 

We also are adopting a policy that if a 

hospital and its satellite facility were 

excluded from the IPPS under § 412.22(h) for 

the most recent cost reporting period 

beginning prior to October 1, 2009, the 

hospital does not have to meet the 

requirements of § 412.22(h)(2)(iii)(A)(1) with 

respect to that satellite facility in order to 

retain its IPPS-excluded status. However, the 

creation of any satellite facility that will 

trigger the hospital of which it is a part to 

comply with the additional policies will 

occur at some point in the future. Therefore, 

we are unable to quantify the impact of the 

policy changes. 

J. Effects of Policy Changes Relating to 

Payments to CAHs 

In section VII.C.2. of the preamble of this 

final rule, we discuss our implementation of 

section 148 of Public Law 110–275 (MIPPA). 

Under our policy, a CAH may receive 

payment based on reasonable cost for 

outpatient clinical diagnostic laboratory tests 

furnished to an individual who is an 

outpatient of the CAH (that is, receiving 

outpatient services directly from the CAH) 

even if the individual with respect to whom 

the laboratory services are furnished is not 

physically present in the CAH at the time the 

specimen is collected. In order for an 

individual who is not physically present in 

the CAH at the time the specimen is collected 

to be determined to be receiving services 

directly from the CAH, we are requiring that 

the individual must either receive an 

outpatient service in the CAH or a providerbased facility of the CAH on the same day the 

specimen is collected or the specimen 

collection must be performed by an employee 

of the CAH. We anticipate that, for FY 2009 

through FY 2016, the cost of implementing 

section 148 of Public Law 110–275 will be 

less than $50 million per year. 

In section VII.C.3. of the preamble of this 

final rule, we discuss our decision to amend 

the regulations to make them consistent with 

the plain reading of section 1834(g)(2)(A) of 

the Act. Section 1834(g)(2)(A) of the Act 

requires that CAHs that select the optional 

method of payment receive payment at 100 

percent of reasonable cost instead of 101 

percent of reasonable cost for outpatient 

facility services. It is difficult for us to 

quantify the payment impact of these 

changes because we cannot estimate the 

number of CAHs that will be affected by this 

provision because election of the optional 

method is not permanent; CAHs are only 

required to make the election 30 days prior 

to the cost reporting period for which it is 

effective. Therefore, we cannot estimate how 

many CAHs will choose to retain the optional 

method of payment once the provision is 

finalized. Furthermore, the optional method 

of payment is physician-specific. If the 

physician has not reassigned his or her 

billing rights, the CAH will be paid for that 

outpatient service under the traditional 

method. We believe we cannot accurately 

estimate the number of physicians who will 

decide to continue to reassign their billing 

rights to the CAH once the provision is 

finalized. We note that one commenter 

estimated that the CMS proposal will cut 

payments to CAHs by $22 million in FY 

2010. 

In section VII.C.4. of the preamble of this 

final rule, we discuss the effect CBSA 

changes made by OMB on CAHs located in 

areas that have been reclassified from rural 

to urban in FY 2010. We are revising the 

regulations (in the same manner as the 

revisions that were made in FY 2005) to 

allow CAHs that are located in areas that 

were designated rural in FY 2009 but as a 

result of implementation of the new MSA 

definitions announced by OMB on November 

20, 2008, will be located in an MSA effective 

for FY 2010, 2 years to obtain a rural 

redesignation under § 412.103 in order to 

retain their CAH status. We believe that 

because virtually all of these facilities will be 

granted rural status by the State, they will 

retain their CAH status. We estimate that 

these changes will have little or no impact on 

Medicare expenditures. 

K. Effects of Policy Changes Relating to 

Provider-Based Status of Entities and 

Organizations 

In section VII.D. of the preamble of this 

final rule, we discuss our decision to amend 

the regulations to require facilities that 

furnish only clinical diagnostic laboratory 

tests and operate as part of a CAH to meet 

the provider-based status rules currently in 

the regulations at § 413.65. If a facility that 

is part of a CAH and furnishes only clinical 

diagnostic laboratory tests meets the 

provider-based status rules, the CAH will be 

paid for services furnished by the laboratory 

facility on a reasonable cost basis. If a facility 

that furnishes only clinical diagnostic 

laboratory tests does not meet the providerbased status rules, the services furnished in 

the facility will be paid under the CLFS, 

unless the laboratory specimen is collected 

from an outpatient of the CAH as described 

in VII.C.2. of the preamble of this final rule. 

It is difficult for us to quantify the payment 

impact of these changes because we cannot 

estimate the number of CAHs that will be 

affected by this policy. In the FY 2010 IPPS 

proposed rule, we solicited public comments 

on the impact of this proposed change to our 

provider-based status rules. We did not 

receive any public comments as to how to 

quantify the payment impact of this policy. 

We are finalizing our policy as proposed, 

with one modification. In response to public 

comments, we are delaying the effective date 

of the policy until October 1, 2010. 

VIII. Effects of Changes in the Capital IPPS 

A. General Considerations 

Fiscal year (FY) 2001 was the last year of 

the 10-year transition period established to 

phase in the PPS for hospital capital-related 

costs. During the transition period, hospitals 

were paid under one of two payment 

methodologies: fully prospective or hold 

harmless. Under the fully prospective 

methodology, hospitals were paid a blend of 

the capital Federal rate and their hospitalspecific rate (see § 412.340). Under the holdharmless methodology, unless a hospital 

elected payment based on 100 percent of the 

capital Federal rate, hospitals were paid 85 

percent of reasonable costs for old capital 

costs (100 percent for SCHs) plus an amount 

for new capital costs based on a proportion 

of the capital Federal rate (see § 412.344). As 

we state in section VI. of the preamble of this 

final rule, with the 10-year transition period 

ending with hospital cost reporting periods 

beginning on or after October 1, 2001 (FY 

2002), beginning in FY 2002 capital 

prospective payment system payments for 

most hospitals are based solely on the capital 

Federal rate. Therefore, we no longer include 

information on obligated capital costs or 

projections of old capital costs and new 

capital costs, which were factors needed to 

calculate payments during the transition 

period, for our impact analysis. 

The basic methodology for determining a 

capital IPPS payment is set forth at § 412.312. 

The basic methodology for calculating capital 

IPPS payments in FY 2010 is as follows: 

(Standard Federal Rate) × (DRG weight) × 

(GAF) × (COLA for hospitals located in 

Alaska and Hawaii) × (1 + DSH Adjustment 

Factor + IME adjustment factor, if 

applicable). 

As discussed in section VI.E.2. of the 

preamble of this final rule, we are deleting 

§ 412.322(d) of the regulations that 

eliminated the IME adjustment factor for FY 

2010, the third year of a 3-year transition 

period. Therefore, the IME adjustment factor 

has been restored for FY 2010. We also note 

that the 50-percent reduction to capital IME 

adjustments for FY 2009 was repealed by 

section 4301(b)(1) of the ARRA. Thus, the 

full IME adjustment was restored for FY 

2009, as well. In addition to the other 

adjustments, hospitals may also receive 

outlier payments for those cases that qualify 

under the threshold established for each 

fiscal year. 

The data used in developing the impact 

analysis presented below are taken from the 


sroberts on DSKD5P82C1PROD with RULES
44228 Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 

March 2009 update of the FY 2008 MedPAR 

file and the March 2009 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 2009 update of the most 

recently available hospital cost report data 

(FYs 2006 and 2007) to categorize hospitals. 

Our analysis has several qualifications. We 

use the best data available and make 

assumptions about case-mix and beneficiary 

enrollment as described below. In addition, 

as discussed in section III. of the Addendum 

to this final rule, we established for FY 2008 

(¥0.6 percent) and for FY 2009 (¥0.9 

percent) a cumulative permanent adjustment 

of ¥1.5 percent to the national capital rate 

to account for improvements in 

documentation and coding under the MS– 

DRGs in FY 2010. Furthermore, due to the 

interdependent nature of the IPPS, it is very 

difficult to precisely quantify the impact 

associated with each change. In addition, we 

draw upon various sources for the data used 

to categorize hospitals in the tables. In some 

cases (for instance, the number of beds), there 

is a fair degree of variation in the data from 

different sources. We have attempted to 

construct these variables with the best 

available sources overall. However, for 

individual hospitals, some 

miscategorizations are possible. 

Using cases from the March 2009 update of 

the FY 2008 MedPAR file, we simulated 

payments under the capital PPS for FY 2009 

and FY 2010 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 final capital rates and 

factors for FY 2009 were published in a 

subsequent notice in the Federal Register (73 

FR 57891). 

As we explain in section III.A.4. of the 

Addendum to this final rule, payments are no 

longer made under the regular exceptions 

provision under §§ 412.348(b) through (e). 

Therefore, we no longer use the actuarial 

capital cost model (described in Appendix B 

of the August 1, 2001 proposed rule (66 FR 

40099)). We modeled payments for each 

hospital by multiplying the capital Federal 

rate by the GAF and the hospital’s case-mix. 

We then added estimated payments for 

indirect medical education, disproportionate 

share, and outliers, if applicable. For 

purposes of this impact analysis, the model 

includes the following assumptions: 

• We estimate that the Medicare case-mix 

index will increase by 1.0 percent in both 

FYs 2009 and 2010. 

• We estimate that the Medicare 

discharges will be approximately 13 million 

in both FY 2009 and FY 2010. 

• The capital Federal rate was updated 

beginning in FY 1996 by an analytical 

framework that considers changes in the 

prices associated with capital-related costs 

and adjustments to account for forecast error, 

changes in the case-mix index, allowable 

changes in intensity, and other factors. As 

discussed in section III.1.a. of the Addendum 

to this final rule, the FY 2010 update is 1.4 

percent. 

• In addition to the FY 2010 update factor, 

the FY 2010 capital Federal rate was 

calculated based on a GAF/DRG budget 

neutrality factor of 0.9990, an outlier 

adjustment factor of 0.9477, and a (special) 

exceptions adjustment factor of 0.9998. 

• For FY 2010, as discussed in section 

VI.E.1.of the preamble of this final rule, we 

are not applying an additional adjustment to 

the FY 2010 national capital rate for changes 

in documentation and coding that are 

expected to increase case-mix under the MS– 

DRGs. In the FY 2008 IPPS final rule with 

comment period (72 FR 47186), we 

established adjustments to the IPPS rates 

based on the Office of the Actuary projected 

case-mix growth resulting from improved 

documentation and coding of 1.2 percent for 

FY 2008, 1.8 percent for FY 2009, and 1.8 

percent for FY 2010. However, we reduced 

the documentation and coding adjustment to 

¥0.6 percent for FY 2008. For FY 2009, we 

applied an adjustment of 0.9 percent, 

consistent with section 7 of Public Law 110– 

90, for a permanent cumulative adjustment of 

¥1.5 percent (that is, a factor of 0.985). 

B. Results 

We used the actuarial model described 

above to estimate the potential impact of our 

changes for FY 2010 on total capital 

payments per case, using a universe of 3517 

hospitals. As described above, the individual 

hospital payment parameters are taken from 

the best available data, including the March 

2009 update of the FY 2008 MedPAR file, the 

March 2009 update to the PSF, and the most 

recent cost report data from the March 2009 

update of HCRIS. In Table III, we present a 

comparison of estimated total payments per 

case for FY 2009 compared to FY 2010 based 

on the FY 2010 payment policies. Column 2 

shows estimates of payments per case under 

our model for FY 2009. Column 3 shows 

estimates of payments per case under our 

model for FY 2010. Column 4 shows the total 

percentage change in payments from FY 2009 

to FY 2010. The change represented in 

Column 4 includes the proposed 1.4 percent 

update to the capital Federal rate, other 

changes in the adjustments to the capital 

Federal rate (for example, the restoration of 

the teaching adjustment for FY 2010). 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 

2010 are expected to increase as compared to 

capital payments per case in FY 2009. The 

capital rate for FY 2010 will increase 1.4 

percent as compared to the FY 2009 capital 

rate. The changes to the GAFs are expected 

to result in a slight decrease in capital 

payments largely due to the expiration of 

section 508 of Public Law 108–173. We also 

are estimating a decrease in outlier payments 

from FY 2009 to FY 2010 due primarily to 

an increase in the fixed-loss amount. Our 

impact analysis includes actuarial 

assumptions of growth from FY 2009 to FY 

2010 resulting in an increase in aggregate 

capital payments. The net result of these 

changes is an estimated 1.9 percent change 

in capital payments per discharge from FY 

2009 to FY 2010 for all hospitals (as shown 

below in Table III). 

The geographic comparison shows that, on 

average, all urban hospitals are expected to 

experience a 2.0 percent increase in capital 

IPPS payments per case in FY 2010 as 

compared to FY 2009, while hospitals in 

large urban areas are expected to experience 

a 2.1 percent increase in capital IPPS 

payments per case in FY 2010 as compared 

to FY 2009. Capital IPPS payments per case 

for rural hospitals are expected to increase 

1.5 percent. 

All regions are estimated to experience an 

increase in total capital payments per case 

from FY 2009 to FY 2010. These increases 

vary by region and range from a 0.7 percent 

increase in the New England rural region to 

a 2.8 percent increase in the Mountain urban 

region. 

By type of ownership, voluntary and 

proprietary hospitals each are estimated to 

experience an increase of 1.9 percent. 

Government hospitals are projected to have 

a slightly larger increase of 2.0 percent in 

capital payments per case. 

Section 1886(d)(10) of the Act established 

the MGCRB. Before FY 2005, hospitals could 

apply to the MGCRB for reclassification for 

purposes of the standardized amount, wage 

index, or both. Section 401(c) of Public Law 

108–173 equalized the standardized amounts 

under the operating IPPS. Therefore, 

beginning in FY 2005, there is no longer 

reclassification for the purposes of the 

standardized amounts; however, hospitals 

still may apply for reclassification for 

purposes of the wage index for FY 2010. 

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 2010, we show the average 

capital payments per case for reclassified 

hospitals for FY 2009. All classifications of 

reclassified hospitals are expected to 

experience an increase in capital payments in 

FY 2010 as compared to FY 2009. Both urban 

reclassified and urban non-reclassified 

hospitals are expected to have an increase in 

capital payments of 2.0 percent, while capital 

payments for rural reclassified and rural nonreclassified hospitals are estimated to 

increase 1.7 percent and 1.1 percent, 

respectively. Other reclassified hospitals 

(that is, hospitals reclassified under section 

1886(d)(8)(B) of the Act) are expected to 

experience an increase of 1.9 percent in 

capital payment from FY 2009 to FY 2010. 


sroberts on DSKD5P82C1PROD with RULES
Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 44229 

TABLE III—COMPARISON OF TOTAL PAYMENTS PER CASE

[FY 2009 Payments Compared to FY 2010 Payments] 

Number of 

hospitals 

Average 

FY 2009 

payments/ 

case 

Average 

FY 2010 

payments/ 

case 

Change 

By Geographic Location: 

All hospitals .............................................................................................................. 3,517 788 803 1.9 

Large urban areas (populations over 1 million) ....................................................... 1,377 869 887 2.1 

Other urban areas (populations of 1 million or fewer) ............................................. 1,148 780 794 1.8 

Rural areas ............................................................................................................... 992 546 554 1.5 

Urban hospitals ......................................................................................................... 2,525 829 845 2.0 

0–99 beds .......................................................................................................... 634 654 665 1.7 

100–199 beds .................................................................................................... 808 712 724 1.8

200–299 beds .................................................................................................... 466 779 794 2.0

300–499 beds .................................................................................................... 426 858 874 1.9

500 or more beds .............................................................................................. 191 1,003 1,024 2.1 

Rural hospitals .......................................................................................................... 992 546 554 1.5 

0–49 beds .......................................................................................................... 349 437 444 1.6 

50–99 beds ........................................................................................................ 370 507 514 1.5 

100–149 beds .................................................................................................... 164 552 561 1.5

150–199 beds .................................................................................................... 62 600 610 1.6 

200 or more beds .............................................................................................. 42 671 680 1.3 

By Region: 

Urban by Region ...................................................................................................... 2,525 829 845 2.0 

New England ..................................................................................................... 120 857 879 2.6

Middle Atlantic ................................................................................................... 344 885 902 1.9 

South Atlantic .................................................................................................... 388 787 801 1.8 

East North Central ............................................................................................. 397 807 820 1.6 

East South Central ............................................................................................ 160 742 756 1.9 

West North Central ............................................................................................ 165 815 833 2.2 

West South Central ........................................................................................... 346 772 787 1.9 

Mountain ............................................................................................................ 163 842 866 2.8 

Pacific ................................................................................................................ 391 978 998 2.1 

Puerto Rico ........................................................................................................ 51 370 377 2.0 

Rural by Region ........................................................................................................ 992 546 554 1.5 

New England ..................................................................................................... 24 728 733 0.7 

Middle Atlantic ................................................................................................... 70 558 572 2.5 

South Atlantic .................................................................................................... 171 539 547 1.5 

East North Central ............................................................................................. 122 568 576 1.4 

East South Central ............................................................................................ 176 496 505 1.8 

West North Central ............................................................................................ 101 567 574 1.1 

West South Central ........................................................................................... 224 508 512 0.8 

Mountain ............................................................................................................ 72 547 559 2.3 

Pacific ................................................................................................................ 32 693 701 1.2 

By Payment Classification: 

All hospitals .............................................................................................................. 3,517 788 803 1.9 

Large urban areas (populations over 1 million) ................................................ 1,422 867 885 2.1 

Other urban areas (populations of 1 million of fewer) ...................................... 1,171 779 793 1.8 

Rural areas ........................................................................................................ 924 545 553 1.4 

Teaching Status: 

Non-teaching ..................................................................................................... 2,475 672 684 1.8 

Fewer than 100 Residents ................................................................................ 804 793 808 1.9 

100 or more Residents ...................................................................................... 238 1,123 1,147 2.1 

Urban DSH: 

100 or more beds ....................................................................................... 1,538 856 873 2.0 

Less than 100 beds ................................................................................... 346 585 596 1.8 

Rural DSH: 

Sole Community (SCH/EACH) ................................................................... 397 476 484 1.6 

Referral Center (RRC/EACH) .................................................................... 207 602 611 1.5 

Other Rural: 

100 or more beds ............................................................................... 34 540 548 1.5 

Less than 100 beds ............................................................................ 150 450 457 1.4 

Urban teaching and DSH: 

Both teaching and DSH .................................................................................... 802 929 948 2.1 

Teaching and no DSH ....................................................................................... 178 810 823 1.6 

No teaching and DSH ....................................................................................... 1,082 715 729 2.0 

No teaching and no DSH .................................................................................. 531 733 745 1.7 

Rural Hospital Types: 

Non special status hospitals ............................................................................. 2,467 832 848 1.9 

RRC/EACH ........................................................................................................ 62 725 743 2.5 

SCH/EACH ........................................................................................................ 38 682 693 1.6 

Medicare-dependent hospitals (MDH) .............................................................. 10 481 488 1.4 

SCH, RRC and EACH ....................................................................................... 16 792 809 2.2 


sroberts on DSKD5P82C1PROD with RULES
44230 Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 

TABLE III—COMPARISON OF TOTAL PAYMENTS PER CASE—Continued 

[FY 2009 Payments Compared to FY 2010 Payments] 

Number of 

hospitals 

Average 

FY 2009 

payments/ 

case 

Average 

FY 2010 

payments/ 

case 

Change 

Hospitals Reclassified by the Medicare Geographic Classification Review Board: 

FY2010 Reclassifications: 

All Urban Reclassified ....................................................................................... 456 825 841 2.0 

All Urban Non-Reclassified ............................................................................... 2,045 831 847 2.0 

All Rural Reclassified ........................................................................................ 351 591 601 1.7 

All Rural Non-Reclassified ................................................................................ 579 479 485 1.1 

Other Reclassified Hospitals (Section 1886(d)(8)(B)) ....................................... 54 559 569 1.9 

Type of Ownership: 

Voluntary ........................................................................................................... 2,014 804 819 1.9 

Proprietary ......................................................................................................... 860 722 736 1.9 

Government ....................................................................................................... 583 784 800 2.0 

Medicare Utilization as a Percent of Inpatient Days: 

0–25 ................................................................................................................... 317 1,005 1,032 2.6 

25–50 ................................................................................................................. 1,433 869 886 2.0 

50–65 ................................................................................................................. 1,331 686 697 1.6 

Over 65 .............................................................................................................. 308 598 608 1.7 

IX. Effects of Payment Rate Changes and 

Policy Changes Under the LTCH PPS 

A. Introduction and General Considerations 

In section VIII. of the preamble of this final 

rule, we are setting forth the annual update 

to the payment rates for the LTCH PPS for 

RY 2010. In the preamble, we specify the 

statutory authority for the provisions that are 

presented, identify those policies where 

discretion has been exercised, and present 

rationale for our decisions as well as 

alternatives that were considered. In this 

section of Appendix A to this final rule, we 

discuss the impact of the changes to the 

payment rates, 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, our database of 399 LTCHs 

includes the data for 81 nonprofit (voluntary 

ownership control) LTCHs and 267 

proprietary LTCHs. Of the remaining 51 

LTCHs, 12 LTCHs are government-owned 

and operated and the ownership type of the 

other 39 LTCHs is unknown. In the impact 

analysis, we are using the rates, factors, and 

policies presented in this final rule, 

including updated wage index values and the 

labor-related share, and the best available 

claims and CCR data to estimate the change 

in payments for the 2010 LTCH PPS rate 

year. The standard Federal rate for RY 2009 

is $39,114.36. As discussed in section V.A.2. 

of the Addendum to this final rule, consistent 

with our historical practice, we are updating 

the standard Federal rate for RY 2009 by 2.0 

percent in order to establish the RY 2010 

standard Federal rate at $39,896.65. Based on 

the best available data for the 399 LTCHs in 

our database, we estimate that the update to 

the standard Federal rate for RY 2010 

(discussed in section VIII. of the preamble of 

this final rule) and the changes to the area 

wage adjustment (discussed in section V.A. 

of the Addendum to this final rule) for the 

2010 LTCH PPS rate year, in addition to an 

estimated increase in HCO payments and an 

estimated increase in SSO payments, will 

result in an increase in estimated payments 

from the 2009 LTCH PPS rate year of 

approximately $153 million (or about 3.3 

percent). Based on the 399 LTCHs in our 

database, we estimate RY 2009 LTCH PPS 

payments to be approximately $4.609 billion 

and RY 2010 LTCH PPS payments to be 

approximately $4.762 billion. Because the 

combined distributional effects and 

estimated changes to the Medicare program 

payments would be greater than $100 

million, this final rule is considered a major 

economic rule, as defined in this section. We 

note the approximately $153 million for the 

projected increase in estimated aggregate 

LTCH PPS payments from RY 2009 to RY 

2010 does not reflect changes in LTCH 

admissions or case-mix intensity in estimated 

LTCH PPS payments, which also would 

affect overall payment changes. 

The projected 3.3 percent increase in 

estimated payments per discharge from the 

2009 LTCH PPS rate year to the 2010 LTCH 

PPS rate year is attributable to several factors, 

including the 2.0 percent increase to the 

standard Federal rate and projected increases 

in estimated HCO and SSO payments. As 

Table IV shows, the change attributable 

solely to the standard Federal rate is 

projected to result in an increase of 1.8 

percent in estimated payments per discharge 

from RY 2009 to RY 2010, on average, for all 

LTCHs, while the changes to the area wage 

adjustment are projected to result in a slight 

decrease in estimated payments, on average, 

for all LTCHs (Columns 6 and 7 of Table IV, 

respectively). We note that because payments 

for cost-based SSO cases and a portion of 

payments for SSO cases that are paid based 

on the ‘‘blend’’ option (that is, SSO cases 

paid under § 412.529(c)(2)(iv)) are not 

affected by the update to the standard 

Federal rate, we estimate that the effect of the 

2.0 percent update to the standard Federal 

rate will result in a 1.8 percent increase (as 

shown in Column 6 of Table IV) on estimated 

aggregate LTCH PPS payments for all LTCH 

PPS cases, including SSO cases. 

While the effects of the estimated increase 

in SSO and HCO payments and the change 

to the standard Federal rate are projected to 

increase estimated payments from RY 2009 to 

RY 2010, the changes to the area wage 

adjustment from RY 2009 to RY 2010 are 

expected to result in a slight decrease in 

estimated aggregate LTCH PPS payments 

from the 2009 LTCH PPS rate year to the 

2010 LTCH PPS rate year (Column 7 of Table 

IV). As discussed in section V.B. of the 

Addendum to this final rule, we are updating 

the wage index values for FY 2010 based on 

the most recent available data. In addition, 

we are increasing the labor-related share 

slightly from 75.662 percent to 75.779 

percent under the LTCH PPS for RY 2010 

based on the most recent available data on 

the relative importance of the labor-related 

share of operating and capital costs of the 

RPL market basket (also discussed in section 

VIII.C.2. of this final rule). 

We note that the overall percent change in 

estimated LTCH payments from RY 2009 to 

RY 2010 for all changes (shown in Column 

8) cannot be determined by adding the 

incremental effect of the standard Federal 

rate (Column 6) and the area wage 

adjustment changes (Column 7) on estimated 

aggregate LTCH PPS payments because each 

of those two columns are intended to show 

the isolated impact of the respective change 

(that is, the change to the standard Federal 

rate or the change to the area wage 

adjustment) on estimated payments for RY 

2010 as compared to RY 2009, but the 

interactive effects resulting from both the 

change to the standard Federal rate and the 

change to the area wage adjustment, as well 

as estimated changes to HCO and SSO 

payments, are not reflected in each of these 

columns. However, the interactive effects of 

all changes, including the change in 

estimated HCO and SSO payments, are 

reflected in the estimated change in 

payments for all changes for RY 2010 as 

compared to RY 2009 (shown in Column 8 

of Table IV). 

Notwithstanding this limitation, the 

projected increase in payments per discharge 

from RY 2009 to RY 2010 is 3.3 percent 


sroberts on DSKD5P82C1PROD with RULES
Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 44231 

(shown in Column 8). This projected increase 

in payments is attributable to the impacts of 

the change to the standard Federal rate (1.8 

percent in Column 6) and the change due to 

the area wage adjustment (¥0.1 percent in 

Column 7), and is also due to the effect of 

the estimated increase in payments for HCO 

cases and SSO cases in RY 2010 as compared 

to RY 2009. That is, estimated total HCO 

payments are projected to increase from RY 

2009 to RY 2010 in order to ensure that 

estimated HCO payments will be 8 percent of 

total estimated LTCH PPS payments in RY 

2010. As discussed in detail in section V. of 

the Addendum to this final rule, an analysis 

of the most recent available LTCH PPS claims 

data (that is, FY 2008 claims from the March 

2009 update of the MedPAR files) indicates 

that the RY 2009 HCO threshold of $22,960 

may result in HCO payments in RY 2009 that 

fall below the estimated 8 percent. 

Specifically, we currently estimate that HCO 

payments will be approximately 6.8 percent 

of estimated total LTCH PPS payments in RY 

2009. Consequently, it is necessary to 

decrease the HCO threshold for RY 2010 in 

order to ensure that estimated HCO payments 

will be 8 percent of total estimated LTCH 

PPS payments in RY 2010. We estimate that 

the impact of the increase in HCO payments 

would result in approximately a 1.2 percent 

increase in estimated payments from RY 

2009 to RY 2010 on average for all LTCHs. 

Furthermore, in calculating the estimated 

increase in payments from RY 2009 to RY 

2010 for HCO and SSO cases, we increased 

estimated costs by the applicable market 

basket percentage increase as projected by 

our actuaries. We note that estimated 

payments for all SSO cases comprise 

approximately 15 percent of estimated total 

LTCH PPS payments, and estimated 

payments for HCO cases comprise 

approximately 8 percent of estimated total 

LTCH PPS payments. Payments for HCO 

cases are based on 80 percent of the 

estimated cost above the HCO threshold, 

while the majority of the payments for SSO 

cases (over 67 percent) are based on the 

estimated cost of the SSO case. A thorough 

discussion of the regulatory impact analysis 

for the changes presented in this final rule 

can be found below in section V. of the 

Addendum to this final rule. 

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 result in appropriate 

Medicare payments. 

B. Impact on Rural Hospitals 

For purposes of section 1102(b) of the Act, 

we define a small rural hospital as a hospital 

that is located outside of a Metropolitan 

Statistical Area and has fewer than 100 beds. 

As shown in Table IV, we are projecting a 4.2 

percent increase in estimated payments per 

discharge for the 2010 LTCH PPS rate year 

as compared to the 2009 LTCH PPS rate year 

for rural LTCHs that will result from the 

changes presented in this final rule (that is, 

the update to the standard Federal rate 

discussed in section V.A. of the Addendum 

to this final rule and the changes to the area 

wage adjustment as discussed in section V.B. 

of the Addendum to 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 26 rural LTCHs in 

our database of 399 LTCHs, for which 

complete data were available. 

The estimated increase in LTCH PPS 

payments from the 2009 LTCH PPS rate year 

to the 2010 LTCH PPS rate year for rural 

LTCHs is primarily due to the higher than 

average impacts from the change to the 

standard Federal rate (1.9 percent) and 

changes to the area wage adjustment (0.4 

percent). We believe that the changes to the 

area wage adjustment presented in this final 

rule (that is, the use of updated wage data 

and the change in the labor-related share) 

would result in accurate and appropriate 

LTCH PPS payments in RY 2010 because 

they are based on the most recent available 

data. Such updated data appropriately reflect 

national differences in area wage levels and 

appropriately identifies the portion of the 

standard Federal rate that should be adjusted 

to account for such differences in area wages, 

thereby resulting in accurate and appropriate 

LTCH PPS payments. Furthermore, rural 

LTCHs are projected to experience a higher 

than average increase in estimated HCO 

payments in RY 2010, which also contributes 

to the estimated higher than average percent 

change in payments per discharge from RY 

2009 to RY 2010. That is, our current 

estimate shows that, for rural LTCHs, the 

increase in HCO payments in RY 2010 will 

be higher than the average increase when 

compared to all hospitals. 

C. Anticipated Effects of LTCH PPS Payment 

Rate Change and Policy Changes 

We discuss the impact of the changes to 

the payment rates, factors, and other payment 

rate policies under the LTCH PPS for RY 

2010 (in terms of their estimated fiscal 

impact on the Medicare budget and on 

LTCHs) in section VIII. of the preamble of 

this final rule. 

1. Budgetary Impact 

Section 123(a)(1) of the BBRA requires that 

the PPS developed for LTCHs ‘‘maintain 

budget neutrality.’’ We believe that the 

statute’s mandate for budget neutrality 

applies only to the first year of the 

implementation of the LTCH PPS (that is, FY 

2003). Therefore, in calculating the FY 2003 

standard Federal rate under § 412.523(d)(2), 

we set total estimated payments for FY 2003 

under the LTCH PPS so that estimated 

aggregate payments under the LTCH PPS 

were estimated to equal the amount that 

would have been paid if the LTCH PPS had 

not been implemented. 

As discussed in section IX.A. of this 

Appendix A, we project an increase in 

aggregate LTCH PPS payments in RY 2010 of 

approximately $153 million (or 3.3 percent) 

based on the 399 LTCHs in our database. 

2. Impact on Providers 

The basic methodology for determining a 

per discharge LTCH PPS payment is set forth 

in § 412.515 through § 412.536. In addition to 

the basic MS–LTC–DRG payment (standard 

Federal rate multiplied by the MS–LTC–DRG 

relative weight), we make adjustments for 

differences in area wage levels, COLA for 

Alaska and Hawaii, and SSOs. Furthermore, 

LTCHs may also receive HCO payments for 

those cases that qualify based on the 

threshold established each rate year. 

To understand the impact of the changes 

to the LTCH PPS payments presented in this 

final rule on different categories of LTCHs for 

the 2010 LTCH PPS rate year, it is necessary 

to estimate payments per discharge for the 

2009 LTCH PPS rate year using the rates, 

factors and policies established in the RY 

2009 LTCH PPS final rule (73 FR 26788 

through 26874) and the FY 2009 GROUPER 

(Version 26.0) and relative weights 

established in the FY 2009 IPPS final rule (73 

FR 23537 through 23617). It is also necessary 

to estimate the payments per discharge that 

would be made under the LTCH PPS rates, 

factors, policies, and GROUPER for the 2010 

LTCH PPS rate year (as discussed in VIII. of 

the preamble and section V. of the 

Addendum to this final rule). These 

estimates of RY 2009 and RY 2010 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 

2009 LTCH PPS rate year payments to 

estimated 2010 LTCH PPS rate year payments 

(on a per discharge basis) for each category 

of LTCHs. 

Hospital groups were based on 

characteristics provided in the OSCAR data, 

FY 2004 through FY 2006 cost report data in 

HCRIS, and PSF data. Hospitals with 

incomplete characteristics were grouped into 

the ‘‘unknown’’ category. Hospital groups 

include the following: 

• Location: large urban/other urban/rural. 

• Participation date. 

• Ownership control. 

• Census region. 

• Bed size. 

To estimate the impacts of the payment 

rates and policy changes among the various 

categories of existing providers, we used 

LTCH cases from the FY 2008 MedPAR file 

to estimate payments for RY 2009 and to 

estimate payments for RY 2010 for 399 

LTCHs. While currently there are just under 

400 LTCHs, the most recent growth is 

predominantly in for-profit LTCHs that 

primarily provide respiratory and ventilatordependent patient care. We believe that the 

discharges based on the FY 2008 MedPAR 

data for the 399 LTCHs in our database, 

which includes 267 proprietary LTCHs, 

provide sufficient representation in the MS– 

LTC–DRGs containing discharges for patients 

who received LTCH care for the most 

commonly treated LTCH patients’ diagnoses. 

3. Calculation of Prospective Payments 

For purposes of this impact analysis, to 

estimate per discharge payments under the 

LTCH PPS, we simulated payments on a 

case-by-case basis using LTCH claims from 

the FY 2008 MedPAR files. For modeling 

estimated LTCH PPS payments for RY 2009, 

we applied the RY 2009 standard Federal rate 

(that is, $39,114.36, which is effective for 

LTCH discharges occurring on or after July 1, 

2008, and through September 30, 2009). For 

modeling estimated LTCH PPS payments for 


sroberts on DSKD5P82C1PROD with RULES
44232 Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 

RY 2010, we applied the RY 2010 standard 

Federal rate of $39,896.65, which will be 

effective for LTCH discharges occurring on or 

after October 1, 2009, and through September 

30, 2010). 

Furthermore, in modeling estimated LTCH 

PPS payments for both RY 2009 and RY 2010 

in this impact analysis, we applied the RY 

2009 and RY 2010 adjustments for area wage 

differences and the COLA for Alaska and 

Hawaii. Specifically, we adjusted for area 

wage differences for estimated 2009 LTCH 

PPS rate year payments using the current 

LTCH PPS labor-related share of 75.662 

percent (73 FR 26815), the wage index values 

established in the Tables 1 and 2 of the 

Addendum to the RY 2009 final rule (73 FR 

26840 through 26863) and the COLA factors 

established in Table III of the preamble of the 

RY 2009 final rule (73 FR 26819). Similarly, 

we adjusted for area wage differences for 

estimated 2010 LTCH PPS rate year payments 

using the LTCH PPS RY 2010 labor-related 

share of 75.779 percent (section VIII.C.2. of 

the preamble of this final rule), the RY 2010 

wage index values presented in Tables 12A 

and 12B of the Addendum to this final rule, 

and the RY 2010 COLA factors shown in the 

table in section V. of the Addendum to this 

final rule. 

As discussed above, our impact analysis 

reflects an estimated change in payments for 

SSO cases as well as an estimated increase 

in payments for HCO cases (as described in 

section V.C. of the Addendum to this final 

rule). In modeling payments for SSO and 

HCO cases in RY 2009, we applied an 

inflation factor of 1.025 percent (determined 

by OACT) to the estimated costs of each case 

determined from the charges reported on the 

claims in the FY 2008 MedPAR files and the 

best available CCRs from the March 2009 

update of the PSF. In modeling payments for 

SSO and HCO cases in RY 2010, we applied 

an inflation factor of 1.051 (determined by 

OACT) to the estimated costs of each case 

determined from the charges reported on the 

claims in the FY 2008 MedPAR files and the 

best available CCRs from the March 2009 

update of the PSF. 

These impacts reflect the estimated 

‘‘losses’’ or ‘‘gains’’ among the various 

classifications of LTCHs from the 2009 LTCH 

PPS rate year to the 2010 LTCH PPS rate year 

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 the 2009 LTCH 

PPS rate year (as described above). 

• The fifth column shows the estimated 

payment per discharge for the 2010 LTCH 

PPS rate year (as described above). 

• The sixth column shows the percentage 

change in estimated payments per discharge 

from the 2009 LTCH PPS rate year to the 

2010 LTCH PPS rate year for changes to the 

standard Federal rate (as discussed in section 

V. of the Addendum to this final rule). 

• The seventh column shows the 

percentage change in estimated payments per 

discharge from the 2009 LTCH PPS rate year 

to the 2010 LTCH PPS rate year for changes 

to the area wage adjustment at § 412.525(c) 

(as discussed in section V.B.4. of the 

Addendum to this final rule). 

• The eighth column shows the percentage 

change in estimated payments per discharge 

from the 2009 LTCH PPS rate year (Column 

4) to the 2010 LTCH PPS rate year (Column 

5) for all changes (and includes the effect of 

estimated changes to HCO and SSO 

payments). 

TABLE IV—IMPACT OF PAYMENT RATE AND PAYMENT RATE POLICY CHANGES TO LTCH PPS PAYMENTS FOR RY 2010 

[Estimated 2009 LTCH PPS Rate Year Payments Compared to Estimated 2010 LTCH PPS Rate Year Payments*] 

LTCH classification Number of 

LTCHs 

Number of 

LTCH PPS 

cases 

Average RY 

2009 LTCH 

PPS rate 

year payment 

per case 1

Average RY 

2010 LTCH 

PPS rate 

year payment 

per case 2

Percent 

change in estimated payments per 

discharge 

from RY 

2009 to RY 

2010 for 

changes to 

the federal 

rate 3

Percent 

change in estimated payments per 

discharge 

from RY 

2009 to RY 

2010 for 

changes to 

the area 

wage adjustment 4

Percent 

change in 

payments per 

discharge 

from RY 

2009 to RY 

2010 for all 

changes 5

(1) (2) (3) (4) (5) (6) (7) (8) 

ALL PROVIDERS ...................... 399 131,214 $35,127 $36,293 1.8 ¥0.1 3.3 

BY LOCATION: 

RURAL ................................ 26 5,844 30,336 31,597 1.9 0.4 4.2 

URBAN ............................... 373 125,370 35,350 36,512 1.7 ¥0.1 3.3 

LARGE ......................... 191 75,370 36,748 37,979 1.7 0 3.4 

OTHER ........................ 182 50,000 33,244 34,301 1.8 ¥0.2 3.2 

BY PARTICIPATION DATE: 

BEFORE OCT. 1983 .......... 17 6,666 31,248 32,535 1.7 0.6 4.1 

OCT. 1983—SEPT. 1993 ... 44 18,426 35,496 36,829 1.7 0.2 3.8 

OCT. 1993—SEPT. 2002 ... 191 66,503 34,699 35,791 1.8 ¥0.1 3.1 

AFTER OCTOBER 2002 .... 140 38,506 36,290 37,474 1.8 ¥0.2 3.3 

UNKNOWN PARTICIPATION DATE ..................... 7 1,113 37,590 39,155 1.7 0.4 4.2 

BY OWNERSHIP TYPE: 

VOLUNTARY ...................... 81 21,655 35,546 36,810 1.7 ¥0.2 3.6 

PROPRIETARY .................. 267 99,479 34,738 35,839 1.8 0 3.2 

GOVERNMENT .................. 12 1,904 41,093 42,674 1.6 ¥0.3 3.9 

UNKNOWN OWNERSHIP 

TYPE ............................... 39 8,176 37,364 38,969 1.8 0.2 4.3 

BY REGION: 

NEW ENGLAND ................. 15 7,916 30,685 32,030 1.7 0.8 4.4 

MIDDLE ATLANTIC ............ 29 8,180 36,267 37,172 1.7 ¥0.4 2.5 

SOUTH ATLANTIC ............. 49 13,555 39,848 41,175 1.7 ¥0.3 3.3 

EAST NORTH CENTRAL ... 67 19,630 38,943 39,870 1.7 ¥0.8 2.4 

EAST SOUTH CENTRAL ... 31 8,345 35,513 36,739 1.8 ¥0.2 3.5 

WEST NORTH CENTRAL .. 21 5,199 36,847 38,094 1.7 0.2 3.4 

WEST SOUTH CENTRAL .. 138 50,413 30,454 31,420 1.8 ¥0.3 3.2 

MOUNTAIN ......................... 25 5,988 37,769 39,415 1.7 0.8 4.4 


sroberts on DSKD5P82C1PROD with RULES
Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 44233 

TABLE IV—IMPACT OF PAYMENT RATE AND PAYMENT RATE POLICY CHANGES TO LTCH PPS PAYMENTS FOR RY 2010— 

Continued 

[Estimated 2009 LTCH PPS Rate Year Payments Compared to Estimated 2010 LTCH PPS Rate Year Payments*] 

LTCH classification Number of 

LTCHs 

Number of 

LTCH PPS 

cases 

Average RY 

2009 LTCH 

PPS rate 

year payment 

per case 1

Average RY 

2010 LTCH 

PPS rate 

year payment 

per case 2

Percent 

change in estimated payments per 

discharge 

from RY 

2009 to RY 

2010 for 

changes to 

the federal 

rate 3

Percent 

change in estimated payments per 

discharge 

from RY 

2009 to RY 

2010 for 

changes to 

the area 

wage adjustment 4

Percent 

change in 

payments per 

discharge 

from RY 

2009 to RY 

2010 for all 

changes 5

(1) (2) (3) (4) (5) (6) (7) (8) 

PACIFIC .............................. 24 11,988 43,014 44,977 1.7 1.3 4.6 

BY BED SIZE: 

BEDS: 0–24 ........................ 41 5,455 31,273 32,442 1.8 ¥0.1 3.7 

BEDS: 25–49 ...................... 191 44,459 35,502 36,581 1.8 ¥0.2 3 

BEDS: 50–74 ...................... 82 27,914 34,978 36,160 1.8 0 3.4 

BEDS: 75–124 .................... 49 24,540 37,266 38,562 1.7 0.1 3.5 

BEDS: 125–199 .................. 23 16,598 33,752 34,892 1.7 ¥0.1 3.4 

BEDS: 200 + ....................... 13 12,248 33,400 34,622 1.7 0.4 3.7 

1Estimated 2009 LTCH PPS rate year payments based on the rates, factors and policies established in the RY 2009 LTCH PPS final rule (73 

FR 26788) and the FY 2009 GROUPER (Version 26.0) and relative weights established in the FY 2009 IPPS final rule (73 FR 23537 through 

23617). 2Estimated 2010 LTCH PPS rate year payments based on the payment rates and policy changes presented in the preamble and the Addendum of this final rule. 3Percent change in estimated payments per discharge from the 2009 LTCH PPS rate year to the 2010 LTCH PPS rate year for the changes 

to the standard Federal rate, as discussed in section V.A. of the Addendum to this final rule. 4Percent change in estimated payments per discharge from the 2009 LTCH PPS rate year to the 2010 LTCH PPS rate year for changes to 

the area wage adjustment at § 412.525(c) (as discussed in section V.B.4. of the Addendum to this final rule). 5Percent change in estimated payments per discharge from the 2009 LTCH PPS rate year (shown in Column 4) to the 2010 LTCH PPS rate 

year (shown in Column 5), including all of the changes presented in the preamble of 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 changes to the standard Federal rate (column 6) and the changes to the area wage adjustment (Column 7) due to the effect of estimated changes in both 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. 

4. Results 

Based on the most recent available data (as 

described previously for 399 LTCHs), we 

have prepared the following summary of the 

impact (as shown 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 3.3 percent, on 

average, for all LTCHs from the 2009 LTCH 

PPS rate year to the 2010 LTCH PPS rate year 

as a result of the payment rate and policy 

changes presented in this final rule as well 

as estimated increases in HCO and SSO 

payments. We note that we are adopting a 2.0 

percent increase to the standard Federal rate 

for RY 2010, based on the latest market 

basket estimate (2.5 percent) and the 

adjustment for documentation and coding in 

2007 (¥0.5 percent). We noted earlier in this 

section that for most categories of LTCHs, as 

shown in Table IV (Column 6), the impact of 

the increase of 2.0 percent to the standard 

Federal rate is projected to result in 

approximately a 1.8 percent increase in 

estimated payments per discharge for all 

LTCHs from the 2009 LTCH PPS rate year to 

the 2010 LTCH PPS rate year. In addition to 

the 2.0 percent increase to the standard 

Federal rate for RY 2010, the projected 

percent increase in estimated payments per 

discharge from the 2009 LTCH PPS rate year 

to the 2010 LTCH PPS rate year of 3.3 percent 

shown in Table IV (Column 8) reflects the 

effect of estimated increases in HCO and SSO 

payments, as discussed previously. 

Furthermore, as discussed previously in this 

regulatory impact analysis, the average 

increase in estimated payments per discharge 

from the 2009 LTCH PPS rate year to the 

2010 LTCH PPS rate year for all LTCHs of 

approximately 3.3 percent (as shown in Table 

IV) was determined by comparing estimated 

RY 2010 LTCH PPS payments (using the rates 

and policies discussed in this final rule) to 

estimated RY 2009 LTCH PPS payments (as 

described above in section IX.C. of this 

regulatory impact analysis). 

a. Location 

Based on the most recent available data, 

the vast majority of LTCHs are located in 

urban areas. Only approximately 7 percent of 

the LTCHs are identified as being located in 

a rural area, and approximately 4 percent of 

all LTCH cases are treated in these rural 

hospitals. The impact analysis presented in 

Table IV shows that the average percent 

increase in estimated payments per discharge 

from the 2009 LTCH PPS rate year to the 

2010 LTCH PPS rate year for all hospitals is 

3.3 percent for all changes. For rural LTCHs, 

the percent change for all changes is 

estimated to be 4.16 percent, while for urban 

LTCHs, we estimate the increase to be 3.3 

percent. Large urban LTCHs are projected to 

experience an average increase, 3.4 percent, 

in estimated payments per discharge from the 

2009 LTCH PPS rate year to the 2010 LTCH 

PPS rate year, while other urban LTCHs are 

projected to experience a nearly average 

increase (3.2 percent) in estimated payments 

per discharge from the 2009 LTCH PPS rate 

year to the 2010 LTCH PPS rate year, as 

shown in Table IV. 

b. Participation Date 

LTCHs are grouped by participation date 

into four categories: (1) Before October 1983; 

(2) between October 1983 and September 

1993; (3) between October 1993 and 

September 2002; and (4) after October 2002. 

Based on the most recent available data, the 

majority (approximately 51 percent) of the 

LTCH cases are in hospitals that began 

participating between October 1993 and 

September 2002, and are projected to 

experience nearly the average increase (3.1 

percent) in estimated payments per discharge 

from the 2009 LTCH PPS rate year to the 

2010 LTCH PPS rate year, as shown in Table 

IV. 

In the participation category where LTCHs 

began participating in Medicare before 

October 1983, LTCHs are projected to 

experience a higher than average percent 

increase (4.1) in estimated payments per 

discharge from the 2009 LTCH PPS rate year 

to the 2010 LTCH PPS rate year, as shown 

in Table IV, due to changes in the wage index 


sroberts on DSKD5P82C1PROD with RULES
44234 Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 

and an estimated increase in HCO payments. 

Approximately 4 percent of LTCHs began 

participating in Medicare before October 

1983. The LTCHs in this category are 

projected to experience a higher than average 

increase in estimated payments because 65 

percent of these LTCHs are located in areas 

where the RY 2010 wage index value is 

greater than the RY 2009 wage index value, 

and also because the majority of these LTCHs 

have a wage index value of greater than 1.0. 

Approximately 11 percent of LTCHs began 

participating in Medicare between October 

1983 and September 1993. These LTCHs are 

projected to experience a slightly higher than 

average increase (3.8 percent) in estimated 

payments. The majority of LTCHs, that is, 

those that began participating in Medicare 

since October 1993, are projected to 

experience near average increases in 

estimated payments per discharge from the 

2009 LTCH PPS rate year to the 2010 LTCH 

PPS rate year, as shown in Table IV. 

c. Ownership Control 

Other than LTCHs whose ownership 

control type is unknown, LTCHs are grouped 

into three categories based on ownership 

control type: voluntary, proprietary, and 

government. Based on the most recent 

available data, approximately 20 percent of 

LTCHs are identified as voluntary (Table IV). 

We expect that, for these LTCHs in the 

voluntary category, estimated 2010 LTCH 

PPS rate year payments per discharge will 

increase slightly higher than the average (3.6 

percent) in comparison to estimated 

payments in the 2009 LTCH PPS rate year, 

as shown in Table IV, primarily because the 

change in estimated HCO payments is 

projected to be higher than the average for 

these LTCHs. The majority (67 percent) of 

LTCHs are identified as proprietary and these 

LTCHs are projected to experience a near 

average increase (3.2 percent) in estimated 

payments per discharge from the 2009 LTCH 

PPS rate year to the 2010 LTCH PPS rate 

year. Finally, government-owned and 

operated LTCHs (3 percent) are expected to 

experience a slightly higher than the average 

increase (3.9 percent) in estimated payments 

primarily due to larger than the average 

increase in estimated HCO payments. 

d. Census Region 

Estimated payments per discharge for the 

2010 LTCH PPS rate year are projected to 

increase for LTCHs located in all regions in 

comparison to the 2009 LTCH PPS rate year. 

Of the 9 census regions, we project that the 

increase in estimated payments per discharge 

will have the largest positive impact on 

LTCHs in the New England, Mountain, and 

Pacific regions (4.4 percent, 4.4 percent, and 

4.6 percent, respectively, as shown in Table 

IV). As explained in greater detail above in 

section XV.B.4. of this Appendix, the 

estimated percent increase in payments per 

discharge from the 2009 LTCH PPS rate year 

to the 2010 LTCH PPS rate year for these 

regions is largely attributable to the projected 

increase in estimated HCO and SSO 

payments, in addition to the increase in the 

standard Federal rate and the changes to the 

area wage adjustment. Specifically, for the 

New England region, all the LTCHs located 

in this region have a wage index value of 

greater than 1.0; and the majority (87 percent) 

of these LTCHs are located in areas where the 

RY 2010 wage index value is greater than the 

RY 2009 wage index value. The projected 

increase in estimated payments per discharge 

from the 2009 LTCH PPS rate year to the 

2010 LTCH PPS rate year for LTCHs in the 

Mountain and Pacific regions is 4.4 percent 

and 4.6 percent respectively. These projected 

increases in payments are due to both the 

estimated increase in HCO payments and the 

significantly higher than average estimated 

impact from the changes to the area wage 

adjustment. That is, the majority (60 percent) 

of the LTCHs located in the Mountain region 

have a wage index value of greater than 1.0, 

and in addition, most of these LTCHs (76 

percent) are located in areas where the RY 

2010 wage index value is greater than the RY 

2009 wage index value. Furthermore, all the 

LTCHs located in the Pacific region have a 

wage index value of greater than 1.0 and they 

are all located in areas where the RY 2010 

wage index value is greater than the RY 2009 

wage index value. 

In contrast, LTCHs located in the Middle 

Atlantic and East North Central regions are 

projected to experience a lower than average 

increase in estimated payments per discharge 

from the 2009 LTCH PPS rate year to the 

2010 LTCH PPS rate year. The projected 

increase in payments of 2.5 percent for 

LTCHs in the Middle Atlantic region is 

primarily due to the 55 percent of LTCHs 

located in areas where the RY 2010 wage 

index value would be less than the RY 2009 

wage index value. In addition, 62 percent of 

the LTCHs in this category are projected to 

have a RY 2010 wage index value of greater 

than 1.0. Similarly, the lower than average 

increase in payments per discharge for 

LTCHs in the East North Central region is 

largely due to the majority of LTCHs in this 

region that are expected to experience a 

decrease in estimated payments per 

discharge due to the changes in the area wage 

adjustment. However, we note that the 

projected increase in estimated HCO 

payments for LTCHs in this region in 

addition to the increase in the standard 

Federal rate results in an overall estimated 

increase, albeit less than the average increase, 

in estimated payments per discharge from the 

2009 LTCH PPS rate year to the 2010 LTCH 

PPS rate year. The remaining regions, South 

Atlantic, East South Central, West North 

Central, and West South Central, are 

expected to experience near the average 

increases in estimated payments per 

discharge from the 2009 LTCH PPS rate year 

to the 2010 LTCH PPS rate year. 

e. Bed Size 

LTCHs were grouped into six categories 

based on bed size: 0–24 beds; 25–49 beds; 

50–74 beds; 75–124 beds; 125–199 beds; and 

greater than 200 beds. 

We are projecting an average or near 

average increase in estimated 2010 LTCH 

PPS rate year payments per discharge in 

comparison to the 2009 LTCH PPS rate year 

for all bed size categories. 

D. 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 RY 2010 of approximately $153 

million (or about 3.3 percent) for the 399 

LTCHs in our database. 

E. Effect on Medicare Beneficiaries 

Under the LTCH PPS, hospitals receive 

payment based on the average resources 

consumed by patients for each diagnosis. We 

do not expect any changes in the quality of 

care or access to services for Medicare 

beneficiaries under the LTCH PPS, but we 

expect that paying prospectively for LTCH 

services would enhance the efficiency of the 

Medicare program. 

X. Alternatives Considered 

This final rule contains a range of policies. 

The preamble of this final rule provides 

descriptions of the statutory provisions that 

are addressed, identifies implementing 

policies where discretion has been exercised, 

and presents rationales for our decisions and, 

where relevant, alternatives that were 

considered. 

XI. Overall Conclusion 

A. Acute Care Hospitals 

Table I of section VI. of this Appendix 

demonstrates the estimated distributional 

impact of the IPPS budget neutrality 

requirements for the MS–DRG and wage 

index changes, and for the wage index 

reclassifications under the MGCRB. Table I 

also shows an overall increase of 1.6 percent 

in operating payments. We estimate that 

operating payments will increase by 

approximately $1.73 billion in FY 2010. This 

accounts for the projected savings associated 

with the HACs policy, which has an 

estimated savings of $21 million, and the 

additional spending of $17.4 million due to 

new technology add-on payments. In 

addition, this estimate includes the reporting 

of hospital quality data program costs of $2.4 

million, and all operating payment policies 

as described in section VII. of this Appendix. 

We estimate that capital payments will 

increase by 2.1 percent per case, as shown in 

Table III of section VIII. of this Appendix. 

Therefore, we project that the increase in 

capital payments in FY 2010 compared to FY 

2009 will be approximately $171 million. 

The cumulative operating and capital 

payments should result in a net increase of 

$1.899 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. 

B. LTCHs 

Overall, LTCHs are projected to experience 

an increase in estimated payments per 

discharge in RY 2010. In the impact analysis, 

we are using the rates, factors, and policies 

presented in this final rule, including 

updated wage index values, and the best 

available claims and CCR data to estimate the 

change in payments for the 2010 LTCH PPS 

rate year. Accordingly, based on the best 

available data for the 399 LTCHs in our 

database, we estimate that RY 2010 LTCH 

PPS payments will increase approximately 

$153 million (or about 3.3 percent). 


sroberts on DSKD5P82C1PROD with RULES
Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 44235 

XII. Accounting Statements 

A. Acute Care Hospitals 

As required by OMB Circular A–4 

(available at http://www.whitehousegov/omb/ 

circulars/a004/a-4.pdf), in Table V below, we 

have prepared an accounting statement 

showing the classification of the 

expenditures associated with the provisions 

of this 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 2009 TO FY 2010 

Category Transfers 

Annualized 

Monetized 

Transfers.

$1.899 billion. 

From Whom to 

Whom.

Federal Government to IPPS 

Medicare Providers. 

Total ........ $1.899 billion. 

B. LTCHs 

As discussed in section IX. of this 

Appendix, the impact analysis for the 

changes under the LTCH PPS for this final 

rule projects an increase in estimated 

aggregate payments of approximately $153 

million (or about 3.3 percent) for the 399 

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 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 399 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 2009 LTCH 

PPS RATE YEAR TO THE 2010 

LTCH PPS RATE YEAR

Category Transfers 

Annualized 

Monetized 

Transfers.

Positive transfer—Estimated 

increase in expenditures: 

$153 million. 

From Whom to 

Whom.

Federal Government to 

LTCH PPS Medicare Providers. 

Total ........ $153 million. 

XIII. 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 the MedPAC, 

recommend update factors for inpatient 

hospital services for each fiscal year that take 

into account the amounts necessary for the 

efficient and effective delivery of medically 

appropriate and necessary care of high 

quality. Under section 1886(e)(5) of the Act, 

we are required to publish update factors 

recommended by the Secretary in the 

proposed and final IPPS rules, respectively. 

Accordingly, this Appendix provides the 

recommendations for the update factors for 

the IPPS national standardized amount, the 

Puerto Rico-specific standardized amount, 

the hospital-specific rates for SCHs and 

MDHs, and the rate-of-increase limits for 

certain hospitals excluded from the IPPS, as 

well as LTCHs, IPFs, and IRFs. We also 

discuss our response to MedPAC’s 

recommended update factors for inpatient 

hospital services. 

II. Inpatient Hospital Update for FY 2010 

Section 1886(b)(3)(B)(i)(XX) of the Act, as 

amended by section 5001(a) of Public Law 

109–171, sets the FY 2010 percentage 

increase in the operating cost standardized 

amount equal to the rate-of-increase in the 

hospital market basket for IPPS hospitals in 

all areas, subject to the hospital submitting 

quality information under rules established 

by the Secretary in accordance with section 

1886(b)(3)(B)(viii) of the Act. For hospitals 

that do not provide these data, the update is 

equal to the market basket percentage 

increase less 2.0 percentage points. 

In compliance with section 404 of the 

MMA, as we proposed in the FY 2010 IPPS/ 

LTCH PPS proposed rule (74 FR 24685), in 

section IV. of the preamble of this final rule, 

we are replacing the FY 2002-based IPPS 

operating and capital market baskets with the 

revised and rebased FY 2006-based IPPS 

operating and capital market baskets for FY 

2010. In addition to updating the base year 

to reflect more recent data, we also are 

making several changes to the structure of the 

market basket, including three new expense 

categories and revising several price proxies. 

As we proposed, we also are rebasing the 

labor-related share to reflect the more recent 

base year. The current labor-related share, 

which is based on the FY 2002-based IPPS 

market basket, is 69.7. We are adopting a 

labor-related share of 68.8, which is based on 

the rebased and revised FY 2006-based IPPS 

market basket. For a complete discussion on 

the rebasing of the market basket and labor 

share, we refer readers to section IV. of the 

preamble to this final rule. 

Consistent with current law, based on IHS 

Global Insight, Inc.’s first quarter 2009 

forecast of the FY 2010 market basket 

increase, we stated in the proposed rule that 

we are estimating that the FY 2010 update to 

the standardized amount will be 2.1 percent 

(that is, the then current estimate of the 

market basket rate-of-increase) 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 

stated in the proposed rule that we are 

estimating that the update to the 

standardized amount will be 0.1 percent (that 

is, the then current estimate of the market 

basket rate-of-increase minus 2.0 percentage 

points). Therefore, we are adopting in this 

final rule, based on IHS Global Insight, Inc.’s 

second quarter 2009 forecast of the FY 2010 

market basket increase, a FY 2010 update to 

the standardized amount of 2.1 percent (that 

is, the current estimate of the market basket 

rate-of-increase) for hospitals in all areas, 

provided the hospital submits quality data in 

accordance with our rules. For hospitals that 

do not submit quality data, the update to the 

standardized amount will be 0.1 percent (that 

is, the current estimate of the market basket 

rate-of-increase minus 2.0 percentage points). 

Section 1886(d)(9)(C)(1) of the Act is the 

basis for determining the percentage increase 

to the Puerto Rico-specific standardized 

amount. In the proposed rule, we proposed 

to apply the full rate-of-increase in the 

hospital market basket for IPPS hospitals to 

the Puerto Rico-specific standardized 

amount. Because we did not receive any 

public comments on this proposal, for FY 

2010, we are applying the full rate-ofincrease in the hospital market basket for 

IPPS hospitals to the Puerto Rico-specific 

standardized amount. Therefore, the update 

to the Puerto Rico-specific standardized 

amount is 2.1 percent. 

Section 1886(b)(3)(B)(iv) of the Act sets the 

FY 2010 percentage increase in the hospitalspecific rates applicable to SCHs and MDHs 

equal to the rate set forth in section 

1886(b)(3)(B)(i) of the Act (that is, the same 

update factor as for all other hospitals subject 

to the IPPS, or the rate-of-increase in the 

market basket). Therefore, the update to the 

hospital-specific rates applicable to SCHs 

and MDHs is 2.1 or 0.1 percent, depending 

upon whether the hospital submits quality 

data. 

Section 1886(b)(3)(B)(ii) of the Act is used 

for purposes of determining the percentage 

increase in the rate-of-increase limits for 

children’s and cancer hospitals. Section 

1886(b)(3)(B)(ii) of the Act sets the 

percentage increase in the rate-of-increase 

limits equal to the market basket percentage 

increase. In accordance with § 403.752(a) of 

the regulations, RNHCIs are paid under 

§ 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. Section 1886(j)(3)(C) of the Act 

addresses the increase factor for the Federal 

prospective payment rate of IRFs. Section 

123 of Public Law 106–113, as amended by 

section 307(b) of Public Law 106–554, 

provides the statutory authority for updating 

payment rates under the LTCH PPS. In 

addition, section 124 of Public Law 106–113 

provides the statutory authority for updating 

all aspects of the payment rates for IPFs. 


sroberts on DSKD5P82C1PROD with RULES
44236 Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations 

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 our current estimate of the FY 

2010 IPPS operating market basket 

percentage increase (2.1 percent) to update 

the target limits for children’s hospitals, 

cancer hospitals, and RNHCIs. 

For RY 2010, as discussed in section VIII. 

of the preamble to this final rule, we are 

establishing an update of 2.0 percent to the 

LTCH PPS Federal rate, which is based on a 

market basket increase of 2.5 percent (based 

on IHS Global Insight, Inc.’s second quarter 

2009 forecast of the FY 2002-based RPL 

market basket increase for RY 2010) and an 

adjustment of ¥0.5 percent to account for the 

increase in case-mix in a prior year that 

resulted from changes in coding practices 

rather than an increase in patient severity. 

Effective for cost reporting periods 

beginning on or after January 1, 2005, IPFs 

are paid under the IPF PPS. IPF PPS 

payments are based on a Federal per diem 

rate that is derived from the sum of the 

average routine operating, ancillary, and 

capital costs for each patient day of 

psychiatric care in an IPF, adjusted for 

budget neutrality. 

IRFs are paid under the IRF PPS for cost 

reporting periods beginning on or after 

January 1, 2002. For cost reporting periods 

beginning on or after October 1, 2002 (FY 

2003), and thereafter, the Federal prospective 

payments to IRFs are based on 100 percent 

of the adjusted Federal IRF prospective 

payment amount, updated annually (69 FR 

45721). 

We refer readers to section IV. of the 

preamble to this final rule for a summary of 

the public comments we received on the 

rebasing and revising of the market basket 

and labor-related share. 

III. Secretary’s Final Recommendations 

MedPAC is recommending an inpatient 

hospital update equal to the market basket 

rate of increase for FY 2010. MedPAC’s 

rationale for this update recommendation is 

described in more detail below. Based on IHS 

Global Insight, Inc.’s 2009 second quarter 

forecast, with historical data through the 

2009 first quarter, of the rebased and revised 

FY 2006-based IPPS market basket, we are 

recommending an update to the standardized 

amount of 2.1 percent. We are recommending 

that this same update factor apply to SCHs 

and MDHs. 

Section 1886(d)(9)(C)(i) of the Act is the 

basis for determining the percentage increase 

to the Puerto Rico-specific standardized 

amount. For FY 2010, we are applying the 

full rate-of-increase in the hospital market 

basket for IPPS hospitals to the Puerto Ricospecific standardized amount. Therefore, the 

update to the Puerto Rico-specific 

standardized amount is 2.1 percent. 

In addition to making a recommendation 

for IPPS hospitals, in accordance with 

section 1886(e)(4)(A) of the Act, we also are 

recommending update factors for all other 

types of hospitals. Using IHS Global Insight, 

Inc.’s 2009 second quarter forecast, with 

historical data through the 2009 first quarter, 

of the rebased and revised FY 2006-based 

IPPS market basket, we are recommending an 

update based on the IPPS market basket 

increase for children’s hospitals, cancer 

hospitals, and RNHCIs of 2.1 percent. 

In the IPF PPS RY 2010 notice (74 FR 

20365), we implemented an update to the IPF 

PPS Federal rate for RY 2010 of 2.1 percent 

for the Federal per diem payment amount. 

Similar to the update we implemented in the 

IPF PPS RY 2010 notice, we are 

recommending an update to the IPF PPS 

Federal rate for RY 2010 of 2.1 percent for 

the Federal per diem payment amount. 

For RY 2010, similar to our approach in 

section VIII. of the preamble of this final rule, 

we are recommending an update of 2.0 

percent to the LTCH PPS Federal rate, which 

is based on a market basket increase of 2.5 

percent (based on IHS Global Insight, Inc.’s 

second quarter 2009 forecast of the FY 2002- 

based RPL market basket increase for RY 

2010) and an adjustment of ¥0.5 percent to 

account for the increase in case-mix in a 

prior year that resulted from changes in 

coding practices rather than an increase in 

patient severity. 

Finally, in the FY 2010 IRF PPS final rule 

scheduled to publish in the August 7, 2009, 

issue of the Federal Register, we are 

recommending the update factor that will be 

applied to the FY 2010 IRF PPS Federal rate. 

IV. MedPAC Recommendation for Assessing 

Payment Adequacy and Updating Payments 

in Traditional Medicare 

In its March 2009 Report to Congress, 

MedPAC assessed the adequacy of current 

payments and costs, and the relationship 

between payments and an appropriate cost 

base, utilizing an established methodology 

used by MedPAC in the past several years. 

MedPAC recommended an update to the 

hospital inpatient rates equal to the increase 

in the hospital market basket in FY 2010, 

concurrent with implementation of a quality 

incentive program. Similar to last year, 

MedPAC also recommended that CMS put 

pressure on hospitals to control their costs 

rather than accommodate the current rate of 

cost growth, which is, in part, caused by a 

lack of pressure from private payers. 

MedPAC noted that indicators of payment 

adequacy are almost uniformly positive. 

MedPAC expects Medicare margins to remain 

low in 2010. At the same time though, 

MedPAC’s analysis finds that hospitals with 

low non-Medicare profit margins have below 

average standardized costs and most of these 

facilities have positive overall Medicare 

margins. 

Response: Similar to our response last year, 

we agree with MedPAC that hospitals should 

control costs rather than accommodate the 

current rate of growth. An update equal to 

less than the market basket will motivate 

hospitals to control their costs, consistent 

with MedPAC’s recommendation. As 

MedPAC noted, the lack of financial pressure 

at certain hospitals can lead to higher costs 

and in turn bring down the overall Medicare 

margin for the industry. 

As discussed in section II. of the preamble 

of this final rule, CMS implemented the MS– 

DRGs in FY 2008 to better account for 

severity of illness under the IPPS and is 

basing the DRG weights on costs rather than 

charges. We continue to believe that these 

refinements will better match Medicare 

payment of the cost of care and provide 

incentives for hospitals to be more efficient 

in controlling costs. 

We note that, because the operating and 

capital prospective payment systems remain 

separate, we are continuing to use separate 

updates for operating and capital payments. 

The update to the capital rate is discussed in 

section III. of the Addendum to this final 

rule. 

Comment: One commenter reiterated that 

MedPAC reported that Medicare margins are 

growing increasingly negative and that 

MedPAC recommended that hospitals be 

given a positive update of 2.7 percent in FY 

2010 concurrent with implementation of a 

quality incentive program. The commenter 

supported MedPAC’s recommendation of a 

full update to the market basket concurrent 

with implementation of a quality incentive 

program. 

Response: We thank the commenter for 

their comments. As discussed above, section 

1886(b)(3)(B)(i)(XX) of the Act, as amended 

by section 5001(a) of Public Law 109–171, 

sets the FY 2010 percentage increase in the 

operating cost standardized amount equal to 

the rate-of-increase in the hospital market 

basket for IPPS hospitals in all areas. Under 

section 1886(b)(3)(B)(viii) of the Act, for 

hospitals that do not provide quality data, the 

update is equal to the market basket 

percentage increase less 2.0 percentage 

points. In this final rule, based on IHS Global 

Insight, Inc.’s second quarter 2009 forecast of 

the FY 2010 market basket increase, we are 

adopting a FY 2010 update to the 

standardized amount of 2.1 percent. 

[FR Doc. E9–18663 Filed 7–31–09; 4:15 pm] 

BILLING CODE 4120–01–P 


sroberts on DSKD5P82C1PROD with RULES